This chapter offers several tax planning opportunities, including capital asset expensing, offsetting active income with rental losses, and selecting a form of business.

Expensing capital asset purchases. A self-employed taxpayer purchasing new capital assets for the business can elect to expense up to $250,000 (in 2008) of the cost under section 179 and also deduct additional first year depreciation. A forecast of taxable income over several years can help the business owner if to elect to expense or depreciate, but immediate expensing can provide a tax saving that can finance the cost of the assets. Also business owners may wish to accelerate the purchase and placed-in-service date of new equipment so that it may be expensed prior to year-end rather than early in the next taxable year.

Rental losses on vacation property. A taxpayer who is contemplating the purchase of vacation property or currently owning vacation property should be aware of the requirements for reporting income based on the days rented and personal use definitions. A rental of less than two weeks can produce some income to offset expenses and a rental of a longer period could result in a rental loss that is passive but is still deductible if the personal use of the property remains less than the greater of 14 days or 10% of the days rented.

Self-employment offers benefits but also has its costs. Some individuals (e.g., sales, professional services) can select to be self-employed or work for an employer. Business expenses of a self-employed taxpayer are not subject to the 2% AGI limit that employees face if they have unreimbursed business expenses. Self-employed taxpayers do face, however, other expenses employees will not usually pay. For example, licenses and fees that may be imposed by local and state governments will be solely born by the self-employed. Health insurance can be more costly. And, the largest expense will often be that the self-employed pay both parts (employer and employee shares) of FICA. These costs, as well as more subjective and personal issues, should be considered.