Tick Tock Goes the Tax Clock

What's New:

Take Advantage of 4 Tax Law Changes

It’s that dreaded season again: tax time. You may be scampering to find ways to squeeze every cent that you can out of the government. Fortunately, the IRS has helped ease the stress a little. TurboTax notes several changes in federal tax law that can help lighten your tax burden not only for 2002 but also for other tax years. You may find these four particularly useful.

Increase in First-Year Depreciation Allowance. If, in 2002, you made a first-time purchase of any workout equipment for your training business, you may be entitled to an additional 30 percent on your first-year depreciation allowance.

Extension of Net Operating Losses Carryback Period. If you incurred a net loss from your training business in 2002, you may be entitled to use that loss to offset taxes from the previous 5 years of returns. (Under the previous law, a net loss could be applied only to the previous 2 years.) Such tax offsets may produce a refund of taxes paid in any of those 5 years.

Increase in Self-Employed Health Insurance Deduction. If you run your own personal training business and pay for health insurance, you may now deduct a maximum of 70 percent of your health insurance expenses.

Increase in 401(k) and 403(b) Limit. If you work for a facility and participate in a 401(k) or 403(b) plan at work, you may contribute a maximum of $11,000 to it for 2002. (The previous limit was $10,500.) If you were 50 or older at the end of 2002, you may contribute a maximum of $12,000 for 2002.

Discuss your particular situation with your accountant or another tax expert to determine the extent to which you can benefit from these tax law changes.

As you prepare your income tax return, you may be looking all around for last-minute deductions. Ironically, if you train clients out of your home, a very big deduction may lie all around you. According to TurboTax, you may take the home office deduction as long as you fulfill some important criteria.

  1. You Must Use Your Home Office Both Exclusively and Regularly. Ideally, your home “office” is a separate room not used for any purpose other than training, but an area not in a separate room may be acceptable if you use it exclusively for training. If, for example, you designate a large corner of your large living room only for training, you may still qualify for the deduction. However, if you constantly move your couch or coffee table to accommodate clients, you may not. Similarly, if you keep your client records and the financial records for your business on a computer, you probably should not allow your kids to play games on that same computer. Furthermore, you may not use your home office to train clients, conduct yoga classes or perform other services for another facility.

    As for regular use, you do not necessarily have to use your home office daily or even weekly; you merely must use it frequently. Even if the office is used only to train clients, the occasional or incidental training session does not qualify you for the deduction. Be prepared to prove how regularly you use your home office. Maintain client records and invoices meticulously.

  2. Your Home Office Must Be Your Principal Place of Business. You must use your home office to perform either the most important part of your work or administrative duties for your business, such as billing clients, maintaining records and making appointments. Although you may perform some of these activities at another location, you must perform the majority of them from your home office.

    Naturally, you should discuss your specific business setup with your accountant or another tax expert to determine whether or not you qualify for the home office deduction.

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Sean White

IDEA Author/Presenter
February 2003

© 2003 by IDEA Health & Fitness Inc. All rights reserved. Reproduction without permission is strictly prohibited.

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