Included in the bill were some new tax credits, and some other tax bills that were set to expire were extended.

Here’s a quick summary of the tax breaks found in the bailout bill:

Mortgage debt forgiveness – under previous tax law, if you had any debt forgiven, the cancelled debt was taxable income to you.  The new law temporarily stops homeowners from owing tax on cancelled debt up to $2 million.  The debt has to be related to your primary residence.  This is actually an extension on a law that was set to expire; the new law will extend this provision until 2012.

Lower property taxes – homeowners who don’t itemize their deductions will be able to deduct up to $500 ($1,000 for joint taxpayers) of personal property taxes in addition to the standard deduction.  This is effective for 2008 and 2009.

Energy tax credits – taxpayers qualified for energy tax credits for qualified improvements made to their home, but these credits expired in 2007.  The new law brings the credits back for 2009, but skips 2008 for some reason.  So if you are planning on replacing windows, doors or your furnace, try holding off til 2009.  The new windows, furnace, etc. have to meet certain energy-efficient standards to qualify for the credit.

Tuition help – the tuition deduction of up to $4,000 expired last year.  The new housing law extends this deduction for 2008 and 2009.

Sales tax deduction – this was another deduction that expired in 2007.  The new law extends it through 2009.

AMT relief – another one year patch has been approved to keep more people from falling victim to the AMT tax.  The bill increases the AMT exemption amount to $69,950 for joint filers, and $46,200 for single filers.  Without this patch, it’s estimated that an additional 23 million people would pay AMT tax on their 2008 tax returns.

Finally, the new housing law included disaster aid for people affected by hurricanes and tornadoes recently, such as a larger casualty loss deduction, or penalty free IRA withdrawals.

While these tax breaks aren’t specifically related to small businesses, it’s still welcome relief to those people who will qualify.

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Many of us are on a budget, and struggled with the decision to purchase a product, even if it was something we really needed to grow our business.

Well, don’t forget that ordinary and necessary business expenses – including courses that you take, or course materials that you purchase for your business – are tax deductible.  Keep in mind, it does need to be business related, but if it helps you learn your business, or if it helps you market your business, then it is probably a deductible expense.

Which means that the $400 product you’ve got your eye on may only cost you $250-350 after taxes, depending on what tax bracket you are in.

Let me give you an example: let’s say you are in the 15% tax bracket and you operate your business as a sole proprietor.  Your total tax percentage is approximately 35% (15% Federal tax + 15.3% self employment tax + 5% state income tax).

When you purchase an item for your business that is tax deductible, you’ll get approximately 35% back in tax deductions, meaning a $400 product will cost you only $260 after taxes.

So if you’re got your eye on a marketing course, or the latest and greatest product that is being launched, and you’re only objection is the price, don’t forget about the tax benefits of being a small business owner.  You may be able to afford that new info-product that’s being launched today after all

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The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through December 31, 2008. The rate for the first half of 2008 is 50.5 cents.

The IRS normally updates the mileage rates once a year, but given the significant increases in gas prices this year, the IRS has made a special rate increase in the middle of the year.

Taxpayers may use the standard mileage rates to calculate the deductible costs of using their personal automobile for business, charitable, medical or moving purposes.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Whichever method you choose, it is important to keep track of your mileage to substantiate your deduction. Because the rates were increased in the middle of the year, it’s also important to keep track of the dates you use your vehicle for business to make sure the proper rate is used.

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A:  Yes, you should keep statements or receipts for all of your expenses.  If you ever get audited and you don’t have written proof, the IRS will likely disallow that deduction.  Plus, you’re less likely to miss a deduction if you keep good records of it.

You should  only deduct the business use of certain expenses, such as internet, computer expenses, etc.

For example, if you have internet access, and you have a family of four using that internet, then you can’t deduct 100% of the internet. 

You should use your best judgement to determine the business percentage.  If you’re not sure keep a log of who uses the internet and for how long to get an idea of how much time is spent on the internet for business vs personal use.

Do this exercise for all expenses that are part personal and part business.

A quick note about deducting your phone…  You can NOT deduct your primary land line.  You can deduct a second line, or a cell phone, but not your primary home phone.

Got more tax questions about your home based or online business?  Check out ‘Your Top Online Biz Tax Questions Answered’, a new audio/ebook program for online and home based business owners.

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This is a great question, so here goes…

1.  Automobile expenses – if you use your car for business, you can deduct a portion of your car expenses.  You can either keep track of and deduct your (business related) actual expenses, or you can keep track of your business miles and use the standard mileage rate (48.5 cents per mile in 2007).

2.  Startup expenses – business expenses incurred before you actually start the business used to have to be depreciated over 5 years.  Starting after October 22, 2004, you can now deduct up to $5,000 of startup expenses in the first year of business.  Startup expenses over $5,000 still have to be depreciated (over 15 years).  Startup expenses include advertising, hiring employees, purchasing equipment, supplies and more.

3.  Education expenses – you can deduct the cost of classes, seminars and other education costs if they are related to your current business.

4.  Travel – when you travel for business, you can deduct the cost of the airfare, taxis, hotel, meals, and other travel related expenses.  If part of your trip is for personal reasons, you may need to prorate part of the expenses.  Also, if you bring your family along, only your own expenses are deductible.

5.  Home office expense – many people choose not to take this deduction because it is considered a red flag.  If you have a legitimate home office, then you should not miss out on this deduction just because someone says it could be a red flag (being self employed is a red flag, but you wouldn’t not go into business because someone says you’re more likely to get audited as a small business owner, would you?).  Home office expenses include mortgage interest, real estate taxes, home owners insurance, utilities, and security alarm.  You can only deduct the portion that represents your home office, but this can be a substantial deduction for many home based business owners.

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Many eBay sellers ask me, "what expenses can I deduct against my eBay income".

Here are the top 20 tax deductions for eBay sellers:

1. Inventory or product purchased for resale
2. eBay fees
3. PayPal fees
4. Postage and delivery
5. Supplies
6. Bad debts (for those non-paying bidders)
7. Advertising
8. Mileage (trips to the office supply store, post office, etc.)
9. Telephone (cell phone, second line, fax)
10. Bank charges
11. Accounting fees
12. Attorney fees
13. Computer and software
14. Contract labor
15. Furniture
16. Equipment
17. Office supplies
18. Membership fees
19. Continuing education
20. Home office expenses

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