How Your Smartphone Can Make Your Life a Little Easier at Taxtime

Author: Jenny Shilling 

Keeping track of your mileage is a royal pain. Just like picking up after your dog during your evening walk, but you still do it, right? Yet, there is a way to make keeping track of your mileage much easier. Everyone has one, we never leave the house without it these days. What am I talking about? Your phone. It's either attached to your belt, in your pocket, or in your purse. Children carry them. By installing a simple "app" to your smartphone, you can make keeping your mileage record a breeze.

According to Google and Bing, three of the "best" mileage applications for the iphone are:

1. Tripcubby
2. Milog
3. Triplog

For your Android phone the "best" applications are:

1. Mileage Tracker
2. Trip Master
3. VR Mileage Tracker
4. Mileagetrac
5. Mytracks

The standard mileage rate for business miles driven in 2013 is $0.565 cents per mile. The rate for miles driven for medical or moving services is $0.24 per mile. Lastly, the rate for miles driven in service of charitable organzations is $0.14 per mile.

Transportation expenses that you can deduct include the ordinary and necessary costs of all of the following:

1. Getting from one workplace to another in the course of your business or profession when you are travelling within the general area where you do business.
2. Visiting clients or customers.
3. Going to a business meeting away from your regular workplace.
4. Getting from your home to a temporary workplace when you have one or more regular places of work.

Sadly, you cannot deduct commuting expenses no matter how far your home is from your regular place of work, even if you are working during the commute.  Parking costs at your regular place of work fall under the commuting category too.

So, investing $0.99 to $5.00 on a smartphone application can help take the frustration out of trying to keep track of the miles between Point A and Point B. According to the online reviews, they are "user-friendly" as most phone apps are, and designed to make your life easier. As we all carry the phone with us at all times, and they are always "on", it is one less step you would have to take to keep track of your mileage, unlike the GPS unit in your vehicle.

So when your accountant asks you for your mileage log next April, you will be able to hand him a concise log instead of a handwritten log of numbers that may or may not be correct. Having a GPS handle your mileage can make your life easier, but only if you check it out.  If you have questions about tracking your mileage, tax deductions, or general tax questions, the Specialists at the Tax Office, Inc. are here for you. Contact Us at 916-773-7053916-773-7053, or at #plan4tax, or www.facebook.com/plan4tax.

Don't be Like the White Rabbit: Late for a Very Important Date!

Author: Jenny Shilling

Many small business owners are afraid to file for a tax extension because they think that it will increase their risk of an audit. This is one of the biggest tax preparation myths out there. The benefits of filing for an extension significantly outweigh any potential downside.

The IRS makes it easy for you or your tax preparation service to file for an extension. By submitting Form 4868 either online or through the mail, you can get up to six additional months to file your return. The key thing to keep in mind is that you do not get extra time to pay any taxes that are due -- you will need to pay those by April 15 to avoid being subject to IRS collections.

Filing for an extension has three key advantages:

1. It gives you additional time to get your information together and ensures that you not only file a complete return but also that you have time to review it so that you file an accurate return.
2. It moves tax preparation out of the first quarter. Many businesses have a lot of work to do during the first three months of the year, and with an extension, you can move all of that accounting work to a quieter period of the year.
3. It gives you more time to fund some retirement plans, such as SEPs and IRAs. These plans let you put money away on a tax-advantaged basis, but to shelter your contributions from taxes, you have to have funded them for the tax year before you file that year's return.

While the tax experts at The Tax Office, Inc can get your return filed before April 15, they can also help you take advantage of the IRS's liberal extension policies. Talk to them to find out how to make the IRS work around your schedule instead of the other way around.

What To Bring to Your Tax Appointment

Author: Jenny Shilling 

If you've already had your appointment with your CPA, you might have received an email requesting missing information. This email simply means you did not bring everything you needed with you to your appointment. To help you prepare for the future, or if you haven't yet met with your accountant, here is a helpful list of things you should bring when you have your meeting:

Personal Information

• Your social security number
• Your spouse's full name and social security number
• If you are divorced, your alimony information, and your ex-spouse's full name and social security number.
• Your tax returns for the past 3 years so that they may be checked over for errors - unless you are using the same accountant as they will have that information already.

Dependent's Information

• Birthdates and social security numbers
• Childcare records
• Income of other adults in your home (not your spouse if you are filing jointly)
• Copies of your divorce decree, or any other documents from your ex-spouse releasing their right to claim a child to you

Employment Information

• Form W-2
• 1099-Misc, Schedule K-1, income records to verify 1099s
• Expense records - check registers, credit card statements, & receipts
• Home office information

IRA & Retirement Information

• Amount contributed for 2012
• Traditional IRA basis
• Value of IRAs on December 31, 2012
• Social Security Information
• Pension & Annuity Income

Rental Information

• Records of income and expenses
• Rental asset information for depreciation.

Other Income

• Unemployment 
• State tax refund
• Gambling income
• Alimony
• Jury duty records
• Hobby income and expenses
• Prizes and awards
• Other 1099 income

Education Payments

• Scholarships and fellowships

Vehicle Information

• Mileage
• Parking & tolls

Savings & Investments

• Investment & dividend information
• Income from sales of stock or other property

Itemized Deductions

• Mortgage statements
• State and local income tax
• Real estate and personal property tax records
• Vehicle sales tax records
• HUD statements if purchasing/refinancing home
• Charitable donations
• Healthcare payments
• Expenses related to your investments
• Tax preparation costs
• Employment related costs
• Job hunting expenses

While the list is extensive, not everything will apply to you. Each tax return is unique to each person.  If you are still uncertain about what you need to bring, contact your accountant and ask. We are here to prepare your taxes and offer you a service. Answering your tax questions is part of that service.

Should you gather up everything you need prior to your appointment and still forget something, rest assured we will send you a missing information email.  At that point, all you will need to do is send in the information we are missing and your return will be filed for you. The tax specialists at the Tax Office Inc., look forward to seeing you at your tax appointments.  If you need an appointment, please contact us today!

Six Rules That Affect Everyone Who Files a Tax Return

Author: Jenny Shilling 

Every year we file tax returns, yet each tax return is unique just as every person is unique. And every year the tax laws change making each return more and more complex. Oddly enough there are some rules that do not change. These are the rules regarding dependents and exemptions. More precisely, there are the rules defining dependents and exemptions.

Exemptions reduce your taxable income. There are two types: personal and exemptions for your dependents. 

• Personal Exemptions: You usually may claim one exemption for yourself on your return. You may also claim one for your spouse if you are filing a joint return. If you are filing separately, you may only claim one for your spouse if he or she had no gross income, is not filing a joint return, and was not the dependent of another taxpayer.
• Exemptions for your dependents: You can claim an exemption for your dependents. A dependent is either your qualifying child or qualifying relative. Your spouse is not your dependent. Your dependent's social security number is required as part of your return.
• If you claim someone as your dependent, they may still have to file their own tax return. It all depends upon the amount of their own income, both earned and unearned, their marital status, and any special taxes they may owe.  They may not claim a personal exemption on their own tax return. This is true even if you do not actually claim them as your dependent on your tax return. The fact that your could claim that person disqualifies them from claiming a personal exemption.

A person must pass several qualifying tests in order for you to claim them as your dependent. The IRS has publication 501 which details how a person is qualified to be your dependent.

Should you have any questions about dependents and exemptions, the tax specialists at the Tax Office Inc., are here to provide the answers. We can let you know if a person qualifies as your dependent or answer any other tax question you might have. 

A Few Tips to Save Money Throughout Your Life

Author: Jenny Shilling 

Throughout your life there are steps you can take that will minimize your taxes and make it easier to achieve financial security. You know the old saying, "A peny saved, is a penny earned." Here are the some of those steps:

• With your first job, contribute to a tax-advantaged retirement plan. It's never to early to start saving up for your retirement. You can cut your current tax bill and get a head start on building up a nest egg for your retirement. Also, statistics show that only 5 out of every 100 retirees are financially independent.
• Filling out your W-4 correctly is very important. If you withhold correctly you should receive the appropriate amount of money in your paycheck. What you do with these funds is up to you. Getting cash back at tax time is not necessarily the goal. When you have the correct withholdings, you have the opportunity to invest your pay and let it grow.
• While you are young, filing your taxes is fairly straightforward. However, you do have the option to take certain deductions besides the standard deduction. You may be able to deduct moving expenses, student loans or health savings account contributions, if they apply.
• As you mature and family becomes a part of your life, homeownership comes into play.  Mortgage interest and real estate taxes may cause you to start itemizing your deductions. If you don't yet have enough deductions to itemize, you can "bunch" certain deductions together into every other year to increase your tax savings.
• If you work and pay for child care you may be eligible for the child care credit. You may also be eligible for the earned income tax credit. There is also the child tax credit for children under age 17.
• If eduction expenses loom ahead, there are many ways to build a college fund to help pay for college expenses. Speaking with your tax preparer is the best way to decide which one is the best for you.
• Hiring your child to work for you is one of the best ways to save money. The business can take a deduction for the wages paid to your child and the child pays little or no tax on his earnings.
• If you happen to provide care for your parent you may be eligible to claim a dependency exemption. You must provide over half of the support of your parent. 
• Invest to take advantage of lower long-term capital gain tax rates. You can cut your tax bill by holding an appreciated investment long enough to qualify for long-term rather than short-term capital gain tax treatment.
• Plan your capital gain transactions. You may save taxes by indentifying the stock you're selling and choosing the stock with the hiyghest tax basis.
• Consider tax-exempt investments as a means of cutting your income tax. Comparing the yield on tax-exempt investments with taxable alternatives will show you where to invest.
• Maximize your retirement plan contributions. With employer matching, deductible contributions and tax-deferred growth, you should deposit as much as possible. Save as much as you can while you can.
• Swap investment or business property instead of selling it. If you can exchange property for "like-kind" property in a tax-deferred exchange you can delay the tax until you sell the replacement property. This can be a good way to trade up to more valuable property. Speaking with your tax preparer is highly advised before undertaking such a prospect.
• When you borrow money, see if you can set up the loan in such a way as to have the interest be deductible. Business, home mortgage and investment interest is all deductible. 
• Retirement brings about the payout of your retirement plan. You have the option to roll it over into an IRA or to do something else entirely. Speaking with your financial planner or tax advisor is suggested prior to making a decision.

Whenever you make big decisions about financial and tax planning, you should consider speaking with a professional tax specialist. From youth through retirement all of the choices you make can have an affect on your financial future. Consider the suggestions in this article and if you have any questions, please contact us to discuss the tax cutting options most suited to your particular situation.

What Do You Do With All Those Papers?

Author: Jenny Shilling 

Maintaining orderly records is very important. Keeping your original documents and only sending copies out to your tax, legal, or other professionals cannot be stressed enough. Though all professional services strive to provide you with perfection, papers do get lost, misfiled, or even shredded by accident.

Starting Off the New Year Right

Author: Jenny Shilling

While many people think of April 15 as their tax preparation day, small business owners know that Dec. 31 is the day that really matters. After all, the end of the year is when your income and expenses get rolled over into a new tax year. With that in mind, tax planning needs to start before the end of the year. Here are a few ways that you can get started now.

• Contact your CPA or tax professional to start building strategy for the rest of the year. You might want to prepay expenses, buy large items or accelerate billing depending on whether you want to earn more income this year or defer it to next year. A tax professional can help you figure out what to do between now and the end of the year.
• Start compiling your records. Even if you plan to file an extension so that you can delay your tax preparation and send in your return as late as October, you will still need to pay any tax due on April 15. If you get a head start on putting your tax records together, it will be easier for you to figure out what, if anything, you owe.
• Plan on making capital expenditures. The Section 179 deduction, which lets small businesses expense certain capital expenditures instead of depreciating them, will go down from the 2012 level of $125,000 to $25,000 in the 2013 tax year, barring Congressional action. With this in mind, 2012 is a great year to offset profits by buying large items like vehicles for your company, computer equipment, machine tools and the like.
• Shift your income and expenses. If you are enjoying an extremely profitable year, it might make sense to delay billing customers until next year while paying extra expenses. Conversely, if you know that next year will be especially good, you might want to move income into this year.

Family Businesses Offer Tax Incentives

Author: Jenny Shilling

Family businesses come with a lot of advantages. In addition to providing unique marketing opportunities and fostering a sense of responsibility in your children, it also makes good business sense. The key is to hire your kids while they are young; they learn some valuable lessons, and you get a tax break.

That's right, you get a tax break for hiring your own children. Here's what you need to know:

• Your business must be unincorporated, which means entities such as sole proprietorships, partnerships and LLCs are eligible.
• Your child must be under the age of 18.
• The job they do must benefit the business. Basically, they can do any task that you would pay another person to do, whether it's packing shipments, running errands or cleaning the floors.
• You must pay them a reasonable wage for the tasks they perform and this wage must be consistent with what you would pay somebody else. Paying excess wages for menial tasks is not a good idea.
• You should pay your child regularly, just as you would any other employee. Paying them a lump sum at the end of the year raises a red flag with the IRS.

The reason that hiring your children makes such good business sense is that you gain the following tax benefits:

• You can pay up to $5,950 with no tax liability for either of you.
• You can deduct these wages as a legitimate business expense.
• Your child can fund an IRA and increase their earning potential for the year. In addition to building their retirement savings, they will be able to earn an additional $3,000 beyond the $5,950 limit.

It is important to know that your child will likely have to have federal income taxes withheld, but they will get it back after filing their tax return for the year. Work with a qualified tax professional to make sure you follow all the rules and make the most of this benefit.

The Tax Office Inc. can help you identify other sources of tax savings for your business. Put our business sense to work for you; contact us today to schedule a meeting.

"Dependents" are Not Always Easy to Identify

Author: Jenny Shilling

Defining the concept of a dependent for tax purposes was much less complicated in the 1950s and '60s. It used to be simple to identify dependents -- in most cases, parents claimed their children.

It's a different world in 2012. With today's multi-generational, non-nuclear families, figuring out how many people to claim is more complicated. We have a wider variety of related and unrelated people living together than we did just a couple of generations ago.

Specifically, it's more common to see scenarios like:

• Half brothers/sisters and their descendants

• Adults caring for aging parents

• Foster children

• Stepchildren

• Other kinds of legitimate dependencies

Having a dependent allows you to reduce your taxes by claiming an exemption. If you are single, it can further reduce your taxes by allowing you to claim head of household filing status.

According to the IRS, a dependent is a person with whom you have a relationship and who meets certain tests. To be a qualifying child, the individual must:

1. Live with you for at least half of the year

2. Get at least half of their support from you

3. Be unmarried and filing jointly

4. Be either under 19 (or under 24 and a student)

A qualifying relative, on the other hand, is someone who cannot be claimed as a qualifying child, lives with you, has $3,700 or less in income and is supported by you. Brothers and sisters also count as dependents if they meet either the qualifying child or relative tests.

Finally, any child who is "permanently and totally disabled," according to the IRS, qualifies as a dependent.

If someone meets the test to be a dependent, you can claim him or her as an exemption on your tax return. And in the 2011 tax year, each exemption will reduce your taxable income by $3,700. That sizable bite out of your tax obligation makes it worth your time to clearly understand who you can claim.

At The Tax Office, we can help you clarify the dependent relationships in your life for tax purposes. Contact us today, and our expert staff of accounting and tax professionals will handle all of your tax preparation and planning needs.

Many Investments are Eligible for Tax Rule

Author: Jenny Shilling

Regardless of your tax bracket, long-term capital gains are only taxed at 15 percent federally. This special tax treatment applies to just about any investment that you make that you hold for at least one year. While stock and mutual fund investors have benefited from this for years, many other types of investments can also take advantage of this tax rule:

• The profit on the sale of a personal residence, including vacation homes and time-share interests is only taxed at 15 percent. 

• Profits on the sale of put and call options or other derivative investments held in your personal account. Be careful to ensure that the derivative that you buy has a life of over one year, though.

• Non-collectible personal autos or other personal property items. While most of these items go down in value, some, such as jewelry, can go up in value.

• Closely-held stock or ownership shares of LLCs or LLPs.

• Land or real estate held for investment purposes by you, your family, or a company of which you own a portion.

• Country club or golf club memberships.

• Business assets held by a sole proprietorship, general partnership, LLC or S corporation that are sold for a profit.

While this favorable capital gains tax treatment can be a windfall for many investors, it is not without some danger. Some of the deductible items identified here can also be subject to special recapture taxes on any part of their value that was written off as amortization or depreciation. in addition, profits on the sale of collectible items are also taxed at a higher rate.

Due to these complexities, the best thing to do is to involve a tax planner as early as possible before you make investments or sales of valuable items. The Tax Office, Inc. can help you to properly categorize the sale of your assets and ensure that you take full advantage of the extremely low capital gains tax rates. Contact us today to learn more.