Strategic Concepts

Any tips on saving taxes?

Your first objective as a taxpayer should be to maximize your itemized deductions. Unfortunately, this option is usually available only to homeowners, since only by the time you get done paying mortgage interest do you have enough of a deduction to offset the standard deduction. For example, in 2006, the standard deduction for a married couple is $10,300. You would have to have more than this amount in itemized deductions before it makes sense to itemize.

What can you take as an itemized deduction?

Medical expenses, but ONLY to the extent that they exceed 7.5% of your Adjusted Gross Income. For practical purposes, either your income must be very low, or your medical expenses must be nearly catastrophic in nature in order for this to be a deduction for you. The plus side is that nearly everything short of plastic surgery can qualify as a medical expense, so you may be closer than you think to being able to deduct medical expenses. Even mileage to your doctors and to the pharmacy is deductible.

Taxes - state income taxes, vehicle excise taxes, foreign taxes on your investments and real estate property taxes are all deductible, and there are no limits imposed on them.

Mortgage interest on your primary residence and a second home. Interestingly, this second home could be a summer cottage, a trailer home or even a boat, providing that it's large enough. There can be some limits imposed on the amount of interest claimed if you have insufficient equity in your home, and points paid on refinancing sometimes have to be spread over the remaining life of the mortgage loan, but this is still usually your largest deduction. You can also claim margin interest or investment interest to a certain extent.

Charitable contributions are deductible up to 50% of income, and are deductible at their fair market value. If you have a piece of appreciated property that you are donating to charity, you may actually get a deduction for more than you originally paid for it. Don't forget those bags of clothes and books that you dropped off at Salvation Army or Goodwill either! If you do volunteer work for a charitable organization, your mileage may be deductible as well.

Employee business expenses are deductible, but ONLY to the extent that they exceed 2% of your Adjusted Gross Income. What kinds of things are deductible? Basically, if you are required to pay for something in order to do your job, it is generally considered to be an employee business expense. Commuting from home to work and back again is NOT deductible, but all other business mileage is. If you are not supplied with an office at work, you may be able to deduct for a home office. The list of potential deductions here is virtually limitless - please contact me if you have questions about this.

Investment expenses are deductible in certain cases: things like safety deposit boxes, IRA custodial fees, accounting and legal services that relate to tax and investment situations, and even trips to certain investment properties.

Job-hunting expenses, including mileage and meals are deductible.

And last, but not least, my fee is ALWAYS deductible.

Having your own business generates a host of interesting deductions. This is important in two ways. Not only does it reduce your overall income tax liability, but it also reduces the self-employment tax (actually, social security tax), that your business generates when it shows a profit. It is not possible to list everything that is deductible here, but just to give you a sample of what might be deducted, I've included a partial list below:

Accounting fees	Advertising	Amortization
Bank charges	Dues/Memberships	Franchise fees
Insurance	Internet access	Legal fees
Meals	Mileage	Office supplies
Postage/Shipping	Rent (more on this below)	Subscriptions
Supplies	Travel	Uniforms
Utilities	Wages (to your kids!)

As a sole proprietorship, the IRS considers you and the business to be one and the same, so you can't rent to yourself. However, there is a lovely little loophole in the law that does allow you to rent space from your spouse. While this turns out to be a wash for income tax purposes, it does effectively reduce your social security taxes if done properly.

There are also a host of tax credits, too lengthy to list here in their entirety, but worth exploring. You can get money off your taxes for adopting, for having children, for higher education, for off-road use of gasoline (yes, that would include lawnmowers), for rehabbing certain types of property, for investing in low income housing, and the list goes on and on. This is the reason why the tax organizer I send my clients each year asks you pages of seemingly unrelated questions about what you've been doing over the past year. Any "yes" response to those questions may trigger a special deduction or tax credit, and that is why it is so important that you take the time to go through and answer them all.

Give me a call at 800-370-2607 when you’re ready, so that we can schedule time to sit down and discuss the unique challenges you and your business are facing. The initial consultation is absolutely free and without obligation. I look forward to meeting with you.



	With over two decades of experience Helping businesses just like yours!
	Call us at 800-370-2607 or fax to 207-499-7898.

	(Outside the USA, dial 207-499-2833.) PO Box 60, Saco Maine 04072