If you have a mortgage, just be aware there are maximum limits to the mortgage interest you can deduct. The interest is limited to a maximum of interest on mortgages of $1,000,000 and equity lines of an additional $100,000, for a total of loans of $1,100,000. This will not affect most people but if you bought a house at the top ot the market, you need to be aware of this item. So if you have more than $50,000 in mortgage interest the government may require proof that you are not deducting too much interest.
Brian’s Tax Musings
Today, let’s talk about the Home Office deduction. If you have a room (or a segregated portion of a room – meaning it is screened off or something like that) that you use for conducting business for either your employer (as long as it is for their convenience) or a business of your own, you may qualify for an Home Office deduction. It is normally based on square footage (office/total home) and allows you to deduct a percentage of rent, utilities, gardening, insurance and many more items that normally are not deductible as a residence deduction.A Home Office deduction is normally taken as a miscellaneous itemized deduction (unless you are a sole proprietor; then it can be deducted on Sched C) and there has always been some question about whether it is an audit flag item (it may start the ball rolling on an audit). From experience I have not seen an audit triggered just by a Home Office deduction, but as one item in many items the IRS looks at, it could be a starting point, so be careful. Here is the link to the IRS website discussing Home Office: http://www.irs.gov/businesses/small/article/0,,id=204169,00.htmlIn summary the Home Office deduction can be a nice tax [...]
Brian’s Financial Musings
How much do you spend every month? Is it more or less than you make? You can find out by keeping a budget.The hardest part of a budget for me is to find out how much you spend every month. In our family we allocate a certain amount of cash to each of us, then try to put as much of our other spending on credit cards every month. That way we have a record of how much we spend (plus we get the rebates).Using our cash and credit card bills, plus some monthly deductions from out checking account, I can get a pretty good idea of our spending habits, so I can compare this to previous years and our income. Then it is just a question of finding where we have to cut back or if we are okay.I also allocate a monthly amount to savings, which get automatically transferred to two savings accounts – a regular savings account and a Roth IRA. Since it is done automatically I don’t have to think about it and just figure it in my budget.I use spreadsheets to do this, but you can use quicken or quickbooks to do the same thing.