This is a repost of an article I published in December, 2014. It is still relevant today, and perhaps even more so in light of continuous tax scams and tax identity theft. Every tax season I get one or two new clients who have gone back to their previous tax preparer only to find them gone. Here is the article.
As we approach the new year, we will start seeing a plethora of television ads from competing tax preparation companies. They will make claims like promising "instant tax refunds" or they will tell you that you don't need your W-2 forms to come in and prepare your taxes. Well, the IRS does not process tax refunds any faster for these companies than for anyone else. What they are offering, if you qualify, is a short term generally high interest loan to be paid back by having your refund sent to them or the financial institution providing the loan. They will also usually be charging an extra fee for this service. The interest and fees will be deducted from the total amount of the refund as well as the tax preparation fee. As for not needing a W-2, except in certain situations where a substitute W-2 may be used, if you are employed for salary or wages you will need a W-2 to file your tax return. The ploy is to get you in the office to "start" your return so that you fell you have to come back to finish once the actual W-2 arrives.
Additionally, because there is still little regulation for who can prepare taxes for pay, when tax filing season comes along, unregulated preparers start popping up in temporary store front locations and they gone by by April 16th.
So what should you look for when selecting someone to prepare your taxes?
* Be sure to select a tax professional with the appropriate credentials. Enrolled Agents and CPA's
are licensed professionals.guided by a code of ethics set forth by the Internal Revenue Service. We are required to keep up with the constant changes in the tax code through continuing education and this is reported to the IRS.
* Your tax practitioner should have a Practitioner Tax Identification Number and should sign all tax returns.
* You should use someone who is going to be available all year round to answer questions that may come up. There are life changes that occur during the year that may affect your tax situation and you may need someone available to offer advice as necessary.
Tuesday, December 13, 2016
Sunday, November 27, 2016
TAX ADVANTAGES OF HOME BASED BUSINESSES
HOME OFFICE DEDUCTION
The Home Office deduction is one
of the more complicated and misunderstood tax deductions for the small business
person who works from home, but it can also be one of the most lucrative.
The room must be used exclusively for business. To figure the deduction, you
must determine the total square footage of your home and the total square
footage of the office. Example: Total house is 2000 square feet and the office
area is 200 square feet. This will give you a 10% office usage equation. You
will then be allowed to deduct 10% of your costs for the upkeep and maintenance
of your home which includes insurance, taxes, mortgage interest (or rent if you
do not own), electricity, gas, and repairs for the entire house. Additionally,
you can take specific fix-up and maintenance costs in full if they are solely
for the business space. You can also deduct the cost of office equipment
such computers, office furniture etc, as long as they are used exclusively for
business as well as other office supplies like paper, pens, pencils etc.
There is also an alternative
method for determining the deduction if you don’t want to do the math. This
simplified method allows you to deduct $5.00 per square foot of the space up to
300 square feet. All the other rules apply.
COMMUNICATION
The costs of telephone, cell
phone, internet used for business are deductible. If these are shared or used
for other purposes you must figure the percentage of business use.
AUTOMOBILE EXPENSE
If you use your automobile in your
business for things like visiting customers or vendors or gong to business
meetings and other business related activities you are entitled to deduct the
expenses associated with the business use of your automobile. You may choose to
take a deduction for actual business miles driven plus any parking fees and
tolls. The mileage deduction rate for 2016 is 54 cents per mile. It is
important to keep an accurate record of your business miles in the form of a
mileage log. Instead of mileage you may deduct actual expenses of business use
of your automobiles such as gas, oil, repairs etc. You must still keep an
accurate record of business miles driven as well as total miles driven for the
year in both cases.
HEALTH INSURANCE
You may deduct the amount of
health insurance premiums paid for yourself and your dependents from you gross
income. It is not necessary to qualify for itemizing your deductions on
Schedule A.
TRAVEL
You may deduct the cost of
business travel. Expenses like airfare, hotels, car rentals etc are deductible.
You may also deduct 50 percent of your meal expense while traveling on
business.
ENTERTAINMENT
You can deduct the cost of
entertaining clients. You can take them out for a meal and entertainment but
they must be paying customers or prospects who are expected to be paying
customers.
Operating a home based business
can be both personally satisfying and lucrative. One of the most important
tasks, however, is keeping complete and accurate records. It is important to be
able to take all tax deductions that you may be entitled to and if you have
accurate records you will have no problems if you are selected for audit by the
IRS. Be sure to consult a tax professional to be sure you are on the right
track.
Thursday, September 15, 2016
Monday, September 12, 2016
FALL TAX PLANNING
If you think tax planning only happens in the spring, think again. Taxes are a year-round concern and there’s no better time than the present to plan for the future. Consider the following:
Fall means the end of summer and summer camp for many kids. Did you know there’s a tax credit for that? If your child attended a summer day camp (not summer school or an overnight camp) the cost of that camp may qualify for the Child and Dependent Care Credit. While this is often referred to as the “day care credit,” some summer camps also qualify. Keep good records and bring them to your tax appointment in the spring.
Fall also means college, and college football, and there are tax implications for both. The American Opportunity Tax Credit (AOTC), which has been extended through December 2017, is a great way to offset the costs of higher education. To qualify for the AOTC, you must meet all three of the following criteria:
You, your dependent or a third party pays qualified education expenses for higher education.
An eligible student must be enrolled at an eligible educational institution.
The eligible student is yourself, your spouse or a dependent you list on your tax return.
The AOTC can offset 100% of the first $2,000 and 25% of the second $2,000 of qualified education expenses paid. There is a phaseout for higher income taxpayers and a refundable portion for lower income taxpayers so each situation is unique.
Pay special attention to #3 as this is a conversation to have with your children before you send them off to school. If a student claims himself as a dependent, he claims the education credit as well. However, students often qualify as dependents on their parents’ return and the parents often recognize a greater tax benefit when claiming the credit. Make sure your student knows to talk to you before asserting his independence and filing his own return.
In addition to the AOTC, higher education costs can be offset by the Lifetime Learning Credit, the Tuition and Fees Deduction and the Student Loan Interest Deduction. While education tax benefits are plentiful, they are also complicated. For more information, refer to IRS Publication 970 or give us a call.
As for football, many colleges and universities charge a booster fee for the right to purchase season tickets for football and other sports. While the cost of the tickets themselves is usually not deductible, the booster fee may be. If the fee is paid to the school or for the benefit of the school and gives you the right to purchase tickets, the cost of the booster fee may be 80% deductible as an itemized deduction on Form 1040, Schedule A.
Fall also means a third estimated tax payment is due on September 15. If you are self-employed or make estimated tax payments for other reasons, don’t miss this important deadline.
Finally, fall is the perfect time to do some planning to minimize your tax bill for 2016. Has your income changed since you filed your last return? Have you started school or started a business? Married or divorced? Retired? Had a baby? Purchased a house? Incurred serious medical expenses? Changed your health insurance? These and many other life experiences can affect your tax return so planning for those events now can save you money later. Waiting until January may be too late to influence your 2016 tax bill.
Wednesday, January 6, 2016
2016 MILEAGE RATES
MILEAGE DEDUCTION (UPDATED FOR 2016)
Standard Mileage Rates
The standard mileage rates enable a taxpayer using a vehicle for specified purposes to deduct vehicle expenses on a per mile basis rather than deducting actual car expenses that are incurred during the year. The rates vary, depending on the purpose of the transportation.
Accordingly, the standard mileage rates differ from one another depending on whether the vehicle is used for business, charitable purposes, obtaining medical care or relocating for employment.
It is very important that taxpayers keep accurate records when it come to deducting these uses of their personal vehicles in the form of mileage and or receipts for actual expenses.
Business Use of a Taxpayer’s Personal Vehicle
A taxpayer may deduct unreimbursed employee expenses, including unreimbursed expenses related to business use of a personal vehicle as "miscellaneous itemized deductions" to the extent the total of such expenses exceeds 2% of his or her adjusted gross income. In order for the expenses to be deductible, however, they must meet certain criteria. Thus, for expenses in connection with a vehicle’s business use to be deductible, such expenses must have been paid or incurred during the tax year for the ordinary and necessary purpose of carrying on the taxpayer’s trade or business as an employee, provided the paid or incurred personal vehicle expenses meeting these three criteria are not reimbursed. The deductible personal vehicle expenses include traveling:
1. Between workplaces;
2.To meet with a business customer;
3. To attend a business meeting located away from the taxpayer’s regular workplace; or
from the taxpayer’s home to a temporary place of work.
The 2016 standard mileage rate applicable to deduction of eligible personal vehicle expenses incurred while the vehicle is being used in an employer’s business is 54¢ per mile. In addition to using the standard mileage rate, a taxpayer may also deduct any business related parking fees and tolls paid while engaging in deductible business travel. However, parking fees paid by a taxpayer to park his or her vehicle at the usual place of business are considered commuting expenses and are not deductible.
Use of a Personal Vehicle for Charitable Purposes
A taxpayer may deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of a personal vehicle in providing services to a charitable organization. Alternatively, a taxpayer may use the standard mileage rate applicable to the use of a personal vehicle for charitable purposes. For 2015, the standard mileage rate for a taxpayer’s use of a personal vehicle for charitable purposes is 14¢ per mile.
As in the caseof other mileage deductions, the taxpayer may also deduct parking fees and tolls regardless of whether the actual expenses or standard mileage rate is used.
A related issue involves a taxpayer’s travel expenses incurred in providing services to a charity. Thus, in addition, a taxpayer may generally claim a charitable contribution deduction for travel expenses necessarily incurred while away from home performing services for a charitable organization provided there is no significant element of personal pleasure, recreation, or vacation in the travel, and the taxpayer must be on duty in a genuine and substantial sense throughout the trip.
Use of Personal Vehicle to Obtain Medical Care
A taxpayer may also deduct medical and dental expenses to the extent the total of such expenses exceed 10% of adjusted gross income for taxpayers younger than age 65 or 7.5% fpr taxpayers age 65 and older. The threshold for taxpayers age 65 or older remains at 7.5% through 2016, but beginning in 2017, medical and dental expenses will be deductible, regardless of the age of the taxpayer, only if they exceed 10% of the taxpayer’s adjusted gross income.
The vehicle expenses a taxpayer may include as medical and dental expenses are the amounts paid for transportation to obtain medical care for the taxpayer, a spouse or a dependent. A taxpayer may also include as medical and dental expenses those transportation costs incurred:
1. By a parent who must accompany a child needing medical care;
2. By a nurse or other person who can administer injections, medications or other treatment required by a patient traveling to obtain medical care and unable to travel alone.
3.For regular visits to see a mentally-ill dependent, if such visits are recommended as a part of the mentally ill dependent’s treatment.
A taxpayer who uses a personal vehicle for such medical reasons is permitted to include the out-of-pocket vehicle expenses incurred the expenses for gas and oil, for example or deduct medical travel expenses at the standard medical mileage rate. For 2016, the standard medical mileage rate is 19¢ per mile. The taxpayer may also deduct any parking fees or tolls, regardless of whether actual expense or the standard mileage rate is used.
Use of a Taxpayer’s Personal Vehicle to Move
Many taxpayers change their residence each year, and many of those taxpayer relocations involve new jobs that can permit a taxpayer to deduct moving expenses by car. Thus, certain moving expenses incurred within one year of the date a taxpayer first reported to work at a new main job location, provided the new location is at least 50 miles farther from the taxpayer’s former home than the former main job location may be deducted as an adjustment to gross income. The deductible moving expenses include the expenses of traveling to a new home, including transportation and lodging enroute.
A taxpayer who uses his or her personal vehicle to transport the taxpayer, members of the taxpayer’s household or the taxpayer’s personal effects to a new home may deduct such costs, provided the move is eligible for the deduction of moving expenses. In addition to any parking fees and tolls paid, the taxpayer is permitted to deduct the actual vehicle expenses incurred, such as the expenses for gas and oil or the standard mileage rate.
The standard mileage rate for 2016 applicable to moving expenses is 19¢ per mile.
Standard Mileage Rates
The standard mileage rates enable a taxpayer using a vehicle for specified purposes to deduct vehicle expenses on a per mile basis rather than deducting actual car expenses that are incurred during the year. The rates vary, depending on the purpose of the transportation.
Accordingly, the standard mileage rates differ from one another depending on whether the vehicle is used for business, charitable purposes, obtaining medical care or relocating for employment.
It is very important that taxpayers keep accurate records when it come to deducting these uses of their personal vehicles in the form of mileage and or receipts for actual expenses.
Business Use of a Taxpayer’s Personal Vehicle
A taxpayer may deduct unreimbursed employee expenses, including unreimbursed expenses related to business use of a personal vehicle as "miscellaneous itemized deductions" to the extent the total of such expenses exceeds 2% of his or her adjusted gross income. In order for the expenses to be deductible, however, they must meet certain criteria. Thus, for expenses in connection with a vehicle’s business use to be deductible, such expenses must have been paid or incurred during the tax year for the ordinary and necessary purpose of carrying on the taxpayer’s trade or business as an employee, provided the paid or incurred personal vehicle expenses meeting these three criteria are not reimbursed. The deductible personal vehicle expenses include traveling:
1. Between workplaces;
2.To meet with a business customer;
3. To attend a business meeting located away from the taxpayer’s regular workplace; or
from the taxpayer’s home to a temporary place of work.
The 2016 standard mileage rate applicable to deduction of eligible personal vehicle expenses incurred while the vehicle is being used in an employer’s business is 54¢ per mile. In addition to using the standard mileage rate, a taxpayer may also deduct any business related parking fees and tolls paid while engaging in deductible business travel. However, parking fees paid by a taxpayer to park his or her vehicle at the usual place of business are considered commuting expenses and are not deductible.
Use of a Personal Vehicle for Charitable Purposes
A taxpayer may deduct as a charitable contribution any unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of a personal vehicle in providing services to a charitable organization. Alternatively, a taxpayer may use the standard mileage rate applicable to the use of a personal vehicle for charitable purposes. For 2015, the standard mileage rate for a taxpayer’s use of a personal vehicle for charitable purposes is 14¢ per mile.
As in the caseof other mileage deductions, the taxpayer may also deduct parking fees and tolls regardless of whether the actual expenses or standard mileage rate is used.
A related issue involves a taxpayer’s travel expenses incurred in providing services to a charity. Thus, in addition, a taxpayer may generally claim a charitable contribution deduction for travel expenses necessarily incurred while away from home performing services for a charitable organization provided there is no significant element of personal pleasure, recreation, or vacation in the travel, and the taxpayer must be on duty in a genuine and substantial sense throughout the trip.
Use of Personal Vehicle to Obtain Medical Care
A taxpayer may also deduct medical and dental expenses to the extent the total of such expenses exceed 10% of adjusted gross income for taxpayers younger than age 65 or 7.5% fpr taxpayers age 65 and older. The threshold for taxpayers age 65 or older remains at 7.5% through 2016, but beginning in 2017, medical and dental expenses will be deductible, regardless of the age of the taxpayer, only if they exceed 10% of the taxpayer’s adjusted gross income.
The vehicle expenses a taxpayer may include as medical and dental expenses are the amounts paid for transportation to obtain medical care for the taxpayer, a spouse or a dependent. A taxpayer may also include as medical and dental expenses those transportation costs incurred:
1. By a parent who must accompany a child needing medical care;
2. By a nurse or other person who can administer injections, medications or other treatment required by a patient traveling to obtain medical care and unable to travel alone.
3.For regular visits to see a mentally-ill dependent, if such visits are recommended as a part of the mentally ill dependent’s treatment.
A taxpayer who uses a personal vehicle for such medical reasons is permitted to include the out-of-pocket vehicle expenses incurred the expenses for gas and oil, for example or deduct medical travel expenses at the standard medical mileage rate. For 2016, the standard medical mileage rate is 19¢ per mile. The taxpayer may also deduct any parking fees or tolls, regardless of whether actual expense or the standard mileage rate is used.
Use of a Taxpayer’s Personal Vehicle to Move
Many taxpayers change their residence each year, and many of those taxpayer relocations involve new jobs that can permit a taxpayer to deduct moving expenses by car. Thus, certain moving expenses incurred within one year of the date a taxpayer first reported to work at a new main job location, provided the new location is at least 50 miles farther from the taxpayer’s former home than the former main job location may be deducted as an adjustment to gross income. The deductible moving expenses include the expenses of traveling to a new home, including transportation and lodging enroute.
A taxpayer who uses his or her personal vehicle to transport the taxpayer, members of the taxpayer’s household or the taxpayer’s personal effects to a new home may deduct such costs, provided the move is eligible for the deduction of moving expenses. In addition to any parking fees and tolls paid, the taxpayer is permitted to deduct the actual vehicle expenses incurred, such as the expenses for gas and oil or the standard mileage rate.
The standard mileage rate for 2016 applicable to moving expenses is 19¢ per mile.
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