These Tax Tips are focused on Businesses

Business or Hobby?
It is generally accepted that people prefer to make a living doing something they like. A hobby is an activity for which you do not expect to make a profit. If you do not carry on your business or investment activity to make a profit, there is a limit on the deductions you can take.

Earned Income Tax Credit for Certain Workers
Millions of Americans forgo critical tax relief each year by failing to claim the Earned Income Tax Credit (EITC), a federal tax credit for individuals who work but do not earn high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.

Your Appeal Rights
Are you in the middle of a disagreement with the IRS? One of the guaranteed rights for all taxpayers is the right to appeal. If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

Information about IRS notices
It's a moment any taxpayer dreads. An envelope arrives from the IRS and it's not a refund check. But don't panic. Many IRS letters can be dealt with simply and painlessly.

Should you itemize?
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. According to the IRS, money paid for medical care, mortgage interest, taxes, contributions, casualty losses, and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

Educator Deductions
If you are an educator, you may be able to deduct up to $250 of expenses you paid for purchases of books and classroom supplies, even if you don't itemize your deductions, according to the IRS. These out-of-pocket expenses may lower your 2007 tax bill.

Keeping Track of Business Mileage
Whether you use you personal car for work, or a company vehicle, it is important to keep track of the total miles you have driven for the year, as well the business miles. The easiest way to do this for most people is to keep a mileage log: notebook, calendar, etc. in your car and every time you go somewhere write your starting and ending mileage and where you went. This will be your support for auto deductions, should you ever be under audit by the IRS. You will also want to keep track of actual expenses on your vehicle, i.e. fuel, repairs, etc.

Separating Business and Personal Expenses
Many small business owners use their personal funds for business or their business funds for personal use. Setting up an account for both personal and business banking will be very beneficial in keeping track of your expenses and your potential tax liability.

Holding Back Money for Taxes
Many small businesses receive a large tax bill once their taxes are prepared and wonder how they will find the money to pay the balance. A good rule of thumb is to hold back 30-40% of income to pay any IRS bills that may occur.

Meals and Entertainment
Remember that meals and entertainment are only 50% deductible on your tax return. Additionally, meals and entertainment expenses need to be documented with the Who, Why, Where, and When to justify as a legitimate business expense.