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There is Still Time...

Author: Jenny Shilling

The filing deadling is today, April 15, 2014. If you owe taxes to the federal government, today is they last day to pay them before you start acruing penalties.  If you haven't filed your taxes by now you are still able to send in IRS form 4868 to get a six month extension to file your taxes until midnight tonight.  Thanks to the IRS e-file options, filing this form is easier than ever.

To get an extension of time to file your taxes, you need to fill out IRS form 4868 by April 15th. This form requires specific information including your name, social security number, your spouse's name and ssn, address, and income information.  This form is available from the IRS website.

IRS Form 4868 does not extend your time to pay the IRS.  It only provides an extension of time to file your tax return.  If you owe the IRS taxes, you must make your payment before April 15th or you will begin to accrue penalties at 0.5% per month or part of a month on April 16, 2014.

There are times when special circumstances grant you an automatic extension to filing your tax return. If you are a U.S. citizen or resident alien and on April 15th you are:

• Living outside the U.S. and Puerto Rico and your main place of business or post of duty is outside the U.S. and Puerto Rico; or

• On duty outside the U.S. and Puerto Rico for military or naval service.

If you qualify for these special circumstances you have until June 16th to file your tax return.  You must include a statement that explains your qualification with your tax return.

The deadline for filing tax returns and paying taxes is automatically extended if:

• You serve in the Armed Forces in a combat zone or you have qualifying service outside of a combat zone; or
• You serve in the Armed Forces on deployment outside the U.S. away from your permanent duty station while participating in a contingency operation.

Your deadline is extended for 180 days past the later of:

• The last day you are in a combat zone or serving in a contingency operation; or
• The last day of any continuous qualified hospitalization for a service injury from a combat zone or contingency operation.

Although the filing deadline is here and time is quickly running out, you still have time to file for an extension if you need to.  The Tax Specialists at The Tax Office, Inc., can assist you with e-filing IRS form 4868, estimating tax payments, and filing your tax returns. Contact the Tax Office, Inc. for all of your tax requirements today.

I Need to do What? Since When?

Author: Keith Huggett

Do you have to pay estimated taxes? Yes? No? Are you sure? If you are self-employed or own an S-Corporation than you are most likely paying estimated taxes. Just to clarify things, lets explain what estimated taxes are.

Estimated taxes are not an additional income tax.  They are taxes you pay throughout the year in place of paying a lump sum when you file your tax return.  You make your tax payments four times a year:

• April 15, 2014
• June 16, 2014
• September 15, 2014
• January 15, 2015

Estimated taxes cover your net earnings from self-employment, profits from an S-corp, and any earnings not subject to withholding such as capital gains or dividends.

If you happen to be a little short on your estimates, you can accrue penalties. The way to avoid You can avoid this penalty if your 2014 estimated taxes are 100% of your 2013 tax bill (110% if your adjusted gross income in 2013 was over $150,000, or $75,000 if married filing separately). Also, there will be no penalty if your underpayment is less than $1,000 or your estimated tax payment is at least 90% of your final 2014 tax bill.

The tax specialists at The Tax Office, Inc., can help you figure out your estimated tax payments. If you have any tax questions please contact us now.

How You Can Avoid the IRS Hobby Determination

Author: Keith Huggett

When you are a successful business owner, the IRS is fully aware of it.  Being a successful business owner and starting a second business that does not perform as well as it should, tends to throw a red flag at the IRS, indicating that the second business is more of a hobby than a business. To be a "business" your goal must be to have a profit. If, year after year, you claim a loss in your second business, the IRS may take a closer look. Here are some tips for avoiding the Hobby classification:

1. Model your "hobby" after your primary business. If this isn't feasible, document why, and come up with a different strategy.
2. Create a new business entity for your "hobby" along with new business bank accounts.
3. Keep a log of the time and effort you spend working on the business aspects of your "hobby."
4. Have a written business plan.

While these tips may not always be enough to avoid the classification of a  "hobby" having good records may save you from tax penalties.  As always, if you are being contacted by the IRS, we suggest that you seek assistance from a professional tax preparer.

At the Tax Office, Inc., our Tax Professionals are available to answer any questions you may have on taxes, hobby businesses, business entities, or IRS audits. Please contact us with your questions.

Proactive Protection Can Save You More Than You Think!

Author: Jenny Shilling

Everyone knows you have to store your tax records in a safe place. But how do you keep them? You store them in a box in a back room somewhere, right? What happens if disaster strikes? Fire or flood wipes out your house or storage facility and all of your tax records get wiped out in one fell swoop. And, just to make matters worse, the IRS comes knocking and wants to audit your records...

Luckily, this situation doesn't happen often. For the few that it does happen to, there are ways to repair the situation.  When your records are destroyed or missing, the IRS regulations allow you to "substantiate a deduction by reasonable reconstruction of your expenditures or use." What this means is that you have a chance to reconstruct your records which is a very time consuming and expensive task.  There are very simple and less expensive ways to avoid this:

1. Invest in fire and water-proof filing cabinets to store your tax records.
2. Purchase a scanner or scanning app for your smartphone and store your records in the cloud or offsite. You can keep backup copies of your information this way.

While you probably won't get all of your original deductions with a reconstruction of your tax records it's your only option. 

At the Tax Office, Inc., we are a paperless office and scan all paperwork as it comes in and reccomend that you do the same. If there are any questions we can answer regarding record keeping, storage or taxes, please contact us. Our tax specialists are happy to assist with any tax related matters.

Author: Keith Huggett

The type of business entity you have informs how you will be taxed. When forming a company, it is important to understand the different types of entities so you can decide which one makes the most sense for you. Many small-business owners elect to form a limited liability company (LLC) or S corporation because comparatively little reporting is required for these types of businesses. 

Whether you decide on an LLC or an S corporation will depend on several factors:

• Setup: LLCs are easier to set up and require little in terms of maintenance to stay in good standing. The requirements vary from state to state, so be sure to work with a professional to ensure that your business is compliant. S corporations have stricter requirements for shareholders and can be more costly to set up.

• Tax filing: If you are the single owner of the business, tax filing for an LLC is easier than for an S corporation. Because an LLC is basically a pass-through entity, a sole owner only has to file one tax return, while an S corporation requires additional paperwork.

• Income tax: This is perhaps the biggest difference between an LLC and an S corporation. LLC owners are required to pay self-employment tax on all income generated by the company, which can get quite costly. On the other hand, owners of an S corporation are simply required to pay themselves a reasonable salary that is in line with market rates. Any additional income earned by the business can be distributed as dividends, which come with a lower tax rate.

There are many similarities between an LLC and an S corporation, which can make it confusing for business owners. Working with a qualified tax professional can help you make a more informed decision.

The Tax Office Inc. can help you decide which entity is right for your business. Whether you are forming a new company or changing the structure of your existing business, our professionals have the expertise you need to get it right the first time. Contact us today to learn more.

Scanning Your Receipts Can Save Your Deductions!

Author: Keith Huggett

Throughout the year, we wine and dine our customers in the hope of building our businesses.  We take trips to conferences to further educate ourselves, to learn of upcoming expansions in software, laws, or simply the field in which we work.  During this time we collect receipts. TONS of receipts. In the US alone, we use 640,000 tons of thermal receipt paper per year. What do we do with those receipts? We put them in our purse or wallet. File them in a box or folder. Hopefully, we scan them so that they remain in pristine condition. But, what happens to the actual receipt? It fades...and fades, until it no longer exits, and is only a blank scrap of paper. When it gets to this stage, it is of no use to you.  It can no longer be used to substantiate the business dinner with your client, or the conference you went to in New York.  Travel and Entertainment deductions are some of the most difficult deductions to substantiate.

To help prove your case, should your return be audited, scanning your receipts is your best option. As most people carry a cell phone with them, there are several apps available that can help you by using the camera portion of the phone. Here are just a few choices:

Iphone:  Scanner Pro
             Genius Scan

Android: CamScanner
             Genius Scan

Information that you should include with your receipts:

1. Who you entertained
2. Why you entertained this person or people

The receipt should include this information:

1. The date of the engagement.
2. The location of the engagement.
3. The amount spent.
4. What was involved in the engagement - i.e., dinner, golf, etc.

While keeping the original receipt is necessary, it is always in your best interest to keep a backup copy.  In your business, you backup your computer for those "just in case" emergencies that you never want to happen.  Keeping a digital copy of your receipts is the same thing. It also makes things much easier for your accountant, come tax time.  If you would like advice on digitizing your receipts, the tax specialists at The Tax Office, Inc., would be happy to assist you.  If you are not tech savvy, The Tax Office, Inc., can take the scanning off your hands with one of our bookkeeping packages.  Contact us today if you would like to discuss either receipt maintenance, bookkeeping, or if you have any tax related questions.

 

AMT - Tips You Should Know

Author: Keith Huggett

Despite the state of our economy, you may in fact have a prosperous year. In fact, if you have a really good year, you may earn enough money that you get hit by the Alternative Minimum Tax or AMT.  The AMT attempts to ensure that some individuals who claim certain tax benefits pay a minimum amount of tax.  The IRS has published some tips for you to let you know when you become affected by the AMT:

1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.
2. The 2013 AMT exemption amounts for each filing status are:
   • Single and Head of Household = $51,900
   • Married Filing Joint and Qualifying Widow(er) = $80,800
   • Married Filing Separate = $40,400
3. The rules for AMT are more complex than the rules for regular income tax. The IRS suggests using their e-file software to file your return. While it will figure AMT for you if you owe it, there are other aspects of filing your taxes that you must take into account before choosing how to file your taxes.  When AMT comes into play we suggest you contact professional assistance when filing your tax return.
4. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.
5. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.

If you have questions about AMT, you always have the option of getting advice from a tax professional.  At the Tax Office, Inc., our CPA's, Enrolled Agents, and other tax professionals can answer your tax questions regarding AMT, e-filing, Form-6251 or any other tax topic. Contact us today to discuss filing your 2013 tax returns.

Having a Clear Business Plan Will Lead to Achieving Goals

Author: Keith Huggett

Whether you're a one-man shop or a small business with several employees, setting business goals is necessary for success, especially in the first several years of operation. Knowing where you want your business to be, and how you plan to get there, can help you achieve success more quickly and instill confidence in employees, customers and other stakeholders.

Creating a comprehensive business plan can be intimidating, but it doesn't have to be. Set smaller, achievable objectives to make the process less overwhelming; you can create business goals in virtually any area:

• Operational: Improving efficiency can help you dramatically reduce overhead costs. Explore new tools and cloud-based resources to help you streamline operations. Start by analyzing the current time and costs associated with tasks such as bookkeeping, payroll, tax filing and other necessary business operations. How can you make these tasks more efficient? Consider outsourcing, especially if you are doing this work yourself. As a business owner, you should spend your time developing and implementing strategies for growth, not handling the mundane (but necessary) day-to-day tasks.

• Sales: For most businesses, this is the key metric that defines success. Set monthly or quarterly sales goals that include plans for growth. Work with your sales team to set goals that are both realistic and challenging. Your employees will thrive when they know what is expected of them, and everybody will benefit from the financial gains.

• Marketing: Increasing sales requires targeted marketing. Setting concrete business goals such as increasing website traffic, bringing strategic allies on board and expanding your social media presence are effective ways to keep marketing efforts on track.

• Financial: Set targets for both short and longer periods of time. When you set financial business goals, it's important to understand the steps and costs associated with getting there. Working with a qualified financial planner can help you set realistic goals that will result in profits.

The professionals at The Tax Office Inc. can help you create a solid financial plan that includes tax strategies and much more. We also offer online bookkeeping and other cloud-based services. Contact us today to schedule a consultation.

401(k) Plans are Valuable for Employees and Managers

Author: Keith Huggett

A 401(k) plan is a valuable benefit for your employees and a useful tool for you. While 401(k)s help your employees save for retirement on a tax-free basis, they help you increase retention while also sheltering a portion of your payroll from expensive payroll taxes. If you are considering adding this benefit or changing your provider, here are three things to look out for:

• Biased 401(k) plan administrators. Some administrators sell their own products and have an inherent preference for what they offer. Choosing an independent adviser ensures that your employees have access to the best funds. This not only makes your employees more money but also increases the likelihood that they will take advantage of the benefit.

• High expenses. While administering a retirement plan is never going to be free, different advisers have very different fee structures even though they offer similar services. There is no reason that your employees should have to pay much more than 1 percent in administration fees for their 401(k) account, even if your company's total balance is relatively low.

• Investment management. Unless you have a pool of employees who are adequately knowledgeable about investing, make up a formal Investment Committee to review the terms of your company's 401(k) plan and the investments that are available to it, look for a 401(k) provider that can serve as an ERISA 3(38) adviser and manage the plan's investments. This gives your employees access to expert advice on how to invest their money without you or your staff having to take time or liability for providing the advice. Many advisers provide this service for little cost with others doing it for free.

Whether you are looking to institute a new 401(k) plan or change your existing provider, contact the experts at The Tax Office, Inc. for help. We can help you identify the right provider for your business and explain how offering this benefit to your team can affect your company's profitability and its tax liability.

Even Virtual Money Isn't Tax Free...

Author: Keith Huggett

Come on, you didn't really think you could get away with tax free income did you?  Nope, not even virtual money is really tax free.  While the IRS is currently trying to iron out the logistics of taxing your virtual money, they will still get you for the additional income if you do not declare it when filing your tax return. So for those of you who are unfamiliar with bitcoins, here's a little explanation for you...

Bitcoin is a decentralized digital currency that uses a peer-to-peer network to move "Bitcoins" around the world.  They are privately issued currency that exits only as a long string of numbers and letters in a user's computer file or "wallet". Each coin is encrypted using cryptography to secure and protect against counterfeiting.

Bitcoins are not government issued and does not have an actual coin or bill associated with it.  While there are several different types of "virtual coins" available "Bitcoin" is the most widely circulated virtual currency available.

Bitcoins can be used as real world currency.  Users can pay for real goods and services with bitcoins in place of US dollars or other government currencies.  Third party exchanges also allow bitcoin users to exchange their bitcoins back for dollars, euros or yen as well.  This is where the IRS comes into play. With the current rate of exchange of 1 bitcoin granting $681.35 Uncle Sam is going to want his portion.

While the IRS has not yet finalized it's rules on how to handle virtual currency and your requirements, it is in your best interest to declare the "other income." If you have any questions regarding virtual currency and how it can affect your taxes, contact the tax specialists at The Tax Office Inc.