Dear Jim:
Tacking a few days vacation on to a business trip is one of the main perks for “road warriors” who spend a lot of time on the road. If you are self-employed, you can enjoy some tax savings along with a little R&R. Here’s how to make the most of the IRS guidelines including a new Saturday night write-off provision.
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1)First, the primary purpose for your trip must be business. The IRS doesn’t provide specific rules or guidelines as to the ratio of vacation days versus business, but, as a rule of thumb, if you have more business days than personal days, you can claim the trip was for business purposes.
2)The IRS does define what constitutes a “business day”. Any day, when your time during normal business hours is mainly spent in business activities is considered a business day. Days when you are “standing by” waiting to be called in to do business by your clients or associates also are counted as business days. You are allowed to count travel days as business days and to count weekends and national holidays as business days if they fall between out-of-town business appointments and returning home would be impractical.
3)If you can claim the trip as “business”, you are entitled to deduct 100% of the cost of transportation for travel within the U.S. You can also deduct 50% of the cost of your business meals.
4)What counts as transportation costs? Cab fares to the airport, cabs to hotels and business meetings and even the tips you give to porters at the airport are all considered transportation costs as well as plane fare or the cost of traveling by car or train.
5)What can’t be deducted? Your out-of-pocket costs (meals, accommodation, etc.) for expenses incurred during your vacation days are not deductible. However, there may be a way to include vacation day expenses, if your trip includes a Saturday night stay (see below).
6)A recent IRS ruling allows you to glean further financial advantages from reduced round-trip airline ticket prices for a Saturday night stopover. Here’s how the special “Saturday night deduction” provisions work. If staying over a Saturday night reduces your airfare significantly—and the overall cost of your entire trip, the IRS allows you to deduct all your out-of-pocket expenses for the Saturday stay (meal expenses qualify for the 50% deduction allowed for business meals) regardless of whether the extra days involved are considered business or pleasure. Of course, business must be your main reason for making the trip in the first place.
PERSONAL FINANCE---KEEPING TABS ON YOUR CREDIT RATING
Time heals all wounds. And in the case of a bad credit rating, time --and paying your bills on time--is the only way to heal a negative credit report. The three credit reporting agencies -- Experian, Equifax and TransUnion -- track consumers’ borrowing history and provide the information potential lenders need to determine whether you are a good credit risk. These agencies have long memories. They list negative information for seven years—even if the bad debts have been settled --and they keep bankruptcy data for as long as 10 years.
With this in mind, beware of companies offering quick fixes. Despite the persuasive TV or print ads from credit-repair companies, there are no shortcuts to repairing a damaged credit history. These companies do not have the power to get negative information removed. The good news is that, for minimal costs, you can check on your own credit report to make sure there are no errors. Here are some tips and useful information to help you negotiate the investigation process.
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1)The Credit Report Act entitles consumers to dispute information on their credit report if they believe something is incorrect. If you are denied credit, the creditor that rejected you must provide the name and contact information of the credit bureau that provided the data. You are entitled to a free copy of the report—from the reporting agency the creditor used. Note: the other two reporting agencies may have additional credit information on you, too, and to get copies of these agencies’ reports will involve a fee of about $8 per report.
2)Your credit report is only a phone call away. Or, if you prefer, you can go to the web. Non-profit credit counseling organizations as well as the reporting agencies can provide you with consolidated reports containing information from all three credit reports. Lenders and creditors report information to one of the three agencies listed below. Here is the contact information for the agencies as well as for Myvesta, a national nonprofit credit counseling organization:
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§ Experian; Tel: 888-397-3742 or www.experian.com
§ Equifax; Tel: 800-997-2493 or www.equifax.com
§ TransUnion; Tel: 800-916-8800 or www.transunion.com
§ Myvesta; Tel: 800-698-3782 or www.myvesta.org
4)In the world of credit rating, you can have too much of a good thing. It might be a nice pat on the back when your credit card company raises your limit, but think it through before you accept the higher limit. Future creditors will look not only at your payment record but also at your debt level and capacity to carry the load. If you have a high load, they may be cautious about lending you more. And so, if you do not need an additional $5,000 on your credit card limit, tell the issuer you want it lowered.
Final thoughts: if you need help negotiating with creditors or drafting a budget, start by contacting one of the non-profit agencies. Remember no credit-repair company can work magic. Before you shell out money to a company, bear in mind that you are buying convenience, and that there is little they can do that you can’t do yourself for minimal or no cost.
HOME OFFICE DEDUCTIONS
If you are self-employed and have a home office, there are two important criteria you must meet in order to qualify for a home office deduction and satisfy the IRS. You must use the space both regularly and exclusively for business.
The exclusivity requirement is the tough clause. It means you can’t use the space for personal business—activities like managing your personal finances or maintaining your household accounts would sabotage the eligibility. Here are some things to consider if you intend to file a home office deduction.
You may be eligible:
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1)if your home office is your principal place of business. That means you physically do most of the work to earn your living in the confines of that space. If you are a freelance writer, a book keeper, a financial manager or someone who sits at a computer most of the day, you probably meet this requirement; or
2)if you earn your keep on the road or provide services to people in their homes or business (e.g. are a painter, plumber or computer technician), you can still qualify, if your home office is exclusively dedicated to the paperwork and administrative duties associated with your business; or
3)if you use your home office to meet with clients; or
4)if your office is in a separate building from your home. Setting up your office in a free-standing garage or outbuilding, could get you a tax break.
If you meet both eligibility criteria, here is a checklist of possible write-offs. Remember that the IRS is gearing up to review small business deductions-- including home office write-offs --much more rigorously in the upcoming tax year. Consult your tax professional to make sure your eligibility is watertight. If your home office passes muster, home-office deductions should be itemized on Form 8829.
Your deductions may include the following:
- §All expenses (100%) related to the home office space-- including phone lines (which must be separate lines) as well as the cost of painting and cleaning the space and any premium you pay on a home-office rider on your insurance policy;
§Percentage of the indirect expenses involved in your entire home (mortgage interest; property taxes; depreciation (if you are a home owner); maintenance; security monitoring fees; etc.). The amount is usually based on the square footage of your work area as a percentage of the total area of your living space. You should tally up only actual living space in your home when you figure out the percentage (patios, unfinished basements, etc. do not count). Other “reasonable” methods of calculating your home office’s “share” of your home’s expenses are allowed. Consult your tax professional to find out more.
