Category Archives: Tax

Tax Tip: HOME OFFICE EXPENSE

Is your business office in your home? Did you know that the IRS allows you to take a tax deduction for this? There are however, certain parameters. To qualify, the area must be used regularly and exclusively for business purposes. It should also be a clearly defined area, like a room in your home. It must be the principal place of business and/or a place used to meet or deal with clients or customers. A guest book or sign-in log will help substantiate this deduction.

All expenses related to the home; your mortgage, property taxes, utilities, alarm, etc., can be deducted at the percentage for the home office. This rate is determined by dividing the square footage of your office space by the total square footage of your house.

Different rules apply for day care and adult foster care homes. Consult with your CPA and/or tax preparer.

Tax Tip: MEALS & ENTERTAINMENT

As with mileage, it is important to keep good records of all your meal or entertainment expenses throughout the year. In addition to the price of the meal (how much), the IRS wants to know the 4 W’s:

who you were with – names of your guests
why you met – reason for your meeting
where you were – restaurant or meeting place
when you were there – the date

Write these items on your receipts or keep a detailed log. Should the IRS decide to audit your company, they will throw out any meal expenses that do not comply.

Entertainment is the same and will often be connected to a meal. Again, records with who, why, where, and when must be kept.

The same rules apply when travelling. You can use the federal per diem rate for meals and/or lodging. With the exception that self-employed individuals must use actual lodging receipts. Current per diem rates start at $111 for Lodging and $52 for Meals and incidentals, but vary depending on what city you are in. Check with your bookkeeper and/or accountant for specific rates.

Tax Tip: RECORD YOUR MILEAGE

It is very important to keep a good record of your mileage for tax purposes. You should always record the beginning and ending mileage each year. This is important whether you use mileage or depreciate your vehicle.

When you use mileage, you should keep some kind of log. And it is important that you be consistent. According to the law, you are required to record the following:

where you went
how many miles from your office to your client or vendor
the purpose of your trip
and the date

Unless your vehicle is industry specific, for instance, a truck or van filled with equipment and does not carry passengers; you will always have some mileage that is personal. This is also true of a vehicle that is being depreciated; so it should not be considered 100% business.

By keeping an accurate mileage log you will be able to take full advantage of your mileage deductions. And should you be audited, your log will help ensure that you do not lose precious tax reductions.

Sandra Vincent, The Bookkeeping Company

VACATION – WRITE OFF or NOT

Vacations are fun and usually for your personal pleasure. However, sometimes you use part of your vacation to explore or expand your business opportunities. If you do this, and keep good records, you will be able to write off at least part of your vacation.

To define your business part:

Record where you go and why, the business reason.
Record whom you meet with and where. Get business cards and/or brochures.
If you are attending a conference, keep your paperwork. If the conference is the reason you are going and you spend an extra day or two, the entire trip may be deductible.
If you take your spouse or family with you, you can only write off your portion of the trip unless they work in the business.

It is very important to show that you were working on your business so the more materials, addresses and names that you have the better. Photos can be helpful as well; for example, if you are a realtor looking for houses to sell.

Discussing these issues with your tax consultant BEFORE your trip can help make compliance much easier than trying to go back and get the documentation later.

Sandra Vincent, The Bookkeeping Company

Four Credits That Can Pay You at Tax Time

You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are four popular tax credits you should consider before filing your 2010 Federal Income Tax Return:

1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.

3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.

4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications and additional information available at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

From: Special Report on Taxes – Fidelity Investments

What you need to know about personal property assessment and taxation

Personal Property Assessment and Taxation

From the Oregon Department of Revenue

All personal property is, by law, valued at 100 percent of its real market value unless exempt by statutes. Personal property is taxable in the county where it is located as of the assessment date, January 1 at 1 a.m.

Taxable personal property
Taxable personal property includes machinery, equipment, furniture, etc., used previously or presently in a business (including any property not currently being used, placed in storage, or held for sale). Examples of taxable personal property:

Amusement devices/equipment
Non-inventory supplies
Barber and beauty furniture/equipment
Garage and service station tools/equipment
Leased equipment
Medical equipment
Movable machinery, tools, and equipment (such as logging and construction equipment, lift trucks, and equipment used in service industries)
Office furniture/equipment
Store furniture/equipment
Libraries such as repair manuals, electronic media, compact discs, videos, tapes, sample books, law books
Fixed load/mobile equipment
Floating property

Tax–exempt personal property
These items are exempt from property tax:

Intangible personal property. Money at interest, bonds, notes, shares of stock, business records, computer software, surveys and designs, and the materials on which the data are recorded (paper, tape, film, etc.) (ORS 307.020).
All items held exclusively for personal use. Household goods, furniture, clothing, tools, and equipment used exclusively for personal use in and around your home (ORS 307.190).
Farm animals. Livestock, poultry, fur-bearing animals, and bees (ORS 307.394).
Inventories. Items of tangible personal property which are or will be sold in the ordinary course of business (materials, containers, goods in process, and finished goods) (ORS 307.400).
Farm machinery and equipment (ORS 307.394).
Licensed vehicles other than fixed load/mobile equipment (ORS 801.285).

Filing your personal property tax return

Each individual, partnership, firm, or corporation that has taxable personal property must file a return by March 1.
Major industrial properties appraised by the Department of Revenue will report on an industrial property return furnished by the department.
For all other accounts appraised by the county assessor, a return form may be mailed to you by the county assessor prior to January 1 if you were assessed the previous year. You must report property you own or had in your possession as of January 1 at 1 a.m. If you do not receive a form from the assessor, you are still obligated to obtain and file a personal property tax return. There is a penalty for late filing. If you need help completing the form, contact your county assessor’s office.
If you sell your business, notify the county assessor to avoid future liability on the personal property.

The Bookkeeping Company will build a file and track your assets as your bookkeeping is being done. Then all you will need to do is review the asset list annually and give us the updates of items no longer in your control. We can then handle everything else for you.

Tax Season Starts on Time for Most Taxpayers; Those Affected by Late Tax Breaks Can File in Mid- to Late February

WASHINGTON — Following last week’s tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.

Taxpayers will need to wait to file if they are within any of the following three categories:

Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.

Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.

In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.

Have you taken your business entity temperature lately?

Is your current business entity still the right one for you? Businesses grow – hopefully. Businesses change – always; which is why it’s good practice to review your business entity periodically.

If you’ve made some big changes this year in the size or scope of your business (like: accumulated more assets and/or increased liabilities); it’s definitely time to re-take your business entity temperature.

To get the most out of your business it’s important to have the right business structure. The proper entity type can help maximize your financial and operational success; and is important in determining your limitations and liabilities.

Your accountant or attorney can help you decide what type of business structure best fits the needs of your company today. But here’s a handy comparison chart to get you started:

Business Comparison Chart:

	C Corporation	Subchapter S Corporation	Limited Liability Company	General Partnership	Sole Proprietor
Owners have limited liability for business debts and obligations	X	X	X
Created by a state-level registration that usually protects the company name	X	X	X
Business duration can be perpetual	X	X	X
May have an unlimited number of owners	X		X	X
Owners need not be U.S. citizens or residents	X		X	X	X
May be owned by another business, rather than individuals	X		X
May issue shares of stock to attract investors	X	X
Owners can report business profit and loss on their personal tax returns		X	X	X	X
Owners can split profit and loss with the business for a lower overall tax rate	X
Permitted to distribute special allocations, under certain guidelines			X	X
Not required to hold annual meetings or record meeting minutes			X	X	X

Contact The Bookkeeping Company for assistance in identifying the best entity for your business. Chart source: The Company Corporation.

Are you ready for the year to end?

It’s getting to be that time again. Time to review your financial and tax related issues. Time to contact your tax preparer to discuss tax law changes that could impact your business positively or negatively.

Before you turn out the lights on 2010 and ring in 2011, have you done everything you need to do to reduce your tax liability? Are you ready to start the New Year with a clean slate? Certain steps and tactics will save you money and affect your finances, not only in the current tax year but also for years to come.

Here is a handy “To Do Before Year-End” list:

Be sure your accounting is current.
Count your inventory.
Update your corporate minutes.
Control expenses and income to speed up or slow down deductions and/or income.
Decide whether to distribute or retain earnings this year.
Consider making last-minute equipment purchases to exercise expensing/depreciation bonuses.
Set up your retirement plan — or make contributions to your existing plan.
Reassess your health insurance coverage to deal with probable increased premiums next year.
Decide whether to pay bonuses.
Evaluate whether to change your business entity next year.
Make charitable contributions.

Click here to see the entire article on Year-End Planning from Wells Fargo.
Or contact us at The Bookkeeping Company for more information and assistance on how to end the year to your best advantage.