Gas prices and the middle class

I have noticed lately it seems gas is most expensive in Ritzville and in the Hood. Life seems to be the same way – the rich and the poor stimulate the economy. Rather ..the rich and the poor are the economy, or so it seems. And the middle class always seems to find a way to separate themselves from it just a simple observation today..

Okay I’m not saying the middle class are not actuall part of the economy honestly that would be foolish. I’m just saying it seems that the rich buy the asset that the poor spend money on which are liabilities to the poor. The middle-class, the real middle-class, which is greatly shrinking and for the reasons I am talking about here(that and they are at or approaching retirement), stash their cash and avoid paying interest. In an economy that is entirely built on debt, very little is contributed financially outside of the fractional reserve dollars that they create by holding their money in savings. However, the real value created by these people is usually very high when you look at the quality of workmanship they produce in the small business sector. The rich and the government however beat the hell out of them. We have been seeing this especially in recent years with this bloodbath of the middle class.

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How Your Taxes Can Help Build Your Wealth

Taxes are most people’s biggest expense. Therefore reducing that amount means more money immediately available to invest. The tax law is a series of stimulus packages for real estate investors and business owners.“- 

How Your Taxes Can Help Build Your Wealth
Most people view taxes as a drain on their wealth. If it weren’t for their taxes, they would have more money in their pocket, would finally be able to get ahead and could start investing.

I look at taxes very differently. I look at taxes as a way to increase cash flow. The tax law provides tons of opportunity to reduce your taxes. When you reduce your taxes, you increase your cash flow (often immediately) which can be used to increase your wealth.

Reducing your taxes goes hand-in-hand with your wealth strategy. For most people, taxes are their single biggest expense. This means that reducing their taxes results in instantly increasing the amount they have available to invest.

The Government Wants You to Reduce Your Taxes
The tax law is a series of stimulus packages for real estate investors and business owners. This is true in all developed countries.

The government wants to provide jobs and housing. To encourage others to do this for them, the government provides tremendous tax benefits to those who provide jobs (business owners) and those who provide housing (real estate investors).

Your Tax Strategy is Part of Your Wealth Strategy
Once you understand what the government wants you to do in order to reduce your taxes, you can use this information in your wealth strategy to invest in assets that not only fit with your wealth goals but also produce tax savings.

This is a powerful formula and one that can be used over and over and over again because many of the tax benefits for entrepreneurs and real estate investors produce annual tax savings.

Then, as your wealth grows, so do the opportunities for tax savings, which means not only does the cycle continue every year, it grows every year as well so your tax savings are more, your increase in cash flow is more and your wealth increases even more.

Do you see why I am so passionate about taxes? Taxes are a tremendous tool to build your wealth.

Tom Wheelwright

How To Legally Reduce Your Taxes

If You Want to Change Your Tax, Change Your Facts
I am regularly asked how someone can reduce their taxes – legally, of course.

My answer: Change your facts

One of the most powerful ways to make the tax rules work for you is to change your facts. This concept applies in most developed countries because the tax law is written to favor specific facts.

Do you know someone who is always sharing the write-off of their most recent meal (trip, vehicle, cell phone, gadget, etc.)? Do you wonder if what they are doing is cheating or legal?

With the right set of facts, any of those items can be legal tax deductions.

That’s why when I meet with a new client, I want to know their facts first. Then, I can determine how to change their facts to reduce their tax.

What are these facts?
The facts I’m referring to here are usually surrounding where your money comes from and where it goes.

– Do you own a business?
– Do you own investment real estate?
– Are you an employee?
– Are you self-employed?
– How much time do you spend in your business?
– How much time do you spend in your investing?
– What is your role in your business?
– What is your role in your investing?
– What investments do you have?
– What expenses do you pay personally?
– What expenses are paid by your business or investing activity?

What is deductible for one person may not be deductible for another person. This is because one person’s facts can support a particular deduction whereas another person’s may not.

If you don’t like your tax, change your facts
A few years ago, a client asked me if he could deduct his travel to a particular state. He and his family enjoyed spending time and traveling there frequently. At that time, he didn’t have a business reason to travel to that state and his business was not set up to conduct business in that particular area.

I went over the specific rules with my client that covered what he needed to do in order to meet the requirements to deduct the travel in his business. I also shared with him how he could deduct the travel expenses for his spouse and children.

A few months later, my client tells me about a very profitable deal he now has in the state and he provided me with all of the documentation we discussed to support his deductions.

My client jumped in and changed his facts. It led to increasing his deductions, reducing his taxes and making more money! In order to meet the rules, he had to conduct legitimate business in the state. He did and he was very successful at it.

How can you change your facts?
Any time you have cash come in or go out, there’s an opportunity to change your facts.

Should you receive the income personally or should your business receive the income?

Are your investments helping your tax situation or should you explore new investment strategies?

Are your expenses personal or do they meet the rules specific to your situation that make them deductible?

Are you willing to change your facts?
Discuss your facts with your tax advisor and ask how changing your facts could change your tax. Then, be ready to take action.
Tom Wheelwright

Maximizing Travel Deductions

5 Tips to Planning Your Holiday Travel with Your Tax Strategy in Mind
With the holiday season here, many people will be traveling so it is a great time to review a few tips on how your travel can help your tax strategy.

The tips I share here are specific to the U.S. tax law. The key is understanding the rules in your country and using them to your benefit in your tax strategy.

Tip #1
When traveling, spend more than 50% of your time each day on business activities and you can deduct 100% of your travel expenses. Plan your business and other activities so you can easily meet this requirement.
Tip #2
Travel expenses for your spouse and your children are 100% deductible if your spouse and children are involved in your business and spend more than 50% of each day on business activities. Planning is the key here. Plan your business and other activities so your family meets this requirement.
Tip #3
Create a reason that is great for your business to travel to your desired location. This is my favorite tip because I find when I create a great business reason to travel, my business benefits in a way that it wouldn’t have without the travel.

I have many friends and family members in Utah that I like to visit as often as I can. I decided to take a business trip there several years ago to explore the possible expansion of my rental real estate business into Utah. I spent more than 50% of each day on business activities and then I also had some personal time to visit with friends and family. My rental real estate business in Utah has doubled since then and my continued travel there is a legitimate business deduction.

Tip #4
If your travel is for personal reasons – treat it as personal and don’t deduct it. If one of your goals for a particular trip is to take a break from business, then treat that trip as personal. Trying to claim that as business travel could draw a lot of scrutiny to your legitimate business travel expenses.

Or, if your spouse and children don’t participate in the business, treat their portion of the travel expenses as personal – trying to deduct their expenses could jeopardize your portion that is legitimate.

Tip #5
Travel outside of the U.S. has a completely different set of rules. Be sure to discuss this with your tax advisor before you travel.
Use Your Travel in Your Tax Strategy
Travel is one of my favorite deductions because it is one of those expenses that most of us already have, and when planned properly, it gives us the opportunity to increase our business’ bottom line while decreasing our tax liability.
                                                                                                                  
Tom Wheelwright

5 Myths about Tax Preparation

Use taxes to your advantage as a way to increase your wealth! -Joshua Gamen
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5 Myths About Tax Preparation
I’ve been involved in the tax return preparation process for 30 years. During those years, I’ve come across many myths that people believe about tax preparation.

Today, I’ll share the top 5 myths I hear about tax return preparation and why they are not true.

Myth #1: A Refund is Great News
You’ve probably heard some tax preparation firms brag about how many of their customers receive refunds, or the average size of their customers’ refunds.

Isn’t this great news? I’m not so sure it is.

A refund can seem like great news, especially if it isn’t expected, but it usually indicates a lack of tax planning. With proper planning, that refund can be received a whole lot earlier. While most people don’t want to owe tax when they file their return, they also don’t like to part with their money any earlier than they have to and that is exactly what a refund reflects.

Myth #2: Filing an Extension is Bad
Many taxpayers are hesitant to file extensions for their business or personal tax returns for fear that there are hidden disadvantages to doing so. This is not true. In fact, extending your tax return can be a great tool in your tax strategy.

Extensions are helpful to avoid having to file amended returns. Sometimes the forms or information you receive from others to complete your tax return may be amended. If you receive an amended form and you’ve already filed your return, then you must amend your tax return.

Other times, the information you need from others to complete your tax return may be late. Filing an extension provides you with the time to gather this information and accurately report it on your tax return.

Remember: An extension does not mean you are off the hook when it comes to gathering your tax information timely. It is still important to gather all of your tax information timely so the extension can be prepared with the best information available.

Also, an extension does not extend the due date of any taxes due with the return. Any tax liability due with the return is due on the original due date.

Myth #3: Tax Return Preparation is a Cash Outflow
Tax return preparation fees can vary dramatically. This makes it extremely important to look at the big picture rather than just the cash outflow.

Let me give you an example. Suppose you have a choice of paying $500 for your tax return to be prepared or $2,000. All things being equal, anyone would choose to pay the lesser amount.

But, what if all things are not equal? What if the $500 gets you an adequate, accurate return but the $2,000 would get you a return where you legally pay $5,000 less in tax? Which is the better deal? In one, you are out $500. In the other, you are ahead a net of $3,000.

Before you have your next tax return prepared, review your own tax situation and the advice you are receiving from your tax preparer. Are you getting the return on investment you want? Are you getting the planning ideas you need? Are your taxes going down or do they continue to increase?

Myth #4: Accurate Returns Are All The Same
In all the firms and companies at which I have worked, the basic accuracy of tax return preparation was excellent. I find this also to be the case on returns that I see from clients who are new to ProVision. It’s rare that I find a flagrant error in a return.

But, does that mean that these firms all produce the same quality of tax return? The clear answer in my experience is a resounding “NO!”

Accuracy in a tax return simply means that the information provided by the client was reflected on the tax return. It does not mean that the tax return was prepared in the best way it could have been prepared. In fact, I rarely see a tax return from a new client that was prepared the way we would prepare it at ProVision.

For example, certain deductions can be classified in different ways. While each way is technically accurate, the tax impact of each can vary dramatically.

It’s not safe to assume your tax preparer (or tax software) knows the difference.

Never use a tax preparer who isn’t also your tax advisor. You may otherwise get great advice that is never used and lose out on great tax savings.

Myth #5: The Software Does All The Work
Whether you do your tax return yourself or hire someone to prepare it, most likely there is tax software involved. Many people make the assumption that the tax software does all the work.

While the tax software performs the calculations (usually quite accurately), it’s easy to get into trouble if the input going in is incorrect.

The true work and expertise – and resulting tax savings – is in the knowledge of the tax preparer.

                                                                                                                          

                   Written by: Tom Wheelwright

Tom Wheelwright

Using Your Retirement Plan in Your Wealth Strategy

Your wealth strategy and your retirement plan are one in the same. Don’t just hand your money to someone else to do what’s in your best interest for you and your family’s future. If it is up to be, it is up to you! -Joshua Gamen

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Using Your Retirement Plan in Your Wealth Strategy
One of the most popular questions I receive about a wealth strategy is this:I want to use the money in my retirement plan for a specific investment. Should I make the investment inside my retirement plan or should I distribute the money from my retirement plan and make the investment outside of my retirement plan?

My answer (of course) is it depends. It depends on your specific facts and circumstances.

Today, I’ll share some of the key factors to consider to help make this decision.

Factor #1: What Investment Options Are Available in Your Retirement Plan?
The term “retirement plan” covers a huge range of retirement plans – each of which has their own specific set of rules.You will first want to determine what your investment options are in your retirement plan. Some retirement plans, like an employer sponsored retirement plan, limit your investment options. Other retirement plans offer a broader range of investment options.

Factor #2: Are the Distributions Subject to Penalties?
While the rules vary by the specific type of retirement plan, in general, if money is distributed from a retirement plan early, meaning before the date allowed by the government and/or employer rules, then the distribution will most likely be subject to penalties.Penalties don’t rule out distributing the money, they just need to be factored in to your analysis.

Factor #3: Are the Distributions Subject to Income Tax
Depending on the type of retirement plan or when the distribution is taken, retirement plan distributions may be subject to income tax.Like penalties, just because the distributions may be taxed doesn’t rule out distributing the money – it just needs to be factored into your analysis.

Factor #4: What is Your Personal Situation?
Your personal situation plays a big role here. For example:– Is your tax bracket low or high?
– When can you take distributions from your retirement plan without penalty?
– What is your expected return on investment inside of your retirement plan?
– What is your expected return on investment outside of your retirement plan?
– What will you do with the investment long term?

Factor #5: What Type of Income Will Your Investment Produce?
Investments can produce different types of income including ordinary income, interest income, dividend income, rental income and capital gain. Some income types work very well inside a retirement plan, and others may cause your retirement plan to pay tax.
Factor #6: Does Your Investment Involve Leverage (Debt)?
If your investment involves debt, then this is a critical factor to understand.In some retirement plans, the tax implications of debt can be significant. For example, income generated from the debt can be taxable. Or, if you guarantee the debt personally, there could be tax consequences.

It’s important to not only understand the tax implication of using debt in your retirement plan, but also to understand how it can impact your investing. Many lenders are not willing to make a loan to a retirement plan without a personal guarantee. However, a personal guarantee, as noted above, could trigger tax. Lenders who are willing to lend to a retirement plan without a guarantee are usually not willing to lend as much as they would if there were a guarantee and the rate is usually higher.

It is extremely important to understand your leverage options inside and outside of your retirement plan before moving forward with your investment.

Factor #7: What Tax Benefits Will Your Investment Generate?
While retirement plans are often viewed as a great tax deferral vehicle, many tax benefits can be lost in retirement plans.For example, if a distribution is taxable from a retirement plan, it is generally taxable at ordinary income tax rates. This is true even if the income inside the retirement plan was capital gain income – which outside of a retirement plan has lower preferred tax rates. The tax benefit of the lower rate is lost.

Another example is investments that create losses for tax purposes. Some investments, like rental real estate or oil and gas, often create losses for tax purposes even though they generate positive cash flow. Losses inside a retirement plan are typically lost because the retirement plan usually doesn’t have any tax for the losses to offset.

Your Retirement Plan and Your Wealth Strategy
Your retirement plan can give your wealth strategy a tremendous boost. The key is understanding the best way to integrate your retirement plan into your overall wealth strategy.

Written by: Tom Wheelwright

Tom Wheelwright

5 Tips to Keep Your Wealth Strategy on Track

There is so much more to building wealth than making money. A Wealth Strategy is crucial. If you do not have a wealth strategy, use December to educate yourself and build one, think about what your goals are and write down a plan to get there. A wealth plan is not a “get rich quick” plan, so think education first.  -Joshua Gamen
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5 Tips to Keep Your Wealth Strategy on Track
With a new year right around the corner, it’s a good time to think about the activities that have a positive impact on your wealth strategy.
Here are 5 Tips to Keep Your Wealth Strategy on Track:
Tip #1: Avoid Winging It
Winging it means taking action without a strategy to support the action.

For example, buying gold because it seems like a good investment, or buying a rental property because it seems like a good investment.

What makes an investment a good investment is how it works toward the goals in your wealth strategy. Simply making an investment because it seems like a good investment isn’t enough – what will it do in your wealth strategy to achieve your wealth goals?

While it is great to take action, there needs to be a strategy behind the action so the actions lead to the results you want.

Winging it in a wealth strategy can set the wealth strategy behind by years – even decades.

Tip #2: Make Your Wealth a Priority
Letting your wealth strategy slip as a priority is something that can often sneak up on us.

For example, let’s say you have a goal to invest in a rental property and have a plan to look at prospective properties this month.

However, when you get the call to go look at the properties, you’re in the middle of running errands, or too busy with work, or need to finish a project. The list goes on and on. Looking at properties gets put on hold and your wealth strategy quickly falls off track.

There is always something else to do if your wealth strategy is not a priority.

Tip #3: Your Neighbor’s Plan Isn’t Your Plan
I’ve had people share with me many times that they made an investment because their neighbor (friend, co-worker, colleague, etc.) made the same investment.

What works for your neighbor will not necessarily work for you.

Your wealth strategy must be specific to you based on your likes, your dislikes, your family, your goals, your dreams, and your financial situation. To maximize the results of your wealth strategy, it must be customized to you.

Tip #4: Succeed With a Team
I always share that the 3 most expensive words in the English language are “Do-It-Yourself.”

The road to achieving your wealth goals is not always a smooth one. In fact, it is common to hit several bumps along the way.

Those who have a team are less likely to get off track when they hit that first bump, or maybe they make it to the second or third bump before turning around. Navigating with an entire team supporting you makes the process much smoother.

Build a team around you to support you and help you achieve your wealth goals.

Tip #5: Avoid Taking it to the Extreme
Taking it to the extreme means you have no balance in your wealth goals. You are trying to go at a speed that no one can possibly sustain – and that means a lot coming from me because I like things to move fast.

The challenge with going at an unsustainable speed is it all too often leads to crashing and burning, and that can be devastating in a wealth strategy.

Set reasonable goals and make your wealth building part of your everyday life.
                                                                                                                  
Tom Wheelwright

Making Your Tax Savings a Reality

No tax strategy is bad and will cost you a lot of money that you never even knew you had – Joshua Gamen
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Last week I shared a few tips about forming your tax strategy.

A tax strategy is a step-by-step action plan that ensures you are paying the least amount of tax allowable by law, regardless of your business or investment situation.

A tax strategy is comprehensive. It considers:

– Your personal and financial goals and dreams
– Your business, your investments and your family situation
– How your businesses and investments are owned
– The appropriate entity structure for your business and investments
– Your current situation to uncover deductions and other permanent tax saving opportunities

Those who are most successfully in their tax strategy make it a part of their every day activities. To them, a tax strategy is not a one-time event. Rather, it is something that becomes part of their routine.

A tax strategy helps you to view your every day activities in a different way – one that works toward the goal of permanently reducing your taxes.

The reality is that just about everything you do can have an impact on your taxes. So, why not make sure that impact is a positive one?

Here are a few examples of every day activities that can impact your taxes:
– Paying expenses
– Receiving money from an entity you own
– Putting money into an entity you own
– Having a meeting with partners, vendors or advisors
– Buying or selling investments
– Having an important discussion about your business or investments

The above items are activities you probably already do on a regular basis. By keeping your tax strategy in mind while doing these activities, you can improve the results of your tax strategy – all without having to do anything out of the ordinary.

Paying your expenses
When you pay your expenses, who is paying for that expense? Is it you personally? Should it be your entity instead? What type of documentation do you need to keep for your tax strategy?

Unless you have your tax strategy in mind, it is easy for this ordinary transaction to have a negative impact on your taxes.

You may pay for business expenses personally and forget to have your business reimburse you – this means the expense gets missed as a tax deduction.

When you keep your tax strategy in mind, it will be routine to have your business reimburse you. Or, even better, it will feel wrong to not have your business pay for the expenses in the first place.

Receiving money from an entity you own
Every payment you receive from your entity can have an impact on your taxes. This may include salary, distributions, expense reimbursements or other forms of payments.

Your tax strategy maps out the best way to take money out of your entity. Making sure those payments are treated as they are supposed to be, should be part of your every day activities.

For example, if you are receiving a salary, it should look like salary. This means it’s paid on a set schedule (weekly, bi-weekly, bi-monthly, monthly, etc.) and the proper taxes are withheld.

Similarly, if you are taking a distribution, it should look like a distribution. Distributions are usually not paid more frequently than quarterly. Also, distributions are usually not a set amount as they are typically tied to the profitability of the entity. If your distribution is paid every two week, it looks more like a salary and this can have a negative impact on your tax strategy.

Keeping this in mind, as you receive payments from your entity, helps the success of your tax strategy.

Having a meeting with partners, vendors or advisors
If you are meeting with a partner, vendor or advisor, odds are you are discussing items that impact your tax strategy. These meetings likely cover topics important to your tax strategy, like investments, new opportunities, strategic decisions or major purchases.

All of these are great to have documented in the form of meeting minutes. Meeting minutes provide tremendous support for deductions, investments and business purpose – all of which help the success of your tax strategy.

Your Tax Strategy
Those who are most successful in their tax strategy are those who have incorporated it into their routine. When reaching for a credit card to pay for lunch, they are asking themselves, “Should I pay with the business card or my personal card?”

It is the every day activities that make tax savings a reality.

                                                                                                                                            
Tom Wheelwright

Tax Strategy is Important for Building Wealth

Understanding how taxes work is critical to growing wealth. Rule #2 of the new rules of money: Keep more money. -Joshua Gamen
Forming Your Tax Strategy
There are two big obstacles most people run into when forming a tax strategy.

Obstacle #1: What is a tax strategy?

Obstacle #2: Where do you start?

What is a Tax Strategy?
Let’s break this term down and start with strategy.

A strategy is a systematic plan of action intended to accomplish a specific goal or purpose.

The specific goal or purpose is to permanently reduce your taxes.

So, a tax strategy is a plan of action to permanently reduce your taxes.

Of course, most people are all for permanently reducing their taxes. What is typically missing in their quest to do that is the strategy piece. And it’s the strategy piece that produces the maximum results.

The strategy piece helps focus our actions and thoughts every single day on permanently reducing taxes.

It doesn’t have to take hours every day to get maximum results from your tax strategy. Instead, your strategy becomes a part of your daily routine.

Every transaction you do can have an impact on your taxes. Your tax strategy helps you think about your daily transactions in a way that gets you to your goal of permanently reducing your taxes.

Where Do You Start?
Think about planning a vacation.

Let’s say you are going to Hawaii. When you go to book your ticket, you need to know where you are departing from, right? This is your starting point.

It is impossible for you to get to Hawaii unless you know where you are starting.

The same applies to a tax strategy. You must know where you are starting. In your tax strategy, this means you must know your current financial position.

Your current financial position includes:

Your Current Balance Sheet
Your current balance sheet tells you your current net worth. It’s calculated as follows:

Your Assets (what you own) – Your Liabilities (what you owe) = Your Net Worth

When you know your current net worth, you know the exact resources available to you to use in your tax strategy. Your specific assets and liabilities help create the best path for you in your tax strategy.

Your Current Statement of Cash Flows
Your current statement of cash flows tells you your net cash flow. It’s calculated as follows:

Your Income – Your Expenses = Your Net Cash Flow

Identifying your sources of income is the starting point of identifying how to reduce the tax on that income.

Identifying your expenses is the starting point of maximizing your deductions.

Get Started
The starting point to reducing your taxes and forming a tax strategy is understanding your current financial position.

If you haven’t created your tax strategy yet, start by updating your balance sheet and statement of cash flows.

If you already have your tax strategy in place, review your current financial position regularly to identify new opportunities for your tax strategy.

Your Tax Strategy and Your Wealth Strategy
If you are like most, the single biggest expense draining your cash flow is your taxes.

When you reduce your taxes, you immediately increase your cash flow. Increased cash flow can be used to create wealth. Your taxes are a powerful way to feed your wealth strategy!

                                                                                                                                            

Business Owners & Investors: What to Do Before the End of the Year to Reduce Your Taxes

The end of the year is an important time in an overall tax strategy. Often times, there are things that must be done before the end of the year in order to receive certain tax benefits for that year.
Here are 3 items I find all business owners and investors can benefit from by reviewing them before the end of the year (and on a regular basis).
Item 1: Get Your Books in Order
Many people view bookkeeping as a necessary evil. I see bookkeeping a little differently. I see bookkeeping as a tool to boost tax deductions.

It’s one thing to know what’s deductible and how to maximize your deductions, but unless that gets reflected in your bookkeeping, it’s as if the tax planning never happened at all.

Here are a few tips on what to look for to make sure your books are in order:

Make sure your bookkeeping is current
Ideally, this means your bookkeeping is up-to-date through the end of last month, or last quarter. As time goes by, so does the likelihood of capturing deductions that have been missed – this is why keeping your bookkeeping current is so important to your tax savings.

Verify accounts are reconciled
This simply means making sure the balances that show for your bank accounts, credit cards, receivables and liabilities are accurate. Reconciling your asset and liability accounts is the first step to making sure your bookkeeping is accurate and deductions are not missed.

Look for what’s missing
It is very common to pay for business or investment expenses personally. This can result in missing these expenses in the bookkeeping for your business or investment which means missing potential tax deductions. Be sure to reimburse yourself for these expenses – the reimbursement puts the deductions on the books.

Item 2: Check Your Vehicle
The vehicle deduction is one of my favorite tax deductions because it has the ability to turn non-deductible personal expenses into legal tax deductions. This creates permanent tax savings.

To make this tax reduction strategy work, there are a few things that need to be reviewed and the end of the year is a great time to do that.

Review your mileage log
Your mileage log should tell you how many business miles versus total miles you have year-to-date.

Review your vehicle expenses
Vehicle expenses include maintenance, tune-ups, replacement parts, new tires, gas, oil, washes, car loan interest, depreciation & lease payments.

These expenses add up, which can mean big tax savings.

Understand how to actually claim your deduction
How your vehicle deduction is claimed depends on your business or investing activity and the type of entity (or entities) you have in your tax structure. You may need to be reimbursed by your business – before the end of the year – or you may claim the deduction directly. This is one to discuss with your tax advisor.

Item 3: Secure Your Home Office Deduction
The home office deduction is another great example of a deduction that creates permanent tax savings. It takes expenses you already have for your home (many of which are not otherwise deductible) and turns them into legal tax deductions.

Here are the areas to review for your home office:

Review the home office requirements
Home office requirements are very specific. It is good to review these requirements before the end of the year to make sure your home office meets the requirements.

Generally, the requirements that must be met include:

  • You own a business (if you are an employee, you must meet the “for the convenience of the employer” test)

  • You have an area set aside in your home used regularly and exclusively for specific administrative or management activities for your business

  • There is no other place of business where you conduct those activities

If you don’t think your home office qualifies, you may just need to change your facts in order to qualify it. For example, are there too many non-business items in your home office area that can be moved to another room? Or, can you modify the activities you do in your home office?

Review your home office expenses
Once you have determined you have an area that qualifies as a home office, it’s time to start tracking your home office expenses.

Allowable home office expenses include utilities, mortgage interest, property taxes, homeowners and liability insurance, repairs, maintenance and depreciation.

These expenses are then allocated based on the percentage of your home used for your home office area.

Understand how to actually claim your deduction
As with the vehicle deduction, how you claim your home office deduction depends on your business or investing activity and the type of entity (or entities) you have in your tax structure. You many need to be reimbursed by your business – before the end of the year – or you may claim the deduction directly. This is another one to discuss with your tax advisor.

                                                                                                    Written by: Tom Wheelwright                                      
Tom Wheelwright