Are you at risk of the IRS seizing money out of your bank account?

chips-and-salsa

I recently read an article about a 67-year-old woman who owns and operates a small Mexican food restaurant. She has operated this business for many years and takes only cash for payment which she then deposits in a checking account. One day the IRS randomly seized $33,000 from her account. She did not owe back taxes and had not been accused or convicted of any wrong doing. Why would the IRS take the money?

The IRS can seize funds if something looks suspicious. You see, the woman didn’t make a deposit every day. She saved up until she had almost $10,000 (she heard that if you deposit more than $10,000 at a time it tagged your account). However, because she deposited large amounts of cash, it looked suspicious to the IRS so they were able to take the money. Large cash deposits are typically associated with criminal activity – especially money laundering. Because of this, the IRS can seize assets and ask questions later. This is a rare occurrence and the IRS has stated that they are doing it less to smaller businesses and trying to go after the “Big Fishes”.   However, I think it is important to know that it is a possibility.

So, what happened to the sweet little business owner? She had to take out a second mortgage on her home and borrow money to keep her business running and pay attorneys fees. She eventually got most of the money refunded – but not all of it.

In today’s business world, there are very few businesses that only accept cash. With the ease of taking credit and debit cards, cash only establishments are few and far between. Fortunately this type of IRS action is very rare. However, be aware that any transaction of $10,000 or more into a bank account is tagged and any large cash deposits are tagged.

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14 Hardship Exemptions to the Healthcare Tax Fee

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Photo Courtesy of Flickr.com

The US government has been publicizing the fact that millions of people have gotten health care insurance since the new Affordable Care Act went into effect. But what about those who are still finding healthcare too expensive and will be subject to the “Shared Responsibility Payment”? There is possibly good news for some. There is a hardship exemption from the fee for not having health care coverage. There are 14 circumstances that may qualify a person or household. They are:

  1. You were homeless.
  2. You were evicted in the past 6 months or were facing eviction or foreclosure.
  3. You received a shut-off notice from a utility company.
  4. You recently experienced domestic violence.
  5. You recently experienced the death of a close family member.
  6. You experienced a fire, flood or other natural or human caused disaster that caused substantial damage to your property.
  7. You filed for bankruptcy in the last 6 months.
  8. You had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt.
  9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled or aging family member.
  10. You expect to claim a child as a dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you don’t have the pay penalty for the child.
  11. As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower cost on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace.
  12. You determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.
  13. Your individual insurance plan was cancelled (current plan changed or canceled) and you believe other Marketplace plans are unaffordable.
  14. You experienced another hardship in obtaining health insurance.

If you qualify under one or more of these situations, you can fill out an application “Individuals who experience hardships”.  You can find it at:

www.marketplace.cms.gov/applications-and-forms/hardship-exemption.pdf

Or contact Soulence and we can email or fax you an application. Once approved, they will send you a Exemption Certificate Number that you will be able to put on your tax form.

5 Employee Business Expenses You’re Missing Out On

 

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Employee business expenses are the expenses people must pay for in order to do their job when they work for someone else and receive a W-2 at the end of the year. If done correctly, these expenses can be deducted on your taxes, saving you some money.

The rule for deducting employee expenses is simple, if your employer requires you to pay for anything that is necessary in performing your duties, then it is deductible. Here are some of the more common employee expenses that people deduct:

  1. Cell Phone – Cell phones are one of the most targeted deductions by the IRS. Today, cell phones are almost a necessity in any business. Not only do people use them for travel, Internet, and access to their email, but they even use them to call others in the same building. However, the rule is, that the company has to require you to carry and use your cell phone. If audited, you will be asked to provide written documentation from your employer. Also, even if you are required, you must divide the bill between business and personal usage.
  2. Uniforms and Protective Clothing – A uniform is a piece of clothing that you are required to wear that would not be appropriate to wear in normal everyday life. So, if you are required to wear a suit, it is NOT tax deductible, because you can wear a suit in normal life (whether you do or not). A shirt with a company logo is deductible because it is specific clothing to your job. Scrubs for medical employees can be deductible. Any kind of safety clothing such as coveralls, steal toed boots, hard hats, gloves, etc are deductible.
  3. Meals and Entertainment – This is an area that is often misused. The meals and entertainment must be a normal business practice for your type of job. It must be required by the employer and must be with a client or customer. Going to lunch with a fellow employee is not deductible.
  4. Tools and Equipment – If your employer requires you to purchase tools and equipment to be used on the job, and you are not reimbursed for them, they are deductible. Construction is a common occupation this occurs in. If you purchase something just because you feel it makes your job easier or more pleasant, then it is not deductible. Again in the case of an audit, you may be required to get verification in writing from your employer.
  5. Mileage – This is a deduction that is commonly misunderstood. Sadly, driving to work and back is not deductible. However, after you get to work, if you are sent somewhere else such as a job site or on an errand for the company, that mileage is deductible. Also, if you have two jobs and go from one job to the next without returning home first, the mileage between your first job and your second job is deductible.

These are just a few of the common employee business deductions. Contact us to see if you are taking all the deductions you can or if you are deducting things you are not allowed.

New Medicare Surtax Affecting Business Owners

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As part of the Affordable Care Act, a new tax was created. It is the 3.8% Medicare Surtax. It was included in the Act to help cover the cost of the credit given to people with lower incomes to help with health insurance expense. This tax targets people with passive income who’s Adjusted Gross Income exceed $200,000 for singles and $250,000 for couples. It covers income that in the past was not subject to Social Security or Medicare tax, including:

  • Interest
  • Dividends
  • Capital Gains
  • Passive rental income
  • Annuities
  • Royalties
  • Income from passive business ventures

Incomes not included in the tax are:

  • Retirement plan payouts
  • Tax-exempt interest

The Surtax went into affect 1/1/2013. We have seen many people surprised when they see their income tax bill because they were not expecting nor planning on the additional tax. There are some strategies that can help reduce the tax. Because the tax is so broad and everyone’s situation is different, strategizing can be complex and must be very individualized. Some of the strategies include:

  • Buying municipal bonds so your interest is tax-exempt
  • Harvesting losses to offset gains
  • Selling property on an installment sale or like kind exchange
  • Putting more into tax deferred retirement accounts
  • Becoming more active in a business you have invested in

At Soulence, we have been working on strategies to reduce and in some case eliminate the tax by working with people and their individual situations to reduce their adjusted gross incomes as well as their passive income. If you feel you are at risk for this tax call for an appointment before the end of the year to review your taxes and create a strategy for 2014.

Make Travel Deductible by Answering these 5 Questsions

Courtesy of Flickr.com

Courtesy of Flickr.com

There are two things I love in life.  One is traveling and the other is creating tax deductions.  So, when I travel, I do everything I can to make it a business trip.

Summer has just come to a close and many people squeezed in that last vacation. Also, with the holidays rapidly approaching, people are making their end of year travel plans now.   If you are a business owner, this is a perfect time to talk about making that vacation or family visit at least partly tax deductible.  I can’t tell you how many people I talk to at tax time that when I ask them if they have any travel expenses, they say something like this, “Well, I did go to California.”  I ask them what they did there.  They say, “Well, I visited my brother and took the kids to Disneyland.”  I ask, “Did you talk to your brother about business?”  “Oh yea, I did!”  Had this person planned ahead, he could have made a portion, if not all, tax deductible. The lesson to learn here is that making travel tax deductible requires a little planning ahead and keeping good records.

As you are thinking about turning your vacation into a business trip, there are certain questions you should ask yourself while planning:

Where are you going?

First you need to decide where you want to go.  You may want to visit a relative, or go to your favorite vacation spot or maybe try some place new. It doesn’t really matter where because you are going to create a business experience.

 

Why are you going and what will you do while you are there?

Ask yourself why you are going on this trip?  If the answer is to visit your brother and go to Disneyland, it is the wrong answer.  You need to create a business related reason to go where you are going.  If you sell a product, you may want to make contacts with companies you can sell your product through.  You may want to visit some suppliers.  If you are in real estate, whether you buy or sell property, you can look at properties and network with realtors in the area.  Let me give you an example.  Joe owned a heating and air conditioning company and  he wanted to go to the island of Maui in Hawaii. He researched heating and air companies on Maui.  When he got there, he called and made appointments to visit those companies and network with them. He met with them in between  having fun.  He also made it a point to notice the heating and air conditioning wherever he went.  Why did he go to Maui?  He went to check out heating and air in Maui and the possibility of doing business there. That is the right answer.

 

How will you get there?

This is an easy one. No matter which way you choose to travel to your destination it is tax deductible.  Also, how you get around when you reach your destination is also deductible.

 

Where will you stay and eat?

If you’re going to visit family or friends, often they will want you to stay with them. They may even want to feed you.  While this will undoubtedly save you money, it will definitely limit your deduction.  But, there is something called per deum.  The IRS allows you to deduct a standard amount for meals when you are away from home overnight.  Depending on the area, you can take from $46 to $71 per day for meals.  It is often more than you spend in day, but is a valid deduction.

Of course if you stay in a hotel or motel, the cost is tax deductible.  If you have the family with you, you will need to prorate the lodging expenses.

 

What kind of records should you keep?

When it comes to keeping a record of the trip, I suggest getting an envelope and putting a note pad in it.  Here is how you use it:

  1. Write down the places you plan to go and the people you plan to talk to.
  2. As you meet with people, look at properties, or check out businesses, make sure you collect business cards, brochures, and make notes about what you experienced.  Place these things in the envelope.
  3. Place any receipts you get for things like fuel, food, lodging, etc in your envelope.
  4. When you return home write a brief summary of your business experience.

 

When you are all done, you’ll have a nice packaged travel deduction as well as inarguable proof that you conducted business on the trip in the case that you were audited.

 

So you see with a little bit of effort, business owners can turn a vacation into a business trip and save potentially hundreds of dollars in taxes. So what vacation are you going to turn into a business trip?