Year End Tax Tips

It’s hard to believe we’re almost at the end of the year already.  As I write this, there are only a few weeks left in 2008.

Most people probably aren’t thinking about taxes yet, but the time to do tax planning is before the year ends.  Once December 31 has passed, there’s very little you can do to help reduce your 2008 taxes.

The first step in tax planning is to determine where you are for the year.  Pull out last year’s tax return for a reference.  You also need your most current profit and loss statement, so if your books aren’t up to date, now’s the time to get caught up.

Compare your income and expenses to last year’s tax return.  Is your income up?  Do you have the same amount of deductions as last year?  If your income is up, or if your expenses were down, you may owe more taxes than you did last year.

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IRS Announces Mileage Rates for 2009

In the second half of 2008, the IRS increased the standard mileage rate to 58.5 cents per mile from 50.5 cents per mile for people who use their personal car for business use.  This was in response to skyrocketing gas prices earlier in the year.

Since then, gas prices have dropped dramatically.  Prices were as high as $4.10 in some states during the summertime, but have dropped to a national average of $1.90 in this last week in November.

I was wondering how the IRS would respond to the drop in prices.  After all the increase to 58.5 cents per gallon was based on prices that were twice as high as they are now.

Earlier this week, the IRS announced that the standard mileage rate for business use of your automobile in 2009 will be 55 cents per mile.  That’s still well above the beginning rate in 2008, so I think the new rate is very generous.

For home and online business owners who use their car for business purposes, the automobile deduction can really add up.  Make sure you keep a log of all of your business related trips, including the date, the total miles driven and the purpose of the trip.

You can find travel or mileage logs in any office supply store, or you can use your calendar or a spreadsheet to keep track of your miles.  The most important thing is to keep good and accurate records in case you are ever audited.

If you keep track of your mileage for medical or charity purposes, not that the standard mileage rate for medical purposes is 24 cents per mile, and the rate for charitable purposes is 14 cents per mile.

For more information on the new mileage rates, please visit ‘IRS Announced 2009 Standard Mileage Rates’.

How Will Obama’s Tax Plan Affect Self Employed Americans?

Self employed taxpayers get the honor of paying the self employment tax on top of their regular income tax.  This can be quite a burden, especially for new business owners.

There has been some indication that there will be tax relief for small business owners in President-Elect Obama’s new tax plan.

So how will the new tax plan affect you, as a self employed individual (or couple)?

According to BarackObama.com, the new tax plan will include:

A $1,000 “Making Work Pay” Tax Credit. For 95 percent of workers and their families—150 million workers overall—the “Making Work Pay” credit will provide a refundable tax cut of $500 for workers or $1,000 for working couples. This credit will benefit over 15 million self employed workers and for 10 million low-income Americans, will completely eliminate their federal income taxes.

Since this is a refundable tax credit, this credit will help reduce your self employment tax in addition to your regular tax.  This is good news, as many of the tax credits available now are non-refundable, and therefore don’t help reduce the self employment tax, which is the largest burden for many sole proprietors.

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The Obama Tax Plan Will Cut Taxes for 95 Percent of American Workers

Now that the election is over, our new President-Elect has a lot of work ahead of him.  I don’t envy him his new job, even if he does get to live in the most famous house in America!

One of the biggest challenges will be the economy, specifically taxes.  A lot was said during the election about tax rebates and raising taxes on the middle class, especially after “Joe the Plumber” asked the fateful question that made him famous (well, semi-famous).

There is a lot of fear that Obama will raise taxes for the middle class Americans, but according to BarackObama.com, President-Elect Obama will actually cut taxes for 95 percent of workers and their families, with a tax cut of $500 for working individuals (or $1,000 for working couples).

Here are some key points about the tax plan from BarackObama.com:

Obama’s Comprehensive Tax Policy Plan for America will:

* Cut taxes for 95 percent of workers and their families with a tax cut of $500 for workers or $1,000 for working couples.

* Provide generous tax cuts for low- and middle-income seniors, homeowners, the uninsured, and families sending a child to college or looking to save and accumulate wealth.

* Eliminate capital gains taxes for small businesses, cut corporate taxes for firms that invest and create jobs in the United States, and provide tax credits to reduce the cost of health-care and to reward investments in innovation.

* Dramatically simplify taxes by consolidating existing tax credits, eliminating the need for millions of senior citizens to file tax forms, and enabling as many as 40 million middle-class Americans to do their own taxes in less than five minutes without an accountant.

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