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Publisher of Big Ideas for Small Business® and an attorney with
more than 25 years experience in taxation. Author of several books,
including J.K. Lasser's Small Business Taxes, 2008 edition.
Bio
View all questions
Ask Our Tax Expert
more than 25 years experience in taxation. Author of several books,
including J.K. Lasser's Small Business Taxes, 2008 edition.
Bio View all questions Ask Our Tax Expert
Tax questions answered by Barbara Weltman
• Energy–saving tax breaks:
Q. What new energy-related tax breaks are available on 2007 returns?> Answer• Health Savings Accounts:
Q. I've heard there is a low-cost health coverage option that has tax benefits.What is this all about?> Answer• Special deduction for domestic production:
Q. My business builds homes on spec. Are there any new tax breaks I should know aboutwhen filing my 2006 return?> Answer• Tax breaks for driving the family car:
Q. In 2007, I drove my family car on business. What can I deduct?> Answer• Write–offs for business purchases:
Q. I've heard that I can deduct the cost of business equipment, but I'm not sure if anythingI've purchased in 2007 qualifies. Can you give me a quick list of what write-offs are allowed?> Answer• Deductions for home offices:
Q. I run a business out of my home. What deductions are allowed for home offices?
How do I know if my business qualifies?
> Answer
Answers to your questions
• New for 2007:
Answer: There are numerous changes on the 2007 tax return, big and small. For example, husbands and wives who co-own a business and file a joint return can opt to file Schedule Cs along with their Form 1040, rather than filing Form 1065 to report as a partnership, which would require preparing a Schedule K-1 for each spouse. Opting to report as a joint venture rather than as a partnership simplifies tax reporting somewhat.
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• Energy–saving tax breaks:
Homeowners may claim tax credits for making certain energy-saving improvements to the home, as explained on IRS Form 5695, Residential Energy Credit. There is also a credit for purchasing an IRS-certified hybrid vehicle (although Toyota/Lexus vehicles purchased after September 30, 2007, no longer qualify for a credit), with details on the IRS Web site. Home builders can claim a tax credit for constructing energy-efficient homes. And owners of commercial reality can claim a new tax deduction if their buildings meet certain energy-saving standards.
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• Health Savings Accounts:
Answer: If you have a high-deductible health plan (HDHP)—the deductibles must meet IRS-set minimums—you can save on premiums and make tax-deductible contributions to a savings plan called a Health Savings Account (HSA). The policy only covers medical costs above the high deductible, but funds in the HSA can be used to pay medical costs not reimbursed by insurance—withdrawals for this purpose are tax free. If you're covered by an HDHP through work, you can contribute to a HSA if your employer has not done so. To learn more about these plans, see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, at www.irs.gov.
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• Special deduction for domestic production:
Answer: There is an above-the-line deduction, called the Domestic Production Activities Deduction, for businesses that make, build, grow, extract, record or otherwise create something in the U.S. The percentage used to figure the deduction is 6%. Double the percentage used on the 2006 returns. You claim the deduction if you have income from a qualified activity—you don't have to purchase anything or expend any money to receive this tax benefit. However, limitations imposed by the law prevent you from claiming the write-off if you're self-employed with no employees. To determine your eligibility for this deduction and figure its amount, see the instructions for the IRS Form 8903, Domestic Production Activities Deduction, at www.irs.gov. And there is a new tax credit for building energy-efficient homes. To figure this credit, see IRS Form 8908, Energy Efficient Home Credit, at www.irs.gov.
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• Tax breaks for driving the family car:
Answer: You can deduct the actual costs of driving your car on business or rely on an IRS-set rate (48.5� per mile). Where you claim the deduction depends on whether you're self-employed or an employee. Either way, however, you must be able to substantiate the number of miles driven on business. For details on deducting car expenses and the type of proof required, see IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses, at www.irs.gov.
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• Write–offs for business purchases:
Answer: The law lets you write off the cost of equipment purchases made for your business in 2007 up to $125,000. "Equipment" isn't limited to machinery. It includes just about anything (other than realty) you'd otherwise have to depreciate over a number of years, such as computers, copy machines and office furniture, as well as off-the-shelf software. It also includes trucks and vans not suitable for personal use (e.g., there is permanent shelving).
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• Deductions for home offices:
Answer: Business use of your home if you qualify for the home office deduction. Deductible expenses factored into the home office deduction include:
- Rent or depreciation if you own your home
- Utilities
- Maintenance
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