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Little Things Add Up To Big Business Expense Deductions

Sometimes, saving money on your tax return comes down to little more than keeping good records. And that means tracking all those little expenses, because they can add up throughout the year. Sure, you know to deduct wages and insurance, and you’re even taking your home office deduction. The question is, are you capturing all the small expenses, too?

Frequently Forgotten Expenses

It’s staggering how much goes into running a small business, and how quickly things can become tangled between business and personal accounts – especially for sole proprietors. Think about it. You’re doing your grocery shopping and remember you need a new desk calendar, so you toss one in your cart. Or you’re Christmas shopping on Amazon and see a good deal on printer ink, so you stock up. Or maybe you’re meeting a potential client for breakfast and while you remembered to deduct your meal, you forgot about the mileage to get there.

These types of common but small expenses can quickly add up to a major tax deduction. The trick is remembering to deduct them, and keeping solid records. Some of the most common (and often overlooked) business expenses include:

• PayPal and other payment processing fees-make sure you’re keeping track and adding them to your tax return as “bank fees.”
• Dues and subscriptions. Do you belong to paid forums or membership sites related to your business? These charges are deductible as well.
• Office supplies. This includes small stuff like paper and pencils and printer ink.
• Domain names and hosting. Your Hostgator bill, GoDaddy purchases, etc.
• Advertising. Whether you do pay-per-click via Google or Facebook, buy mailing lists, or pay for ad placement on other websites, it’s all deductible.
• Commissions. Do you have sales staff? Deduct those payments!

Keeping Good Records

The key to making the most of your tax deductions lies in keeping good records. For most small businesses, the simplest solution is to use a software program set up specifically for this purpose, such as Quickbooks or Peachtree. No matter what solution you choose, though, make sure you consistently record your expenses. The last thing you want to do is scramble at the end of the year to find receipts and enter data. That would be a nightmare.

Instead, set aside time each week (or more often, if necessary) to update your books. If you find it overwhelming and you tend to put it off, consider hiring someone (me) to maintain your accounts for you. Remember – what you pay (me) him or her is deductible as well!

Finding all those hidden expenses can mean the difference between a huge tax bill and one that is more manageable. While the things listed here will get you started, it’s a good idea to also speak with a tax professional (me). Make sure (I) he or she fully understands the nature of your business, so he or she can ask the right questions and make appropriate recommendations for your business write-offs.

The Truth About “Pennies on the Dollar”!

j0314327What exactly does “pennies on the dollar” refer to? It is a reference to the IRS Offer in Compromise program, which allows eligible tax debtors to pay the IRS an amount of money that is less than what they owe in order to wipe out their entire tax liability.

In advertising, you’ll hear companies talk about settling for 20%, 10%, or even less. These ads, and the sales people you talk to on the phone, are trying to sell you an Offer in Compromise service package. Many of their web sites even have little interactive calculators where you type in how much you owe the IRS, and it’ll spit out a, “You may only have to pay $xxx” message.

The phrase “pennies on the dollar” was actually determined several years ago by the IRS to be a form of deceptive advertising, and they explicitly instruct licensed practitioners that the use of this phrase is a violation of Circular 230, which is the practitioner behavior handbook for working with the IRS. However, since the IRS doesn’t have jurisdiction over firms that just market these services, it comes into the FTC’s purview to look out for these deceptive marketing practices.

Some ads, web sites, and salesmen are out there trying to convince taxpayers that what you settle for is some fixed percentage of your tax debt. However, this is blatantly incorrect. There is no absolutely no provision in the tax code for allowing a taxpayer to pay some set percentage of their tax liability and just calling it good. It has never existed, and most likely never will.

Instead, the amount of your Offer in Compromise settlement is calculated using a very, very strict formula…And the formula is NOT secret — it’s available on a worksheet in IRS publication 656B.

Based on this formula, if you have equity in assets that exceeds your tax debt, you simply don’t qualify. Period. End of story. For most individuals, the common thing is going to be equity in your house or rental properties, or perhaps equity in a collection of classic cars, stamps, coins, guns, art, etc. If the value of ANY of that stuff is greater than your tax debt, you do not qualify for the Offer program and cannot settle for “pennies on the dollar” – there is no way around this.

In the same vein, if you are a high income earner, it’s also highly unlikely you will qualify for the Offer program in general. The reason for this is that the IRS only allows certain amounts of money every month as “eligible expenses” for housing, cars, food, etc. If your lifestyle exceeds these amounts, the IRS doesn’t care — they will only allow you to claim the National Standard expenses. Any monthly income over those amounts gets multiplied by either 48 or 60, and THAT number goes into your offer amount.
In these circumstances, you may qualify for a period of up to 12 months to make a “lifestyle adjustment”, and reduce your living expenses to come into line with IRS standards. This will often involve selling luxury homes and getting rid of toys such as cars and boats. Keep in mind that these items are all covered by your tax lien, so any proceeds from the sale of these items technically is owned by the IRS, and should be paid over to them. A good tax representative can assist you with structuring these sales so that both you and the IRS get something out of it.

Beware of anybody promising that your tax debt can be settled for some fixed percentage of the debt. That’s not the way it works, and never has. Anybody trying to sell you on that idea is selling you swampland in Florida, and you should seek assistance elsewhere.

You Owe the IRS…Now What?

You Owe the IRS!

Now what do you Do?

Let’s Talk About Your Options!

George and Shirley came to see me to complete their tax return. They had been referred to me by another client of mine.

George and Shirley had been blessed to have great and stable jobs. Even better, Shirley won a contract to provide support services to a government contractor. As they had never run a small business, they were referred to me to help them. Unfortunately they waited until 2015 to contact me as opposed to 2014 immediately after she won the contract.

The good news was winning the contract, the bad news was they owed more taxes than they expected. I explained through tax planning we could have avoided the situation if they had contacted me prior to year end last year. With that not happening, there were several options open to them.

Their options were:

  1. Pay the balance due in fall
  2. Get a loan to pay the balance
  3. Borrow from retirement accounts
  4. Offer in Compromise
  5. Currently Not Collectible
  6. Bankruptcy
  7. Installment Agreement
  • Paying the loan in full or borrowing from a lender or from their retirement were options they either couldn’t do or were unwilling to do.
  • An Offer in Compromise allows you to offer the IRS a lower amount than is currently owed. Because of their income and assets, George and Shirley do not qualify for the Offer in Compromise.
  • Currently Not Collectible allows you to delay collection action if you can prove that you don’t have the income or assets to pay the debt. George and Shirley couldn’t quality because of their income and assets.
  • Bankruptcy was also an option but the tax debt was too new to be considered and they did not want to affect their credit.
  • The last options available were an Installment Agreement (IA). With an IA you agree to pay the IRS a set amount monthly until the debt is paid. There are three options with installment agreement; each depending on the amount due.

If you owe the IRS less than $10,000 you qualify for the Guaranteed IA. Your minimum acceptable payment is $25 a month debt is paid. Certain qualifications must be met to qualify, these include but are not limited to owing only income taxes and no other types of taxes; not able to pay taxes immediately out of savings or other means, have not had an IA in the last 5 years and able to pay the tax fully within 3 years (36 months).

If you owe more than $10,000 but less than $25,000 you may qualify for the Streamlined IA. Like the Guaranteed IA, you are not required to fill out a personal financial statement and can setup a payment plan even if you have the means to pay the tax liability in full. Additional qualifications include filing all returns on time, paid in full during the payment period.   Also, the tax liability must be paid within 5 years (60 months) or before the Collection Statute Expiration Date (CSED) which is a ten year period from the tax assessment date.

If you owe more than $25,000 you’ll work with a revenue officer who’ll require you to complete and submit personal financial statement with supporting documentation. A decision will be made based on your numbers as to how much you can pay. The IRS will compare your monthly income and your monthly allowable expenses and the difference is the amount the IRS will expect you to pay.   You’ll pay this amount until the debt is paid in full or until you reach the CSED.   The IRS may ask you to authorize an extension of the CSED in order to qualify for this payment plan.

George and Shirley owed slightly more than $25.000 so I suggested they pay an amount that brought them below $25,000 so they could qualify for the Streamlined IA. As such they were able to negotiable a monthly payment that they could live with!

Additionally I immediately began reviewing their personal finances and business income for changes we could make now so they wouldn’t owe in the future.   This was ultimately a good outcome for them. What about you?

If you find yourself owing the IRS and want an open and honest discussion about your options, schedule an appointment at THIS LINK and come to see me. Don’t put it off…it will only get worse.

Let’s beat the IRS together….Legally.


Should You File Married Filing Jointly?



One of the most frequently asked questions I get during tax season is “Should I file Married Filing Jointly or Married Filing Separately?”

My standard answer is to ask your preparer to prepare the return both ways so you can see which gives you the highest refund.

More specifically, Married Filing Separately does not offer the same benefits as Married Filing Jointly.

From IRS Publication 501 (I emphasized the bolded items)

If you choose married filing separately as your filing status, the following special rules apply. Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for.


  1. Your tax rate generally is higher than on a joint return.
  2. Your alternative minimum tax exemption amount is half that allowed on a joint return.
  3. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer’s dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. See Joint Return Test in Publication 503, Child and Dependent Care Expenses, for more information.
  4. You cannot take the earned income credit.
  5. You cannot take the exclusion or credit for adoption expenses in most cases.
  6. You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction.
  7. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.
  8. If you lived with your spouse at any time during the tax year:
    1. You cannot claim the credit for the elderly or the disabled, and
    2. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
  9. The following credits and deductions are reduced at income levels half those for a joint return:
    1. The child tax credit,
    2. The retirement savings contributions credit,
    3. The deduction for personal exemptions, and
    4. Itemized deductions.
  10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
  11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.
Adjusted gross income (AGI) limits.    If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses.
Individual retirement arrangements (IRAs).    You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. Your deduction is reduced or eliminated if your income is more than a certain amount. This amount is much lower for married individuals who file separately and lived together at any time during the year. For more information, see How Much Can You Deduct? in chapter 1 of Publication 590-A.
Rental activity losses.    If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income up to $25,000. This is called a special allowance. However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. See Rental Activities in Publication 925, Passive Activity and At-Risk Rules.
I understand that there may be “back tax” issues, child support or unfiled taxes that could affect your particular situation, so again, have your preparer run the return both ways so you can see whether Married Filing Jointly or Married Filing Separately is right for you.

10 Things to Do if You’re Unemployed!

Just began reading a book by Jon Acuff called “Start”.   Everything begins with an action, a first step, is the gist of the book.  However, Jon has an Appendix in his book named “10 Thing to Do If You’re Unemployed” which I thought was great.

I’ve listed the 10 things below with a combination of his thoughts and mine.

Let’s jump in –

1.  Remind yourself what you lost.  You didn’t lose your identity; you lost your job.   You still have your knowledge, skills and experience.  You’ll just be putting them to use for yourself or someone else.

2.  Be honest about the calendar.   Fear will tell you that this is forever.  Not true.  It’s a season what will come to a conclusion.

3.  Flip the numbers.    Don’t listen to the news about the unemployment rate.  If the unemployment rate is 9%, that means that 91% are working.  Get into the top 91%.

4.  Think about your circles – Geography, industry and commitment.   Have a true commitment about find employment.  If need be, expand your geography – the cities or states you are looking in,  and then industry – if not the industry you last worked in, then what your industries might your particular set of skills be applied to.

5.  Finding a job is your new job.  Don’t ever think of yourself as jobless.  Check your commitment and make yourself accountable to your new job.   How many resumes sent, how many interviews attended, how many walk-ins you made,  how many phone calls to friends who are employed.   Don’t let rejection hinder you.  Your goal is to get all the no’s out of the way as fast as possible to get to the 1 yes that matters.

6.  Get a stopgap job.   Even a part-time job you don’t like is better than sitting home being depressed.  At least you are out of the house and you never know who you’ll meet.

7.  Stay in job shape.  Continue to get up early, continue to have a schedule.   Get up, get showered, get dressed and have places to go.   Oprah, CNN, The Doctors, Dr. Oz all have jobs already.

8.  Get plugged into a community.  Don’t get isolated or fear and doubt will set in.  Plug into a community of people who are looking for new jobs, keep each other encouraged and celebrate their successes as you continue to seek your own.

9.  Start a blog, or Twitter or Facebook or Linkedin page.  Write about the industry you know.   When you get a interview you’ll be able to tell the interviewer how passionate about the industry you are and then prove it.

10.  Put results at the top.    Rewrite your resume to include a short paragraph or section called “Results”.   Every employer wants to know what have you accomplished rather than what your goals or objectives are.   They want to know what have you successfully done and if it can be translated and applied to their company.

I pray right now that if you are unemployed or underemployed that GOD leads you to new ideas and new endeavors and that HE gives you the strong desire to right now get up and start down the path to new employment or a new business.     In Jesus Name, I pray.   Amen.

Get Jon Acuff’s book, Start and as the Greek philosopher, Nike said, “Just Do It!”

To Your Spiritual, Mental, Emotional and Financial Health,

James Fleming



Little Wisdoms to Remember

These were passed on to me in an email several years ago.   I thought you might like them.

  1. No one can ruin your day without YOUR permission.
  2. Most people will be about as happy as they decide to be.
  3. Others can stop you temporarily but only you can do it permanently.
  4. Whatever you are willing to put up with is exactly what you will have.
  5. Success stops when you do.
  6. When your ship comes in..make sure you are willing to unload it.
  7. You will never “have it all together”.
  8. Life is a journey, not a destination.  Enjoy the trip!
  9. The biggest lie on the planet:  “When I get what I want I will be happy.”
  10. The best way to escape your problem is to solve it.
  11. Ultimately, “takers” lose and “givers” win.
  12. Life’s precious moments don’t have value unless they are shared.
  13. If you don’t start, it’s certain you’ll never arrive.
  14. We often fear the thing we want the most.
  15. He or she who laughs…lasts.
  16. Yesterday was the deadline for all complaints.
  17. Look for opportunities.. not guarantees.
  18. Life is what’s coming..not what was.
  19. Success is getting up one more time.
  20. Now is the most interesting time of all.
  21. When things go wrong… don’t go with them.
  22. If you’ve found you’ve dug yourself a hole…stop digging!
  23. It’s difficult to drive forward if you’re always looking in the rear view mirror.

Hopefully these gave you smiles and some wisdom and insight.


6 Steps Small Businesses Can Take to Reduce Their Taxes!

A few days ago I published an article about 5 steps you could take to reduce your taxes.   A couple of clients said that article was aimed at individuals, so how about an article for the small business owner.   So I agreed and here we go…..

  1. Establish and maintain a good bookkeeping system or hire a bookkeeper.  Far and above anything else, good bookkeeping will reduce your tax liability.    Being able to identify and properly record all of business income and expenses will reduce your tax liability and give you peace of mind if you are ever audited.
  2. Make sure you select the right operating entity for your business – LLC, Sole Proprietorship, Partnership, S Corp or C Corp.   Each has its own advantages and disadvantages.   Choose wisely.
  3. Hire your family…especially college age children.   (See the next 2 steps)
  4. Establish an Educational Assistance Plan (EAP).   You can help outset the cost of college by establishing an EAP for your employees (see Step 3).  The EAP could reimburse them for cost of classes, books etc and you get to write it off as a legitimate business expense.
  5. Establish a Medical Expense Reimbursement Plan (MERP).   The MERP allows your employees to be reimbursement for medical expenses that they ordinarily could not write. (Limitations apply depending upon operating entity and dollar amounts reimbursed).
  6. Establish a Retirement Plan.   Self-Employed Pension Plans (SEP), 401(k), Roth 401(k) are all available to you as a business owner.  Again certain limitations apply.

Talk with me or your accountant about these 6 steps and see how many you can apply as soon as possible to reduce any future tax liability.

As usual, if I can help, please feel free to email me or give me a call.








Taxes may be due on Your Foreclosure or Short Sale!

One of my good realtor (Keith) clients pointed out to me that the Mortgage Debt Relief Act  of 2007 had not been renewed for 2014.   A provision in the act protected homeowners from having to pay taxes on the Cancellation of Debt (1099-C) for their primary residence if their home was sold via a short sale or foreclosure. 

If a homeowner can’t prove insolvency (they owe more than they own), or they can’t qualify for a Title 11 Bankruptcy prior to the home being sold, they’ll have to pay taxes on the cancellation of debt.   This could result in thousands of dollars in taxes coming due.

The Mortgage Relief Act could get extended by Congress before the year is out, but nothing is guaranteed.  Be sure you and your clients fully understand the ramifications of foreclosure or a short sale by talking with an accountant or tax planner.

If I can be of service, please feel free to give me a call.

5 Steps to Take Now to Reduce Your Future Tax Liabilities!

Having just completed the 2014 Tax Season (other than extensions), here are 5 insights I gained that will help you reduce your future income tax liabilities or increase your future refunds.

  1. Reduce your federal and state tax exemptions.   Too many of you had your exemptions set too high and as a result ended up owing taxes.   My suggestion is to “guesstimate” with your tax planner what your tax bill will be in 2015 and set your exemptions accordingly.   Don’t play the game of adjusting the exemptions for a few months to get more money during the year and then adjust the exemptions again before the year is out.   Most people never remember to change  the exemptions back or they get accustomed to having the additional money on their paychecks.
  2. Increase Pre-Tax Savings.   A great way to reduce your tax liability without sending the money to the IRS is to increase your pre-tax savings through your 401K, 403B, or Thrift Savings Plan.  For 2014 you can put away as much as $17,500 (more if you are over 50) and thereby, reduce your taxable income.  You don’t have to put the full amount in but do put something away.
  3. Use Other Pre-Tax Benefit Programs.   Your company most likely offers Health Savings Accounts, Cafeteria Plans, Childcare Benefit, etc., as part of its benefit package.   Many of these are Pre-Tax like the savings programs and will reduce your taxable income as well.
  4. Track Unreimbursed Business Expenses.   Your job may require that you spend money “out of pocket” that you may not get reimbursed for.   These might include union or professional dues, continuing education, business use of home,  overnight travel or auto expenses.   If you can itemize your other deductions, you can file Form 2106 for the Unreimbursed Business Expenses.  Another option is to negotiate a business expense reimbursement deal with your employer.
  5. Use Checks or Debit/Credit Cards not cash.   Both cash and receipts get away from us too easily.  Use a check or your debit or credit card to pay for your expenses such as cash contributions,  business meetings (meals), gas,  and other deductible expenses.   You’ll be able to track these expenses on your bank and credit card statements so you can claim them for your taxes.   (Print your bank statements each month and attach your monthly receipts to it – its a good way of having your record available when needed.)

Hopefully, you’ll find these 5 steps helpful and find yourself on the way to paying the IRS less next year.

As usually, if you can any questions, feel free to give me a call.

Plan Now for January, 2014 Shutdown!

Not to be pessimistic, but we’ve seen this movie before and know how it ends!  It went something like this…..

During Fall, 2012, Congress couldn’t agree on a budget so it created a committee who would agree on budget cuts.  If they don’t agree, automatic spending reductions known as sequestration will take place.   The Committee couldn’t agree and sequestration is now in place and is expected to trigger another round of cuts in January, 2014.

The recent agreement which reopened the government holds the current spending levels in place and funds the budget until January 15, 2014.  However, a committee is being tasked with reaching an accord by December 13, 2013 on a “long-term” blueprint for tax and spending policies for the next 10 years.  (and we can’t even agree on the next year?)   If they can’t agree, sequestration kicks in again   Then what……..?

Well, I don’t know what the Government will do but I do have a suggestion for you.

Create a personal or family cash flow plan for the 90 day period covering  November 1, 2013 through January 31, 2014.

It should include:

  • All the income you expect to receive during that 90 day period including salary, bonuses, refunds, child support, business income, interest income, rental income, etc.
  • All the mandatory expenses you have to pay during that 90 day period including savings, tithes, rent, mortgage, insurances, car notes, student loans, etc.
  • It should not initially include any discretionary spending such as birthdays, holidays (yes, holidays), vacations, dining and movies out (ok, pick yourself up off the floor..we’ll fix this – I hope), etc.

Total each group….subtract the mandatory expenses from the income.   How much do you have left?  If you don’t have anything left, you have a problem.

If you have money left, subtract your discretionary spending from that.   Where are you now?

Personally, I think you should try to save as much as you can for the 90 day period  to an amount equal to at least 1 month of income.  Obviously, I don’t know what will happen in January but its better to have a plan than to be surprised again when another agreement can’t be reached.

Just my thoughts.   What do you think?

If you need help putting together your cash flow plan, give me a call  at 240-356-5050.  I have some tools that will help you.

To Your Financial Health,