Auto Audits: Mileage
Posted on August 11, 2010
We are going to split this topic into two sections, mileage and auto expense. This one is about mileage.
Client: How do I get a deduction for the mileage that I drive?
dasmah: How many miles did you drive for “business” purposes?
Client: Oh, about 5,000.
dasmah: Do you have a written record that can support that number?
Client: No, but that is pretty close to what I drove.
dasmah: How many total miles did you drive the car over the entire year?
Client: Oh gosh, I really do not know, maybe 12,000, but it is really hard to tell because I bought a different car in August.
If the above conversation sounds somewhat familiar, you are headed for a train wreck come audit time. If you want to claim mileage as a business expense, you have to take care of the details, i.e., mileage records.
Typically this blog is about providing you information, but this time I need your help. I am not into gadgets, cell phones that can do almost anything for you, or any other such devices. I am not completely in the dark ages. I do use a cell phone to call people. So is there anyone out there that has a solution for people who have lost the capability of writing mileage down when they start and again when they finish driving for business purposes that is simple and convenient? I am not trying to be flippant here; I am serious. Is there some external device that can be activated separate from the odometer that could track the mileage? Maybe there is an “app” out there that could simplify things? The key to claiming mileage is the written record. So if you know of something, let us know, or maybe a system that works for you that you are willing to share.
I will wait and see you come up with and then answer the rest of the questions.
We need your help on this one!!
Paul Spears
The Trouble with Home Offices
Posted on August 3, 2010
“Home office” is one of the deductions that is narrowly defined and that many do not completely understand. What we stress to our clients is this extremely important point: The area CANNOT be used for anything else and, the equipment in the area CANNOT be used for anything else.
You convert a spare room in your house to an “office” and during the week from 8:00 to 5:00 you use it for business. At night other family members may use the computer to google information for a report or check their Facebook profiles. Or perhaps a family uses the computer to keep track of home checking or does home banking over the weekend. This would eliminate it from being a home office. “A specific portion, of the taxpayer’s home must be used solely for the purpose of carrying on a trade or business in order to satisfy the exclusive test.” (emphasis added)
Please be very careful when making this claim. It will get the attention of the IRS because they are well aware of the deduction being abused. If you do qualify, keep track of your mortgage interest, real estate tax, property insurance, utilities and maintenance and repair. These will be added to the expense based on the square footage of the area compared to the total square footage of the home. You will also need to know the value of the structure, which is not necessarily what you paid for it. In most situations, when you buy a house, you buy a structure and the property (i.e., land) it is built on. You need to know the value of the structure alone. The structure value will be depreciated over time which is added to the expense of the home office. The reason for this is that according to the IRS, land is not depreciable. In other words, it does not decrease in value.
Our advice is to talk to your tax preparer or tax consultant to get all of the details before making this claim. There are some exceptions to the rules, but not very many. On a personal note, I have a home office which is used almost exclusively for business, but it is used on occasion for family interest. I have never claimed a home office. I am not saying this to elevate myself above those that do, but only to let you know how seriously I do take this topic. Also our tax clients that make this claim know how much detail we go into on questioning them on this deduction.
For further questions or any new questions, you know where to find us.
Paul Spears
Let’s do lunch
Posted on July 27, 2010
Everyone likes a free lunch but if you are counting on the IRS to give you one, you need to think again. One of the questions that we hear every year is concerning meals and entertainment on tax returns, especially for businesses. Most business owners are aware of the 50% limitation, but they are not always clear on what constitutes a business lunch. What they normally fail to take into consideration is the “Directly Related Test”. There are three important parts of the test: 1) taxpayer must have more than a general expectation of deriving income or 2) some other specific business benefit and 3) active business conduct must be engaged in and also be the principal conduct aspect of the meal. I also want to add one other item and that is: expenses of employees’, stockholders’, agents’ or directors’ business meetings. Keep in mind that there is usually a 50% limitation on the deduction.
Let’s try to simplify things a little bit by just answering some questions that we are frequently asked:
1) I work in a large metro area and travel from client to client. Are my meals a deduction?– No, this would not pass the directly related test.
2) Same question is number 1, but I have an employee with me.– If you make this a habit, I would say no. How many business meetings do you need a week, especially over lunch? dasmah Accounting does have lunch business meetings, but they only happen about once every couple of months and I can honestly say the main conversation is business.
3) What if I take one of my existing clients out for lunch?– Yes, this would be covered. The meal is to help maintain the business relationship that you have with the client and thus your expectation of additional income in the future.
I think that the best advice is just use common sense and not try to skate around an issue that could cause you more grief if you were ever audited. Think like an auditor. If the person being audited tried to cheat on this, it raises red flags to the auditor on how many other items might be subject to fraud.
We have some other tax subjects that we have been asked about: home office expense, non-cash contributions, and mileage. We will try to get to these in the coming weeks. If you have a question, please send it to us and we will get you an answer, even if it is not the one you want to hear. 
Dear Tax Clients,
Posted on July 20, 2010
Can you believe that we are at the end of July already? Most of you can probably still remember me bringing your tax returns for 2009 to you. There are a few of you that still struggling to get 2009 done and a very few are still working on earlier years. 
The congress is not really doing anything on the tax laws because of upcoming elections; but you should expect a flurry of activity after the elections. There is some legislation that probably will not be popular, so why stir up the pot now? After all, congress members want their jobs back. There will be changes and some might be major; it is still too soon to tell. I would still encourage you to take advantage of savings instruments that will shelter your money from taxes or take advantage of the education accounts for your children or grandchildren.
The State of Arizona is still offering the tax credit of $250.00/single or $400.00/joint if given to a public school. If you have a child/grandchild that attends a public school, you can give money to the school and it will be deducted from your tax liability. Maybe you have a friend that teaches or their children attend a school where you might want to help the school directly and reduce your tax liability to the State.
Now is the time to start planning. You have six months left and these will pass before we know it. Six months is only 12 paychecks away or at most 13. Also there are only a few of us that think about taxes during the Holiday Season. Plan now so you will not regret it on April 15, 2011.
If you have questions, please call Paul at 480-201-3753 or Rachel at 480-688-3917. We can also direct you to financial planners on different savings instruments. Also please check our website blog for more up to the minute news of what is going on.
Thank you,
Paul Spears
SECA Tax Hike for S-Corps
Posted on June 18, 2010
As part of Dasmah’s comittment to keep our clients and friends notified of any tax changes we urge all small business owners to read the following letter that was sent out to all of our clients this month:
“This is a notification to our clients that are either S-Corps or are an LLC filing as a small corporation. There is a bill that could be passed before the end of the year that will affect all S-Corp filers. The law would make the entire profits subject to SECA tax (Self Employment Contribution Act). Currently the tax is 15.3% on the first $106,800 in profits and 2.9% above that. The following fields will be subject to the SECA tax: accounting, law, health, actuarial science, engineering, architecture, lobbying, consulting, brokerage services, investment management, sports and the performing arts. S-Corps that are not in professional service fields, such as manufacturers, will continue to be exempt from the SECA tax.
We will advise you when we hear whether or not the law passed. We are currently advising any of our new clients to not opt for the small corporation tax filing election. We will also notify you if there are other tax law changes that could affect your company.
If you have questions, please contact us.”
We have attached a spreadsheet can help you to determine what your taxes will be. Click on the link and download the spreadsheet to your computer. We hope this helps you to determine the best possible strategy for 2011.
Providing Health Insurance as a Small Business Owner
Posted on June 8, 2010
Health insurance is a big topic today and what different employers are doing to deal with it. As a small business, dasmah Accounting wants to provide its employees with coverage that both they and the company can afford. Here are some suggestions on what you can do as a small business owner to help reduce your cost.
There is a plan in Arizona where the some of the cost is reimbursed. This information is provided on the Arizona Department of Revenue website.
There is also a 35% tax credit offered by the Federal government for paying 50% or more of your employees insurance cost. For those of you who are owners of an S-Corp, your participation in the rebate is very limited. Send your questions to us and we answer them as best we can at this time. The IRS is still issuing guidelines. If you want additional information, please send us your email address and we will forward all of the additional information as it comes in, with no ads or solicitations for business. We are here to help others, so if you do need additional help, please contact us.
By: Paul Spears
Teaching Your Kids Healthy Money Habits
Posted on April 27, 2010
As parents we are always concerned about our childrens health and teaching them healthy habits. Making sure they’ve eaten their fruits and veggies for the day. Teaching them to wash their hands after being at school or using the restroom. Telling them to cover their mouths when they cough, and so forth. I’d like to pose another important healthy habit we should be instilling in our kids, I’m speaking about healthy money habits.
I’m confident that I can speak from experience since I’m a mother of 4 wonderful and intelligent children (if I do say so myself). Recently my eldest son Craig married and I’m proud of his sense of recognizing the difference between a want and a need, and his desire to save and stay out of debt. We sat down together and discussed what his budget might look like and how he and his new bride could save money before he got married and I was reminded of his little money box he had when he was 8 years old. It had 3 compartments. One for savings, one for spending, and one for charity. I found it quite useful and proved more successful than anything else my husband and I tried.
For simplicity purposes you could use jars. Set up three jars, one for saving, one for spending and one for sharing or charity. Teach your kids now while they are young to save 50%, 40% for spending and 10% for sharing with others. I believe this simple model will help establish healthy money patterns early on. Children can handle this type of percentage since all their needs are really being met by the parent so don’t feel badly about enforcing this. Obviously, when your children are older and they’d like to save for a car or some other large ticket item these percentages can change…however, be firm with 10% to self and 10 % to charity.
It is empowering to children to be able to practice with and use real money. When kids spend their own money and not their parents’ money, they stop to think about what they are spending. Ask them if this is a need or a want and remind them of something they maybe saving for to stay on track.
As a parent, pay an allowance to your children and pay them on time. A couple of dollars may seem trite to an adult but to a young child it’s their souce of independent income.
Make sure the amount of allowance is age appropriate. Consider the age of your child, your expectations of what the allowance will be used for and what your family budget can afford. As a guide, I’ve have heard to use their age or half their age in dollars per week if they are under high school.
Teach them that work = pay. A study showed that 13 million families in America that pay allowance, half believe allowance should be tied to chores. I can not emphysis this more strongly of the importance of allowing your children to learn the joy of work. After all, you don’t want your children growing up with a sense of entitlement otherwise those apron strings will not be easily cut when the time comes.
I hope these few helpful tips to healthy money habits are a great place to start with your children. Good luck and happy savings!
By Rachel Larsen
(photos from flickr.com)
Do We Need the IRS to Regulate Preparers?
Posted on March 26, 2010
The IRS Commissioner Douglas Shulman has stated he has “twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.” The IRS will announce this year its recommendations for regulating the preparer industry. So do we need the IRS to regulate preparers, or is the status quo sufficient?
A tax preparer needs to be able to prepare all types of returns to achieve a level of success in their business. However, there are a couple of things that have changed this industry that have dramtically impacted it and I’d like to point out one of them.
The tax software has allowed routine math calculations, tax table lookups, depreciation schedules and even complex tax issues to be performed automatically. This has led some business owners to believe that if you can input data, you can prepare taxes, and having a higher level of knowledge about tax law is no longer needed. The “skill” is knowing how to use tax sofware (and electronic filing). Believe it or not, not all CPA’s or attorney’s have the ability to prepare all types of tax returns. Sometimes there maybe an item on a return that is not fully understood and instead of spending the time to find the answer, they assume if the software said so, it must be correct.
Over 24 million taxpayers qualify for the EITC (Electronic Filing and the Earned Income Credit), with over $48 billion in credits claimed. The perception by some taxpayers is this refundable credit is “free” money (and it is free to them). Demand was created for a preparer who could get the taxpayer the maximum amount of money back, as quickly as possible. This new class of preparer isn’t interested in preparing schedule C’s or corporate returns. They specialize in simple, quick returns.
Now the IRS expects the preparer to assist them in ensuring the compliance and verifying the information and representations made by taxpayers on their returns. The IRS intends to regulate and enforce Due Diligence.
Both the high-end preparer and the simple return preparer have members who have been guilty of nonethical behavior and this has created a problem for us all.
Dasmah follows the IRS guidelines to become more accountable to them by:
1. Obtaining the using our PTIN (Preparer Tax Indentification Number) on all our tax forms we’ve prepared.
2. Continuing education is a requirement of ours and adheres to the IRS regulations.
3. Dasmah complies with the ethics rules of Circular 230.
We know that our clients place a tremendous amount of trust in us to give them the best tax counsel. We don’t just take shortcuts and try to find loopholes but we try to find real tax savings opportunities while limiting the clients exposure to the IRS.
No industry is perfect and human error is always there; having said that Dasmah is confident in stating that by in large we are truely focused on professional compentency and in serving our clients to the fullest is our primary focus.
So no matter what your answer is to the question on whether or not the IRS should regulate the preparers or keep things as is; dasmah has been and will continue to stay sharp and guide ourselves with the highest of ethics for our clients and for ourselves.
By Rachel Larsen
Happy Holidays
Posted on January 4, 2010
The tax season is quickly approaching and there are many changes in the laws for this year. Some of these changes have been advertised such as the first time home buyer’s tax credit which was also extended to those who currently owned a home but wanted to buy and move into a different home. If you have bought a new home, then you want to check with your realtor and I am sure that they can provide the information that you need to know.
There are also some other deductions and credits that you may or may not know:
1) State and local sales taxes on the purchase of a new motor vehicle may be deducted if the purchase of the vehicle is made between February 16, 2009 and December 31, 2009. There is a limit of $49,500.
2) In the area of education, the HOPE scholarship was enhanced and was renamed the American Opportunity Tax Credit or AOTC. This increased the amount of the credit and also the life of the credit.
3) COBRA assistance was also implemented to help those who were terminated from their employment between September 1, 2008 and December 31, 2009.
4) The unemployment benefits exclusion for the first $2,400 of unemployment benefits is not taxable. This is only available in 2009.
5) Energy tax incentives offer the taxpayer credit up to 30% for installing insulation, exterior windows and doors, and heating and air conditioning systems for qualified improvements. There is a limit of $1,500.
6) Income from Foreclosures and Short Sales of homes can be excluded if certain conditions can be met. (Forgiveness of debt is an expense to the creditor and income to the debtor.)
This list is not a complete list and in further blogs I will provide you with highlights of some of the other changes. You need to contact us for the details of each of these and others that might affect you.
Next time we will talk about businesses and more about cancellation of indebtedness. Until then, please have a great and very safe Holiday Season.
Paul
What? Start a Business Now?
Posted on November 25, 2009
Welcome to dasmah’s new website! Paul, Judy, and I are very excited about the versitility this new site will provide for us as your accounting firm. We hope that you will check us out more often! We promise to have fresh, new content to keep you posted on the latest news whether it’s business, taxes, or just great ideas to help you become more successful.
We’d also like to give HUGE THANKS to Blue Helm- they have been the driving force behind this project. We recommend Brad Rowberry, Chad Mustard, and Emory Cook to any of you that are looking for a fresh look for your business website or if you want to understand how using social networking can be used to build and grow your business. Check them out, they always have innovative, new ideas!
I’ve recently been drawn to a magazine called Success. I have absolutely loved the ideas, help hints, and inspiring stories that keep business owners or just regular folks focused on what’s really important. I learned by reading Success that “more than 40 percent of Americans that were surveyed considered starting a business since the economic downturn, and 75 percent [of those surveyed] believe new entrepreneurs will do the most to revive the economy.” However, only 44 percent of those 75 did something about it.
But then guess what happened to that 44? Thirty-seven percent became overwhelmed with the fear of failure and stopped moving forward with their business plans. That means that only 7 percent of entrepreneurs actually find success. So what’s holding these dreamers back to making it a reality? I believe it is a feeling of being overwhelmed with all the logisitics a new business is faced with, “even more than the fear of failing” says Success.
Here’s where dasmah can help. We’ve helped many of our clients turn their dream into a reality by pointing them in the right direction, doing a little hand holding with organization, and taking the stress out of their accounting woes. They in turn have been able to concentrate on what they do best; and so far, so good with each of them.
If you are one of that 44 percent, believe in yourself to make the next step. Here’s a great place to start: check out SBA.gov/smallbusinessplanner, then give us a call!
For additional inspiration, I recommend an article by Michael Arndt I recently came across in BusinessWeek telling about some of America’s most promising start-ups. BusinessWeek will be ”adding more profiles on a regular basis” so they suggest checking back often. Their goal is to “showcase promising companies before they become household names”. For me, this was fascinating to see that American ingenuity is alive and well and if you think about it, we are in the perfect storm in our economy to get started in some of the home businesses available.
Here are some additional personal finance sites to check out.
Mint.com helps people pay off credit card debt, create a personal budget, and understand investing and save for retirement.
Geezeo.com helps you create a budget and suggests ways to improve spending habits.
By: Rachel Larsen – dasmah Productions, Inc.