November 17, 2017

Everyone loves paying less!

Everyone loves paying less! Taking deductions for expenses when completing your tax return gives anybody a good feeling. Since we all use a car to get from A to B, this post will give you a basic understanding of how you can profit from this provision in the US tax code as-well-as some practical tips that ensure you have adequate backup.

There are 3 fundamental decisions to make:

1. First question each entrepreneur, small business owner or network marketer should answer is if the vehicle is solely used for business. That means that you do not use the car to quickly run an errand or to drop your child off at a football practice. If the car is 100% used for business purpose all expenses are deductible. However, if you use the car for both personal and business activities you can only deduct the cost of business related trips.

2. Another choice to make is which calculation method to use. For most tax filers taking the easy route, and just using the standard mileage rate to calculate your deduction, is the best option. Just be sure to use the correct amount for the year, because there is a different rate for a car owned and a car leased. Yet, for many business owners who use their automobile exclusively for work, the use of actual cost is often more beneficial. This selection allows tax payers to include the following expenses: gas, oil changes, repairs, car washes, tires, car insurance, annual registration fees, license (renewal) fees, and depreciation if you own the car, or lease payments.

3. Persons that have more than one job then need to determine the principal place of work. Where is the location that you conduct most of your occupation? Factors to consider are time and activities performed, and how much you earn. This job will be considered your main or principal place.

 

Make sure you add this  to your expense log!

Make sure you add this to your expense log!

Do you have a job?

People that have a part time or full time job at an office, store, school, etc., and whose income is more than the revenue earned in the part time business, the commute from home to the office or other work location is not tax deductible. Only if the work site location is temporary, out of the metropolitan area, and does not last longer than a year, the drive to and from this place are tax deductible. Persons that have more than one job often don’t know that they can deduct the cost for going from the first job to the second job on the same day.

 

Are you self-employed?

When you work out of a home office you can deduct any trip you make that has a business purpose such as a client visit in his office, a sales meeting at a restaurant, or attending a workshop related to your work.  Just to be clear, your home is the place where you actually live.

The above tax rules are only applicable for people that own their car. When you lease your car, or when your employer provides a car the tax regulations get more complicated if it is used for both personal and business activities. I will not explain these specific rulings in this blog post because I only wanted to paint the big picture.

Take action!

To get you started collecting evidence for tax inquiries you need to record all trips you make. Either you spend a few dollars and buy an auto mileage log book at Office Depot, create your own Excel spreadsheet, or download an app such as MileIQ , Triplog and MileagePad. Many apps have a basic free version or free trial, and then charge a monthly fee – some as low as $1 a month. Maybe it is time to use modern technology and save some time and effort.

I hope the above information is useful to you. I’m planning more blog posts on tax deductions and maybe I do a few videos on this subject too in the next few months. Help me become better in serving your tax questions or business matters by commenting below. Feel free to send me a message if you have a question regarding transportation deductions. And if you prefer to use electronic documentation click here to download my mileage log.

 

Be Better Next Time Around!

It’s done! Finally, filed my taxes just in time for the deadline of April 15. This year, I got upset with myself as it took way too much time to get it done. It was not the actually online completion of the interview return preparation, but getting all my backup documents ready to enter in the software that caused my mood to be dismayed.

Check off what's done!

Check off what’s done!

Many people that know me think I’m organized and have everything neatly filed away. Until a certain extent that is correct. I have a filing system for all paper statements and invoices. I also have a filing system on my computer, but I have to admit that they are not very effective if you print everything at the time that you file the income tax return.

 

Keep For 3 Years

Since you have to keep receipts, statements, invoices and other documents to support your income and your expenses for at least 3 years, there is a lot of paper to keep. The IRS prefers hard copies of the supporting documents. If you, like me, are a single business owner it is easier to keep the required paper backup for Schedule C details. However, if you have staff that you pay or a production manufacturing, inventory and other real store features, you will use an electronic accounting system that will produce reports.  This does not mean that you than can shred all invoices and other papers that are important for tax evidence.

An alternative to keeping paper copies is to scan all receipts, tickets, checks, etc. and keep the supporting materials in digital format. This works well if you do regular back-up of the computer files and keep them in a safe location. Whatever medium you use, it needs to be able to produce any document that the IRS asks for in case of an audit. The IRS has the right to go back for 3 years or longer depending on the reason for the investigation. More details can be found in the following publications:

Starting a Business and Keeping Records

Travel, Entertainment, Gift and Car Expenses

 

Organize Your Stuff

This weekend I explored some online suggestions for implanting a more effective system. Here is what I found in my research of this topic. It is important to look at the significance of the document. Original certificates (birth, marriage, citizenship, school, etc.) need to be in a safe place. This also applies to insurance documents.  Best is to scan them first, so you have a backup that is always accessible, and then put them in a fireproof safe at your house or in a lock box at your bank.

Next, all statements from utilities, decide to go paperless, so you can access them on the website and download into a folder either on your computer or in the cloud. Statements from bank accounts, credit cards, or retirement accounts can be handled in similar fashion. However, if you have big ticket items that have a warranty or payments for large incidental events such as a wedding, a hard copy can provide a proof of payment that you can keep with the invoice.

To go digital, might be a bit of work to set it all up, however, this is probably the easy part. If you rather have paper copies, you need to set up a large filing box or a drawer file cabinet that can keep hanging folders. Store the files that you frequently use in the front and those that keep important records for occasional need more in the back.

What about all those receipts that you need to keep as supporting documents? If you do not want to keep them in a shoe box, then you might want to sort them in the different expenses that are reported on schedule C. Here is a list of expense categories that an entrepreneur, small business owner or internet marketer can deduct. Depending on the kind of business and the volume of transactions you can have all or just a few. Choose the ones that make sense and add the others during the year. I will explain each more in depth in a future blog post.

 

Expense Categories on Schedule C:

Advertising

Car/truck

Commissions and fees

Contract labor

Depreciation

Employee Benefit Program

Insurance

Interest for mortgage

Legal and professional services

Home office

Supplies

Licenses and taxes

Travel, meals and entertainment

Utilities

Wages

 

One way to be neat and organized!

One way to be neat and organized!

What System Suits You

The filing system can be simple and does not have to cost a lot. One method is to use envelopes for each category. Personally, I found an unused accordion file folder that I will use for 2015. These expanding file folders come in all forms and sizes and are not very expensive either. You now can file the receipts as soon as you get them, or collect them and sort them once a month if that suits better.

For many people the burden of keeping receipts is a task that often turns into a search for misplaced and missing items. Since many savvy business persons have smart phones, it is much easier to download an app and then make a picture of the receipts on the go. Some Expense Trackers are only for Apple iOS and others only for Google Android system. Some are free and others have a small monthly fee. Besides organizing all receipts and payments, these apps also help to keep tab on what  you spend. If you do not have a fancy phone to download apps, many offer web based programs too. And if this is still too cumbersome, pen and paper or an excel workbook can serve the same purpose.

I hope this information gave you some ideas on how to prepare and organize tax supporting documents more efficiently. If you have a tip on how to keep track of all business expenses, feel free to comment.

My favorite way to pay for business expenses.

Are you an entrepreneur, a start-up small business or a sole professional business person? You might want to reconsider how you pay for everything for your business.

Do you use your hard earned money to pay for business expense?

Most people who have a business, but are not hundred percent committed, will get involved in a business by using their personal check or credit card for the initial sign-up fee. Many entrepreneurs also use personal savings or financial help from family and friends to pay for any purchases for the business. And before you know, some month down the road, you are still using your own personal monetary instruments.

Do you want to be more efficient?

In fact, for tax purpose and financial reporting it is easier if the business has a separate bank account. To mix personal and business expenses is not efficient bookkeeping. The Internal Revenue Service requires the business to substantiate all entries on your tax return. If business purchases and personal payments are combined on one account it creates a complication to reconcile the statement details.

However, you still need to keep any receipts for purchases, invoices for monthly expenses like electricity, rent, internet, etc.

You can find more information on this subject on the website of the IRS. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Recordkeeping

Using Other People’s Money to pay for Business Expenses makes Sense!

Reasons why Other People’s Money is beneficial.

When you have a credit card (OPM) specifically for the business, the statements provide a great backup for keeping track of costs and help classify them into categories. Not only will a good record system help you at tax time, but it also can give you details for monitoring the progress of your business and help secure future financing.

Credit cards tailored to small business often have a reporting feature that gives analytics on how the total sum is spent. Actually better is when the provider offers the option to upload the details in to a software program such as Quickbooks or Quicken.

A credit card can help with cash flow issues that a small business owner might face if he needs larger quantities of parts for manufacturing his product or more stock of merchandise. However, if the card is used for large sums, the business owner needs to be sure that he can pay off the monthly charges every time.

Many credit cards for small business also provide a rewards program that could help in lowering cost of travel expenses, office supplies or cash back. An important factor to consider is how the points are accumulated. Does the card issuer offer 1 point for every dollar or are there categories that earn more points?

Here is more HELP:

Most franchise companies, network marketing or internet businesses provide lots of details on the company and the product or services to new business partners. However, there is little or no help on any legal or financial implications. But it is not too late to get on the right track to have a sound and successful business.

Check out my free report on How to Launch your Small Business Without any Hurdles. Click Here.

If you got value from this post or have any comments, please let me know. I always enjoy connecting with my readers.

Oh, yes! It’s FREE!

Have you filed your tax return yet?

How do you file your yearly income tax return? Do you go to a CPA firm for assistance, do you visit a tax preparer such as H&R Block or do you prepare your own return using software you buy?

Depending on your situation your only option could be a professional service. If you have a side business or small business you would be wise to get help from a reputable company that knows about taxes. Also, if you had a big change in your personal life such as buying your first house, getting a baby or maybe inherited property, consulting a CPA will give a thorough advice on how to handle this best for tax purpose.

But if you do not fall in any of these categories you could qualify to file your return for free!

Two ways to file a free income tax return.

  1. Do-it-yourself

The IRS offers a special on-line service that you can use if you are comfortable doing your own taxes. If you have a W-2 from your employer and no other deductions, this is an easy filing from the comfort of your own home. In order to qualify for the free programs you have to consider a few limitations:

–        Your gross income in general has to be lower as $60,000

–        Often you can only file if you are in a certain age group

–        And some programs only allow individuals to file tax returns in certain states.

You can find more details on the different software providers on the IRS website.

File your Tax Return for Free!

File your Tax Return for Free!

 

  1. Volunteer Income Tax Assistance (VITA)

For those persons that do not understand the tax terminology, do not have access to a computer or prefer that someone with more knowledge takes care of their tax return, they can find help from specially trained Volunteer Income Tax Assistants. The IRS yearly recruits persons that learn to do income tax returns in specific locations throughout the country. The VITA program offers free help to low-income residents, persons that are disabled or over 60 years old, and that earned less than $53,000 in 2014. The AARP has a similar program that provides tax assistance to seniors.

Click on this link to find locations in your area. You also can call 211 to find a site. Often a community center, library or accounting school will open their facilities at certain times. Some locations require an appointment and others only do walk-ins. If it is really busy, you might have to wait before a volunteer preparer can assist you.

Either way, make sure you have all documentation with you, so you do not have to go back to retrieve something you forgot. You definitely need your Social Security card in order to start at a VITA site. And if you do not have health insurance through your employer you need to prove that you got health insurance on the market place (Form 1095-A). To maximize any lawful deductions and credits, you need to show the preparer that you qualify for it. Therefore, it is better to have more evidence as needed so bring all medical receipts, travel logs, insurance payments, kid’s day care invoices, etc. to get all that you qualify for.

Lastly, I want to mention that the Affordable Care Act (ACA) this year can cause a penalty, even if you paid for your health insurance through the market place. When you purchased a silver tier health plan you also had the option to obtain a subsidy and reduce your premium payment. Now at tax time, the tax preparer will compute your annual income and maybe it is different from the amount you used when purchasing insurance. If you benefited from a subsidy that was too high this may affect your tax refund or tax liability.

I hope this information helps you to prepare for filing your income tax return this year. Do you have any suggestion on filing an income tax return? Feel free to leave a comment.

Hurry, only 7 days left to enroll for Health Insurance!

Are you still not sure if you need a Health Care plan for you and your family? You rather pay the high fees for physicians, emergency care and prescription drugs when you or your children have an ailment, disease or accident? And you don’t mind paying a penalty for not complying when you file your income tax return?

The penalty for being uninsured in 2014 is either a flat dollar amount, $95 per adult with a family maximum of $285, or 1 percent of household income, whichever is greater. Penalties in 2015 will be 2 percent of household income, or $325 per person, unless they qualify for an exemption.

But maybe you work for an employer that is considered a small business since it has less than 50 full time employees? Those firms are exempt from the mandate to provide health insurance.  However, if you work in a larger company and your company does not offer this benefit, the penalty that the firm needs to pay for every full time equivalent employee is $2,000. Companies that employ between 50 and 99 full time persons can postpone offering health insurance until 2016. The IRS has specific guidance on how to compute the total number of full time equivalent employees for a firm.

http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-Questions-and-Answers:-Determining-FTEs-and-Average-Annual-Wages

What can you do to get coverage?

The best strategy is to talk with your boss or human resource department. Show them this video about an affordable health care solution that also gives employees an opportunity to choose a low cost plan. This option can be combined with a Health Savings Account when the deductible is higher than $1,300 for a single person and more than $2,600 for a family plan. See my last post for advantages of a Health Savings Account.

Take a tour of the Health Care Market Place here.

 

Take a Tour of the Health Care Market Place.

Since January 22, 2015 the IRS accepts individual income tax returns. Many CPA firms, tax service providers and the volunteers of the AARP or Volunteer Income Tax Assistance program sponsored by the IRS are busy preparing Tax Forms. Individuals that purchased their own health insurance this year’s filing needs 2 additional forms. Form 1095-A is a statement that shows your coverage and will be mailed out in February by the Health Insurance Market Place. This information is need to complete form 8962 to reconcile the subsidy if you got this at time of purchase or get tax credit now.

With open enrollment closing in just one week there is not much time left to contemplate. Feel free to contact me on any matter discussed in the post regarding taxes or health insurance.

Thank you for reading my post. If you like the information let me know through a comment or by clicking the follow button on this page.

Don’t pay to file your 2014 Tax Return!

Wow, time flies when you’re have a good time! My twin brother and his wife stayed with me for a few weeks during the holiday season of 2013. When you see each other only once a year, it is so nice to have time to talk, have a glass of wine and do all kinds of fun and interesting things together. Like making “oliebollen”, a Dutch treat for New Year’s Eve.

Because of their visit I forgot completely that tax season was around the corner. This year, I did not attend any classes nor did I study online for any mandatory tests to be able to prepare Income Tax returns in the VITA (Voluntary Income Tax Assistance) program . I have been participating as a volunteer since 2006, and enjoyed helping people to prepare their form 1040 for a refund of too much tax paid to the government. Besides the for mentioned excuse, I have too many other things going on. Next Year, I hope to be back as VITA volunteer.

However, I still want to inform the public at large about this great free service for anyone who has an adjusted income lower than $52,000. For locations and opening times for free tax returns click here:

http://www.hispanicunity.org/content/program-calendar

 

You also can call 2-1-1 for information on sites through Broward County.

 

Things that you need to take with you:

–        Social Security Card or ITIN card

–        Picture I.D. such as driver’s license

–        W-2 from employer or form 1099 when you are a contractor or consultant

–        Bank statement and other investment documents for interest and dividends.

–        Mortgage year end statement for deduction of interest and property taxes.

–        Documentation for all business related expenses that you want to deduct.

–        Last year’s tax return for comparison purpose

–        Checkbook for details of bank account for direct deposit of your refund.

 

Hope this information is informative and helps you file your taxes in a smart and free way.

Tax season is over!

Ways to improve your down season.

 

Are you a professional that started a business in bookkeeping, taxes or financial services and have now a few month a slower period? What do you do to keep yourself and any staff busy and paid now all income tax returns have been filed? What other activities does your business offer besides finishing tax returns filed with extensions? Do you advertise to get more clients? Do you send out mailings to prospective customers and hope they need a professional accounting service?

 

Here are some ways how you can add additional revenue or find future leads for your business:

  1. You can organize training seminars for small business owners on quick books or other accounting software.
  2. Have an “open house” for your target client group and offer them a short workshop on a business topic.
  3. Thank your clients and do a survey on your service and find out from clients what they think could improve. This gives you plenty of ideas on what to do for next year, but also the chance to talk to these owners and maybe get a special project or a referral.
  4. Find related products or services that you can use to create additional revenue. For example you could offer Financial Retirement Planning, Estate Planning, Notary Public Service, or Merchant Service consulting.

Off course it is also a good time to reflect on your business and look at how you stay in touch with your clients. Maybe you need to write a few articles for your website or your blog. Perhaps you need to find a new way to market your services.

Maybe thank your team for their hard work and brainstorm on things that can improve for next tax season, how work can be more productive or what the firm can do to have off-season work. You might reward them with a gift card or a special team event.

However, the most beneficial thing you can do for yourself and your team is to take a few days off and unwind before you start looking into any of the above mentioned ways how to stay busy after tax season. You will have a fresh perspective and lots of energy to use the down time wisely.

Let me know what you think of the suggestions offered and what you do to make the most of the down season.

 

Photo credit: Stuck in Customs / Foter / CC BY-NC-SA

 

Tax Season is in full swing!

Have you filed your 2012 Income Tax return yet? Or do you wait till the last week because you have so many receipts and expenses that you want to itemize and need more time to gather all the documents?

 

Volunteer Income Tax preparation program

For the past 7 years, I have prepared tax returns as a volunteer in the IRS Volunteer Income Tax Assistance program. All volunteers have to pass several tests before they are allowed to participate in the program. Local colleges and community organizations partner with the IRS to provide free income tax returns to people that earn less than $51,000 and need help completing their tax return.

I became a volunteer while studying for my Bachelors degree wanting to get real life experience in an area that was part of my education. Now I have a fulltime employment as a senior accountant at a private corporation, I want to use my knowledge and expertise to help others in an area that for many people is complex and boring. In my view, taking classes and studying for the annual tests keep my skills sharp and increase my understanding of tax matters such as Earned Income Tax Credit or Education Credit. VITA volunteers can assist in filing of Form 1040 and schedules, however specific elements of certain forms can be out of scope as not all volunteers have completed the advanced certification level.

The most used tax form

So, if your salary falls below the above amount you can get your 2012 tax return done for free at one of the participating locations which are often at libraries, community centers or schools. You can find a list of VITA sites in Broward county on this website: http://www.cscbroward.org/eitc.aspx or dial 211.

 

What you need to bring

Before heading out to one of the sites it is good to take a look at the following list of items:

  • Proof of identification – Picture ID
  • Social Security Cards for you, your spouse and dependents or a Social Security Number verification letter issued by the Social Security Administration or
  • Individual Taxpayer Identification Number (ITIN) assignment letter for you, your spouse and dependen
    ts
  • Proof of foreign status, if applying for an ITIN
  • Birth dates for you, your spouse and dependents on the tax return
  • Wage and earning statement(s) Form W-2, W-2G, 1099-R, 1099-Misc from all employers
  • Interest and dividend statements from banks (Forms 1099)
  • A copy of last year’s federal and state returns if available
  • Proof of bank account routing numbers and account numbers for Direct Deposit, such as a blank check
  • Total paid for daycare provider and the daycare provider’s tax identifying number (the provider’s Social Security Number or the provider’s business Employer Identification Number) if appropriate
  • To file taxes electronically on a married-filing-joint tax return, both spouses must be present to sign the required forms. (from IRS.gov)

All returns prepared at the VITA site are reviewed by a specially trained site coordinator or supervisor before the return is electronically filled. These reviewers have extensive experience and catch any errors. Most volunteers are people that like to help others and do this in their spare time. At some sites you can make appointments, but most sites are open only for certain hours and provide tax help on first-come, first-serve basis. Since the utmost attention is given to each client and their tax return, at busy times you might have to wait a bit.

 

Identity protection

Last year, many newspapers and other media reported about increased numbers of tax returns filed with social security numbers that had been stolen. Here is a link to a presentation on this subject matter for professional service providers such as CPA’s, tax preparers, financial advisors or attorneys.

 

Some ID protection programs can assist people in discovering suspicious activity and help them when they are a victim of ID Theft. Nowadays, just being careful is not enough anymore.  ID theft can happen in many ways, so the more protection, the better.

My advice: Take charge of protecting your identity.  The Federal Trade Commission has helpful information on their website http://www.consumer.ftc.gov/articles/0272-how-keep-your-personal-information-secure .

If you prefer assistance then find a trusted and stable provider that monitors the different types of information for fraudulent activity. Better safe than sorry.

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