Save it or shred it? Some recordkeeping tips

 

Once you've filed your 2009 tax return, you may wonder
which records you should keep and which ones you can run
through the shredder. Here are a few suggestions.

 

If the IRS asks, you must be able to prove the validity of your tax return, which includes providing substantiation for each item reported on your tax return.

Here's a list of the most common records you need to keep.

* W2s, 1099s, and other records of income received.

* Receipts, cancelled checks, and other documentation
  for deductions taken.
* Written acknowledgments for charitable contributions.
* Records related to home improvements, sales, and
  refinances.
* Investment purchase and sales information, including
  brokerage statements.
* Records on IRAs and other retirement plans.

The IRS does not require that you keep your records in any particular way. The only requirement is that your records allow you and the IRS to determine your correct tax liability. So the key is to keep checks, receipts, and other records that document the income and deductions you've put on your tax return.

Wondering how long you need to keep these records? Keep tax records for as long as your return is subject to an IRS audit. Unless fraud, evasion, or a substantial understatement of income is involved, the IRS generally has only three years in which to question your return. Because of various combinations of the statute of limitations and technical provisions in the law, keep
records related to a specific tax return for seven years, rather than just for three years. If a record will affect future years, you may need to keep it even longer. And copies of tax returns should be kept permanently. 

For any assistance you need or questions you have about
recordkeeping, contact our office.

What's the status of health care reform?

While many of us were wrapping Christmas gifts or planning holiday gatherings this past Christmas Eve,

the Senate passed an $871 billion health care reform bill by a vote of 60 to 39. The "Patient Protection and

Affordable Care Act of 2009" would expand health insurance coverage to 94% of Americans and pay for it

with billions of dollars in new taxes and fees.

.

The House passed its version of health reform back in early November. Its bill, the "Affordable Health Care

for America Act," also extends coverage and pays for it with a different collection of taxes and fees from

those in the Senate bill. Both bills are massive and contain provisions that would affect individuals, businesses, and the medical

and insurance industries. A conference of members from

the House and Senate will be held in January to work

out the differences between the two bills and fashion

one piece of legislation. When that bill comes out of

conference, it must be passed by the House of

Representatives and the Senate before it can be sent to

the President to be signed into law.

Among the tax provisions in the Senate bill:

* A 40% excise tax on employer-provided health

insurance plans with annual premiums over $8,500 for

individuals and $23,000 for families. Somewhat higher

limit for retirees and those in high-risk professions

.

* A penalty excise tax on individuals who fail to

maintain health insurance coverage, starting at $95

in 2014 and increasing to $750 by 2016.

Among the tax provisions in the House bill:

* A 5.4% surtax on single taxpayers with incomes over

$500,000 and joint filers with incomes over $1 million.

* An additional tax levied on those who fail to obtain

health insurance coverage of either 2.5% of their

adjusted income or the average cost of insurance

premiums available on the new health care exchange.

Exemptions provided for lower-income individuals.

Both the Senate and the House bills provide individuals

and businesses with tax credits to help with the costs

of insurance. It's important to note that the provisions

in the final bill may differ significantly from those

in either of the current bills, so as you begin your tax

planning for 2010, remember that health reform and the

taxes connected with it are still a work in progress,

not a final law.

If you have any questions about this or any tax or accounting concerns don't ever hesitate to call our offices.

IRS Scam Emails May Put Your Info at Risk

I found this blog via taxgirl.com and thought I would pass along as some of our clients have encountered this before.

IRS Spammers

By now, you have to have received one of the scam emails purporting to be from the IRS with the subject line: "Notice of Underreported Income." I've received 59 of them just since September 18, 2009. Persistent little spammers.

But if you're smart or if you follow me on twitter (not that those things are mutually exclusive), you know that those emails are bad news.

The emails look like this:

The email encourages you to click on a link to view your tax statement. Don't do it. The links are associated with a number of viruses and malware, including Zeus Trojan. If your computer becomes infected with the Zeus Trojan, your personal and financial information may be at risk, with a specific focus on online banking.

How prevalent is Zeus Trojan? A recent investigation by a prominent computer security firm found that at least 55% of the computers that it searched were infected, despite anti-virus software on the computers. The group behind Zeus, thought to be located in Europe, has become more aggressive as it targets users.

How do you protect yourself and your information? Don't click on links or attachments in emails which purport to be from the IRS unless you requested the information. The IRS never begins investigations or contacts taxpayers with tax information unannounced via email. Never. Ever. Never.

Hit delete and don't look back.

Additional funding keeps "Cash for Clunkers" alive

Congress acted just before its August recess to keep a popular car trade-in program alive. The new Car Allowance Rebate System (CARS) -- formerly called the "cash for clunkers" program -- was extended on August 7 with an additional $2 billion injection of government funds. That means that your auto dealer is still prepared to give you a tax-free discount of up to $4,500 for replacing your current vehicle with a more fuel-efficient model.

But the CARS discount isn't available on all trade-ins. To qualify, you must meet certain requirements. For starters, any car that you're trading in must be a 1984 model or newer. Also, you must have owned, registered, and insured it for the year preceding the trade-in. (The insurance requirement doesn't apply in New Hampshire and Wisconsin.)

On the other side, the sticker price for the replacement car can't exceed $45,000. If your current car has a fuel economy of 18 miles per gallon or less, you must replace it with one with a rating of 22 miles per gallon or more. This entitles you to a discount of $3,500. The discount increases to $4,500 if the difference is ten miles per gallon or more.

This new break may be claimed if you buy the replacement car or you lease it for at least five years, but it's not available for used cars.

Similar subsidies are allowed for trade-ins involving SUVs, vans, and light trucks. For example, if the new vehicle is an SUV with a fuel economy of at least two miles per gallon higher than the trade-in, but less than five, the discount is $3,500. If it has a fuel economy of at least five miles per gallon more than the traded-in vehicle, the discount is $4,500.

How do you determine a vehicle's fuel economy? The government has established a website at www.cars.gov to answer this and other questions about the CARS program. The CARS program is subject to change due to the funding limits, so check this site as needed for updates.

Claim the 2009 homebuyer credit now or later

The IRS announced recently that taxpayers who qualify for the first-time homebuyer tax credit on a home purchased from January 1, 2009, through November 30, 2009, may claim the credit on either their 2008 income tax return due April 15, 2009, or on their 2009 tax return due April 15, 2010.

This option makes it possible for qualifying taxpayers to put money in their pockets in 2009, rather than
waiting until next year to benefit from this tax break. Note that you can amend an already-filed 2008 return to
claim the credit. Since the credit is "refundable," you may be eligible for a refund.

The first-time homebuyer tax credit provides a refundable credit of 10% of the home's purchase price, up to a maximum credit of $8,000 for couples filing joint returns ($4,000 if you're single or married filing separately). If you live in the home for at
least three years, the credit does not have to be repaid. Income limits apply, with phase-out of the credit starting at $75,000 for single taxpayers and $150,000 for married couples filing jointly.

For first homes purchased from April 9, 2008, through December 31, 2008, a credit of up to $7,500 is
available to qualifying taxpayers. This credit can only be taken on a 2008 tax return, and it must be repaid in
15 equal installments beginning with the 2010 tax year. If you have bought or will be purchasing a home this year give us a call or an email us to see if you quality for the tax credit.

Are there tax breaks for you in the new law?

You're probably aware that President Obama signed the
"American Recovery and Reinvestment Act of 2009" on
February 17. But have you checked to see what the new
law contains that could benefit you? Here's a quick
look at the law's tax changes and who's likely to
benefit.

MAKING WORK PAY CREDIT

Employees and self-employeds may qualify for a tax credit of up to $400 for singles and $800 for couples to be paid through lower withholding on paychecks or in a lump sum when tax
returns for 2009 and 2010 are filed. The credit phases out if income exceeds $75,000 for singles and $150,000 for couples.

FIRST-TIME HOMEBUYER CREDIT

Those who buy a first home before November 30, 2009, may be eligible for a refundable credit of 10% of the purchase price, up to a maximum of $8,000. Again income phase-outs fall at
$75,000 for singles and $150,000 for couples. If the home isn't sold for at least three years, the credit does not have to be paid back.

PAYING FOR COLLEGE

The Hope education credit is renamed the "American Opportunity Tax Credit," is increased to $2,500, and applies to four years of college, not just the first two. In addition, 40% of
the credit is now refundable. Income limits apply. Another break for those paying higher education expenses: In 2009 and 2010, funds in Section 529 college plans can be used tax-free to pay for students' computers, computer technology, and Internet fees.

NEW CAR DEDUCTION

Those who buy a new vehicle from February 17 through December 31, 2009, may take an above-the-line deduction for state and local sales and excise taxes on the first $49,500 of the vehicle's cost. In general, this includes new cars, SUVs, light trucks, motorcycles, and even motor homes. The income phase-out starts at $125,000 for singles and $250,000 for couples.

ntactOther provisions in the law raise the 2009 exemption
levels for the alternative minimum tax, make the first
$2,400 of unemployment benefits tax-free, and subsidize
health insurance premiums for those who lose their jobs.
For guidance in planning under these latest tax changes,
contact our office.

March 16th : Deadline to file Corporate Tax Returnfor  Year End corporations 

March 16th: Employers: Deposit Payroll tax for February if the monthly deposit rule applies. 

March 20th: Texas Sales Tax Returns & Payment due for Monthly Filers   

Can I Deduct That? A Guide To Uncommon Expenses

IT'S TIME TO trim the tax bill.

When it comes to taking deductions, most business owners know pretty well the expenses that the Internal Revenue Service considers "ordinary and necessary" for business. There are specific rules, for instance, on writing off vehicle costs. Ditto with equipment, furniture, inventory, retirement savings, home offices and professional fees paid to accountants, lawyers and consultants.

Not every legitimate business expense falls neatly into one of these categories, however. A growing number of business owners are turning to professionals outside of accounting or law for advice on everything from mediating partner disputes to boosting workplace productivity. Some health-conscious bosses are stocking office kitchens with healthy snacks for the staff or hiring personal trainers for staff fitness sessions. And some weary business owners often tack vacation days onto their business travels.

So how do you determine whether those expenses, especially those that also yield a personal benefit, are fair-and-square business deductions? "These are things that aren't specifically contained in the law, so you have to navigate and see if they've been barred or allowed or not yet talked about," says Barbara Weltman, a Millwood, N.Y., tax attorney and author of "J.K. Lasser's Small Business Taxes 2008."

If court rulings and IRS pronouncements don't offer much guidance, then it's time for what tax pros refer to as the "laugh test." Can you write off an expense without snickering about pulling one over on the IRS? "If there is a concern in the taxpayer's mind, that probably means it's not deductible," says Keith Hall, national tax advisor in Dallas for the National Association of the Self-Employed.

Here are some not-quite-textbook expenses, and how tax experts view them:

Fees paid to nontraditional advisors

Did you hire an efficiency expert for tips on time management? Or a speech expert for help on public speaking? As long as you can argue that the advice was appropriate and helpful for your business, you should be able to deduct the fee, according to Weltman. There are gray areas, however, when it comes to professionals (such as business coaches) who offer a blend of personal and work-related advice. In those cases, use common sense; if a coach focused on personal matters, then don't claim it as a business deduction, she says. One exception is when a family business uses a consultant to settle sibling disagreements or other strained family relationships that impair a company's management. Those fees are typically deductible, she says.

Boondoggles
If you tack a few extra days onto the end of a work trip for personal R&R, you can deduct many of your travel-related expenses, according to Hall. The primary purpose of the trip must be business, however, and the cost shouldn't be overly extravagant. If that's the case, you can deduct the costs of airfare, taxis and 50% of your business meals. You can even deduct some out-of-pocket personal expenses if a Saturday night stay makes your business trip cheaper.

Snacks, food, beverages and other office-kitchen supplies.

Whether they're healthy or not, small bites or drinks that you supply staff for free count as a deductible business expenses. But be careful not to be too generous, as the IRS might view meals, in particular, as part of your employees' compensation. "If you were to give your employee a free lunch every day, that's probably an example of something that would be taxable to the employee," says Steve Hurok, tax director at BDO Seidman in Woodbridge, N.J. In most cases, however, the IRS considers small food or drink items as a fringe benefit that's "de minimis," meaning it doesn't have to be added to wages because the value is minimal. For more on fringe benefits, see IRS Publication 15-B.

Trips to the gym.

Sorry, but even if those daily workouts make you more physically fit to run your company you can't write off those health-club costs. However, a business owner can deduct the cost of installing an athletic facility (such as a small gym) for employees as long as it meets three rules: the facility is operated by the employer; located on the employer's premises; and primarily used by employees, according to Hurok. 

Clothing.

Uniforms for owners or employees that carry the company's name or logo are deductible as a business expense. However, "you can't take a deduction for clothing if it's adaptable to street use," says Weltman. "If you are an attorney, and you buy a $3,000 suit to look good in court, you can't deduct it." A contractor, however, could safely write off the cost of steel-tipped boots, and a party clown could deduct the cost of a clown suit, she says.
Classes, workshops and conferences. Tuition, books and related educational expenses are deductible as long as they're directly related to your business, says Hall. A business owner who takes a class to help her maintain or improve her business skills is deductible. But an art class taken at a local community college to relieve stress won't fly with the IRS. "Even though it makes some intuitive sense," he says, "it's going to be considered a personal expense."
Meals. For wining and dining to be deductible, the primary purpose must be business, and someone else (such as a client or customers) must be present, says Hall. If you drive a long way to meet with a client and stop to buy a meal for yourself on your way home, that's not deductible, he says. But, in most cases, if you have dinner with that client, you can deduct 50% of the meal's cost as a business entertainment expense.
Music. In an effort to create a comfortable or creative work environment, a number of small businesses like to play soft background music. When that's the case, the cost of the stereo equipment can be deducted as a business expense, Weltman says.

If you have any questions about what might be deductible for your business or personal taxes give us a call.