Hopefully you and your accountant didn’t miss these important Tax Tips!! Here’s a review of a few key items you want to take advantage of next year if they were missed:
First-time homebuyers: If you bought a new home in 2008, and you have not previously owned a home in the last 3 years, you are entitled to receive a $7,500 refundable “credit” on your tax return. This “credit” is in fact a loan that needs to be repaid over 15 years, interest free, beginning in 2010.
However, if you were fortunate enough to have bought, or plan on buying in 2009, you get $8,000 no questions asked. This does not need to be paid back and you don’t have to wait until April 2010 to get the credit! Just amend your 2008 tax return and claim it today.
Tax Strategy: If you are engaged to someone who does not qualify as a first-time home buyer, amend your 2008 return before you tie the knot.
Kiddie tax extended: If you are planning on having children to shift income to lower tax rates, you should be aware that the rules have changed. For children under 19, or under 24 and a full-time student, any unearned income over $1,800 will be taxed at the parent’s tax rates. This is a change from 2007 where children under 18 with unearned income over $1,700 were taxed at their parent’s tax rates. (Prior to 2007, the emancipation age was 14!)
Tax Strategy: If your child earns more than 50% of their upkeep, even while being a full time student, they could file on their own for the lower tax rates (not as a dependent on your tax return).
Education Credit: One can obtain a tax credit (a credit is when the IRS gives you a reduction of your tax liability dollar for dollar) on the money spent for their own, or their child’s, college education. However, one must claim the child on their tax return in order to be eligible. This credit is subject to income limitations.
Claiming a child after divorce: Too often after a divorce occurs, the important detail of claiming a child is neglected. A typical arrangement is to can claim the children on the tax return every other year- should be documented in the divorce agreement. The loss of this deduction due to failure to fulfill financial obligations should also be included in the divorce agreement.
This week: Basic Bookkeeping Principles
Set up a separate bank account for your business
Don’t mix your business income and expenses with your personal accounts. You want to make it as easy as possible to track what’s going on in your business, and you don’t want to open up your personal assets to government review.
Financial tip: Get pre-printed checks that interface with Quickbooks software. This enables you to automatically record your bills paid in Quickbooks, which saves time…and time is money.
Develop a system to track business expenses paid in cash
Otherwise, you could end up overpaying your tax obligations. If you lose paper receipts and forget to record cash spent, you risk not accounting for all of your business deductions.
Financial tip: Create a folder that you put your cash receipts in. At least once a month, prepare an expense report summarizing your cash payments. If you’re not sure how to set it up, you can buy pre-printed forms at an office supply store. Then write a check (using Quickbooks) for the total amount spent, and record each expense appropriately.