1. Auto Expenses:
i. The standard mileage rate
for determining your deduction for the business use of a car has
increased to 44.5 cents per mile in 2006. Therefore, it is important to
maintain a business log to claim the correct allowable mileage.
ii. It is important to keep a good vehicle log for business miles.
CPA’s are now asking clients to produce these logs during the tax
interviews. This would determine the business usage percentage to be
used in (iv) below.
iii. Also, get in the habit of having these logs as part of your
official permanent tax records, especially in case of an audit.
iv. Have actual expenses for the auto handy during the tax interview,
these would be car insurance, gas and oil expenses, car repair
expenses, along with the business % usage determined in (ii) above, and
then let the CPA determine which method actual expenses or mileage
method generates the greatest deduction.
2. Depreciation deduction:
i. For tax year 2006, don’t forget to elect this special IRS
election to write-off new equipment and furniture purchased for use
exclusively for business. This election is available provided the
taxpayer has taxable income that exceeds the total amount written off as
Section 179 deduction up to the allowable amount $108,000 for 2006.
ii. Don’t forget to capitalize and amortize organization and startup
expenses in the year you start the business. An election is available to
immediately to the extent of the first $5,000, certain conditions have
to be met, however, and once again
Discuss with your Accountant to determine whether your taxable income
meets that qualifications required in (I) and conditions are met in
(ii).
Tip: You can start depreciating your fixed assets
including taking a section 179 deduction the year they are placed in
service, even if you operate on the cash basis and you do not pay for
the assets until next year. In other words, if you paid via credit card
at year-end it is considered purchased in 2006 rather on date you
actually paid for these assets.
