 |
 |
 |
 |
 |
|||||||||||||||||||||||||||||||||
|
 October, 2004 BENEFITS OF BEING YOUR OWN BOSS There are lots of advantages to being self employed. For starters, you get to be your own boss, make your own hours, and decide how hard you want to work. Plus, there are quite a few tax breaks available to you when you work for yourself. Even if you just do some moonlighting on the side, you're allowed to set up a retirement plan for your business and sock away a portion of the money you earn into a pre-tax account. That holds true even if you work for another company and are currently participating in that company's retirement plan. Which type plan should you set up? Depending on how much you earn and how much you want to set aside, you'll choose between a SIMPLE IRA, a SEP IRA, or a Solo 401(k) plan. For 2004 you can contribute up to $18,000 into a SIMPLE or up to $41,000 into a SEP or a Solo 401(k), depending on your income and whether you participate in a 401(k) plan or 403(b) plan through another employer. If you'll be 50 or older by December 31st, you can contribute an extra $3,000 into a SIMPLE or a Solo 401(k) this year. Do you have a child under the age of 18? If so, you'll save some taxes by employing your child. There's a special loophole that exempts children of self-employed individuals from paying social security, Medicare, and federal unemployment taxes on wages paid by a parent. For 2004, as long as your child is under the age of 18, you can pay him or her up to $4,850, and your child won't owe any income taxes on that money (assuming they have no other income.) Even so, you get to deduct the wages paid as a business expense. As an additional incentive, your child can contribute the lesser of what they earn from you, or $3,000, into a Roth IRA each year. Imagine what the money contributed will be worth after 50 years or more of tax-free growth! Self-employed individuals can now deduct 100% of their health insurance premiums paid during the year. The only catch is that your net self-employment income must exceed the premiums paid. If you (and your family) are relatively healthy, consider switching to a high-deductible plan and opening a Health Savings Account (HSA) - the new tax-advantaged way to fund your family's healthcare costs. We discussed HSAs in our August, 2004 Newsletter. Another advantage of being self-employed is that you get to deduct certain personal-type expenses against your self-employment income. When compiling your expenses, don't forget to include business miles at $.375 per mile driven. You should also factor in the business use portion of your computer purchases, internet access, and wireless phone bills. And if you have a dedicated workspace in your home, claiming the home office deduction will help cut your tax bill. Keeping up with all of the tax breaks available to you if you're self-employed is tricky business. Whether you work for yourself on a fulltime basis, or just do some moonlighting on the side, contacting one of the MDTAXES CPAs will help ensure that you minimize the taxes you pay on your self-employment earnings. TAX BREAK FOR VEHICLES AND LEASEHOLD IMPROVEMENTS EXPIRING After 9/11, the government instituted a few tax breaks as an incentive for businesses to invest in property and equipment. Planning your fixed asset purchases through the end of 2005 will help ensure that you or your business will take full advantage of these soon-to-be-expiring rules. As part of the 2003 Tax Act, the maximum Section 179 deduction was quadrupled to $100,000 through 2005. By claiming this deduction, you can expense the first $100,000 of machinery, equipment and furnishings purchased each year, instead of depreciating its cost over five or seven years. This election is available whether you purchase new or used assets.
The second tax break, which is set to expire at the end of 2004, allows for bonus depreciation on new assets purchased during the year that were not expensed under Section 179. As long as the asset is up and running by December 31st, you can immediately deduct 50% of its purchase price - even if you take a loan to purchase the asset.
For automobiles and leasehold improvements, taking advantage of the bonus depreciation rule will save you taxes. That’s because you’re generally not allowed to claim the 179 deduction for most automobiles or for improvements to your office space.
For new vehicles with a gross loaded weight of less than 6,000 pounds, the allowable first year depreciation deduction you can claim will fall from $10,610 in 2004 to $2,960 in 2005.
And for improvements to your office space, as long as the building is more than three years old, and you aren’t the owner of the commercial property, you can immediately write off half the money spent on the improvements. Starting January 1st, you’ll once again depreciate your leasehold improvements over 39 years. INTERESTED IN EARNING MORE INTEREST ON YOUR SAVINGS? ING DIRECT makes $aving money simple! Open your account online today and start earning higher interest on your savings. No Fees and No Minimums!TAX AND FINANCIAL PLANNING CALENDAR FOR OCTOBER, 2004
2003 & 2004 TAX FACTS
copyright - 2004 - The MDTAXES Network |
 |
| ||||||||||||||||||||||||||||||
 |