Tax Return Tips Ideal for New and Established Businesses

Having a business enables you to receive tax deductions that you won’t get as an employee. We at Timmer Accounting & Tax Service, LLC will help you maximize your finances. Here are a few insightful tips to take into account:


Domestic Production Deduction

If your business is engaged in a qualifying production activity, you may be able to take a tax deduction for your US-based business activities. The deduction is limited to income arising from qualified production activities as a whole or in part based in the US.

Organizational and Startup Costs

Have you launched a new business? Did you know that expenses incurred before a business begins operations are not allowed as current deductions? These startup costs must be amortized over a period of 180 months, beginning in the month in which the business starts.

However, based on the current tax provisions, you may elect to deduct up to $5,000 of business startup and $5,000 of organizational costs paid or incurred. The $5,000 deduction is reduced by any startup or organizational costs, which exceed $50,000.

If you want to deduct a larger portion of your startup cost in the first year, a new business will want to begin operations as early as possible and hold off incurring some of those expenses until after the company launches.


Deductible Home Offices

You can take a home office deduction if you use a portion of your house exclusively and regularly for business, regardless of whether or not you are self-employed.


Coverdell Education Savings Accounts (ESA)

A Coverdell ESA is a savings account created as an incentive to help parents and students save for education expenses. The total contributions for the beneficiary (who is under 18 years old or a special-needs beneficiary) of this account in any year can’t be more than $2,000, no matter how many accounts have been established.

The beneficiary will not owe tax on the distributions if, for a year, the distributions from an account are not more than a beneficiary’s qualified education expenses at an eligible educational institution. This benefit applies to higher education, elementary, and secondary education expenses.

Typically, any individual (including the beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted gross income (MAGI) is less than an annual, constantly changing maximum. To determine your maximum contribution limit, the MAGI is the adjusted gross income (AGI) shown on your tax return increased by the following exclusion from your income:

Foreign Earned Income of U.S. Citizens or Residents Living Abroad

Housing Costs of U.S. Citizens or Residents Living Abroad

Income From Sources Within Puerto Rico or American Samoa

Contributions to a Coverdell ESA may be made until the due date of the contributor’s return without extensions.

Roth Individual Retirement Account (IRA) Contributions

To contribute to a Roth IRA, you must have compensation (wages, salary, professional fees). Your MAGI must be less than:

$188,000 - Married Filing Jointly

$10,000 - Married Filing Separately (You lived with your spouse at any time during the year.)

$127,000 - Single, Head of Household, or Married Filing Separately (You did not live with your spouse during the year.)

Unlike traditional IRAs, there is no age limit for Roth IRA contributors. If your only IRA is a Roth IRA, the maximum current year contribution limit is the lesser of your taxable compensation or $5,500 ($6,500 for those 50 and over). The maximum contribution limit phases out if your MAGI is within the following:

$178,000–$188,000 - Married Filing Jointly or Qualifying Widow/er

$0–$10,000 - Married Filing Separately (You lived with your spouse at any time during the year.)

$112,000–$127,000 - Single, Head of Household, or Married Filing Separately (You did not live with your spouse during the year.)

You can still contribute to a Roth IRA for your spouse if you meet the income requirements.

Note: The threshold amounts listed above are for the tax year 2013. Contact us for further updates.