• Rising Gas Prices, Rising Concerns For Micro-Business
• Business Or Hobby? Answer Has Implications For Deductions
• Worker Wellness Tax Credit

Rising Gas Prices, Rising Concerns For Micro-Business

More than ever, rising gas prices are having an effect on micro-businesses, according to a recent online poll by the National Association for the Self-Employed (NASE). A whopping 74 percent said that high gas prices were either significantly or moderately hurting their business, up from 67 percent in 2005. “The NASE continues to work with Congress to remind them of the financial burden high fuel costs place on micro-business owners,” said Kristie Darien, executive director of the NASE legislative office. When asked about current energy proposals, 86 percent said they would like to see tax credits for home owners who make energy saving improvements on their home, such as solar panels and Energy Star products. Sixty-seven percent wanted tax credits for drivers who buy cars with fuel-efficient technology. This differs significantly from previous data which listed “additional drilling in possible oil rich areas within and off shore of the U.S” as the top solution. Interestingly enough, respondents said that their personal vehicle use – as opposed to business use – has changed in the face of rising costs at the pump. Sixty-six percent say they have curbed personal driving due to high gas prices. To see the full results of the survey, visit http://advocacy.nase.org/membersurvey/default.asp. To review the results from past NASE polls, visit http://www.nase.org/Survey/past_surveys.asp.

Business Or Hobby? Answer Has Implications For Deductions The following article comes to you courtesy of the communication and education team at the Internal Revenue Service. For additional tax information, visit http://www.irs.gov or http://taxtalk.nase.org/taxtalk.asp. The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit…. In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates. In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. In order to make this determination, taxpayers should consider the following factors: Does the time and effort put into the activity indicate an intention to make a profit? Does the taxpayer depend on income from the activity? If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business? Has the taxpayer changed methods of operation to improve profitability? Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business? Has the taxpayer made a profit in similar activities in the past? Does the activity make a profit in some years? Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity? The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses. If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations. Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories: Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full. Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category. Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.   Quick Look: Tax Credits For Wellness Programs   A bipartisan bill introduced this week is hoping to encourage healthier employees by providing their employers with wellness tax credits. The Health Workforce Act is particularly poised to affect smaller employers, offering up to $200 per employee for the first 200 staff members and up to $100 for each additional worker. The employer-administered program would be renewable every decade and requires three of the four following criteria: Awareness programs that include education and health risk assessment Behavioral modification initiatives that encourage employees to lead a healthy lifestyle through counseling, seminars or on-line programs A supportive environment to encourage employee participation, such as offering participation incentives to employees An employee advisory council to structure the wellness program to the needs of a particular company Share your experiences as a micro-business owner! Sound off on key legislative issues and get some free publicity for your business in the process by becoming a media contact. Visit www.NASE.org/mediarelations/contactsheet.asp to fill out an informational sheet on the background of your business. Then, send it back to us at the contact information listed on the sheet. If getting involved in the legislative process suits you better, go to the Advocacy page and “Tell Your Story” (http://advocacy.nase.org/issues/issues.asp). You have the option of allowing the NASE to share your micro-business story with your Members of Congress. By allowing the NASE to tell your story to legislators, you can play a vital role in illustrating the real life consequences and affects of issues they debate on a daily basis.