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.

 

CLIENT QUESTION: Can I Still Claim my Married Child if They Live With Me?

Answer: No. Once your child can file married filing jointly you no longer can claim them – even if you support them 100% and they have no income.

But, if your child has a dependent (your grandchild) that also lives with you and you support them; then, you may claim the grandchild. This also should allow you to qualify for the child tax credit and education credits for the grandchild.

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.

 

Client Question – I Do Non-Compensated Work For A Charity. Can I Deduct Auto Expenses?

Answer: Not exactly. If you use your own car, you may deduct actual gas expenses plus related tolls and parking fees attributable to charitable related travel. Instead of keeping detailed records, you may choose the IRS-approved flat rate deduction of 14 cents per mile in 2012.

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 – YES, We’re Still Here!

We’ve been working so hard on tax returns these last few weeks that we’ve neglected our poor little blog. 

Just a reminder, if you haven’t brought in your tax information you need to do it, and soon! The deadline this year is April 17^th.

We can only guarantee we can get your tax return done by the deadline, is if you bring you COMPLETE tax information to the office by April 4^th. After that, we can no longer guarantee it will be done by the deadline. Remember, if you owe money this year and do not meet the deadline you will be charged interest and penalties. If you need an extension, please call our office at 915-857-8158 so we can submit one for you.  Again, if you owe money and file an extension you will still be charged interest and a penalty for not paying your taxes by April 17^th.

Now back the tax tip of the week. We read this article regarding which deductions never to take. A lot of the deductions are questions that we get often. Click on this link, http://yhoo.it/GWLXAM. We hope it helps clarify any questions. 

 

Customer Question of the Week – My Child is Working Can I Still Claim Them on My Taxes?

If they’re under 18 or younger, yes.

Once your child marries you can no longer claim them, even if you’re supporting them.

It’s when they get older that it gets tricky. In order to claim your child that is over 18 they must be a full time student for 5 months or more and you must have supported them for the year. Their yearly income can exceed $3,700 for the year.

If your child is over 18 and not a full time student,  the only way you claim them is if they make less than $3,700 for the year and you must have paid over half of their living expenses.

Once your child turns 24 it no longer matters if they’re a student or not. The only way to claim them is if they make $3,700 or less for the whole year.

Your child may need to file a tax return; but, they must specify they are being claimed by someone else. If they do not, this can cause problems with your tax return. There are ways of fixing this, but it will take time and other tax preparation fees may accrue.

I hope this clarifies the whether or not you can claim your working child. It can get complicated. If you need any more clarification, call our office at 915-857-8158. 

 

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.

 

Client Questions - Can I Deduct My Spoiled Inventory?

Question: A florist called our office this week asking if she can deduct the cost of flowers that didn’t sell over Valentine. I get this question often from restaurant owners also.

Answer: Since flowers and food have a short shelve life, it is very rarely held in inventory. Normally the business owner deducts the cost of the flowers or food when they are purchased. Accordingly, they cannot be deducted again when they are thrown out.

Larger retailers, wholesalers or manufacturers who have an inventory on their tax return will get a deduction when they write items of inventory off as worthless.

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 )

 

Client Questions - Can I Deduct an Invoice that My Customer Refuses to Pay?

Question: Can I deduct an invoice that my customer refuses to pay?

Answer: Like many tax questions, the answer is maybe.

It all depends on when your company records income. A company can choose between recording the sale at the date of the invoice (on the accrual basis) or when the invoice is paid (on the cash basis).

If the company is on the accrual basis then the bad invoice can be deducted.

But, if the company uses the cash method of recognizing income, then you cannot deduct the bad debt since you never recorded the income. You will, of course, be able to deduct any material or labor that you used on the job.

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: Retirement pay for owner doesn’t reduce SE tax

The tax court ruled that retirement payments made by self-employed business owners for themselves cannot be claimed as a deduction on Schedule C in order to reduce self employment tax (the business owners’ Social Security and Medicare).

It is deducted from adjusted gross income on form 1040 in order to regular reduce income taxes.

Contributions for the business owner’s employees and the costs of running the plan may be deducted on the Schedule C and will reduce both income & self-employment taxes. 

                               

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: 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: 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.

 

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.

 

Don’t forget your required year-end IRA distributions!

Taxpayers 70 ½ and up must take their payouts from IRAs and company plans by year-end. Start with your December 31, 2010 IRA balances and divide each of them by a factor for your age. (The age factors are printed in IRS Publication 590 which you can find at www.IRS.gov .) You can use a higher factor if you are more than ten years older than your spouse. The sum of these amounts can be taken from any of IRA you choose. The process is similar for retirement plan payouts, but you must take the required amount from each plan.

Failing to do so can result in a 50% penalty on the amount that should have been distributed. The IRS can waive the penalty if the individual can establish that the shortfall was due to reasonable error and steps are being taken to remedy the failure to distribute.

 

  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.