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8 Questions To Ask Any Accountant Before Hiring

When you are working with an accountant to do your taxes you are really hiring them to complete a service. This means that you have the opportunity, and should take advantage of, the chance to ask at least a few basic interview questions. 

Meeting in advance of tax time, or in advance of doing any investments or financial planning, will give you the time you need to interview and talk with a couple of accountants you have researched in advance. Getting referrals from friends, family members and other professionals is also a great way to narrow down your choices. 

Important questions to ask and get answers to include:

1. How long have you been an accountant and what are your credentials?
2. What type of financial planning services, investment advice and financial guidance can you offer and what is your experience level in this aspect of accounting?
3. What are your fees, how are they calculated and what payment methods do you accept?
4. Do you use any third party professionals for your work or do you outsource anything to other accounting or financial companies, planners, etc.? If so, how do you evaluate their services and what standards do you require in these professionals?
5. What are your hours and how long does it take to get an appointment to meet with you in person?
6. What continuing education programs do you attend and do you belong to any professional associations, groups or organizations?
7. Can you provide me with a list of names of clients that would be references for your services that are similar to my situation?
8. Will the accounting software that I use in my business or for my personal accounts be compatible with the software that you use?

Whether you are a small business owner or need an accountant to handle your personal taxes and financial planning, getting the best professional possible is a critical decision. Take your time and interview a few accountants until you find the right match for your needs.

Helpful Ideas For Your Income Tax Return

Every year a large percentage of people get tax returns. Some get a lot and some just get a little, but what you choose to do with your return may have a big impact over time. Different individuals have different plans for the return, including going on a shopping spree or buying something luxurious or even necessary for themselves or their family.

There are a few things to consider that will add to the value of your tax return. First, and perhaps most important, is to consider adjusting your tax withholding through your employer. You can add to your retirement or make an investment which will provide you with interest on the money throughout the year, something the IRS doesn’t provide.

In addition, you can use your tax money wisely by:

• Use all or part of your refund to pay off the balance on high-interest rate credit cards, and then avoid using the cards because they now have spending ability. You will literally be saving yourself the interest rate on the card times the balance and the time you would need to pay it off.
• Make a tax-deferred IRA contribution if you are not already contributing. This can be as much as $5,500 per person or $6,500 if you are over 50.
• Carefully review your insurance coverage based on your age and possible risk factors. You may also want to make any repairs on your home which may negatively impact your insurance coverage if you have to make a claim.
• Pre-pay for special events such as weddings, vacations or set aside cash for travel. This avoids having to carry a balance on your credit card, saving that interest amount.
• Make a charitable contribution which will be tax deductible if you are itemizing your expenses. You can also gift money to a family member for tax savings, just talk to your accountant.

You can also choose to start an investment or add to your current portfolio. Just be sure to understand which options actually end up saving you in taxes for your next tax year.

Tips for Using the IRS Form 2106

If you have any expenses for businesses not covered by your employer, you may be able to file the IRS Form 2106 that allows you to make these deductions on your taxes. It is important to remember that this form is only used if you are an employee, not if you are a business owner or are self-employed. The important point to remember is that you must receive wages and a W-2 from the employer to use this form.

It is designed to allow employees to itemize business-related expenses that are not otherwise reimbursed by the employer. It is essential to avoid duplicating any items on the form if they are reimbursed by your employer.

Additionally, to use the form, you will need to ensure that the total amount of the deductions exceeds two percent of your total gross adjusted income. You may still be able to claim these deductions if the total amount is below two percent of AGI (adjusted gross income), but you will not be required to add the additional form.

Some of the expenses that can be claimed using the IRS Form 2106 include:

• Client Entertainment – If you take clients out for business-related meals, business trips, or events, you may be able to claim this expense on the IRS Form 2106. There is a limit of 50 percent of the total that can be claimed, and it has to be directly related to business, and not a personal meeting, which determines if it is allowable or not.
• Car expenses – If you use a personal car for business, you can either claim mileage or actual expenses. You can also claim parking fees, tolls, or other associated costs, but not vehicle repairs.
• Other travel – In most cases, employers will reimburse employees for larger travel items such as flights, train tickets, or taxis as well as hotel costs to a reasonable accommodation rate. It is important to understand that luxury hotel stays will usually not be eligible for a claim. Other expenses related to travel such as dry cleaning and even gratuities can be claimed using the form.

It is important to talk to your accountant about your options for using IRS Form 2106. In many situations, there may be other methods to claim the expenses that are more appropriate given the specifics of your return.

Tips For Organizing Receipts To Help Your Accountant

It is never too early to start organizing for tax time. If you have a desk, box or simply a folder full of receipts and tax forms, you can develop easy organizational practices or habits to make your life easier and to help your accountant when you actually go to file.

Here are some simple ways to get organized for this year's filing and stay organized in the future.

• Use one card – If you are going to use a debit or credit card for payment, use the same one for all tax-deductible purchases. Also, choose a card that allows you to group or categorize purchases, so you can easily print the list and have an easy-to-use record for the accountant. Try also to keep the actual receipts as well; they can be placed in an envelope and kept if necessary for records.
• Scan receipts – If you don't like the idea of keeping all your receipts, you can run them through the scanner and keep them in files on your computer. This eliminates the problem of receipt ink fading, but you will still need a backup copy in case of a computer crash.
• Avoid using cash – Cash makes things more difficult as there is complete reliance on one receipt rather than a record through a statement or other type of document. If you are using cash, be sure to scan and save receipts that are itemized.
• Set up a file system – An accordion or expanding folder or a set of large manila envelopes that are labeled as to the types of receipts included is a simple and easy filing system for the hard copy receipts. There are lots of low-cost and free software options and apps that will allow you to organize your receipts electronically; some even have the ability to allow you to take an image of the receipt with a smartphone and post it for all data entry.
• Deal with receipts or purchases daily – Avoid putting everything off until the end of the week or the month. Instead, file all receipts on a daily basis which will avoid mistakes and omissions in what you can claim.

Your accountant may also be able to recommend the software, apps, and options that she or he finds to be most efficient for other clients, and that is a great resource to use.

Why Money and New Year's Resolutions Don't Always Mix

Most New Year’s Resolutions fail by the time February and March approach, if not sooner. If you were to ask all of your friends about their New Year's Resolutions, you would probably find that three seem to occur more often than anything else. You may have already guessed what they are, but in case you are wondering, they are most likely centered around losing weight, getting fit, and saving money.

Just like the weight loss and the fitness, people start out in January with the real desire to change their spending habits and to try to put away a set amount of money each month. However, as we also know, for many people, January, February and even March can be months spent trying to pay down holiday purchases on credit cards.

The reasons that New Year's Resolutions often fail when it comes to savings can be broken down for several simple reasons. By recognizing where you are struggling, you can plan to compensate for this and find yourself with money in the bank.

• Bill backlog – With all the credit card bills from the holidays, savings can be "temporarily" put on hold. Unfortunately, this often sets a pattern of simply putting savings off to next month or buying again once credit card balances drop.
• No budget plan – One of the most difficult things about savings is if you aren't conscious of where you are spending your money. By having a budget and tracking your spending, you will be more effective in sticking to it.
• Using debit – People spend more when they use debit cards than if they pay cash. If you aren't comfortable carrying cash, limit the funds in the account linked to your debit card to your monthly or weekly allotment to prevent overspending.
• Save first – Before buying that extra venti latte in the morning, put your savings for the day, week or month, in your bank account. Avoid linking this account to your debit or credit account.
• Be reasonable – If you can only save a hundred dollars a month, don't set yourself up for failure by trying to save five hundred. Be reasonable with savings and, with success, increase your goals.

Finally, it is important to have accountability. Keep a record of what you are depositing into the savings account and continue to stick to your savings plan. Avoid temptations to dip into the account except in the case of some type of true emergency situation.

Tax Breaks for New and Returning College Students

While going back to school is an investment in your future or the future of your children, it isn't always an easy option when it comes to your finances. The good news is that there are some tax breaks that students attending college or university can claim.

These tax breaks will help reduce a bit of the bite of trying to get an education and also limit their need to pay additional taxes. Parents will be able to claim the tax credits for each of their children that are enrolled and attending. These credits and deductions include:

• American Opportunity Credit – This is a tax credit that is available for undergraduates for up to four years of college. Each year, students can claim this credit of up to $2,500. To make this even better, up to $1,000 of the credit is refundable, allowing some students to potentially have a refund even if they do not currently owe anything in taxes. To receive the maximum amount, you have to make under $80,000 for single filers or $160,000 if filing jointly.
• Limited Lifetime Credit – This can be claimed for an unlimited number of years and can apply to all types of degree programs, including graduate and undergraduate. It can also be applied to vocational or professional courses that qualify. This is not refundable, but up to $2,000 can be used to offset any taxes you may owe for that year.
• Tuition and Fees – These can be claimed as a deduction only if the student doesn't meet the criteria for the two credits listed above. This deduction can be up to $4,000 as an adjustment to income. For those that are filing as singles, the $80,000 income limit applies as does the $160,000 if married filing jointly. This deduction is not available if you are married filing separately, but parents can use the deduction if they pay the tuition and fees.
• Loan Interest Deduction – This is for student loans only and is applied as an adjustment to income of up to $2,500.

It is important to talk to your accountant to find out which option is best for your tax situation.

Simple Money Saving Mistakes that May Derail Your Efforts for 2018

If you are like most people, you have a lot of very good and very well-intended ideas about maximizing your savings and building up an emergency fund for 2018. However, you may also find that at the end of the month there never seems to be any extra money to add to the account.

The reasons this happens will vary from individual to individual and situation to situation. With that being said, there are a few common mistakes that people make to undermine their efforts at building their savings.

• Not prioritizing savings – The best way to ensure you make your monthly deposit to your savings account is to take it off the top rather than at the end of the month. If you have automatic deposit, set up an automatic recurring draft from your checking account to a savings account on the day of the direct deposit.
• No budget – The biggest factor for saving is having a budget. This means allocating, based on a realistic amount, how much you need to have every month for your needs (bills, loans, payments, etc.) and also for your wants (entertainment, dinners out, etc.). Once you know these amounts, you can set a realistic savings goal.
• Rationalizing – Many people are very good at rationalizing why a "want" suddenly turns into a "need" even if they have a budget. It is important to be able to tell yourself “no” or to wait until you can budget for the item.
• Buying on sale on credit – If you are buying items on sale to save money and then putting the purchase on a credit card that you will take months to pay off, you are not really saving. There is nothing wrong with buying necessary items on sale, but you should only make the purchase if you can also pay the card off and not carry that high interest forward for months.
• Not using programs – If your employer offers a retirement savings program in the form of matching funds, it is worth using this option rather than doing it on your own. While it will lock up the funds, it may also double your savings, something you will not achieve with any type of saving accounts anywhere else.

Take the time to consider your options. A simple and easy to follow budget and savings plan is still the most effective option to build your savings account.

The Buck Stops Here!

In my 30+ years working with small business owners, I have found there are two main reasons that a business ends up struggling to survive.

The first is a failure to understand that everything the owner hates or is going wrong in their business, they caused!  Most business owners pay lip service to this but don’t truly understand it.

They are quick to give excuses because that is much easier than taking responsibility for their struggles and failures.  During good times, like we had before 2007/2008, money was easy to get, people were spending, and just about everyone was making money.  Since then, I have spoken to many clients who have seen their sales drop to the point where they can’t survive any longer or they are just barely holding on, hoping for a miracle in order to survive.  They all have excuses.  The two most common excuses are:

• Customers aren’t buying!  True, but I have clients in every industry who are doing well.  For instance, 10 out of the 13 truckers I did tax returns for in 2007 are out of business now.  But three did survive, and two of them are making good money.  What did they do differently?  Why did they have time to develop a new market in this economy? 

Most of my retail clients have experienced a loss in sales of about 30 to 50 percent.  Yet I have other retail clients who are showing steady increases and making a nice profit.  What did they do differently?  Why are they expanding their marketing in this economy? 

• I can’t hire good employees!  A variation of this is, “I don’t have time to do the things I need to do to improve my business!  I am too busy!”  My answer to this is always the same:  Your competitors do!  They have good, well-trained employees.  They have time to develop new product lines and increase their marketing, which has replaced their lost customers.

The clients that are doing well all have one thing in common:  They take responsibility for their actions and don’t accept excuses!  When the rules change, they react.  In fact, many of them anticipate and plan.

Forming a Partnership with your Accountant

Forming a working relationship with your accountant, either as a business owner or as an individual who wants to take control of your financial future, is perhaps one of the most important partnerships you can build.

Unfortunately, a lot of people fail to do this and only spend a few minutes talking with their accountant at tax season. If this is the only time you talk to your accountant, here are just a few of the many important aspects of your finances you may be missing out on:

• Planning for your retirement with the most comprehensive approach to short and long investment strategies with risk levels you are comfortable with.
• Determining options for creating tax savings for years to come. This could include strategic use of allowable gifts, donations to charities or even the option to develop different types of trusts and funds.
• Providing a complete financial overview of your personal finances or helping to develop a financial analysis of your comprehensive business plan.
• Helping you with important information on what to consider, what to track and record, and how to make the most out of tax credits and deductions you may be eligible for throughout the year.
• Helping you to develop an effective and accurate budget to allow you to save, pay for a home, buy vehicles or even to plan for kids to go to college.
• Assist you in making any large investments, sales of financial decisions to ensure all aspects of the transaction are in your best interests. This is true for both a business acquisition or sale or for major financial issues in your personal life as well.

In addition, an accountant is a great person to consult when you are thinking about starting a business, growing an existing business or perhaps in buying a new home or making a large purchase. Having a professional to go to for specific information, and a big picture look at all options, is a great asset for anyone to consider.

Starting 2018 With A Financial Plan

The vast majority of people only see their accountant once a year, and that is typically between New Years and April when they are turning in their tax documentation for filing.

While preparing and filing your taxes is an important part of what your accountant does, if this is the only time you see your accountant, you are not taking advantage of the education, information, and potential money-saving options your accountant can provide.

As this is often a slower time of year for everyone, why not plan to meet with your accountant to review your financial plan for 2018 and the future? With this meeting you will be able to:

• Take a close look at your monthly budgeting practices and plan. Bring your current budget or at least a list of all your expenses and payments as well as your income. You don't need to create a full budget with the accountant, but he or she can be instrumental in getting you started in developing a spending plan.
• Review your investments and make changes based on any life changes. This is particularly true if you have married, divorced, had a child, started caring for an elderly payment, changed jobs, lost a job, or any other type of major life event.
• Review risk factors for investment based on life events and where you are in relationship to your long-term investment plan. Typically most people move from high-risk to low-risk investments as they get closer to retirement to protect their investments.
• Learn about tax credits and deductions you can take advantage of in the upcoming tax year. This can include maximizing your retirement investments, taking advantages of tax credits with regard to specific types of purchases or home improvements, or other types of tax programs.
• Set long-term financial goals that will allow you to retire, invest, fund college for the children, or even pay off your home early.

The more you plan and work with your accountant the more benefits you will find to create the type of wealth you need. This is true if you are just getting started in life or if you are close to retirement: It is never too late to get started.

5 Reasons to Talk to an Accountant Before Starting Your Small Business

As a small business owner and entrepreneur, having the correct information to set up your business and to capitalize on accounting tips and strategies is often an overlooked part of the process.

People may naturally be more excited about actually starting to build a business and start earning a profit, but making the wrong financial choices in the first few days, weeks and months of your business can have a long-term impact on your income.

To get help with starting your business off on the right foot, talk to an accountant before making any financial or business structuring decision. Some very important reasons to do this include:

• Avoid Mingling Funds – Mixing your business and personal accounts, business and personal credit cards or debit cards, or otherwise having accounts that are used for multiple purposes can become a serious tax liability and issue. Always set up separate business accounts and avoid mixing and mingling.
• Personal Guarantees – Often a business owner may use a personal guarantee on a business loan. This is a potentially risky consideration as you may be using your home, personal vehicle, or other types of assets as collateral for a business that may or may not be successful. There may be other options in funding to consider to avoid putting your personal assets on the line.
• No Account Receivables System – No matter what a great job your business is doing if you don't have an accounts receivable system in place that is easy to use and efficient, you are going to have challenges in invoicing, collecting, and record keeping. This can end up in challenges with delayed invoicing, missed invoices, customer dissatisfaction, and more time spent in trying to collect overdue accounts.
• Use Technology – There are simple programs offered through several apps and accounting programs that allow you to capture copies of receipts at the time they are issued. When these systems allow you to correlate this with your expense account program, you have a very effective way of continually staying on top of spending as well as preparing for tax time.
• Not Meeting Regularly – If you are a small business, it is a good idea to meet with your accountant at least once in between tax seasons. This will help you to plan effectively for the next few months or years, ensuring you stay within your business finance plan.

Find an accountant you trust, who has a schedule that works for your business, and who is willing to work with a startup company to make the most of their financial opportunities.

What To Do If You're Audited

No one likes to get a letter from the IRS stating that you are being audited. The good news is, that there are less than 1% of all people that file income taxes making less than $200,000 that will ever get one of these letters on any given tax year.

However, if you make more than a million you have about a 10% chance of being audited any tax year. This is typically because people that make more money tend to have more deductions and this can often trigger the audit. Generally, audits are not random and it isn’t just your turn to be audited, it is because of a pattern of deductions or offsets that triggers a computer to generate your name on a list.

If you are audited and you use an accountant, your first step should be to get in touch with this professional. From there, you can discover what needs to be done to clear up the issue, which may actually be relatively simple in many cases.

To prepare for an audit your accountant will typically have you sit down and:

• Make a complete review – your accountant will double check all information you have provided for accuracy. While uncommon mistakes can occur in copying information or in failing to enter the correct information on a software program that automatically transfers data to the accountant.
• Check your write-offs – your accountant and you should review all your tax write-offs to ensure they are correct. This can also include assisting you in determining what data or documentation will be needed to prove these claims are accurate and valid.
• Review any areas of concern – for those that are self-employed, there can be more potential concern from the IRS than for those that are employed. If you are self-employed your accountant will assist you in gathering information and even getting third-party verification of income, business-related travel and other areas where the IRS is asking for further information or verification.

Last but not least the accountant will also be able to represent you at the audit, helping you to provide the information that is needed to prove the validity of the data that you have submitted on your income tax return.

Why Every Small Business Owner Needs an Accountant

As a small business owner or an entrepreneur, you may be used to doing everything on your own to save money. However, when it comes to financial issues, an accountant is an important professional to have on your team.

The simple fact is that a small business accountant can typically end up saving you money, which will cover the small fees your business will pay for their services. These professionals can assist in providing information on changes in the tax code, tax credits, and even tax deductions that can add up to thousands in taxable savings.

There are several ways that an accountant can help a small business at any stage:

• Assisting in protecting yourself and your business with the use of the correct business structure.
• Setting up your accounting practices within the business to comply with all the governmental requirements.
• Verifying you are using the right classifications of employees for all your staff as well as making sure your independent contractors are correctly classified for taxation purposes.
• Checking that you are using the right type of payroll and accounting software based on your business needs and suggesting modifications to make the process more accurate and efficient.
• Providing you with information on any tax credits or tax deductions for which you are eligible and completing any required documentation.
• Suggesting and advising you on ways to decrease the costs of doing business, boosting your overall bottom line.
• Developing short and long-term financial strategies for business growth and expansion.
• Completing your taxes correctly and completely to help to limit the chances of an audit and also working with the IRS is there is an audit or a need for additional clarification on financial issues.
• Consulting and working with you to understand your business cash flow and how and where expenses and costs are a concern.
• Advising on large purchases, such as commercial property, equipment or even when considering merging with, buying out another company, or selling your existing business.

For the small business owner, an accountant should be a year-round consultant. By meeting with your accountant regularly, you can maximize your profits and have a complete understanding of your business financial plan.

Is Tax Software The Same As An Accountant?

Although it isn’t close to tax season yet, it is really never too early to start thinking about your options. As people try to save money and do things on their own they may be tempted to try out the different tax preparation software on the market today and save some cash by not going to an accountant.

However, before you decide if going to the software is really your best option think about the following:

• Basic isn’t always best – the software offered for free or at a very low cost is basic tax preparation software. It is not the same software that is used by your accountant and there are very definite limits on the features that you have access through with the software.

• Questions – while most software has an FAQ section it is often very simplistic and really has to do with how to use the software, not specific tax questions. If you call the hotline offered with some tax software you are not likely to actually speak with a CPA but you will be speaking to a tax preparer. This may provide you with a less than complete answer to a more complex question.

• Past tax filing – when you use an accountant through the years he or she becomes very familiar with your regular deductions and your various 1099s and W-2s and may help you catch an error or omission that may end up causing a delay on your return or, worse case scenario, an audit notice.

• Offers ideas for tax savings – when you have an accountant prepare your taxes she or he will meet with you for a review before e-filing. This allows you a chance to discuss possible options for tax savings for the upcoming tax year.

In addition, working with an accountant is a must if you are self-employed or own a business of any size. These can become very complicated tax returns and making a mistake can end up costing you much more than the cost of an accountant.

Forming A Partnership With Your Accountant

Forming a working relationship with your accountant, either as a business owner or as an individual who wants to take control of your financial future, is perhaps one of the most important partnerships you can build.

Unfortunately, a lot of people fail to do this and only spend a few minutes talking with their accountant at tax season. If this is the only time you talk to your accountant, here are just a few of the many important aspects of your finances you may be missing out on:

• Planning for your retirement with the most comprehensive approach to short and long investment strategies with risk levels you are comfortable with.
• Determining options for creating tax savings for years to come. This could include strategic use of allowable gifts, donations to charities or even the option to develop different types of trusts and funds.
• Providing a complete financial overview of your personal finances or helping to develop a financial analysis of your comprehensive business plan.
• Helping you with important information on what to consider, what to track and record, and how to make the most out of tax credits and deductions you may be eligible for throughout the year.
• Helping you to develop an effective and accurate budget to allow you to save, pay for a home, buy vehicles or even to plan for kids to go to college.
• Assist you in making any large investments, sales of financial decisions to ensure all aspects of the transaction are in your best interests. This is true for both a business acquisition or sale or for major financial issues in your personal life as well.

In addition, an accountant is a great person to consult when you are thinking about starting a business, growing an existing business or perhaps in buying a new home or making a large purchase. Having a professional to go to for specific information, and a big picture look at all options, is a great asset for anyone to consider.

Helpful Ideas For Your Income Tax Return

Every year a large percentage of people get tax returns. Some get a lot and some just get a little, but what you choose to do with your return may have a big impact over time. Different individuals have different plans for the return, including going on a shopping spree or buying something luxurious or even necessary for themselves or their family.

There are a few things to consider that will add to the value of your tax return. First, and perhaps most important, is to consider adjusting your tax withholding through your employer. You can add to your retirement or make an investment which will provide you with interest on the money throughout the year, something the IRS doesn’t provide.

In addition, you can use your tax money wisely by:

• Use all or part of your refund to pay off the balance on high-interest rate credit cards, and then avoid using the cards because they now have spending ability. You will literally be saving yourself the interest rate on the card times the balance and the time you would need to pay it off.
• Make a tax-deferred IRA contribution if you are not already contributing. This can be as much as $5,500 per person or $6,500 if you are over 50.
• Carefully review your insurance coverage based on your age and possible risk factors. You may also want to make any repairs on your home which may negatively impact your insurance coverage if you have to make a claim.
• Pre-pay for special events such as weddings, vacations or set aside cash for travel. This avoids having to carry a balance on your credit card, saving that interest amount.
• Make a charitable contribution which will be tax deductible if you are itemizing your expenses. You can also gift money to a family member for tax savings, just talk to your accountant.

You can also choose to start an investment or add to your current portfolio. Just be sure to understand which options actually end up saving you in taxes for your next tax year.

5 Expenses Most Home Businesses Fail To Claim

If you have a home business or a home office, it can be difficult to know just what you can claim as a business expense and what you can’t. There are some common expenses that self-employed people working from home often miss claiming because they aren’t aware of the option.

To maximize your home business deductions make sure you are claiming the following:

• Books and publications – If you have specific books, trade journals, or trade specific publications you receive on a monthly, quarterly or annual basis, you can deduct the cost of these materials. They do have to be specific to your business and can’t be general publications.
• Professional memberships – Like publications, if you belong to professional organizations, you can deduct your membership fees and dues provided they qualify. This includes union fees as well as any licenses you may be required to hold to do your work.
• Education – If your course is directly related to your present job and will enhance or expand your skills in the same industry, your educational expenses are deductible. This is not true if you are taking something new to add to your business or to offer a different service.
• Uniforms or protective clothing – If your business includes the use of uniforms or specialized type of clothing such as safety clothing, you can deduct the cost of any items purchased. You can also deduct the cost of cleaning for uniforms. You cannot claim cleaning charges if you wear day-to-day clothes, only if it is a specific uniform.
• Business insurance – If you carry any type of business insurance, you can claim the cost of the insurance as a deduction.

If you have any questions about what you can or cannot claim, contact your accountant before you make the purchase or the decision. You should also keep accurate records of all purchases of supplies and materials you need including printer supplies and software purchases for your business. 

 

When Are Commuting Costs Deductible?

Generally, the cost of commuting between a taxpayer’s home and work location is a nondeductible expense.  A recent tax court memo (TC Memo. 2013-240) said this is true no matter how long the drive is.  In that case, an engineer drove more than 150 miles a day to and from his job in the Nevada desert.  The site wasn’t accessible by public transport.  The court ruled that the job wasn’t temporary and so he could not deduct his driving expenses.

Expenses incurred commuting between a taxpayer’s home and work location are allowed if (Revenue Ruling 99-7):

1. The expense is for going between the taxpayer’s home and a temporary work location outside the metropolitan area where the taxpayer lives and normally works.
2. The taxpayer has one or more regular work locations away from home, and the expenses are for going between home and a temporary work location in the same trade or business, regardless of distance.
3. The taxpayer’s home is the taxpayer’s principal place of business, and the expenses are for going between home and another work location in the same trade or business, regardless of whether the work location is regular or temporary, and regardless of the distance.
4. A work location is considered temporary if employment is expected to last and actually does last for one year or less.

Check with your tax advisor if you are commuting to a location out of town or if your home is your main place of business.

What Will Happen If I Didn't File My Return On Time?

Every year I hear this question from people who just missed the tax deadline.  I joke that these are the people who believe that deadlines are only recommendations that really don’t apply to them.  Unfortunately, that is not how the IRS looks at it!

Here are the key points to remember when filing late:

1. If you are getting a refund, then there really is no problem, since penalties and interest only apply to any balance you might owe.  Of course, you should file promptly in order to get your money back.  The IRS will not refund you any money owed if you wait three years from the time the return was due.  That means that you can still file for 2010, 2011 and 2012 and receive a refund.
2. If you owe tax, you may be charged a failure to file penalty of 5 percent of the balance due per month (or part of a month), up to a maximum of 25 percent.  So try to get your tax return filed as soon as possible to avoid this penalty.
3. If you don’t pay your taxes on time, you will also be penalized a failure to pay penalty of 0.5 percent per month (or part of a month) up to a maximum of 25 percent.
4. Filing an extension will not eliminate the failure to pay penalty, only the failure to file penalty.  You will still be charged interest and the failure to pay penalty up to the date you finally pay the tax.
5. If you can show reasonable cause for not filing or paying on time, the IRS may abate the penalties.  You should explore this possibility with your tax preparer.
6. Don’t ignore the problem and hope it will go away.  The IRS, like any large bureaucracy, can often take months or years to send you notices about unfiled and unpaid income taxes.  But they will always catch up to you.  Ignoring the problem only makes the balance owed larger and can lead to the IRS seizing your bank account, paycheck, and assets.

Failure to Properly Document Business Auto Use Will Cost You Big Time!

Taxpayers must be prepared to substantiate auto deductions with adequate records or sufficient evidence. Failure to do so will cost you thousands of dollars in increased taxes and/or fees to accountants or tax lawyers if you are audited.

Taxpayers should be able to substantiate:

1. The amount of each expenditure for the vehicle, including purchase price, vehicle improvements, lease payments, repair and maintenance, gas and other expenses.
2. The total mileage on each business vehicle and a breakdown of the business, personal and commuting miles.
3. The date of the business use and a brief description of the business purpose for each use and expense.

Records should be maintained in an account book, diary, log, trip sheet or similar record near the time of usage [Brown, TC Summary Opinion 2005-155(2005]. Without a written record of business or investment mileage, a tax auditor will not allow the deduction.

Without a mileage log, the taxpayer will have to convince an appeals officer or the tax court (at substantial increased costs in legal and accounting) through oral testimony and other circumstantial evidence. This can include statements from employers and customers, invoices that required the use of the taxpayer’s car for ordering and delivering and entries in calendar programs.

I prepare hundreds of business returns every year and have spoken to each one of them about these requirements. Still, I can count on one hand the business owners who actually keep a log.

Technology today can be very helpful. Both the I-Phone and the Android have an App that assists in tracking business mileage. Be sure to look for one that exports to a computer file such as Excel in order to keep a hard copy.

You can also use a digital recorder to record the necessary information. Be sure to export the file to your computer. You should also consider having this file transcribed so you can have a hard copy for your file.

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.