Understanding Business Tax Write Offs

A tax write off is the same thing as a tax deduction, and if you don’t know what expenses are legitimate deductions on your tax return, you won’t know what you can legitimately write off either. In the case of tax write offs, what you don’t know can be very painful indeed.

Tax write offs are taken by business owners and are items which in normal circumstances might not be allowable deductions but become so when the situation of a business changes.

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Because the amount of taxes a business pays are based on the income it gets, a debt which not been paid, or receivables which never show up can be categorized as bad debts and written off. You have to declare any bad debts but do not have to include them when you calculate your income for your annual return.

Loans: If you have loaned your personal funds to help support your business, you can write them off, even though you may have referred to them as income in order to raise the net worth of your business for borrowing purposes. But they remains loans, not income, and cannot be subjected to tax. And if you’ve taken a business loan from a third party lender, you may be able to get a tax write off on the interest payments.

Pension Plans: If your business has less than a hundred employees and you are providing them with pension benefits, you can get a tax credit and it will be deducted not from your business’ gross income, but directly from the amount of money you owe in taxes. This may not be called a tax write off in the IRS literature, but for all intents and purposes it is.

The government is concerned that social security will not be adequate to fund the retirements of millions of Americans, so it does what it can to encourage businesses to look out for their employees. You’ll help your workers, and the tax credit/tax write off will help your business’ bottom line.

You can also take a tax write off on any state and municipal taxes which your business pays. This write off includes both state and municipal income taxes and state and municipal sales taxes, deducting them from your total taxable income.

Travel Expenses: While the IRS regulations are somewhat vague on the matter, you can claim a tax write off on trips during which you spend more time devoted to business than to pleasure. You can keep records of your transportation costs, like cab fare, air fare, and rental car expenses. If you drive your own vehicle, you can take a write off for the mileage.

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Do Hedge Fund Need Regulations

The popularity gained overtime and the ever-increasing crowd of investors in the hedge fund industry has augmented the need for higher degree of regulation in the hedge fund market.

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Hedge funds are very similar to mutual funds except that there are fewer regulations on hedge funds. As a result hedge funds require a much larger investment. Hedge funds are very reticent, that is, they are private, between individuals, and do not have to be made known to the government or other companies. This allows hedge funds to be free from the regulations that mutual funds have to adhere to. Because of this large companies move undisclosed amounts of money and gain significantly without authorities noticing. This reticent nature of hedge funds makes them look suspicious and leads to many apprehensions in the minds of the investors, such as; these funds are unethical, speculative and risky. Also their high price tag and the extravagant amount of money required for their initial purchase makes people think that the investors are being hood winked into putting money into these funds. Only ensuring high levels of transparency in the working of the hedge fund industry so that an investor knows exactly where his money is going can clear these apprehensions.

Moreover, better regulation will produce more accountable hedge fund managers in future and the investors would be able to simply research the background of a hedge fund manager before entrusting their money into his hands.

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Another negative aspect of the non-regulation of hedge funds is that there are no official hedge fund statistics. Most hedge fund holders are large companies and hence, little is known about their financial movements. Hedge funds are based in offshore jurisdictions, making them look even more suspicious. For instance, unlike mutual funds that have a base in large cities like New York, hedge funds are based in places like Bermuda, Cayman Islands, and the Virgin Islands.

Hedge funds also have a higher failure rate than traditional funds. Many of them fail by the second or third year of operation. It has been estimated that about 5.7% of the existing 8500 hedge funds closed in 2005. This vulnerability to quick falls that can be detrimental and can lead to sudden losses can be brought down with the help of regulations.

In London, the techniques used for the hedge funds operating from there, have bothered the Financial Services Authority. Hence, to check the functioning of this industry, the FSA has now decided to start regulating hedge funds and their managers. Also, a special hedge fund unit has been set up to determine how the London hedge fund industry which has been estimated at £500-billion, can be controlled better.

However, the Canadian Securities Administrators that is the umbrella organization for Canada's provincial securities commissions has decided that the currently existing rules for investment vehicles are sufficient to regulate the burgeoning Canadian hedge fund industry (a $30-billion industry). This implies that no additional rules and regulations would be laid down specifically for hedge funds in Canada.

Thus, with the proper regulations in place, the clouds of suspicion and uncertainty that are hovering over the hedge fund industry will certainly clear up and would pave the way for a much safer hedge fund market that would attract a larger number of investors.

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Hedge fund investing guide 101

Hedge funds have become a new craze among the investors who are looking for higher net returns and to diversify their investment portfolio.

However, before investing one should first have a basic idea of what hedge funds are all about. A hedge fund is characteristically a privately organized joint investment fund, predominantly invested in public traded securities. It is a pool of invested capital, used mainly by wealthy or financially experienced individuals and institutions.

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Usually, law to just 50 to 100 investors per fund restricts hedge funds. Thus, most hedge funds set very high standards for an individual to be a qualified purchaser. Most often, an investor with a net worth of above one million dollars and an annual income exceeding two hundred and fifty thousand dollars is only considered as a qualified customer. Hedge funds are very similar to mutual funds. The difference between the two is of strategies they use. Hedge funds use a set of strategies other than investing long in bonds, equity, mutual funds and money markets. Thus, its strategies can generate positive returns irrespective of the rise and fall in the equity and bond markets.

One way to invest in hedge funds is to invest in a company just before a major merger, as shares go up significantly once the merger occurs. This technique is called ‘Risk Arbitrage'. However one should have a prior knowledge of the merger before buying large amounts of shares in a company, as it is a very high-risk investment strategy since some mergers may not occur at all. Another technique, which one may adopt while investing in hedge funds, is ‘Leverage'. This means using borrowed capital in to own capital for investment. ‘Selling Short' is also a popular strategy where one invests in apparently undervalued securities, trading commodities and FX contracts, and takes advantage of the difference between current market price and the highest purchase price in events such as mergers.

Even though most hedge funds promise higher net returns, they are accompanied by some limitations. For instance, in case of many hedge funds, there are certain restrictions on one's right to redeem his shares. Often, there is a lock-in period that can extend to over a year. During this period one cannot redeem his shares. Hence, one should reconsider his options and take into consideration a long-term perspective before investing in hedge funds.

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Moreover, hedge funds also have a higher failure rate than traditional funds. Many of them fail by the second or third year of operation. It has been estimated that about 5.7% of the existing 8500 hedge funds closed in 2005. Also, because of their non-regulation there are no official hedge funds statistics. Besides, hedge funds are more suited for large businesses because they have a price tag.

However, hedge fund is a very helpful tool for the diversification of one's investment portfolio. It reduces the overall portfolio risk and volatility, as it is not related with the broad stock market indices. Thus it is a smart choice for those who are willing to take the risk.

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