Category Archives: Tax Deductions

As we move into 2011 it is always a good idea to learn from other peoples’ tax mistakes of 2010. Last Year Tax Courts and the Internal Revenue Service shed light on a number of tax regulations that could help small businesses be more meticulous. Some of the cases include helping land owners save, and a reminder to be extremely thorough when considering a business deal.

The rulings for small businesses in 2006 were significant because they reminded people of common problems and things they needed to be versed on.

After increasing problems with people convincing appraisers to raise their estimated worth of charitable donations for tax deduction purposes, the IRS wants people to think twice about getting greedy with their charitable giving, or those who file returns with inflated appraisals will be penalized under Congress legislation.

The IRS is giving a bird-eye view to appraisals and if there are any reasons for them to challenge it, they will.

Another common mistake relates to IRS rules concerning estates. Under IRS rules, if 35 percent or more of a decedent’s estate value is tied up in business ventures, its beneficiaries would no longer have to worry about paying it all at once, but instead they can pay it over a ten year period.

Now, just because a piece of property brings in cash, does not mean it qualifies as a business venture.

In order to qualify, the land must be an active trader business. That means you have to be a property manager as well as an owner.

A family-owned corporation got into trouble with the IRS when it neglected to pay taxes on what the IRS considered transfers of equity. The family shareholders made occasional transfers of money or property to the corporation, but because of poor record keeping, it was unclear whether those transfers were loans or gifts. The transfers would only be tax free if they were loans.

Usually, when the shareholders needed money, the corporation would occasionally make payments to the shareholders on those transactions. The IRS said that that indicated the original transfers were equity, not debt.

The tax court sided with the IRS, but on appeal, a higher court concurred with the corporation saying that despite poor record keeping, it looked like debt.

In addition, to continue to retain their small business status, corporations with earnings cannot, for more than 2 years in a row, have passive income that exceeds 25 percent of its income. That passive income could include royalties, rent from property the corporation or its interest lease out, or deposits from tenants if the corporation is not active in managing the properties. That is not a good thing because you’ll then be taxed on two levels instead of one.

It is advisable that if you have an S Corporation (designated small business) that you become acutely aware of what type of entities you’re acquiring and what type of business you’re doing, because it could become a tax fiasco.

There is a bright spot, however: if you’ve fallen into a more passive form of income, time is usually on your side, so you can act reasonably to maintain your status.

It is advisable to consult a tax professional before making drastic decisions. Consulting a qualified tax expert before considering a business transaction of any kind can save you time, money and trouble in the future.

If you are a small business and looking for an accountant in Alabama then visit Accent Accounting and Taxes an Accounting and Tax Services Firm dealing with payroll, quarterly reports and income tax filing

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Consumer advocates are not pleased about a new loan that financial institutions have tied to tax refund and which hit the market long before tax season arrived.

Called ‘pay-stub’ loans, the way this works is that consumers can get an early refund based on their last paycheck. Mind you, there is a disparity between the traditional refund anticipation loans and the pay-stub loans, in that the traditional loans are not available until late January or early February when employers send out W-2 forms reporting final earnings, taxes already withheld and other necessary information.

As a way to meet holiday expenses, tax preparers started promoting the loans in November instead of waiting until the beginning of January, which is the month when most pay-stub loans are prepared. As a result of that, Americans should expect to see a radical change in sales from the loans, says Chris Keeley, a spokesman for Neighborhood Economic Development Advocacy Project.

According to consumer advocates, pay-stub loans are too expensive, and offers more risk than the traditional refund loans. One way they are risky is that the absence of a W-2 form increases the chance of basing a loan on incomplete or missing information. For example, a tax preparer may not be aware of an IRS lien on the refund to pay child support, a student loan debt, or a client’s other sources of income.

Tax preparers and banks disagree by saying that pay-stub loans are good in that they provide consumers with more choices to receive funds, and that there are no hidden costs and the conditions of the loans are fully open to the consumers.

HSBC bank says that they make sure people are not only informed about the terms and costs of the loan, but that consumers receive prices that are reasonable.

For the low-income tax filer who qualifies for the Earned Income Tax Credit, the refund anticipation loan can be harmful. Taxpayer advocate Nina Olson reports that there is an advantage to delivering the tax credit to beneficiaries without fees being taken out of it.

Fees are charged for pay-stub and traditional refund anticipation loans yearly, which can be extremely expensive. Because pay-stub loans must be paid back with a “balloon payment” in February, many tax filers who use them make the payment by taking out a traditional refund anticipation loan, which has additional expenses.

Whether or not the tax filer receives all his refund, with a pay-stub loan or a refund anticipation loan, he is responsible for paying back his loan in full.

According to H&R Block, their pay-stub loan product (Instant Money Advance Loan) is cheaper than other company’s products, and that they give clients what they need to make informed choices.

For the entire month of January JPMorgan Chase will be offering pay-stub loans for the first time, and according to bank spokesman Tom Kelly, the bank will make sure that consumers know what the costs are.

Kelly concludes by saying that there is a little more risk connected with pay-stub loans, but for consumers who want to receive their refund two to four weeks earlier than usual, then this is the way to go.

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As income tax filing season draws nearer many small business owners have began looking for an accountant or other tax professional to file their tax return.

Searching for a certified public accountant (CPA) should be done long before the beginning of tax season. Small business owners have found that when accountants are snowed under with work in March and April, it’s almost impossible for them to help new clients.

But despite the delay, when hiring a CPA firm there are some important factors you need to consider.

Find a professional who you feel comfortable working with, and who knows your line of work and the state of your personal finances.

It is important to understand that you are putting everything in someone else hand, so it’s very important who you choose to work with.

Choosing a good accountant who can satisfy your needs is not easy, but it can be done. You can start by looking for referrals from other business-people who are in the same profession as you. For example, if you own a small retail store, your tax concerns would be very much different from a doctor’s, so what you’ll look for is an accountant with both knowledge and experience in your field.

The next step after getting the names of the referrals is to interview them. And since your financial security and assets are at stake, he said it’s ok to ask probing questions about an accountant’s background and experience.

It would be in your best interest to ask for references as well. This will let you know how satisfied a customer is with the service and how well an accountant works with his or her clients.

Since there are small businesses that seek a variety of services from a CPA, it’s important to discuss fees, and the services you can expect. Find out if you are expected to pay by the hour or one lump sum for certain services.

Gone are the days when a CPA was just there to do taxes. They’re using their resources to not only prepare tax, but also to advise business-people on their business. A CPA should be willing to listen and have an interest in knowing what’s happening in the lives of their clients, and their business.

Many people are looking for an accountant who will meet with them often, and keep abreast of what’s going on in their business. For example, getting a reminder that it’s time to send in the numbers for your end-end projection.

Then there are others who are looking for a CPA who will handle their books and records for them.

Gada warns business owners who are interviewing CPAs to be aware of the what-ifs. For example, will the CPA handle the audit for you if you’re audited by the IRS or state or local tax authorities?

A CPA (http://accentaccounting.net) should also be asking questions during the initial meeting. It shows that he or she has the best interest of the client. Questions like, what areas do you need help in? Corporate taxes, individual taxes, strategic planning, estate planning, business succession show that the CPA is interested in meeting the needs of the client.

Accountants who may not know how to do something, but are willing to turn to another CPA or professional for help are strongly recommended.

Personality is essential to any working relationship and should be highly considered when selecting an accountant. Whether it’s someone who is all business, or someone who’s more personable, you should get that feeling of ‘one-on-one’ since your accountant will have intricate information on the good and bad side of how you earn a living with your business.

If you are a small business and looking for an accountant in Alabama then visit Accent Accounting a Huntsville Tax and Accounting Firm dealing with payroll, quarterly reports and income tax filing

Deducting the cost of working out of your home can be a real plus when it comes to saving on taxes. However, meeting the terms of IRS regulations can be a bit overwhelming.

According to accountants, the deduction no longer leads to an automatic audit by the IRS as it once did. .

One of the frequent mistakes that filers make is to try to deduct space in their home that is utilized for both business and personal. The space in your home must be used solely for business purposes in order to qualify for the deduction.

Having a computer and other office supplies in your office isn’t the only way you can gain full benefits of the deduction to use your home for business. The space you use in your home to manufacture goods or to store inventory can also be deducted. That’s also the case if you run a day-care business or a nail salon in your home.

Even though you don’t have to have a separate room for your office, taking the deduction will be less complicated if you do have a room set aside for business purposes. For example, it would be hard to try and convince the IRS that your home office which serves as a part of the family room is never used by your children to do their homework or play computer games.

Wherever the space is, it must be used regularly for your business. Mind you, the space doesn’t have to be your only place of business.

If you have a home business you can deduct the expenses used to retain the business space, like a portion of the utilities, mortgage interest or rent, insurance, repairs and maintenance and other expenses pertaining to the space. The good news about being able to deduct your small business expenses is that you can also reduce the price of a portion of the home that is used for business. Generally, a house can not be depreciated.

To find out how much of your expenses you can deduct, you must divide the total square foot of the home by the square foot of the business. For example, if the business only used 10 percent of the house, and the filer had $5,000 in operating cost for the whole house, then $500.00 could be deducted.

Square footage is a sure way filers can create problems for themselves. For example, if while investigating your return, the IRS find that your business space is too big for the kind of business you run, then the size of your deduction might be challenged.

If claiming the deduction is something you plan to do, becoming knowledgeable about IRS rules would be recommended. You should first review IRS Publication 857, Business Use of Your Home which can be downloaded from the IRS Web site at irs.gov. You can also check out small business and home business tax guides that are available in bookstores.

It will also be a good idea to familiarize yourself with the IRS form you’ll need to file, 8829, Expenses for Business Use of Your Home, with instructions included. The information can be downloaded from the IRS Web site as well.

For example, if you sold your home and the space in your home office has been depreciating, you’ll have to somehow recapture the depreciation, or adjust the profit you made on your house to account for the tax break that you already got.

Another important point is that your deduction can not be bigger than the net profit you make. However, you can use the surplus to compensate for the profits in later years.

This is not the time to ponder about the home business deduction for last year. If your business space somehow didn’t meet the requirements for the deduction, it’s too late for it to be included.

What you can do is start working now, so you can claim the deduction for the 2007 tax year.

If you are a small business and looking for an accountant in Alabama then visit Accent Accounting a Huntsville Tax and Accounting Firm dealing with payroll, quarterly reports and income tax filing