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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.

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

 

 

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,

 

 

 

 

Fear of Success?

Thought I should share this quick story. I’ll write a longer post on this soon.

Met a man yesterday who had had some challenges but had begun to overcome them. He almost had everything in place to really become successful. I asked him what was holding him back. He said “fear of success” – really a fear of what other people would think if he were successful.

I told him that it sounds like he needs to change his definition of success and may change the people around him. Old saying – “How can soar like an eagle when I work with a bunch of turkeys?

Any relevant thoughts and comments are welcome.

Cash Flow – How to Stop the Bleeding!

4 Areas and Questions to Improve Cash Flow

Cash Flow is the life blood of any and every business.  Cash is king and your business needs it to stay alive.  Below are 4 areas and questions to help you improve the cash flow of your business.

 Spending

  •  Do you have a system that helps you identify what needs to be paid, how much and when?
  •  How much does it cost you in fixed expenses to run your business each month?
  •  How do you make purchase decisions – Need, Want or Return on Investment?
  •  When did you last review your spending habits and determine if you could do better?
  •  Have you price or value shopped the services or products you currently use – telephone, cable, auto, life, health and liability insurances, supplies, etc.
  •  Are there products and services you can buy in bulk to reduce your costs?
  •  Have you tried to negotiate new payment terms – Net 30, Net 60, 2%-10 Days, Pre-Payment discounts – in order to conserve cash?
  •  Are there items where it would be better to own than to rent or rent than own – Car, trucks, furniture, buildings?
  •  Can you use independent contractors – legally, rather than employees?

Collections

  •  Do you bill clearly, accurately and on time?
  •  Do you or can you offer multiple payment methods?
  •  Do you have or can you enforce late payment fees?
  •  Are you in regular contact with your clients and their payables department?
  •  Can you legally discontinue services for non-payment?
  •  If billing is based on hours or items quantity, can you move to a fixed fee model?
  •  Can you bill prior to rendering service instead of after?
  •  Are your billing and payment terms easily understood and agreed upon?
  •  Can you arrange to only accept only cash, credit card or debit card?

Profits

  •  Do your sales prices cover all your business costs?
  •  Do you know what your costs are in order to properly set your sales prices?
  •  How can you raise the value of your products in order to raise your price?
  •  How can you lower your costs to maintain your sales prices and still increase your profits?

 Sales

  • Do you have a qualified prospect?
  • Deos the prospect have a real and verifiable need?
  • Does the prospect realize what the problem is costing them?
  • Does the prospect have the authority to make a purchase decision?
  • Are you focusing on the right market?
  • Are you offering the right product?
  •  Do you have a teachable and repeatable sales process?
  •  Are your  sales people properly trained?
  •  Have you educated your clients how to buy?

Give consideration to these questions and apply them to help your business.  If it would help, give us a call us at 240-356-5050 for a cash flow planning session and let’s stop the bleeding.

Loan Modifications – Joy and Pain

Last year, Charles and Gloria were giddy with happiness.  Finally, after struggling for over a year with the loan modification process, they had been approved.

The modification would save them $700/month on their note, which equals $8,400/year.

Shortly thereafter, they received more good news!  Their property tax bill was being reduced $150/month or $1,800/year.  The county had re-assessed their home and the value of their home had dropped.

This was all good news… but a new problem was brewing.

Charles and Gloria now had an additional $850/month or $10,200 to work with.  What they didn’t have now was the tax write-off that went with the mortgage interest and the property taxes!

At our tax appointment, we discovered that they were in the 20% tax bracket.  As a result, their tax liability was $2,040 higher than usual because of the mortgage interest and property tax savings.   This was a major surprise to them.  They were still getting a refund but not as much as they had planned on.

Charles and Gloria were blessed that they did not end up owing taxes.  Many other families may not be so blessed.

So what should you do – Depending on your situation, here are 4 solutions

  1. Adjust your withholdings down to pay more taxes in during the year.
  2. Put more money into your 401k or 403b plan if you can
  3. Save 20%-25% of the new income to cover your taxes
  4. Some combination of all 3.

Hopefully you’ve found this helpful.

If you have any questions, please feel free to call me at 240-356-5050 or if you have any relevant comments on this blog, please feel to comment.