Individuals and businesses making charitable contributions for tax year 2014 should be reminded that several important tax law provisions have taken effect in recent years. Some of the changes taxpayers should keep in mind include:

Rules for Charitable Contributions of Clothing and Household Items

Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Read More

IRS Announces 2015 Pension Plan Limitations; Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015

According to IRS Newswire, on October 23, 2014, Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015. Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment. Read More

New business owners often ask, “How do I set up my business For Tax Purposes?” One of the choices you make when starting a business is the type of legal organization you select. This decision can affect how much you pay in taxes, the amount of bookkeeping and paperwork required, the personal liability you might be responsibility for, and your ability of borrow money.

For-profit businesses fall under one of four structures for tax purposes:

1. Sole Proprietor – An individual who owns an unincorporated business by themselves. Most small and home based businesses are sole proprietorships. For tax purposes, the business activity of a sole proprietor is reported on Schedule C of Form 1040. This is Read More

Each year the IRS mails millions of notices. Here’s what you should do if you receive a notice from the IRS:

1. Don’t ignore it. You can respond to most IRS notices quickly and easily. And it’s important that you reply promptly.

2. IRS notices usually deal with a specific issue about your tax return or tax account. For example, it may say the IRS has corrected an error on your tax return. Or it may ask you for more information.

3. Read it carefully and follow the instructions about what you need to do. Read More

Payments to Independent Contractors can be a very grey area within the tax law. Often times I am asked the question, “Should my employees be given a W-2 or Form 1099-MISC for there pay?” There’s really no clear-cut answer to this question. It’s important to answer other questions to even begin to get some clear direction on the proper way to classify a worker as an employee or an independent contractor.

There are two types of business relationships which may exist between an employer/owner and a employee/worker. They are 1. Independent contractor and 2. Employee (common-law employee).

These business relationships are established based on common-law rules: Read More

Take It Off!

I had put it on some time ago. I kept it on everywhere I had a presence. I was submissive and had a desire to be obedient. The ramifications of not doing as the master said weren’t nearly as pleasurable as complying with my master’s commands.

Having become a creature of habit, and not wanting to displease my master, I had put it on everywhere. Having quite the presence online, I had it on in lots of places. You could see on me in my blog posts, my web page, my social media posts. Everywhere I was, I had it on.

Now, after months of making sure I’d covered my a**, I’m told to TAKE IT OFF!

Yep. In a webinar presented by the Office of Professional Responsibility, Karen Hawkins Read More

If you are looking for ways to fund your home based business, you likely have come to many road blocks. Borrowing from family and friends is difficult especially if they don’t buy in to your idea for your home based business. Bank regulations and lack of business credit also hinder making your dream of owning your own home based business a reality. If your goal is financial freedom, there is a way to fund your home based business which you may not be aware of.

This strategy assumes you are working at a J. O. B. Each pay period you have federal income taxes, social security and medicare taxes, and depending on what state you reside or work in, state income taxes. Social security and medicare taxes are withheld by law, the rate of which is set by government. While federal and state income tax rates are Read More

If you start a business, one key to success is to know about your federal tax obligations. You may need to know not only about income taxes but also about payroll taxes. Here are five basic tax tips that can help get your business off to a good start.

1. Business Structure. Prior to start up, you’ll need to choose the structure of your business. Some common types include sole proprietorship (Form 1040), partnership (Form 1065) and corporation (Form 1120). You may also choose to be an S corporation (Form 1120-S) or Limited Liability Company. You’ll report your business activity using the IRS forms which are right for your business type. A Limited Liability Company (created by state statute) may be taxed as a sole proprietorship (single member), a partnership (multiple members), or other taxable entity. Read More

TaxConnections Picture - Make money onlineOne of the advantages of owning a home-based business is the ability to deduct expenses that would otherwise be non-deductible for federal income tax purposes. However, you should and must be conducting the business in a business-like manner with the intent of making a profit. Otherwise, the Internal Revenue Service might disallow your home-based business deductions and your hobby may cost more than you know. You cannot conduct your business in such a way for the purpose of merely producing “write-offs” for tax purposes. Not only is that unethical, it is illegal. If you are the typical home-based business owner, you likely run your business in an ethical manner with an intent of making a profit. You might think that the phrase “intent of making a profit” is self-explanatory, but the determination as to the profit intent of one’s business is often more subjective than objective. Therefore, in the event of an audit, the IRS uses nine relevant factors to determine whether or not your business qualifies for home-based business tax deductions. Review these factors and consider whether your home-based business is in compliance. You may find areas in the conduct of your home-based business which need improvement.

According to the IRS website, whether or not an activity is presumed to be operated for profit requires an analysis of the facts and circumstances of each case. Deciding whether a taxpayer operates an activity with an actual and honest profit motive typically involves applying the nine non-exclusive factors contained in Treasury Reg. Sec. 1.183-2(b). Those factors are: Read More

TaxConnection Picture - 13While some believe the number 13 is associated with bad luck (or good luck depending on your perception), here are 13 tips you can use in your tax planning for 2013.  Good tax planning is essential to achieving your luckiest or best possible tax position when it comes to tax return preparation time.  Several of these tax breaks were extended by the American Taxpayer Relief Act (ATRA) which was passed at the beginning of 2013.

1.  Capital gains and losses – Capital losses may only be used to offset capital gains dollar for dollar.  However, an additional $3,000 in capital losses may be used to offset ordinary income.  Any remaining capital loss may be carried forward to future tax years to offset future capital gains.

2.  Vacation home limitations – If you rent out your vacation home when you are not using it, you can generally deduct related expenses from the rental income. However, if your expenses exceed the income you cannot deduct the loss if your personal use exceeds the greater of 14 days or 10% of the time the home is rented out.  A day spent fixing up the home doesn’t count as a personal use day.

3.  Business equipment purchases – Under Code Section 179 of the tax code, you can currently deduct up to $500,000 of qualified business use property placed in service in 2013 (subject to a phaseout threshold of $2M).  These thresholds were extended through 2013 by ATRA.  Absent any new legislation, the maximum Section 179 deduction will be reduced for 2014 to $25,000 (subject to a phasout threshold of $200,000). Read More

The rules regarding deductions for federal income tax purposes related to business use of a personal vehicle are often some of the most misunderstood rules in the world of taxes.  Generally, the costs of commuting from a taxpayer’s home to their regular place of work are nondeductible personal expenses.  What “commuting” expenses then are considered deductible?

Commuting expenses are deductible when going between a taxpayer’s home and work location if:

  1. The expense is for going between the taxpayer’s home and a temporary work location outside the metropolitan area where the taxpayer lives and normally works.
  2. The taxpayer has one or more regular work locations away from home and the expenses are for going between home and a temporary work location in the same trade or business, regardless of distance, or
  3. The taxpayer’s home is the taxpayer’s principal place of business, and the expenses are for going between home and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

A work location is considered temporary if employment is expected to last and actually does last for one year or less.

To determine whether the home is the taxpayer’s principal place of business, consider the following:

  • The relative importance of the activities performed at each place where the taxpayer conducts business and
  • The amount of time spent at each place where business is conducted.

A home office qualifies as the principal place of business if the taxpayer:

  1. Uses it exclusively and regularly for administrative or management activities of his trade or business.
  2. Has no other fixed location where substantial administrative or management activities for the trade or business are conducted.

The amount of the deductible mileage expense can be calculated using either actual expenses or the standard mileage rate.  For 2013, the standard mileage rate is 56.5 cents/mile.  Note that a taxpayer may convert from the standard mileage rate to the actual cost method any year.  However, if the actual cost method was used in the first year the vehicle was used for business, a taxpayer cannot convert to the standard mileage rate method in a later year.  Mileage logs should be maintained to document the total miles driven for the year, the total business miles driven for the year, the date the vehicle was placed in service, and the basis of the automobile (if actual cost method is used).

In summary, commuting from home to a regular or main job is never deductible.  Commuting to a temporary work location or a second job from a regular or main job is always deductible.  Commuting to and/or from a temporary work location and/or a second job is always deductible.  Commuting from home to a temporary work location is deductible if you have a regular or main job at another location.  Commuting from home to a second job is never deductible; you must have gone to the regular or main job first.

If you would like more information on how you can convert your nondeductible mileage and other expenses such as rental costs of your residence, to tax saving deductible expenses, fell free to contact me.

IRS Circular 230 Disclosure:  In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.