The Worker, Homeownership, and Business Assistance Act of 2009 includes a “long time resident” tax credit of $6,500 for anyone that has owned a home for 5 of the last eight years - almost any home owner.

First Time Home Buyers are still eligible for an $8,000 tax credit, but now almost any home owner buying a new home in the next few months, is eligible for a $6.500 tax credit.

Here’s the “quick & dirty” on the tax credit:

• The tax credit is “refundable,” which means it can either reduce your tax bill or increase your refund dollar for dollar. The government gives you the tax credit as “money in your pocket.”

• Applies to a binding contract to purchase a home by 4-30-10. This purchase must close by 6-30-10.

• The credit may be taken on either the 2009 (may require amended return) or 2010 tax return.

• Returns claiming the tax credit cannot be electronically filed (must be mailed in).
• The full credit is available to taxpayers with modified adjusted gross incomes (MAGI) up to $225,000 (joint filers), and $125,000 (all other taxpayers).

• Those with MAGI between $225,000 and $245,000 (joint filers) and $125,000 and $145,000 (all other taxpayers), are eligible for a reduced credit.
• Incomes over $245,000 (joint filers) and $ 145,000 (all other filers) cannot take the tax credit.
• Homes that cost over $800,000 are not eligible for the tax credit.
• Minors (under age 18) and dependents are not eligible for the credit.

• Members of the military and other Federal employees may be eligible for even more time to take advantage of the tax credit (see http://www.irs.gov/newsroom/article/0,,id=215594,00.html

• Get additional information at: http://www.irs.gov/newsroom/article/0,,id=204671,00.html

When I first started in business, and still worked for “the man,” I learned that record keeping is sexy.

Yea, I know…it doesn’t sound sexy. Truth is, something as simple as a mileage log translates directly into saved money and saved time.

Good records save you money because they make deductions possible (read: pay less tax).

They save you time because having them keeps Uncle Sam off your back. Not having them puts you in Uncle Sam’s pocket (and maybe even in jail).

Follow these record keeping rules:

• Rule 1: keep all tax records for a minimum of 3 years and long-term records (real estate closings, stock transactions, IRA or retirement plan purchases) for a minimum of 10 years
• Rule 2: To qualify as a “receipt” for tax purposes, logs must be dated and kept continuously, receipts must be dated and have the business name (not yours – the name of the business issuing the receipt…even if it’s just a corporate ID#).
• Rule 3: Sort receipts by date before all other criteria. Having all of June’s receipts in one envelope is better than having all your gas receipts for the year in one envelope.

For example, keep a simple mileage log in your car to remind you of all your business mileage and store travel related receipts. At today’s standard rate of $0.55 per mile, 10,000 business miles gives a $5,500 standard mileage deduction.

On the last day of every month, take all the receipts from your mileage log and put them in an envelope. Write “travel receipts” with the month and year on the envelope. Then you can stash it in your favorite shoe box or desk drawer.

Get sexy. Keep good records.

The first two installments of this series defined deductions and credits, and looked at non-refundable tax credits. And with what we’ve covered so far, it’s easy to see how thoughtful planning, self-improvement and a good accountant can reduce – or even eliminate – your tax bill.

Today, let’s take a closer look at refundable tax credits.

In Part 2, we saw how non-refundable tax credits reduce your tax bill, but they don’t give back any extra.

The best kind of credit is the refundable tax credit. It reduces your tax bill, AND increases your tax check. For example, if you have a tax bill of $1,000, and a refundable tax credit of $1,500 – you get a $500 check from our now dear Uncle Sam.

Here are three refundable tax credits you can take advantage of:

1. 1^st Time Homebuyers Tax Credit

Get this one while it lasts. It has two periods. The first period ran from April 9, 2008 until December 31, 2008. It offered a $7,500 interest free loan from Uncle Sam. This credit is for 10% of the purchase price of your home purchase (up to $7,500). The credit is repaid over a 15 year period, with repayment beginning in the second year after receipt of the credit.

The new Stimulus Plan added another period from January 1, 2009 until December 31, 2009, changed the plan from a loan to a gift and increased the limit to $8,000.

That’s right, Uncle Sam is giving away up to $8,000 to first time home buyers. The credit is still 10% of the purchase price and is phased out for incomes over $75,000 ($150,000 if married).

And there’s a bonus: a first time homebuyer is anyone who has not owned a home in the last three years – it doesn’t really mean your first home purchase.

1. Recovery Rebate Credit

If you missed the 2008 stimulus check, you might be in luck. The Recovery Rebate Credit may be available if you fall into one of these categories:

ü You gained an additional qualifying child in 2008

ü Someone claimed you as a dependent in 2007, but you will file independently for 2008. My daughter Arielle was a dependent college student for 2007; now she is working and will not be a dependent for 2008.This means my “Baby” girl gets an additional $300 for this credit (Do you think she will pass some back to Dad?).

ü You didn’t have a valid Social Security Number in 2007, but got it in 2008.

1. Earned Income Tax Credit (EITC)

This much maligned credit may come in handy this year if you saw a substantial drop in income, or your income was up to $ 41,646 for a couple filing jointly with two children. This credit can be for as much as $4,828 with two eligible children. . EITC is based on income and dependents and is the most widely used IRS credit. Just don’t run out and “rent” some kids to get it! That’s the reason this credit is maligned.

This wraps up our series on tax deductions and credits.

We’d love to hear how this series has helped you, and to answer any questions you might have. Be sure to drop us a line to let us know what you think.

In our last article, we looked at
the difference between credits and deductions and showed why
credits are better.

We also promised to tell you about nonrefundable
tax credits. These credits are useful, but they’re not the best. Stick
around for our last article in this series on refundable tax credits that show
you how to really put some of Uncle Sam’s money in your pocket.

Tax credits are targeted to
activities that the government wants us to invest in. For example, to cut
reliance on foreign oil or save energy in our homes, there is an energy tax
credit.

As a reminder, tax credits offer a
dollar for dollar reduction of your tax bill. If you have a $500 tax credit, it
reduces your tax bill by $500. So, if you owed $500, now you owe nothing. Of
course, if you owe $100 – you still just owe nothing. That’s why these are
called non-refundable tax credits.

They help you pay your tax bill,
but stop short of putting money in your pocket.

Let’s look at some of the best non-refundable
tax credits out there.

ü
Savers
Tax Credit

We like to call
this the “double whammy” tax credit. For one action you get two benefits. The
first benefit is you’re putting money in a retirement plan for your future, and
it grows tax-free (it is only taxed when you take it out).

The other benefit
is you get a $1,000 tax credit ($2,000 if married filing jointly). You get this
credit if you participate in your company’s retirement plan.

ü
Educational
Tax Credit

The ETC is handy
in homes where higher education is practiced. Any family member can take
this non-refundable tax credit. It is for education beyond high school.

The ETC is
highest in the first two years after high school (called the HOPE credit) – up
to $1,800 ($3,600 if you live in the 2008 Midwest Disaster Area) per student.

The Lifetime
credit is for higher education beyond the first two years. This credit has a
limit of $2,000 ($4,000 if you live in the 2008 Midwest Disaster Area) per
return.

The ETC has another
special option: you can take it as either
a credit or as a deduction. You choose the option that brings the greater tax
benefit to you. This tax credit is based on the cost of tuition and books only.
Living expenses (room and board) are excluded.

ü
Child Tax
Credit (CTC)

The CTC is a
sweet offering just for having kids. It is $1,000 for each child under 17 that
is your child, step-child, foster child, sibling, step sibling or any
descendent of these relatives.

The CTC is a non-refundable
tax credit. However, if you are unable to take the full CTC, there is an
Additional Child Tax Credit (ACTC) which is refundable.

Here’s the best
way to look at it: if you use the CTC to zero out your tax bill, the ACTC kicks
in to increase your refund. Finally, a way to get paid for the kids! But
remember only for children under 17.

ü
Dependent
Care Tax Credit (DCTC)

In today’s two
working parent families, the DCTC allows a credit for amounts paid for child
care. To take this credit, the name, address and Tax Identification Number
(Social Security Number or Federal Tax ID Number) is required.

This credit is applied
based on income. For example, income up to $15,000 gets a 35% of dependent care
expense tax credit. In this example, if the day care expense was $1,500, the
credit would be $525.

ü
Adoption
Tax Credit

This is a nice
credit if you would like to adopt a child (excluding step-children). It also
has an exclusion attached to it that could bring the total write-off to
$23,300.

The credit alone
is worth up to $11,650 and reduces your tax bill. Eligible expenses are: travel
(including meals and lodging), adoption fees, attorney fees, and court costs.
The adoption can be for a domestic or foreign child.

The exclusion
amount for adoptions is also $11,650. This is how much your employer (or
company) can reimburse you without it becoming income to you.

ü
Energy
Tax Credit

This credit
promotes efficient energy use in our homes and cars. Home improvements like
replacement windows, insulation, tank-less water heaters, exterior doors, and
certain high efficiency heating and air conditioning (HVAC) units qualify for
this credit.

The credit is
worth 10% of the cost and can go up to $1,500.

In addition,
major energy changes like installing solar electric or water heaters is worth
30% of the cost up to $2,000 as a tax credit.

Finally
purchasing a hybrid car from certain dealers (excluding Toyota and Honda) can bring a tax credit worth
$450 up to $3,000. Buy a plug-in hybrid electric car, and the credit can run up
to $7,500.

Each of these tax
credits is separate from the others so they can be added together on one
return. If you are planning on home improvements this year, purchasing a new
car, or considering energy efficiency upgrades, your choices can save you thousands.

This is just a taste of what tax
credits can do for you.

Be sure to read part three of this
series. You’ll discover how simple it is to have Uncle Sam putting money INTO
your pocket. Now that’s icing on the cake.

Everyone wants to get money back at tax time – even me, and I’m a tax guy.

Part of the problem – a hurdle to get over – is getting a handle on how taxes work. We’re going to start getting over that hurdle in this three part article series.

In this first instalment, we’ll look at the meaning of deduction and credit. Then in the second instalment we’ll look at some non-refundable tax credits, and we’ll hit the jackpot in the third instalment when we see what’s available in refundable tax credits.

When we’re finished with tax credits, I’ll send out another series to help us all with deductions. But for now, let’s look at what those terms mean – how they impact our tax bill.

The first number we all deal with when it comes to taxes is our gross income. That’s the total of all the money we earned, won in the lottery, and inherited from that long lost uncle in Poughkeepsie.

Once we know how much gross income came in, we get to figure out how much of it we have to pay taxes on. Yep, you got it – taxable income.

To determine the taxes owed, we are using a single person. Let’s call her Mary. This is important because marital status changes which tax table you use and what tax rate is applied.

To get from gross income to taxable income, we use deductions and exemptions. (We’ll get to credits in a minute.) The government let’s us take deductions and exemptions from our gross income so we don’t have to pay quite so much tax. Three of the most common deductions are mortgage interest, retirement plan contributions and charitable contributions. Exemptions come with breathing – just by being alive (no dead jokes, please).

Here’s a quick example:

Gross Income $75,000

Deductions

Mortgage Interest $7,000

401K $1,000

State and Local Taxes Withheld $1,500

Charity $1,000 ($10,500)

$ 64,500

Personal Exemption ($ 3,500)

Taxable Income $ 61,000

You brought in $75,000, but you only have to pay taxes on $61,000. Cool.

At this point, Mary, a single person with no dependents or tax credits, and has a tax bill of $10,319.

To Your Credit

Credits are things you spend money on that the government says are “good.” It’s sort of the same as doing extra assignments in school so you get extra credits from the teacher.

In the case of the government and taxes, you get credits for dependent children, being a first-time homebuyer, or even for suffering a big drop in income.

The thing about a credit is that it’s applied against how much you owe rather than how much you earned. See the difference? Deductions and exemptions lower your income so you can pay less tax. Credits actually help you get that tax amount paid.

Let’s look at Mary again, except now she is a head of household (HOH) with three dependents (that was pretty quick, huh?) and still has $75,000 in income.

She gets a $1,000 credit for each child and because Mary just had her third child, she gets a “bonus” $300 Stimulus credit. She bought her first house with a tree-swing and white picket fence, and for that, she gets a $7,500 credit (first time home-buyer credit). Now we have $10,800 in tax credits.

Mary, our HOH with three dependent children, now has a tax bill of $7,694. Fortunately, the credits make a major difference.

Mary goes from owing $7,694 to getting a $10,646 refund. Not bad for getting a new house and having children.

You can see where good planning – making the most of deductions and credits –pays off handsomely at this point.

Of course, without any planning – you wouldn’t have made retirement contributions, supported local charities, had another baby or bought that new house. And then you’d be stuck having to pay that miserly, tightwad of an uncle another $7,694 of your hard-earned money. It’s really even higher because removing deductions – retirement contributions and charitable donations – increases taxable income.

So now we understand two things:

1. We know the difference between a deduction and a credit, and

2. We know you’d better make good use of both if you want any money back from Uncle Sam.

Stick around for the next two articles. The first one takes us through the jungle of non-refundable tax credits. They’re good, they’re useful, but they’re not the best.

The best is saved, naturally, for last. The third article will show you the pot of gold to be found in refundable tax credits. Not only do they lower the tax you owe – they can put money back in your pocket.

When she came into the office, Sally didn’t have a clue of what she owed in taxes for 2008.

For 2007, she still owed almost $3,000 on net income of $20,000. Last year (2008) she had net income of almost $35,000 and is looking at a tax bill of over $7,500.

Now, Sally is looking at a two year tax bill of more than $10,000 and is already behind in paying her 2009 estimated taxes. Like I said, it was the WORST of times…

Sally has an LLC that receives money for the work she does personally and for a separate health facility. She files one LLC tax return for both businesses as a Sole Proprietor on Schedule C along with her personal tax return, Form 1040.

The business that provides the health care services breaks even…no problem here. There is no tax bill when no money is made.

The income from the work she does personally, however, is taxable.

Self employed people pay estimated tax ahead of time similar to employees paying taxes from their paychecks. The major difference is that the self employed pay the full 15% self employment tax on income (employees pay half of that).

If you work for yourself, and make a profit (more money coming in than going out), you have to pay 90% of your tax bill by December 31st of each year or face a 25% penalty (of the tax due).

Sally has very few deductions against her income. Also Sally hasn’t been paying estimated tax and she is not on payroll. (I’ll explain these terms in a minute.)

You are required to pay estimated taxes quarterly, but you’re allowed to pay them more often.

What is an entrepreneur to do? We have an answer, but first let’s take a look at Rashan.

Rashan is an internet entrepreneur. He knows how to make money on the net.

Unfortunately, Rashan hasn’t been paying estimated taxes either.

For 2007, he had a tax bill of $8,000. When he did his taxes this year (for 2008), his bill turned out to be over $9,000.

He had a payment arrangement with the IRS for the 2007 taxes of $500 per month, but you can imagine how that has to change with the new amount he owes. He is now looking at a total tax bill of over $17,000 and the IRS is adding penalty and interest costs every day.

We now have to go back to the IRS and negotiate a new payment plan. Rashan also has not paid any 2009 estimated taxes this year.

What’s an entrepreneur to do?

Take the Work out of Paying Taxes
Let’s face it – if you’re making a profit, you have to pay taxes. The key is to know what your profit is, and then have an easy way of paying taxes on it.

Paying estimated taxes can be easy if you sign up on www.eftps.gov. Using this site, you can automatically get your estimated taxes paid on a weekly, monthly or quarterly basis.

As much as I try to reduce tax bills for all my clients, I still suggest paying the tax man quickly – more quickly than any of your other accounts payable. After all, you’re not saving anything if you end up late with the tax man and pay unnecessary penalties & interest. (Here’s a hint: the more frequently you send in a payment, the smaller and easier the payments are to handle.)

Payroll is the recommended option. With payroll, you become an employee of your own company. As an employee, you can have many benefits:

Automatic tax deductions
Retirement plan options
Health benefits

We recommend using a payroll company to outsource this work. It’s an inexpensive way to automate a tedious chore. If you’re the only person on a monthly payroll, it should cost around $75 per month.

There are two big advantages to taking the payroll route. The first one jumps right out at you: As an employee, your tax rate is HALF of what it was as a sole proprietor.

The other is that the payroll company pays your taxes as an employee through simple payroll deductions. They also file all the government paperwork, give you a W-2 at the end of the year, and free up your time to do what you do best – run your business.

Your main responsibilities are to “call–in” the payroll and make sure money is in the bank when they access your business account. It’s as simple as ordering a pizza and waiting for delivery.

The payroll company we recommend is www.paycycle.com.

Our experience is that using a payroll company helps you pay your taxes on time, position yourself for other company benefits, and free you up to make more money doing what you do best.

Be sure and sign up for our free newsletter at www.asktaxguys.com. We give more information on managing your taxes and your business

As I head back to the office, I’m wondering: “Did you file your return on time? Did you file an extension?

Only worry if you owe them. Even if you don’t have the money, file as soon as possible to avoid penalties. The longer you take, the more it costs you. Don’t delay…

If they owe you, don’t worry at all - except that Uncle Sam has your money. There are no penalties, and they may pay you some interest.

If you would like more information on this, check out my article at earlytorise.com on 4-14-09.

Next entry, I will give some tax planning tips for this year.

Every year, taxpayers ask that burning questions: “How can I pay less tax and get the biggest refund ever?”

As they stare that almighty tax form right in its black and white face and try to figure out where they can reduce the amount of their tax liability, they are looking for tax relief.

Would you like some tax relief?

Fortunately, finding that one deduction or that other method to reduce the amount of tax owed is easily done. It’s just a matter of knowing what to look for and where to find it.

One great way to take advantage of all of the deductions available is tax planning. Having a plan in place can help reduce the amount of tax that is owed.

Lets say you have high income with a few deductions, our tax tips show how starting a home based business, or taking advantage of little know write-offs can reduce your tax bill.

The idea behind deductions is to lower your taxable income.

This means taking all your eligible deductions on real estate, taking advantage of tax exemptions, and increasing withholding tax when necessary. There are approximately 350 tax deductions that you can use to reduce your taxable income and your income tax rate.

We have three steps to reducing your tax bill. No matter your level of income, here are three ways for you to pay less tax:

1. Look at your withholding tax: Tax law is an amazing thing. You control the amount taken from your paycheck with Form W-4. This form is usually filled out when you start working. Form W-4 may be changed at any time with your payroll department. This means that you can designate more tax to come out of your paycheck based on exemptions. Each exemption is worth money that can increase your take-home pay. We recommend looking at your withholding exemptions annually. Couple this with analysis of your most recent tax return.
2. Look for additional deductions: There are two types of deductions: adjustments and itemized deductions. Adjustments include student loan interest, teacher’s expenses, and the cost of tuition and books for students (post high school). Itemized deductions include contributions to charities and mortgage interest paid on your home. Refinancing your home increases the mortgage interest deduction while giving you more cash in hand. Make sure you seek tax advice. Our free newsletter can help. You can reduce your income tax rates by going over all of your deductions. There are commonly overlooked deductions such as child tax credits, charitable contributions, and job related deductions like mileage, home office, or meals.
3. Start a home based business: For many, business ownership has become a path to financial freedom. Home based business owners are able to take deductions that others cannot: home office, telephone, internet service, office supplies, etc. When you start a business the initial deductions may offer tax refunds, and as the business begins to make money, the continuing deductions provide financial freedom. Noted tax accountant Sandy Botkin says that having a home based business can bring $3,000 - $9,000 in tax savings. Please check out our “Tax Guide for Starting A Business” for more information.

The point is: “Why should you pay more than you have to?”

The tax relief you will experience will be quite significant as long as you follow these steps. Always take the option to itemize your deductions and make sure you keep track of them throughout the year. That way it’s easy for you to claim everything that’s yours.

Tax planning will decrease your tax burden Good record keeping also protects you in an audit and provides support for all those deductions you are taking. Finally, choosing a good tax professional helps in planning, preparing, and audit-proofing your tax return. Check out our free report, “Choosing a Tax Professional.“

Income tax time can be very scary. Fortunately, you can eliminate the fear and maximize your refund with a few simple strategies.

Strategies for you Now

Whether you’re filing as an individual or a small business, it’s important to take advantage of these strategies. Speak with a tax pro to explore the complete range of tax saving options available to you.

Here are the top 5 tax planning & strategy tips for 2009:

1. Recordkeeping: The least sexy of all strategies, recordkeeping can be quite rewarding.
   • A regularly maintained mileage log in your car can bring up to $.55per mile in deductions.
   • Receipts for home office related expenses can lead to big deductions based on the size of the home office.
   • Tracking all your real estate related expenses (closing statements, repairs, and contract labor) has big tax impact, and offers protection in case of an audit.
   • Most important of all: Good recordkeeping help you to be audit proof.
2. Year-to-Year Comparison: This simple action can reap powerful tax benefits. Get a copy of your last year’s tax return. See if you had any adjustments to income and itemized deductions.
   • Yes? Good. Can any of these items can be increased?
   • No? What actions can you take to have them?
   • Most taxpayers that itemize have mortgage interest and charitable contribution deductions. Did you have any? A home purchase is not only the American Dream, but a major itemized deduction.
3. Capital Losses: In today’s turbulent stock market, it is unfortunately routine for taxpayers to have large capital losses.
   • Take these losses prior to year-end to reduce your tax liability. Capital losses offset capital gains on a dollar-for-dollar basis.
   • You are only able to take $3,000 in capital losses per year against ordinary income. Losses over $3,000 may be carried back or forward to affect other year tax returns.
   • One strategy for mutual fund owners is to sell an under performing fund and buy into a different fund with the same mutual fund company. The effect is to take the current loss without being subject to “wash” sale laws. These laws require a 30-day period before re-buying the same investment.
4. Real Estate: In today’s current market, real estate offers tax advantages and may be purchased at reasonable rates. Tax-wise, real estate is a long standing tax shelter. Normally the mortgage interest and depreciationnot taxable. This is because the loan will be repaid, and it is not income to the borrower. It is very possible to show a tax loss on real estate, while actually having cash flow. offset rental income for tax purposes. Also, when investors “cash out” of their real estate - receive money at the loan re-financing and put this cash in their pocket - this money is
5. Home Based Business: Tax accountant and author, Sandy Botkin says, “You would have to be “brain-dead” not to have a home-owned business.” For many, the idea of starting a business seems scary and full of risk. Starting in your home takes some of the risk away by lowering start-up expenses. In addition, working out of the home offers tax deductions for the business that are not allowable personally. Once you start a business, items like cell phone, internet service, automobile, and home office become deductible. Mr. Botkin estimates that tax payers can save $3,000 - $9,000 in taxes with a home based business. Be sure to check out our “Tax Guide for Home Based Businesses.”

Now is the time to plan for tax year 2009 to have your best year ever. With a new Administration coming in expect major changes effect in 2009. Our free newsletter will offer tips you can use personally and in your business.

January 2009 is the time to make sure you keep money from 2008 in your own pocket.

Now is the time to make plans to plan to avoid paying “Uncle Sam” and get your biggest refund ever.

1. If you have a business, do the following:

√ Take end of year mileage - It doesn’t matter when you clock end of year mileage - it just matters that you do it in a provable way. Get an oil change, photograph your odometer or get your neighbor to witness the mileage reading. Do this quickly so your year end mileage is as close as possible to the actual year end.

√ Get an oil change; take a picture of odometer, or something similar to support your claim.

√ Take an end of year Inventory: Every retail business has inventory. Take an end of year inventory. As with mileage, you want to do this as close to actual year end as possible. That lets your year-end numbers serve as your next-year’s-start numbers.

Inventory is important in determining your profit - and profit determines your tax bill. Inventory is not a deduction until it is sold. Although an expense to the business, it cannot be deducted until sold. Until sold, it is an asset. Inventory doesn’t affect profits until it is sold.

In most cases using an inventory company simplifies this process

〉 “Quick Analyze” Your Systems: Now is the best time to quick analyze your financial systems. Look at your accountant or tax preparer. The beginning of the year is the best time to make this change. Our free article gives you sample questions to ask your potential new accountant.

Would you like to upgrade a manual accounting system to an easier digital system? Consider software like QuickBooks that will fit your needs. Be sure to include your bookkeeper AND your tax preparer in the discussions for choosing and setting up a new system.

Do you feel like you are paying too much tax? Check out our article on Top Tax Tips for 2009. Now is the time to set your financial foundation for 2009.

2. Here are two individual tax suggestion for 2009:

〉 Look at Your Form W-4: Form W-4 determines how much tax is deducted from your paycheck. Here’s a quick way to decide whether you should have more tax deducted: When you paid at tax time last year, and your income is the same or higher this year, then having more tax deducted from your paycheck can keep you from having to pay at tax time next year. Our free article, The Top 5 Planning Tips for 2009 gives details on this and other strategies.

〉 Consider a hobby or home based business: Many people look at a business as the better of these two options.

If profit is not a concern, and you have an interest that you spend time on and make some money in, consider a hobby. With a hobby, you are able to take deductions up to the amount of money you make. With a hobby, you are able to “break-even” tax-wise.

If you are a stamp collector, for example, and travel to conferences, it can be deductible. The more money you make in the hobby, the more you can write off.

A hobby is a life style choice, not necessarily a financial one.

A business is able to write off deductions above income, and show a loss. This loss can offset income from other areas, like a paycheck.

If you have a profit motive, start a business or turn your hobby into one. It may require more effort than a hobby, but offer more benefits and have more long term potential.

If you are interested in starting a business, check out our, “Tax Guide for Home Based Businesses.”

Do It Now

We all make our resolutions at this time of the year. Seriously look at your personal and business tax situation and take action now to reduce your tax burden in 2009.

Check out our free article Top Tax Tips for 2009 now.