Category Archives: Recordkeeping

What Are The Top Six Home Office Deductions?

IRS Talks About Home Office Deductions

If you are one of our clients, you know how we handle your home office deductions. But for those who aren’t our clients – yet – here are some tips from the IRS that you might find useful.

Issue Number:IRS Tax Tip 2015-42

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction.

1.Regular and Exclusive Use. As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:

Your principal place of business, or
A place where you meet clients or customers in the normal course of business, or
A separate structure not attached to your home. Examples could include a garage or a studio.

2.Simplified Option. If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.

3.Regular Method. If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.

4.Deduction Limit. If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.

5.Self-Employed. If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.

6.Employees. If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

For more on this topic, see Publication 587, Business Use of Your Home. You can view, download and print IRS tax forms and publications on IRS.gov/forms anytime.

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Additional IRS Resources:

FAQs – Simplified Method for Home Office Deduction

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IRS to Parents: Don’t Miss Out on These Tax Savers

If you’re a parent, here are several tax benefits you should look for when you file your federal tax return:

Dependents. In most cases, you can claim your child as a dependent. You can deduct $3,950 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits. For more on these rules, see Publication 501, Exemptions, Standard Deduction and Filing Information.
Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more, see Schedule 8812 and Publication 972, both titled Child Tax Credit.
Child and Dependent Care Credit. You may be able to claim this credit if you paid for the care of one or more qualifying persons. Dependent children under age 13 are among those who qualify. You must have paid for care so that you could work or could look for work. See Publication 503, Child and Dependent Care Expenses, for more on this credit.
Earned Income Tax Credit. You may qualify for EITC if you worked but earned less than $52,427 last year. You can get up to $6,143 in EITC. You may qualify with or without children. Use the 2014 EITC Assistant tool at IRS.gov to find out if you qualify. See Publication 596, Earned Income Tax Credit, to learn more.
Adoption Credit. You may be able to claim a tax credit for certain costs you paid to adopt a child. For details see Form 8839, Qualified Adoption Expenses.
Education tax credits. An education credit can help you with the cost of higher education. There are two credits that are available. The American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the credit reduces your tax to less than zero, you may get a refund. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file a return to claim these credits. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim them. Visit the IRS’s Education Credits Web page to learn more. Also see Publication 970, Tax Benefits for Education, for more on this topic.
Student loan interest. You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions. For more information, see Publication 970.
Self-employed health insurance deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. See Publication 535, Business Expenses, for details.

You can get related forms and publications on IRS.gov.

Source: IRS Tax Tips

IRS YouTube Videos:

See If You Qualify for the Earned Income Tax Credit – English | ASL
Earned Income Tax Credit – 2015 – Spanish
Education Tax Credits – English | Spanish | ASL

IRS Podcasts:

Education Tax Credits – English | Spanish

Mileage Rates Deductions for Business, Charity Services and Medical Travel

Mileage Deduction Rates

Studies funded by the IRS demonstrate it continues to be more expensive to drive a car. The standard mileage deductions (or reimbursement rates) appear in the following table:

Mileage Deduction Rates 2014

Category	Rate (January to December)
Business Miles	56.0 cents per mile
Charitable Services	14.0 cents per mile
Medical Travel	23.5 cents per mile

Source: http://www.money-zine.com/financial-planning/tax-shelter/income-tax-changes-2

Hobby Tax Trap or For Profit Business?

What would happen if the IRS re-classified your business as a hobby?

It can happen. The IRS defines a hobby as a revenue-generating activity that lacks a profit motive. But what does that mean to you?

Most start-ups and small businesses have good years and not-so-good years. There are those that will say that if your business continually functions in the red, maybe you really need to rethink your business strategy. The IRS, on the other hand, will be looking at whether your business is really a for-profit business or is actually a hobby and the deductions or losses you have taken. “The IRS will generally assume an activity is a business if it generates a profit 3 of 5 consecutive years…“.¹ If the business has a loss for 3 of 5 consecutive years, the IRS will take a closer look at what they consider the “facts and circumstances” to evaluate whether the activity is actually a hobby or qualifies as a for-profit business.

Why is this important? Because if the IRS determines that your business doesn’t have a solid profit motive, they will re-classify your business as a hobby, then your past returns will be reviewed and deductions will be re-evaluated. If they feel your *activity* is actually a hobby, they will add back the losses claimed by you that will result in back-taxes, penalties and interest.

So here are a few tips that you should consider in support of your for-profit business in the event you are ever reviewed by the IRS. You want to be able to substantiate your business, and therefore entitled to any business losses you have claimed. These practices include being properly licensed, have separate bank accounts and credit cards, payment of business taxes, good accounting and record keeping, appropriate insurance, a separate business phone line, log or business journal of time devoted to the business and documented actions taken to help make the activity profitable.²

¹ Brett Hersh, http://www.hbsbusiness.com
² Ibid.

Need help? We do more than just tax preparation at US-TaxLaws. We are your best source for professional tax preparation and/or financial consulting services that include:

Personal Tax Preparation   Business Tax Preparation   Partnership Tax Preparation
Corporate Tax Preparation  Incorporation-Choice of Entity   Business Support Services
Corporate Compliance   Audit Representation  Retirement Tax Planning   Wills & Trusts, Estate Planning   Bookkeeping   Payroll

Electronic Recordkeeping, Hard Copies and the IRS

Even if your system crashes, you still must be able to RECONSTRUCT your records to their specifications. Do you know what they are?

Read about what you can and can’t do if you plan on storing your tax records electronically. In many cases you need to keep hard copies – in print. The IRS must be able to access your electronic media at any time it wants. You need to know what you can and cannot do. One thing you CAN’T DO is use the excuse “my computer hard drive crashed.”

Read our post on the use of electronic media for saving tax & business records.

FTB Of CA Penalties and their meaning

AN EDUCATED TAXPAYER IS OUR BEST CUSTOMER.

We help our clients understand the ever-changing federal and state tax laws so they can maximize their tax deductions, and adopt best recordkeeping practices.

Many of our clients have come to us after having a bad tax preparation experience that resulted in penalties and interest. When we come across a reference document that we feel is valuable for the taxpayer – we promote it.

We have linked to the 18-page Penalties and Interest Reference Table published by the Franchise Tax Board of California.

Penalty reference chart (pdf)

CSEA Disaster Emergency Planning Brochure

CSEA ADDS TO CHECKLIST OF “GOTTA HAVE” FOR EMERGENCIES

The California Society of Enrolled Agents produced a brochure of essentials to have in your family-personal plan in the event of an disaster.

They ask, “If your home, office or apartment were to burn down today, or be burglarized, or be destroyed in an earthquake or hurricane, would you have accessible records to reconstruct your assets for tax and insurance purposes? ” This little brochure touches on things you may not have thought of covering.

Home Inventory
The Evacuation Box
Business Records

Just click on the picture below or here and print out a copy of this handy brochure.

Parents of Young Kids: Test Your Financial Reflexes

Even today, Kiplinger’s 2009 quiz is still valuable for parents of young children. They cover allowances to gifts and they offer the best way to handle real-life experiences. Start raising your own money-smart kid.

How long should I keep records, and other business files

How Long Do You Really Need to Keep Your Financial Documents?

Files and a messy desk Now that April 15 has come and gone, everyone is writing about tax information, records to keep, and records you can discard. For some it’s just personal tax records. For others, it’s personal and business documents. However, before you go out and purchase electronic media to store records and receipts, please read our March 26 blog, Keeping Business Records. Continue reading →

Use of Electronic Media for Saving Tax & Business Records

Considering the use of Electronic Media for Saving Tax & Business Records?

Whether you are starting a new business – or have an established business – you might be looking at how to improve your record keeping practices.

If you have considered the use of electronic media for saving tax & business records you will also want to be sure you are in compliance with the IRS rules and regulations for electronic storage systems. Continue reading →

Important Tax Date – February 28

FOR ALL BUSINESSES – TAX FILING INFORMATION

CAUTION TAX FORMS NEEDED! File information returns (for example, Forms 1099 for certain payments you made during 2013. There are different forms for different types of payments. Use a separate Form 1096, Annual Summary and Transmittal of U.S. Information Returns, to summarize and transmit the forms for each type of payment. See the General Instructions for Certain Information Returns for information on what payments are covered, how much the payment must be before a return is required, which form to use, and extensions of time to file.

If you file Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms generally remains January 31.

All businesses.

Give annual information statements to recipients of certain payments you made during 2013. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. Payments that may be covered include the following.

Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish.
Compensation for workers who are not considered employees (including fishing boat proceeds to crew members).
Dividends and other corporate distributions.
Interest.
Rent.
Royalties.
Payments of Indian gaming profits to tribal members.
Profit-sharing distributions.
Retirement plan distributions.
Original issue discount.
Prizes and awards.
Medical and health care payments.
Debt cancellation (treated as payment to debtor).
Cash payments over $10,000. See the instructions for Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

This information is available in IRS Publication 509 – Tax Calendars for Use in 2014

Part II Tips : Substantiating Tax Deductions for Charitable Contributions

The Bradford Tax Institute is one of the many sources we network with to stay on top of all the latest changes and updates to tax code and laws.

KEEP GOOD RECORDS!

When you give to charity, you win twice, first by supporting good organizations, and second by claiming valuable tax deductions. We leave the choice of charitable entity to you, and instead focus on record-keeping practices that maximize your charitable contribution deductions. To deduct cash, check or other charitable gifts, keep bank records or written communication from the charity showing

the name of the charitable organization,
the date of the contribution, and
the amount of the contribution.

For a detailed guide on record-keeping based on amount and type of charitable contribution, see the table at the end of this article.

Personal v. Business Deductions

Personal charitable deductions alleviate your tax burden and add to your bottom-line. However, business deductions are more valuable than personal charitable deductions.

Thus, whenever you have a choice between a business and a personal deduction, go for the business deduction.

For example, with a business deduction on Schedule C of your Form 1040, you save both self-employment taxes, and phaseout taxes caused by a multitude of AGI limits.

If you operate as a corporation, you gain with charity payments as business expenses because you are using pre-tax money for the charity rather than after tax deductions.

Here’s one corporate owner example. Say you are going to give $10,000 to a charity. If you earn the money on a W-2 in your capacity as an owner-employee, you pay payroll taxes on the earnings before you can give the $10,000 to the charity. On the other hand, if your corporation can claim the $10,000 payment to this charity as a business expense, you avoid the payroll taxes and either you (if you are an S corporation) or the corporation (C corporation) gets the deduction.

Souce: Bradford Tax Institute

Pat Michael and his team at US-TaxLaws is your best source for professional tax preparation services with more than 30 years experience and thousands of satisfied clients.
Call us today 619-589-8680.

Personal Tax Preparation Business Tax Preparation Partnership Tax Preparation Corporate Tax Preparation Incorporation-Choice of Entity Business Support Services Corporate Compliance Audit Representation Retirement Tax Planning Wills & Trusts Estate Planning Bookkeeping Payroll

Part I : Tips Substantiating Tax Deductions for Charitable Contributions

SUBSTANTIATING CHARITABLE CONTRIBUTIONS

Many charitable organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with section 170. Most eligible organizations are listed in Exempt Organizations Select Check (Pub 78 database). Continue reading →