Author: Jan Roberg

Posted on by Jan Roberg

Small Business Bill Passes!

The small business bill that’s been kicking around in Congress (for what seems like ages) has finally passed. I usually don’t get too excited about small business bills because what Congress considers to be a small business is much bigger than the business I’m in or the ones that I work with. I have what’s called a “micro business”, us micro business owners work alone or have up to three employees. I even belong to a group called “Tiny Business/Mighty Profits”, we’re all in the same boat–we own tiny businesses and hope to earn mighty profits. We’re like the silent majority of the business world, we’re out there in great numbers but we are not who Congress is catering to with their tax bills.

Congress generally considers small businesses to have 100 employees or less. There are different standards for different industries. For example my industry is tax preparation. According to the standards set forth by the U.S. Small Business Administration, to qualify as a small business, a tax preparation service’s annual receipts must be $7 million dollars or less. I’m definitely in the “or less” category.

For us micro business owners, most of the legislation allowing increased deductions for new equipment and research and development won’t be affecting us. We’re not big enough to even reach the limits that were already available.

But the small business bill does throw a bone to us little guys! Now, we can write off our health insurance as an expense against our business income. We’ve been able to take a deduction for our health insurance to offset our regular income in the past, but now our health insurance reduces our self employment tax. Last year, I paid $6,000 for my private health insurance. Self employment tax is 15.3%–that would save me $918 on my health insurance. Woo Hoo!

The best part–this new rule is retroactive for the 2010 tax season.  The worst part, is it’s only good for the 2010 tax season.  It may be a one shot wonder, but take it while you can get it.

Posted on by Jan Roberg

Last Chance to Save Your Charity

The IRS has asked EAs and other tax professionals to post this widget on our websites. If you know about a charity that might be in danger of losing its not for profit status, please click on this link to get help. Many of these organizations can resolve their issues for no cost and it only takes a few minutes. The deadline is October 15th. Thanks.

Posted on by Jan Roberg

Is a Flu Shot Good for Your Business?

I got my flu shot yesterday and I’m writing it off as a business expense.  I wasn’t going to get one.  I’m reasonably healthy (knock on wood) and I’m not in any of the target groups susceptible to the flu, so I wasn’t going to bother.  What I didn’t know, was that without a flu shot I could be a carrier and infect other people with the flu.  In my business I meet with hundreds of people during the height of flu season.  I don’t want to be responsible for getting any of my clients or their family members sick.

But writing it off as a business expense?  That might seem like a leap, but it’s really not.  Every year when I’m preparing other people’s taxes, I write off all types of vaccinations for health care providers because it’s an ordinary and necessary part of their jobs.  I write off hepatitis vaccinations for people in the food industry because it’s an ordinary and necessary cost of working with food.

The key phrase here is “ordinary and necessary.”  It’s a term the IRS uses a lot in their small business publications.   I honestly believe that protecting my clients from a potential life threatening illness is an ordinary and necessary part of my business.  If you work with people, especially if you deal with senior citizens or children,  protecting them is indeed ordinary and necessary.   Therefore, in my professional opinion, a flu shot is a legitimate business expense.

One final thing, much to my surprise — it didn’t hurt!

Posted on by Jan Roberg

Can You Claim a Home Office Deduction?

 For many people who own their own business, claiming a home office is a great tax deduction.  Some people who work for employers can also claim a home office, but they must also meet the requirement that it’s for the benefit of the employer. What about you?  Should a home office deduction be on your tax return this year?

 The first criteria for a home office is “regular and exclusive”.  This basically means that you have a defined space that is only used for business.  It doesn’t mean you have to have four walls, your defined space can be a section of another room.  For example, let’s say you have a desk in your bedroom that you do your office work out of.  You make your business calls there, the computer is there, it’s your business headquarters.  Your bedroom can’t be your home office, but that corner of your bedroom certainly is.  Many people think that since they don’t have a dedicated room to call an office that the home office deduction isn’t available to them.  That’s not true.  Let’s say that this guy’s bedroom is 12×14 feet.  His office space is basically his desk, his chair and a file cabinet that takes up about 5×8 feet.  His home office space is 40 square feet.  Granted, that’s not much of an office, but it’s still going to help reduce his taxes and that’s the whole point isn’t it?.

 Let’s go back to the “exclusive” use idea again.  Let’s say you’re using your kitchen table for you office.  (To be honest, it’s my favorite place to work.)  The problem is, because its the kitchen table, it doesn’t qualify as exclusive use.  Come five o’clock (at least at my house) I clean the table off and get ready for dinner.  I actually have another spot in the house that I do claim as my home office, and I really do work up there.  It doesn’t mean I never work at the kitchen table, it just means that I don’t claim the kitchen as my home office. 

 The concept of office space as a function of business is changing.  How many people do you know would say their office is at Starbucks?  The cab of their truck?  Wherever their Blackberry is?  (The IRS doesn’t yet allow Starbucks receipts to be claimed as office rent expense, but I wish they did.)  For many people, these places really are their offices, but they still need a place where they can regularly store paperwork and/or product and receive mail. Starbucks may seam like your main office, but I would argue that you could also claim a home office deduction if you made space for it. 

 Now if you actually meet clients in your home, the home office deduction is almost a gimme.  Also, if your home has a separate structure where you do business, that’s pretty much guaranteed. Qualified daycare providers have special rules for claiming the home office deduction, but they definitely are able to claim a portion of the home expenses against their business income. 

 So what home office claims are going to get denied?  Well, one example that didn’t work was a woman who had a party plan business.  Every week she was hosting parties in her home for 10-20 couples selling her product.  She had claimed her whole house as a home office business deduction because the guests had full run of her house during the weekly parties.  Right about now you may be wondering, “what the heck was she selling anyway?”  Pretty mundane stuff actually.  If you’re selling a home party product like Avon, or Pampered Chef, you can claim a home office deduction for the storage of your product.  You can also claim office space for your administrative duties.  I would even go so far as to say you could claim an area of your home if you used it exclusively for your home parties on a regular basis like this woman did.  But, claiming your whole house (including your kid’s bedrooms, your bedroom, your kitchen, your personal bathroom) …that’s not going to fly. 

 Many people are afraid that a home office deduction guarantees an audit.  That’s not the case.  But, there are trip points that will make the IRS look closer at your return like claiming the whole house in the example above. Be sure to have a professional prepare, or at least review, your return when you claim a home office.  The money you spend up front will be well worth it in the time and taxes saved.

Posted on by Jan Roberg

Open letter to Charlie Dooley

Charlie DooleyDear Mr. Dooley,
I read in the St. Louis Post that you recently released your personal income tax return for public inspection. I do taxes for a living so of course I had to check. The first thing I noticed is that you prepare your own taxes. The second thing I noticed is that you missed a big deduction. Mr. Dooley, you forgot to claim the real estate taxes that you paid in 2009. You missed out on a $1,056 deduction (real estate taxes paid is public record.)
Mr. Dooley, the tax money you would have saved on this deduction alone would have covered the cost of having your return professionally prepared. Who knows what else you could have missed that I can’t just pull up on the internet.
Mr. Dooley, I’m looking forward to seeing you in my office this coming February. If you’re going to be making your tax returns public, they’d better be right.

Posted on by Jan Roberg

Employee or Contract Labor

With the economy being in turmoil, a lot of people are turning to contract labor jobs. That’s where the company doesn’t hire you as a regular employee, even though you work for it. You won’t receive a W2 at tax time, but you will receive a form 1099MISC and you will be expected to pay tax on that.

Contract labor is good for employers who are a little gun shy over hiring. It’s also good for employees who may need to work to put food on the table, but don’t want to commit to a job that they wouldn’t ordinarily take.

If you’re thinking about accepting a contract labor type job, here’s a few things you should know. First, when you receive a form 1099MISC, the IRS treats that as self employment income. That means, at tax time you’re going to have to file a Schedule C along with your 1040 long form. You will be required to pay your own Social Security and Medicare taxes, in addition to paying what your employer would normally have withheld.

Let’s use an example: Heather and Melanie are both high school seniors looking for summer jobs. Heather gets a job at McDonald’s making $10 an hour. Melanie gets a contract labor position also making $10 an hour. They both work 20 hours a week. Since this is the only income the girls will make all year, we’re not even going to look at regular income tax (they won’t owe any) we’re just going to look at their take home pay and self employment taxes.

Since Heather works as an employee, McDonad’s is required to withhold her Social Security and Medicare taxes (FICA). Heather makes $200 a week, but she’ll only take home $184.70 because McDonald’s will hold back $15.30 to pay her FICA. What most people don’t realize is that in addition to the money McDonald’s holds out of Heather’s paycheck, McDonald’s also pays an additional $15.30 towards Heather’s FICA. At the end of 12 weeks, Heather will have $2,216.40 that she was paid by McDonald’s. She will owe no income tax at the end of the year.

Now let’s look at Melanie. As a contract laborer, Melanie has no FICA withheld from her pay. For one week, she gets a check for $200. At the end of 12 weeks, she’ll have been paid $2,400. The difference here is that Melanie will have a tax bill of $339 that she’ll owe at tax time. After paying her taxes, Melanie will only have cleared $2,061.

[Geek alert: if you checked my math, you’d say. “but 2400 times 15.3% is $367” -and yes, you’re right. The first $433.13 of self employment income isn’t taxed so the actual equation is income x .9235 x .153.]

In our example here, it’s better to be hired as an employee because the company pays half of your payroll taxes. But that doesn’t mean that you should not take that contract labor job. For one thing, you may be able to write off some of your job expenses, which would reduce your self-employment taxes. Or, you might negotiate a higher hourly wage rate. An increase of 7.65% would basically cover the additional tax paid by the employer. Knowledge is power. Knowing how you’ll be taxed and how much you’ll be taxed let’s you make smart decisions.

Posted on by Jan Roberg

Urgent News for Nonprofit Organizations

Urgent News for Non-Profit OrganizationsThe IRS will be revoking not for profit status on several nonprofit organizations that have failed to file information returns for the past three years.  As of July 2010, it appears that more than 355,000 nonprofits were facing revocation.  If you are involved with a nonprofit organization, you need to make sure that your organization is safe.

What happened?  For decades, once an organization received a determination from the IRS that it was tax exempt, that status was final, unless specifically revoked by the IRS.  Although many nonprofits do file information returns every year, small organizations with receipts of less than $25,000 were exempt.  This changed with the Pension Protection Act of 2006.  The PPA had a lot of provisions about taxes, but the relevant one here was that it required almost all exempt organizations to file information returns with the IRS every year starting in 2008.  If an organization didn’t file for three years, then the IRS is required to revoke the tax exempt status.

If your organization loses its tax exempt status, then it will be required to pay income taxes.  If it’s a charity, it will no longer be able to accept tax-deductible contributions.  Revocation is serious business.

The deadline for filing was May 17th, which has already passed.  Fortunately, the IRS is offering one time relief for filers of form 990N (the e-Postcard) for nonprofits with receipts of less than $25,000.  And also for filers of 990EZ for organizations with receipts of less than $1,000,000 but more than $25,000.   The new deadline is Octobr 15, 2010.

What can you do?  First, check to see if your organization is on the IRS revocation list.  Click on the link to the IRS website, scroll down to find your state and open the file.  The organizations are listed alphabetically.  http://www.irs.gov/charities/article/0,,id=225889,00.html

If you’re on the list, then you’ll need to determine what type of filer you are and then you can go from there.  Do not let your organization be a victim of “Oops, I didn’t know.”  Call me, I can help.

Posted on by Jan Roberg

Back to School Time

Whho’s Back to School Time

 

In my neighborhood it’s back to school week!  Here’s some tax tips related to sending the kids back to school.

 

It seems like if they start school on Monday, then the gift wrap/candy sale starts on Tuesday.  If you have a choice, you’re better off writing a check directly to the PTO for whatever donation you’d like to make to the school rather than buying whatever the kids are selling.  For one thing, the school will get all of your donation instead of the money going to some fundraiser sales company.  For another, your check to the PTO will be 100% tax deductible.  (I would argue that 50% of whatever you pay for the gift wrap should be counted as tax deductible as well, but the fund raising companies will argue that their gift wrap really is worth $7 per roll so it’s an iffy deduction.)

 

If you’re a school volunteer, the money you spend for the classroom counts as a charitable contribution.  For example, let’s say you’re the “Halloween Party Mom.”  You spend $30 on candy, $20 on art supplies, and $15 on face paint.  Save those receipts because that’s a $65 contribution to the school.  The same goes for scouts and church groups.  Hold on to those receipts for  those projects as well.

 

Now if the kids pay an activity fee and you’re using the kids’ activity money to buy supplies, then you can’t deduct those receipts.  But if you’re spending your own money on projects, then you definitely can use that as a deduction.   Scout leaders–your uniform is deductible, your kids uniform isn’t.

 

Remember that the mileage you put on your car for volunteering is also deductible with your contributions.  Charity miles are counted as 14 cents per mile.  It doesn’t seem like much, but for some people it really adds up.

 

Welcome back and have a great year!

 

Posted on by Jan Roberg

IRS Plans to Remove Debt Indicator for 2011

IRS Plans to Remove Debt Indicator for 2011

Have you ever gotten one of those Refund Anticipation Loans (also known as RALs) with your tax return? Those are the “fast money” refunds where you pay a fee and get your refund immediately, or perhaps in one or two days instead of waiting for two weeks. What the IRS has just announced could pretty much put and end to those types of loans.

In the past, the IRS has provided tax preparer firms and financial institutions with a “debt indicator” tool. Basically, when a tax return was prepared, if a person applied for the RAL, there would be a response about any government debt owed by the individual. Basically, if debt was owed, the RAL would be denied because the loan is secured by the anticipated refund.

According to the IRS, they no longer see a need for these Rapid Refund Loans since a person can receive his or her refund in 10 days.  There’s been a great deal of public pressure against RALs.  Consumer groups such as the National Consumer Law Center and the Consumer Federation of America have opposed RALs for years.  One reason is that RALS are usually targeted at low income households and the fees are often very high in relation to the loan provided.   The profit motive in RALS can sometimes lead to predatory and even fraudulent activity.  In 2008, the latest year that I could get figures for, 8.4 million RAL loans were made.  $738 million was spent on loan fees.  $68 million was spent on other related fees.

Individuals will still have access to their own personal information concerning debt via the “Where’s My Refund?” application on the IRS website.

For a look at the IRS press release dated August 5, 2010, click here:  http://www.irs.gov/newsroom/article/0,,id=226310,00.html