Year-end Tax Tips
by John Rossheim
What do the jingling bells of December mean to you? If you’re a free agent, you should hear that sound as the unwelcome ring of Uncle Sam’s cash register. This is your last chance to wrack your brain for deductions and cut your tax bill for 1999. Of course, many of the deductions we describe here can also work for you throughout 2000 and beyond.
Tax year 1999 also brings some changes in the tax code that will affect many independent professionals. Fear not; the news we’ll bring you is almost all good.
How to make tax year 1999 a bit merrier
Here are a few of our favorite ways for self-employed folks to pay less taxes legally.
Build good will and do well for yourself by plying clients with deductible holiday gifts. In general, $25 per client is the maximum allowable deduction per client. Entertainment tickets, given to clients as a business expense, are usually not subject to the $25 limit.
Combine business and pleasure on a pre-New Year’s trip and you may be able to deduct some of your travel expenses. The rules regarding allowable travel expenses are somewhat complex, but it’s worthwhile to learn them for a deduction of hundreds or thousands of dollars. Receipts and a log of your business activities are critical to documenting your business-travel deduction.
Donate unused office equipment to a qualifying charitable organization and take the deduction. If you’re a dyed-in-the-pajamas home-based consultant, think about giving away most of those business suits – who needs them now?
Set up or contribute to an SEP-IRA or other form of tax-advantaged retirement account for the self-employed. The huge advantage of SEP-IRAs over ordinary IRAs is that the ceiling for tax-deferred contributions is many times higher.
Still got extra cash on hand? Lucky you. You should consider paying all bills for business expenses before January 1, so you can take the deduction for tax year 1999. Of course, you probably don’t want to do this if you expect to be in a lower tax bracket in 2000.
What’s new for tax year 1999
Perhaps the biggest change in the tax code for 1999 is a liberalization of the IRS requirements for taking the home-office deduction. "Where you made your money is no longer the test," says James Jenkins, owner and president of accounting firm Jenkins & Company in Southfield, Michigan. For example, professionals who spend more time in the field than at their home-based offices may still qualify for the deduction.
"It’s a very important change, and a deduction that I would not be afraid to take," says Jenkins, who is a CPA. "I don’t believe that [the home-office deduction] is an audit-triggering device," he adds.
Also for 1999, the limits on certain kinds of deductions will change. The amount that you can deduct under Section 179, which applies to the purchase of certain business assets, increases to $19,000. "Suppose you need a new computer system," says Jenkins. "You can write off the entire cost in one year," rather than depreciating the system over a number of years and having to defer most of the deduction beyond 1999.
The other changes? The self-employment health insurance adjustment has increased to 60 percent, allowing many independent professionals to deduct more of their premiums. One short but sour note: Effective April 1, 1999, the standard mileage rate for business use of a car was decreased by 1.5 cents, to 31 cents per mile.
Note: This article does not offer professional tax advice. You should consult with the IRS or a tax professional regarding your own tax situation.
On Monster.com
On the IRS web site: (http://www.irs.gov)
