Author Archives: Pat Michael

About Pat Michael

US-TaxLaws.com is your best source for professional tax preparation services with more than 30 years experience and thousands of satisfied clients.

Advantages to having a home-based business

The United States tax law encourages business activity by offering many tax benefits to entrepreneurs. Specifically, the tax code provides advantages to small business owners, depending on how you choose to organize your business. Running a home business has its advantages, as home-based businesses qualify for several additional deductions and tax credits. By maximizing these deductions, the home business owner can reduce his tax liability. Continue reading →

Is the Home Office Tax Deduction a “Red Flag” for an IRS Audit?

The Bradford Tax Institute conducted a polling question during a continuing education webinar for CPAs and enrolled agents (EAs) last October.  The attendees had to answer it in order to prove attendance.

The question was “Do this: Think of yourself and how many clients you have who have claimed the home-office deduction for each of the last three years.  Now with that number of clients in mind, what percentage have been audited by the IRS in the last three years?”

  • No audits at all – 73 percent
  • Fewer than 5 percent audited – 22 percent
  • Five to 10 percent – 5 percent

Conclusion: There is no premise that declaring a home-office tax deduction triggers a red flag with the IRS.  In fact, the numbers show just the opposite. And, since the IRS hasn’t published its list of “flag” colors – for audits or otherwise, it seems they remain a secret.

 

Summer Job Tax Information for Students

IRS Special Edition Tax Tip 2013-10

When summer vacation begins, classroom learning ends for most students. Even so, summer doesn’t have to mean a complete break from learning. Students starting summer jobs have the opportunity to learn some important life lessons. Summer jobs offer students the opportunity to learn about the working world – and taxes.

Here are six things about summer jobs that the IRS wants students to know. Continue reading →

CA Residents – Head of Household Audit Questionnaire Coming

The State of California Franchise Tax Board (FTB) will be mailing out Head of Household (HOH) Audit Questionnaires in mid-July.  They will be sending out ~100,000 Audit Letters for 2012 tax year.  We are urging our clients to respond by the stated due date to avoid the *failure to furnish information* penalty.  Failure to respond to the questionnaire or whose responses indicate they do not qualify for HOH can expect a Notice of Proposed Assessment that disallows their HOH filing status. Continue reading →

Community Reach : Essentials for Emergency Kit

Recent disasters that have taken place in the Midwest and across the nation emphasize that we all need to take safety seriously and have some level of preparedness.  One way is by making sure you have the essentials to take care of yourself (and others) in one place that can be retrieved as needed.  Kiplinger identified 7 essentials and the approximate cost:

  • Four-in-one lamp (Coleman Quad Lantern), ~$55.00
  • Battery-operated TV, portable power pack, ~$85.00
  • Radio (American Red Cross Solarlink FR600 Eton Emergency Radio), ~$87.00
  • Portable Power Pack (Duracell DPP-300EP Powerpack 300)  ~$132.00
  • Mega generator (ETQ TG32P12), from Eastern Tools & Equipment), ~$500.00
  • Portable water (Katadyn Combi is a portable water-purification system that filters out bacteria, protozoa, sediments and other contaminants, ~$200.00
  • Corded-telephone.  Cellular communications may be compromised.  Very often land-lines still work when cell phones won’t.  ~$10.00

The Kiplinger slide show can be viewed here.

Six Facts on Tax Refunds and Offsets

IRS Tax Tip 2013-60, April 22, 2013

Certain financial debts from your past may affect your current federal tax refund. The law allows the use of part or all of your federal tax refund to pay other federal or state debts that you owe.

Here are six facts from the IRS that you should know about tax refund ‘offsets’. Continue reading →

Keep the Child Care Credit in Mind for Summer

IRS Special Edition Tax Tip 2013-11, May 22, 2013

If you are a working parent or plan to look for work this summer, you may need to pay for the care of your child or children. These expenses may qualify for a tax credit that can reduce your federal income taxes. The Child and Dependent Care Tax Credit is available not only while school’s out for summer, but also throughout the year. Here are eight key points the IRS wants you to know about this credit. Continue reading →

IRS Voluntary Classification Settlement Program — Temporary Eligibility Expansion

Child care providers who have treated their workers as independent contractors instead of employees need to make changes immediately.  The IRS has announced an expansion to their Voluntary Classification Settlement Program that enables providers to reclassify their workers, and avoid stiff penalties and fines.  This Temporary Eligibility Expansion is effective through June 30, 2013.  For more information and details, please visit our Child Care Tax Specialists blog.  

Fire Prevention Fee Ruled Not Tax Deductible

The IRS Office of Chief Counsel issued a determination on the subject of the Fire Prevention Fee, which many Californians are subject to. The Court ruled that the $150 Fire Prevention Fee assessed by the California State Board of Equalization (BOE) against each structure in a “state responsibility area” is not deductible as a tax under IRC §164. For details, see Chief Counsel Advice 201310029.

A “state responsibility area” is defined as an area of the state “in which the financial responsibility of preventing and suppressing fires has been determined by the [Board of Forestry and Fire Protection]… to be primarily the responsibility of the state.” Cal. Pub. Res. Code §4102.  

Seven Record Keeping and Tax Tips for the New Provider

Family child care providers are self-employed taxpayers who must report their business income and expenses to the IRS. It is important to become familiar with all of the IRS requirements for filing your taxes. Record keeping is essential in any business – but for child care providers, the devil is in the details. To help you prepare for this, Tom Copeland provides seven essentials to keep in mind.   Using these tips will help you to organize your records, claim the maximum legal deductions, and reduce your taxes.  http://www.tomcopelandblog.com/seven-record-keeping-and-tax-tips-for-the-new-provider.html

The IRS Tax Court and Child Care Providers

Just finished reading about Time-Space Percentage client case of Tom Copeland’s. It is a great example of why recordkeeping is so important for child care providers.  The child care provider was audited – and determined – to owe $37,000.  After an unsuccessful appeal process, the provider contacted Tom Copeland.  Because the provider kept meticulous records, receipts, and other important documents, the case was revisited and settled for a fraction of the original determination.  Instead of $37,000 – the client ended up owing $4,466.  Get the full story here.

 

Hire Your Child or Your Husband?

According to Tom Copeland, “…the simple answer for a family child care provider is – only in a few unique situations.”   If you hire your own child who is age 18 or older or if you pay your husband to do work for your business you must treat them as an employee – and that means they pay taxes and you must withhold the right taxes, and may have to have worker’s compensation insurance.

That means withholding Social Security/Medicare taxes and withholding federal and state income taxes.  On top of that – if your child or husband is over age 21 you must also pay federal unemployment tax. While you can deduct these taxes as a business expense, your child or spouse must report their earnings as income on their IRS Form 1040, just as they would working for any company. Get the rest of the story here. 

2013 Tax Changes to Remember on the Road to 2014

2013 contribution limits increased for some of the more popular retirement vehicles.  IRS-2012-77, October 18, 2012:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s “Thrift Savings Plan” increased $500.00.
  • The catch-up contribution for age 50+ employees and who participate in 401(k), 403(b), most 457 plans and the federal government’s “Thrift Savings Plan” remains unchanged at $5,500.00. Continue reading →

New Home Office Tax Rules for 2013

The IRS has released Revenue Procedure 2013-13 announcing a more streamlined method for taxpayer home offices to offset the tax reporting structure that even the IRS considers “complex and burdensome”.

Beginning with 2013, qualified taxpayers may now use an optional “safe harbor” method to claim an office in home, limited to $1,500.  This method only looks as the square footage used, and allows a deduction of $5 per square foot (up to 300 ft.).  Recordkeeping of actual expenses, and claiming of depreciation, is not required, and the Schedule A for mortgage interest and property taxes remain unchanged. 

However, while this may (at first glance) sound like a benefit to the taxpayer, it is worth talking this over with your tax preparer to determine whether the safe harbor method makes sense for you and your home business.