Monthly Archives: January 2015

Home Office Deduction Simplified

The home office deduction is used by both small businesses and employees, which allows a deduction for using part of your home exclusively and regularly for business purposes. This allows a percentage of certain expenses to become tax deductible or at least more tax favorable such as mortgage interest, property taxes, rent, utilities, homeowners insurance, repairs and maintenance, and depreciation. The downside is that it can be both complex and time-consuming when taking this deduction.

The good news is that there is simplified method for deducting home office expenses, which began with 2013’s tax year. The newer method allows taxpayers to deduct $5 per square foot of business use up to a maximum of 300 square feet for a total deduction of $1,500.

Although this new method is simplified, you need to determine if it makes sense to use the simplified form or the traditional method of calculating home office expenses. You also want to make sure that you meet the criteria for having a qualified home office as these rules have not changed. Additionally, the rules for employees using a home office are more complex and need to be followed strictly.

Is Debt Really That Bad?

Is it bad to have debt? Should you pay off your debt early? What about credit cards? These are all questions to consider regarding your personal and business finances. Let’s take a look at the good and bad.

If you view debt as a financial tool to help you to achieve your goals, then debt is a good thing. Some benefits of debt:

  • Virtually all homeowners take out a mortgage when purchasing their first home; otherwise they most likely would not be able to purchase a home.
  • A loan for your business may help you to expand your business to help it grow, such as an equipment loan or a line of credit to use during lean times.
  • By using debt it may help you to conserve your cash so you do not have to deplete your savings to purchase a vehicle, for example.

Now, the ugly side of debt:

  • If the interest rate of your debt is very high, then you may end up paying much more than the original loan balance. This may be true with credit cards.
  • Debt payments that are too high compared to your income will put a strain on your finances.
  • If your income goes down for an extended period of time, while having a lot of debt, may result in bankruptcy, foreclosure, and a poor credit score.

New Car or Used Car?

When shopping for a car or truck, there are two big decisions to make: new car or used car and buy or lease. Let’s review the pros and cons of purchasing a new car vs. a used car, and we have written about buying vs. leasing in prior articles.

New Vehicle

Pros: The best thing about a new vehicle is that it is new! Less worries, no dings, a warranty, and more options to choose from. It is also easier to comparison shop between dealers because you are able to compare prices for the exact same vehicle. Lastly, interest rates are usually lower for a new vehicle.

Cons: The biggest drawback to purchasing a new car is the price and depreciation. A new vehicle is much more expensive, plus it quickly loses its value. You would be surprised to learn how much or little a dealer is willing to pay for your once new car after a few years. Remember, the dealer has to make a profit too.

Used Vehicle

Pros: The greatest benefit of purchasing a used car is the price. Prices vary dramatically and each model holds its value differently, which is why you can purchase a lot of car for your money. This can be especially true with some full size luxury cars. It’s also possible that there may have been several recalls that were already taken care, which could save you time. Also, more cars are being offered as certified pre-owned, which means that you will take on less risk with a used car.

Cons: It can be scary purchasing a used car because you can never be certain how the car was taken care of by the previous owner or if there are mechanical issues. The way to minimize the risk of  buying a used car are several: purchase from a reputable dealer, do not purchase a car that has high mileage or is too old, purchase a certified pre-owned car, and have your mechanic inspect the car before buying.  Another downside to an older car is that it also has higher maintenance and repair costs.