Small Business Profit Explosion

Tax Tip of the Week - Having Incomplete Substantiation of Donations When Filing Nixes a Deduction

For contributions, according to the Tax Court, a couple made regular gifts of $250 or more to the church that they belonged to. However, the acknowledgment from the church failed to state that no goods or services were given for the donations. After the Service denied their write-off because of the faulty acknowledgment, they got a letter from the church saying they received no benefits for the contributions.

But that came far too late. The deduction was properly denied because the donors didn’t have valid substantiation in hand before filing the tax return.

From:

The Kiplinger Tax Letter

1100 13th Street NW, Washington, DC 20005 • kiplinger.com • Vol. 87, No. 11

 

Client Question: Can Those Companies That Advertise on Cable TV Really Eliminate My tax Problems?

Every year I hear this question many times from taxpayers who are behind in their taxes. It’s understandable, the IRS has scared them and they are looking for a quick and easy way out.

The problem is that many of these tax problem resolution companies have been found guilty of deceptive trade policies where they overpromised, collected tons of money upfront and then failed to perform. In fact, many of their customers had bigger problems after they were hired then they did before.

Checkout this link to an article written by David Leeper (an excellent tax attorney if you ever need one) for the El Paso Times that goes into more detail specifically on this point. http://bit.ly/JP0sME

 

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week- IRS Introduces Fresh Start for Back Taxes

The IRS has created a new program for people who owe back taxes. There are forms of changes that may help you if you the IRS money.

The first part of the Fresh Start program pertains to taxpayers that owe for tax year 2011. If you were unemployed for 30 days or more in 2011 to April 17, 2012, the IRS will waive their late payment penalty for 6 months. You will need to file the Form 1127-A to apply for the waiver. If you decide to do this, you will have to pay the full amount plus interest and any other penalties you may have accrued by Oct. 15, 2012. There are some income exclusions and caps on this waiver.

The second part to the Fresh Start program is related to the installment agreements. Before, if you owed $25,000 or less to the IRS you would automatically approve a payment plan and you were not required to provide your financial information to the IRS for approval. They have increased the debt amount to $50,000. This is the only part that changed when asking for an installment agreement. You will still pay for an installment agreement fee, if not done online, and interest and penalties still apply.

If you would like to learn more about this, click on this link to learn more.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Client Question: I Won A Lawsuit – Will I Be Taxed On All Of It?

Answer: It depends. Generally, lawsuit awards and settlements for physical injury or sickness are exempt from federal income tax, but awards and settlements for other torts (such as, age discrimination cases, sexual harassment cases, etc.) and settlements for punitive damages are taxable. Compensation for emotional distress, above actual medical expenses, is taxable unless they are related to a physical injury or sickness settlement.

Tip: be sure to review your case with a tax expert.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip Of The Week: Build The “Disabled Access Credit” Into Your Remodeling Plans

If you are planning improvements or equipment updates you should consider the “disabled access credit”. The credit is equal to 50% of the first $10,250 (first $250 is excluded) for a maximum credit of $5,000. Don’t forget that a credit equals a direct reduction of taxes dollar for dollar.

The credit can only be claimed by a qualified small business that is making their premises more accessible to disabled individuals. A “qualified small business” is one with gross receipts of $1 million or less or one that didn’t employ more than 30 full-time employees in the preceding tax year.

The expenses must be incurred to meet requirements established by the American Disabilities Act (ADA). For instance, a small business can claim the credit for the following costs:

• Removal of architectural, communication, physical, or transportation barriers that prevent a business form being accessible to, or usable by, disabled individuals.
• Providing qualified interpreters or other effective methods of making orally delivered materials available to hearing-impaired individuals.
• Providing qualified readers, taped text and other effective methods of making material available to visually impaired individuals.
• Acquiring or modifying equipment or devices for disabled individuals.
• Providing other similar services, modifications, materials, or equipment.

The modifications do not have to exclusively benefit disabled individuals.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

MYTH VS TRUTH: SALES TAX IS NOT A THREAT TO MY BUSINESS

The myth most business owners believe: Most business owners never worry about sales tax after they first open their business. At that time they set up their procedures and then believed that, as long as they paid their sales taxes monthly, there was nothing left to worry about.

Why this myth causes a problem: In a word - audit! My clients have been audited at a higher rate than any time in the last 20 years. And, based on my discussion with other CPA’s, this is happening city wide.

The truth successful business owners learn the hard way! Sales tax audits are a bigger threat to your business survival than almost anything else. The sales tax audit from my last three client audits resulted in an average bill of over $100,000. (Of course, after appeal we expect to pay much less).

Lesson learned: As a business owner it is your responsibility to do a threat assessment annually. You should learn the sales tax laws that apply to your business and do an annual self audit to determine your potential exposure.

To help you, I will be writing a series of blog articles titled TEXAS SALES TAX 101. Look for the first installment tomorrow.

 

$13.7 To $16.7 Billion In Improper Earned Income Tax Refunds Issued By The IRS

A new report from the Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS has not been fully compliant with a federal law requiring it to eliminate and report improper government payment to taxpayers (TIGTA Ref. No: 2012-40-028, March 2, 2012).

The IRS estimates that 21% to 26% of Earned Income Tax Credit (EITC) payments were paid improperly. This is an astounding $13,700,000,000 ($13.7 billion) to $16,700,000,000 ($16.7 billion) in taxpayer funds that the IRS failed to stop from being wasted.

Just a suggestion – maybe some of the thousands of new IRS agents that have been hired should be concentrated here. 

 

Marketing Tip of the Week – We’re Expanding!

We are proud to announce or newest project, Innovative Marketing Consulting (IMC). We are offering affordable marketing options for small businesses.

We offer everything from social media set-ups, simple websites to customized marketing programs. In the near future we will also offer mobile applications and Search Engine Optimization (SEO).

Our goal is to help small businesses owners market their business using the newest technologies regardless of their budget or experience. IMC can give small business owners the chance to utilize internet and other marketing media and have it make them money!

Go to http://www.imcelpaso.com/ to learn what we can do for you!!

 

Tax Tip of the Week: IRS Declares War on Charitable Contributions

One of my clients recently was selected by the IRS to have his tax return audited because he had a higher than average contribution deduction on his tax return. This is not me just making an assumption – this is what the IRS auditor told me. To be accurate, she said, “We have been auditing a larger number of high donor tax returns lately.”

When this is combined with the IRS auditing more charitable organizations, what other conclusion can you reach? Why would the IRS declare on charitable contributions you ask? Well, my opinion is that “rich” taxpayers’ helping the less fortunate doesn’t fit with the extreme liberal agenda where BIG GOVERNMENT is responsible for taking care of all us. How dare we co-op the government’s job!

Whether my opinion is right or not is immaterial. If you deduct donations on your return be warned – you are now a target for an IRS audit.

So what should you do? Well you can just stop donating. But, this would be just giving in to the big bully. Instead, I would recommend that you continue (or even increase) your good work and donations. But, be prepared to prove your deductions. Check out some of our prior blog articles on how to document charitable donations and how to win if challenged by the IRS:

• Cash donations substantiation requirements (Link http://bit.ly/waHe7I )
• Noncash Donation Substantiation Rules (Link http://bit.ly/zSt9fE )
• How do I prove to the IRS that I really did make donations to Good Will (Link http://bit.ly/pgC9bk )

 

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

What Would You Tell a Family With This Household Budget?

How would you counsel a family with the following household budget?

                Annual Income                                                                 $ 24,700

                Annual spending                                                              $ 37,900

                New credit card debt for the past year                          $ 13,300

                Existing credit card debt                                                  $ 153,500

                Recent spending cuts                                                     $ 385

You would probably tell them that they are close to bankruptcy. You would also probably tell them that they have to cut spending. Not just by the pretend amount of recent cuts they have made; but, with really, deep, meaningful cuts!        

Well this is every family’s share of the national budget and the national debt! (From a recent John Stossel Show.)

So, what will you be telling the politicians in this November’s election about our countries budget situation? Should they continue with more of the same and bankrupt the country or rein in our out-of-control spending now.

Better choose wisely! Your family’s future financial well being depends upon you making the right choice now!

(Start by educating yourself with a past blog – The Federal Deficit is Increasing by $237,823 per Minute! What Does That Mean to the Small Business Owner? (Link http://bit.ly/yRgdYs )

 

10 Surefire Ways to Make More Money and Keep it in the Bank!

Go to www.myprofitguru.com to listen to our free webinar that will show you the following 10 Surefire ways to make more money and keep it in the bank. This one hour webinar is jam packed with information that I have used over the last thirty plus years to help business owners increase their profits.

The following are the items I cover that I know can help you double or triple your profits this year:

1. See what the crowd is doing and do the opposite.
2. Focus your time on the work that increases profits, sales and cash flow.
3. Manage & improve every step of the sales cycle.
4. Increase sales to current customers.
5. Create a marketing system to get the big customer.
6. Speedup and improve all areas of the business transaction cycle.
7. Understanding & utilizing the most important rule of business.
8. Using 5 critical accounting numbers to increase profits, sales & cash flow.
9. Never totally trust your bookkeeper.
10. Be a lifetime learner.

At www.myprofitguru.com you will also receive a list with all legal business tax deductions (So you don’t ever miss a legal deduction again!), 65 tax cutting tips and a list of QuickBooks keyboard shortcuts.

Please let me know what you think of this free webinar.

Thank you for your continued support and let’s make this year our most profitable year ever!

 

Tax Tip of the Week: New tax return 1099 filing question poses danger to taxpayers and preparers

Two new questions on tax returns for businesses are giving tax preparers fits and exposing taxpayers to potentially large penalties.

The IRS wants to know if self-employed, farmers, landlords, partnerships, regular corporations and S firms made payments that must be reported on 1099s.

If so, they must also check a box stating whether they filed or will file all 1099s.

Preparers of their returns fear they’ll have to act as IRS agents to be sure their clients followed the information reporting rules. And they worry that the IRS will hit them with a preparer penalty if it turns out that clients messed up the 1099 filing rules.

Filing tip: The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 repealed the 1099 rules for landlords. Since 1099 requirement never went into effect, the question on Schedule E of whether landlords made any payments that required the filing of form 1099’s should be answered “no”.

                                                               

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week: Short of cash for your IRA deposits – Get a loan from the IRS

Are you short of cash for an IRA contribution this year? The IRS may give you a “loan”.

Planning strategy: Use your federal income tax refund to fund your IRA contribution. Simply file your 2011 return early; claiming a deduction for the amount you intend to contribute (assuming you are allowed to make a deductible contribution). When you receive the refund, use it to help fund the IRA contribution you deducted on your return

Is it legal? Absolutely, the IRS approved this taxpayer-friendly technique years ago. (IRS Revenue Ruling 84-18) All you have to do is make the IRA deposit by the April 17 deadline.

The IRA contribution limit for the 2011 tax year is $5,000 ($6,000 if age 50 or older).                                                          

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week: Key Tax Breaks for iPads

The IRS has informally indicated that iPads and other tablets will be treated like cell-phones when employers provide them to employees. Thus, employees won’t be taxed on the value of personal use, as long as the devises are provided primarily for business reasons rather than in the form of compensations (SBTS, November 2011). Similarly, reimbursements made by employers to employees for personally owned iPads generally should not be subject to tax when used primarily for business.

                                                               

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Tax Tip of the Week: IRS sets new 2012 retirement plan limits.

The IRS issued news Release-2001-103 (10/20/11) that announced the following Qualified Retirement plan limits for 2012:

Qualified Plan Provision                                                                                                                                                                                                                                                                                            2011                       2012

Maximum annual dollar limit for defined benefit plans                          $195,000              $200,000

Maximum dollar limit on additions to defined contribution plans        $ 49,000               $50,000

Maximum compensation taken into account from qualified plans      $245,000              $250,000

Dollar limit for defining “key employees” in top-heavy plans                $160,000              $165,000

Dollar limit for elective deferrals to 401(5)s                                             $16,500               $17,000

Dollar limit for catch-up contributions to 401(k)s                                    $5,500                 $5,500

Dollar limit for contributions to SIMPLEs                                                  $11,500                $11,500

Dollar limit for catch-up contributions to SIMPLEs                                  $2,500                  $2,500              

                                                               

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

Employers Must Get I-9 or Face Big Penalties

Employers can face huge penalties related to I-9 violations. All employers are required to complete an I-9 form for each new employee within the first three days they are hired. Enforcement activities and random audits are increasing and have already resulted in numerous local small businesses’ being hit with large fines. Some are even facing debarment from government contracts.

Penalties are imposed for:

• Improper completion, retention or failure to make the I-9 available for inspection with fines that range from $100 to $1,100 per each I-9.
• Knowingly hiring or continuing to employ unauthorized workers can result in fines of $250 to $11,000 per violation.
•  Firms who show a pattern of hiring unauthorized workers are liable for criminal penalties of as much as $3,000 per employee and may be subject to six months in prison.

Information regarding I-9 compliance and the E-verify system can be found on the Department of Homeland Security’s website at http://www.formi9.com.

Find details, plus a list of the top 10 do’s and don’ts of I-9 compliance at www.theHRSpecialist.com/ICE.

Thank you for your continued support and let's make this year our most profitable year ever!

 

Happy New Year!!!

Tax Tip of the Week- New Credit for Hiring Veterans

Congress has passed new legislation providing an expanded tax credit to employers that hire unemployed veterans. The maximum credit is $5,600 for hiring veterans who have been out of work at least six months; $9,600 for hiring unemployed vets with disabilities.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

7.5 Year-End Ways to Slash Business Income Taxes

There is still time to cut your business income tax bill for 2011. Here are 7.5 tax cutters that you should consider implementing before year-end:

1. Buy equipment this year. For 2011, the maximum 100% deduction of equipment under Section 179 is $500,000. This is scheduled to be reduced to $125,000 for 2012. There is also a bonus 100% depreciation on new equipment (not used) will be in place for both 2011 and 2012.
2. Write-off your bad debts. If your business uses the accrual method, you should write-off any receivables that you deem to be uncollectable. Document your good faith effort to collect these debts. Remember, if you later collect an account that you wrote-off you will need to pick up the total amount as income. 
3. Write-off old inventory. Review your inventory and write-down old inventory to market value. Research what you could sell it for on the internet. (Better yet, sell it at a deep discount. Better some cash than just throwing it away!)
4. Donate old inventory.  Better even than throwing away old inventory – donate it. You will be able to deduct an amount equal to ½ the difference between market and the product cost. Assume you normally sell your product for $100 and it costs you $50. Your deduction would be $75.
5. Prepay 2012 expenses in December. Pay property taxes in December rather than January. Pay your January 2012 rent or building payment in December. Look for other expenses that you can pay early. If you are short of cash charge it to a credit card. Even if you are on a cash basis you can deduct these expenses in 2011.
6. Donate computers and other equipment you no longer use. You can write-off one half of the difference of the fair market value less your remaining basis (original cost less depreciation). Since most of the equipment you replace is likely to have been written off, your charitable deduction will most likely be half of the market value. Take digital pictures to prove the deductions and keep proof of what you could have sold the equipment for at the time of the donation.  
7. Look into creating a retirement plan. The vast number of tax deductible retirement plan options makes this a subject that is well beyond the scope of this blog. Call your CPA for more information on how this can help you. 
   
   7.5  Check out my FaceBook page for daily tax savings tips that we have been posting since 10/21/11 (http://www.facebook.com/#!/pages/Wayne-J-Belisle-CPA/185259446999).

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

 

11.5 Year-End Ways to Slash Personal Income Taxes

There is still time to cut your income tax bill for 2011. Here are 11.5 tax cutters that you should consider implementing before year-end:

1. As long as it makes financial sense, sell any of your stocks that are in a loss position to offset any capital gains you may have from the sales of other assets.  But, if you have losses from 2010 or from prior years, consider selling stocks that you have build-in gains in order to use the loss and shelter the gain.
2. Install energy savings improvements in your personal home in order to reduce your taxes by up to $500 (Some improvements are limited to 10% of qualified expenses and amounts taken in prior years).
3. Secure deductions for charitable gifts by keeping excellent records. If you donate clothing or household items to charity, be sure to take digital pictures so you can prove the properties condition and worth. If you charge a donation to a credit card in 2011 you can deduct it even if the bill isn’t paid until 2012.
4. Pay your property taxes by year-end in order to deduct them in 2012. In El Paso, property taxes are not due until 01/31/12. Paying them early will allow you to double up your deduction for 2011 (assuming that you paid 2010 taxes were paid in January 2011).
5. If you are going to buy a car in early 2012, consider buying the car before the end of the year so that you deduct the sales tax paid on the auto in addition to the sales tax amount calculated from the IRS tables.
6. Bunch out-of-pocket medical expenses into one year. Medical deductions are only allowed to the amount that exceeds 7.5% of your adjusted gross income.
7. Reduce or, in some cases, even eliminate the estimated tax penalties by paying at least 100% of your 2010 tax (110% if your AGI exceeded $150,000 in 2010). Alternatively, try to estimate your 2011 tax liability and make payments equal to (or greater than) 90% of your estimated 2011 tax.
8. Divide tax on real estate gains. If you sell property before the end of the year consider receiving the proceeds in two payments – one in 2011 and one in 2012. This very easily could result in dropping you into a lower tax bracket.
9. Review your alternative minimum tax (AMT) liability. You may be able to reduce or eliminate the damage by postponing tax preferences to 2012. However, if you definitely will pay the AMT in 2011, you might accelerate taxable income into this year if the extra income will be taxed at a lower rate than your normal rate.
10. Lock in higher-education tax breaks. The tax law provides some relief to parents who put their kids through college and grad school. But the tax benefits phase out for certain high-income taxpayers. Strategy: Pay the tuition bill before Jan. 1^st as long as the related education will begin in the first three months of next year.
11. Consolidate personal loans with a home equity loan and deduct the interest. Normally, you cannot deduct interest payments made on personal loans. (There is a limited exception for student loans.) Convert non-deductible personal debt into deductible home equity debt. This way, you can deduct the interest on up to $100,000 of the home equity debt, regardless of how you use the borrowed funds. With interest rates at an all time low this is the best time you will ever get to refinance your home.

11.5  Check out my FaceBook page for daily tax savings tips that we have been posting since         10/21/11 (http://www.facebook.com/#!/pages/Wayne-J-Belisle-CPA/185259446999).

  Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.