Tax Deduction Check Point!

As the end of the year rapidly approaches, it is good to take a look at your businesses and make sure you are taking advantage of all the deductions you can.  There is noting worse than preparing your Income Taxes and finding that there were many deductions you didn’t keep track of.  Keep in mind that for every dollar you don’t deduct, you could be paying up to 35% back to the government.  If the dollar has been spent on a tax deductible expense, then taxes shouldn’t have to be paid on it.

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Most business owners remember to take the big, obvious deductions such as cost of goods sold, materials, tools, supplies, and employee expenses.  But often times it is the small, seemingly insignificant deductions that can make or break a company. Items such as paper clips, bank charges, credit card charges, and home office expense seem small and unimportant at the time, but multiply those little things over a year or two and then multiply it times 35% and it can add up to quite a bit of money that should be in our pocket rather than in the government’s.

It is vital for the success of every business to know what expenses to keep track of, carefully record those expenses and then evaluate those expenses on a regular basis.  Many companies wait until tax time to add up receipts and then wonder where all the money went.  Evaluating income and expenses on at least a quarterly basis gives you the big picture.  It allows you to determine how to better increase sales and decrease costs.

For a comprehensive list of available deductions you could be taking each year for your business, please visit www.soulence.com/categories.

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More Changes for the 2010 Tax Year

As we mentioned last week, we recently attended the National IRS Conference at the end of August.  Here is a continuation of some of the changes the IRS is making for the upcoming tax year that may affect you.

1) New Tax Credits for Small Businesses. There will be a hiring incentive credit forhiring employees between 2/3/10 and 1/1/11.  This tax credit will make it so you don’t have to pay your half of the Social Security and Medicare tax in certain cases.  Also, there is a new credit for small businesses that pay part or all of an employee’s health insurance.  Companies will be able to deduct part of this expense.


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2) W-2 vs. Contract Labor. If you are a corporate officer, you will now be required to take some of your pay in the form of a W-2 wage. There are also new, stricter guidelines for who is considered an employee and who is considered a contract laborer.  In some cases, the IRS may require companies to withhold Federal tax for certain individuals on their 1099.

3) Sole Proprietors. The IRS is going to be looking more closely at whether a business is a hobby or a business. The things they will be looking more carefully at are advertising, meals and entertainment, and home offices.

4) New Policies for Tax return Preparers that will affect your taxes:

a) Starting next year we will be required to efile all personal tax returns.  We will no longer charge an additional fee for this service.

b) We are now required to have each client sign a disclosure and consent form.  We can’t start your return until it is signed.  This is not our rule or even an IRS rule – it is actually something Congress has passed.  We will make this form available in the office as well as on our website for your convenience.

Again, none of these new changes are cause for alarm. If you have any questions or concerns about how these things may affect your taxes please give us a call or click here to contact us.

Five IRS Changes for 2010 Tax Year

We recently attended the National IRS Conference at the end of August.  The IRS is making a lot of changes, so here are five updates we learned about during the conference that are important for you to understand for this coming tax season.

1) Late Penalties for filing LLC returns and S Corp returns have increased.  During the 2009 tax year, late fees were $40 per month per owner.  The 2010 late fee penalty will rise to $195 per month per owner.  To give you an example, if your business has three owners including yourself and you file 3 months late, for 2009 you would have paid $240.  For 2010 you will pay $1170. This is a huge increase, so we highly recommend you get started early this next year and make sure you file your returns on time.

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2) New 1099 Forms. There will be a new 1099K form, which will be used to report payments you accept for goods or services rendered with a credit or debit card.  Merchant companies will be required to file a 1099K, which will show the IRS how much you collected through credit cards.

An additional change we will see with 1099s is that Brokers of Stock (like Les Schwab or Merrill Lynch) will now be required to report not only how much you sold a stock for but also how much you paid for the stock.  This will really help at tax time.  You may get a notice from your stockbroker asking you to provide information about the purchase of your stock.  If you do, please respond and cooperate with them or you may have problems at tax time this year.

3) IRA Changes. If you choose to convert your traditional IRA to a Roth IRA you will have the option to pay all the tax due with your 2010 return or split it between the 2010 and 2011 return.  Contact us if you would like to learn more about switching.

4) For the 2010 Tax Returns Only, there will be no limits on itemized deductions and exemptions because of high income.

5) The Adoption Credit has gone up.

None of these new changes are cause for alarm. The IRS makes changes every year.  Next week will have some more updates you should be aware of too, so check back with us next week.  But if you have any questions or concerns about how these things may affect your taxes please feel free to contact us.

5 Ways to Turn a Personal Trip into a Business Trip

For entrepreneurs, an extremely valuable and beneficial tax deduction that many people miss out on is a business trip.  Business trips give you a chance to deduct some expenses and expand your knowledge about your business.  A lot of times, people don’t realize that they can combine their personal or family trips with business trips, making that personal trip tax deductible.  No, you can’t just take your family to Disneyland and right off all of the expenses.  But if you make sure you take care of the right things, you can deduct a portion of that trip as a business expense.  Kind of a killing two birds with one stone situation.

Here is a list of 5 things you need to do to legally make your personal trip a business trip.

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1)    Have a Business Purpose. You need to have a business related purpose for making the trip.  This can include visiting similar businesses to yours to see how they operate, looking for opportunities to expand, making contact with new or existing customers or vendors, or attending conferences for topics in your business field.  Having multiple business related activities is best.

2)    Plan Ahead. Once you know what kind of business you are going to conduct on the trip, make a detailed plan of where you will go, what you will do, when you will be there, and who you will talk to.

3)    Keep all the Receipts. The most important thing in taking tax deductions is to be able to prove you had an expense.  You do this with receipts.  Keep them for anything and everything you spend money on during the trip. For example, meals, gas, lodging, work related entertainment, or fees for attending events.  You will be able to deduct all or part of the expenses based on the type of the expense.

4)   Keep a Log. Before the trip buy a notebook or day planner to track and keep a record of all the business places you go.  You might even include an envelope to keep your receipts in so you can keep everything together.  In this log you should also include people you meet and talk to about business as well as what you talked about.  You will also want to include a log of the information you learned from the trip. At the end, write a summary of what you accomplished on the trip and the conclusions you have made because of it.

5)    Keep Artifacts. Keep any other items that prove where you have been.  For example, keep ticket stubs to events, seminars, and/or trade shows.  Also, you can keep business cards from people you meet and make contact with, which you should probably do anyway.

Doing these five things will allow you to deduct portions of your personal trip as business expenses.  It can get pretty complicated, so if you have any questions about what you can or cannot deduct, contact us or your tax adviser.

Does anyone have examples where they have been able to combine a personal trip with a business trip?  Let’s get some ideas out there!

IRS Phishing Scams are on the Rise

Have you ever received an email from some company claiming “your order got messed up” so they need your credit card number, address, and full name?  This is obviously a scam aimed at stealing your identity and/or credit card information.  Email scams like these are happening more and more. In fact, a member of our office staff received three just last week.  These types of emails cannot only be a threat to your identity and finances, but they often contain malicious viruses that can attack your computer.

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A recent trend we are seeing is that people are imitating the IRS to perpetuate these scams. These emails look very official, sporting return addresses like admin@irs.gov. The IRS is a good strategy since they do require a lot of personal information.  So how do you know if you are being contacted by the actual IRS or being scammed?

Well, there is one simple rule: the IRS does not send out unsolicited emails. This means that if you did not contact them, they will only contact you by regular post mail! That’s right, the IRS is not going to send you an email; if they want to contact you it will be through old-fashioned “snail mail.”  Also, they will never ask for personal or financial information via email.  So they will never ask for social security numbers, PIN numbers, passwords or similar secret access information for credit cards, bank account numbers, or information for any other type of financial account.

So what do you do if you receive an unsolicited email from the IRS?  Here is an action checklist:

  1. Don’t open it. Just opening these can place a virus on your computer.
  2. Report the email to the IRS. Forward the email to phishing@irs.gov. The IRS has designated this email address for dealing with these email scams.
  3. Delete the email. Get the email out of your inbox incase you accidently open it later.  There’s no sense in keeping it around for a sunny day that you like to make rainy.

Also, one last important thing to beware of is a phone call from the “IRS.” Again, the only way the IRS will contact you unsolicited will be by mail.  If someone calls you claiming to be from the IRS and asks you for your personal information, do not give it to them.  In fact, why not just tell them you are sorry that you have to go and that you will be waiting for their letter in the mail.

If you have any questions or are not sure if the email, phone call, or letter you have received from the IRS is legitimate or a scam, please contact us.  We are more than happy to help you protect yourself from scams and identity theft.