Tax Less – Give More

money umbrellaThe big gift under the Christmas tree for most Americans this year was the 2018 Tax Code for individuals and businesses. Santa has not delivered a gift this significant for U.S. taxpayers for over 30 years. Most of us are happy he made it down the chimney.

To explain in our blog what’s included in the bill, and how it is likely to affect you and your business, would be redundant. Plenty has been written in the press and online. An article that we found to be easy to understand comes from The Motley Fool. The impact of the Bill is explained in layman’s language and we especially like the tables. According to the Fool, a few interesting individual deductions will soon be history. These include theft losses (no need to fill out that pesky police report), unreimbursed employee expenses (no incentive to bring the boss a Starbucks latte), moving expenses (it now pays to stay in one place), and employer-subsidized parking (no problem for us whose office happens to be in the suburbs).

For corporations, the GOP-proposed Bill is exciting. Businesses can sell worldwide without double taxation, and if you’re one of the those businesses who made money overseas but couldn’t afford to bring money into the U.S. because of taxation, it’s good news.

Read the entire article (really, it’s a good one).

Of course, not everyone is happy. Parents who sacrificed so their kids could go to college won’t get the $2,500 tax credit and charities are all wondering whether the goodness of the average American wage earner will be “as good” if they aren’t able to deduct charitable donations. We believe that generosity and compassion, more than a tax deduction, drive American giving. Next year will be our litmus test. In the last election, according to Pew Research Center, 54% of us Americans voted, but 60% of us gave to charity.

Charitable giving, in all its forms, transcends politics. Giving is as American as apple pie and will remain that way regardless of our politics, tax rules, and financial forecasts.

Hidden Tax Deductions

Waiting until the end of the tax year to find, verify, and record potential tax deductions can take a toll on what otherwise could have been more productive time spent growing the business. To make life easier, you can hire a professional bookkeeper to do this for you or use an outside service, like us. For anyone just starting a new business, we’ve put together a list of a few of the most overlooked small-business tax deductions.

starbucks blog#1 Fees paid to your accountant, lawyer or business consultant
To run small business successfully, you need sound advice and a great accountant and bookkeeper. Fees paid to these professionals are “ordinary and necessary expenses directly related to operating your business” and are deductible in the tax year they were paid.

#2 Losses on bad debts
If you paid advance wages to hire a hot-shot “marketing expert” and she bailed on you 10 days into the job because your dress code was just a ‘bit too conservative’ for her, the IRS allows you to deduct those lost wages. You can claim a deduction for most bad business debt, but only if you included the amount owed to you in your gross income.

#3 Carryovers
Carryovers are overlooked deductions from previous years. These are not “carryouts” —so Starbucks to-go while driving to work is not deductible. What if, for example, you started a home-based business and your expenses in the first year were actually higher than your income? You can “carryover” the loss to a future year when you did earn income.

#4 Startup expenses
Start-up costs are out-of-pocket costs for both looking into buying a business and getting the business started. These might include analyzing the marketplace and buying capital equipment like trucks or computers. Then there’s domain name registration fees, website and advertising costs, wages for new employees, consultant fees, costs to secure goods or licensing—the list can be seem endless. It’s a critical time to stay focused on documenting every cost so your accountant can maximize your tax deductions.

The size of the business does matter in terms of complexity, but whether a small business or large enterprise, it pays to keep impeccable daily records. Or simply hire us to do that for you.

OMG! The Dreaded Tax Audit

If there’s one phone call or text from a client that I’d rather not get, it’s that panic-stricken voicemail or all-caps text message telling me that they just received the dreaded tax audit letter from the IRS. I completely understand the emotions. Just the sight of the IRS logo on the envelope is enough to put most of our alarm bells into hyperdrive, even knowing that taxes were submitted on time with only legitimate deductions and a truthful reporting of income. What to do now?
 
Here’s a few steps to help reduce your panic and take control of your IRS situation.
 
Know you have the right of representation during an IRS audit. Enrolled Agents (EA), Certified Public Accountants and tax attorneys are approved to represent taxpayers before the IRS, and the EA is the only professional required to demonstrate his/her competence in all areas of taxation, representation and ethics before they are given unlimited representation rights before the IRS. Tax attorneys and CPAs are licensed by the state in which they practice and have limited representation rights (see the disclaimer below).

It’s good to know your rights during an IRS audit. They are spelled out in plain language in IRS Publication 1 available here.

Stay calm and prepare your records. Paper and electronic records should be kept for a minimum of three (seven, in some cases) years from the date the tax return was filed. If on paper, gather your documents for the stated audit year and organize them into logical time periods. Make sure your check registers are up-to-date, and meaningful receipts are in hand. We can’t represent you, but we can help you organize these things in advance of a meeting with someone who can.

Most importantly, don’t panic. There are many reasons certain individuals are chosen for an audit. It could just be a random check, a typo on your return, missing documentation or a wrong or missing form. High charitable donations above and beyond your normal philanthropy are red flags to the IRS, and so are spikes in deductions, even though they may be completely legitimate.

(The Dreaded Disclaimer) We must advise you, based on current IRS rules and standards, that any advice contained in this article is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to tax audits, so don’t rely on it as qualified tax and accounting advice. This article does not fall under the guidelines of IRS Circular 230. Remember, if you need help, we’re happy to refer you to a qualified EA or an approved CPA or tax attorney.