1) TRY THE HOME OFFICE DEDUCTION
In prior years the home office deduction was somewhat risky. The IRS seemed to audit that deduction frequently and there were complications due to apportionment of expenses between personal and business and depreciation on your home.
Now, due to simplified rules, the home office deduction may not be as risky but here are the rules:
- It must be a defined space in your home, such as a room or a section of your basement for administrative or management activities of your restaurant.
- Your office cannot be used for anything other than business activities. For example, no personal bill paying.
- You do not use the restaurant or space in your restaurant to conduct business activities. Almost all your administrative or management activities are conducted in your home office.
- If you have an office in the restaurant and just do some activities at home you do not qualify.
The simplified deduction does away with all the record-keeping and depreciation of your home and substitutes a simple square foot times $5.00 calculation. The maximum deduction is $1,500.
If you think you qualify, make sure you mention it to your personal income tax preparation professional at Kallas.
2) DONATE YOUR REQUIRED MINIMUM DISTRIBUTION
If you are over 70 ½ years of age and have a retirement pension, you are required to take what they call a minimum distribution each year. The minimum distribution is calculated using actuarial tables and is a percentage of what you have in your account. Pensions, IRA’s are eligible but not 401K’s.
If you also contribute to charities each year or to your church, you can take the distribution and contribute all or part of it directly to the charity and thereby not pay taxes on it.
Funds must be transferred directly from the pension or IRA to the charity by the pension trustee in order to qualify for the tax break. If you withdraw the money and later donate it, it won’t qualify. You have to make the distribution check payable directly to the charity.
3) TAKE YOURSELF OFF PAYROLL
The new Qbid deduction allows small businesses to take a deduction of 20% off their profits thereby reducing their taxes by 20%. This deduction is based on your profit. If you take a salary or wage check as part of your compensation, that reduces profit and consequently reduced the 20% deduction.
If you are an owner and are on payroll it would be a good tax savings move to either go off payroll or reduce your payroll checks and take profit checks instead.
It is all legal but you should consult with your Kallas tax professional before making such a move as there are compensation rules you should follow.