Taxes and the business owner

Going into business for yourself?

Whether your business is full-time or part-time, you can deduct all ordinary and necessary expenses such as supplies, wages, repairs and maintenance, rent, advertising and the like. Equipment you purchase for use in your business will normally be depreciated (written off over a number of years) or, in some cases, it may qualify for a special expenses deduction.

If you operate your business from your home, you may qualify for an additional home-office expenses deduction. To qualify for the deduction, you must use your home office regularly and exclusively for your business, and the office must also be your principal place of business. If you qualify to claim a deduction for business use of your home, you may claim a portion of your normal housing expenses as well as all expenses directly related to the office.

Are you getting the most tax mileage from your car?

Your automobile may provide you with tax deductions you're presently overlooking. If you drive your car for business, for charitable purposes, to receive medical care or to buy prescription medicine, or to move to a new home for work-related reasons, you may deduct some of your auto expenses. You may choose between deducting a part of your actual expenses or a flat mileage rate. Most taxpayers use the flat mileage rates because by doing so, they need to keep track of only miles driven rather than all auto expenses. The mileage rates are:

• 30 cents per mile for business purposes;
• 12 cents per mile for charitable driving; and
• 9 cents per mile for medical purposes and work-related moving mileage

What kinds of records should I keep for easy tax return preparation?

• your W-2 forms.
• any records of other Income (1099s, etc.).
• a record of business and investment expenses.
• information about any sales of securities or other property.
• cost and value records for charitable contributions of property worth more than $500 and information about your cash contributions.
• cost and value records for any casualty losses.
• records of medical expenses, taxes, and interest you paid.
Keep your tax records for at least three years after filing your return. Records relating to property, such as your principal residence, should be kept longer.

What kinds of interest can I deduct this year?

• HOME MORTGAGE INTEREST. Your home mortgage interest on a principal and second home is generally fully deductible. However, for mortgages taken out after Oct. 13, 1987, the deduction maybe limited if total acquisition debt exceeds $1,000,000 or if total home equity loans exceed $100,000.
• POINTS. Loan origination fees or points are fully deductible the year paid if they were incurred in conjunction with buying or improving your principal residence.
• BUSINESS INTEREST. You may deduct interest on loans, mortgages and other forms of debt related to your trade or business.
• INVESTMENT INTEREST. The deduction for investment interest is generally limited to the amount of your net investment income.
• Interest you pay on money borrowed for personal purposes (such as consumer loans) is not deductible.

20 ILLINOIS COUNTRY LIVING • MARCH 1996