Y’all be careful out there….

The “but TurboTax said it was OK” defense doesn’t fly with the IRS or the Tax Court…

Case in point:

Self-preparer Cannot Rely on TurboTax Defense: Taxpayer underreported the taxable amount of her pension distribution by $101,998, which (along with other discrepancies) led to a proposed tax deficiency of $43,668 plus the substantial understatement penalty. Taxpayer argued that her mistakes were “honest mistakes resulting from her lack of familiarity with the TurboTax program.” Plus, she thought the audit portion of the program “would catch any mistakes she otherwise might make.” Citing the well-known “garbage in, garbage out” rule, the Tax Court rejected her arguments because she, not the program, was responsible for the mistakes.

 

Just some friendly advice — if you have a major event in your life (like, say a $101,998 taxable pension distribution) it is worth it to hire a CPA to prepare your return to make sure everything looks kosher.  Give our office a call at 770-478-7424 to speak with a CPA about your situation.

7 Tax Tips for Recently Married Taxpayers

If you’ve recently updated your status from single to married, you’re not alone – late spring and summertime is a popular period for weddings. Marriage also brings about some changes with your taxes. Here are several tips for newlyweds from the IRS.

  • Notify the Social Security Administration  It’s important that your name and Social Security number match on your next tax return, so if you’ve taken on a new name, report the change to the Social Security Administration. File Form SS-5, Application for a Social Security Card. The form is available on SSA’s website at www.ssa.gov.
  • Notify the IRS if you move  IRS Form 8822, Change of Address, is the official way to update the IRS of your address change. Download Form 8822 from IRS.gov.
  • Notify the U.S. Postal Service  To ensure your mail – including mail from the IRS – is forwarded to your new address, you’ll need to notify the U.S. Postal Service. Submit a forwarding request online at www.usps.com or visit your local post office.
  • Notify your employer  Report your name and/or address change to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
  • Check your withholding  If you both work, keep in mind that you and your spouse’s combined income may move you into a higher tax bracket. You can use Publication 505, Tax Withholding and Estimated Tax, to help determine the correct amount of withholding for your marital status, and it will also help you complete a new Form W-4, Employee’s Withholding Allowance Certificate. Fill out and print Form W-4 online and give it to your employer(s) so the correct amount will be withheld from your pay.
  • Select the right tax form  Choose your individual income tax form wisely because it can help save you money. Newlywed taxpayers may find that they now have enough deductions to itemize on their tax returns rather than taking the standard deduction. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
  • Choose the best filing status  A person’s marital status on Dec. 31 determines whether the person is considered married for that year for tax purposes. Tax law generally allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but filing jointly is usually more beneficial.

 

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You need a banana slicer!

This post is purely for fun 🙂

Go check out the Amazon page for the “Victorio Kitchen Products Banana Slicer” and make sure you scroll down to the comments.  They are a hoot!

Some of the best:

“I tried the banana slicer and found it unacceptable. As shown in the picture, the slices are curved from left to right. All of my bananas are bent the other way.”

“Once I figured out I had to peel the banana before using – it works much better.  Ordering one for my nephew who’s in the air force in California. He’s been using an old slinky to slice his banana’s. He should really enjoy this product!”

“I have served in the US Army for over 12 years. I can say that there is technology being used by the military that is rarely seen in the civilian sector. Once in a while, however, an amazing product is released by the DoD for civilian use. The 571B is one of those products. Although once called the M571B Tactical Banana Slicer (TBS)V1, they have declassified it for public use. I am glad to see this product on the market today but I will warn you now, this is a CIVILIAN model and not designed for field use!”

“Upon receiving the 571B Banana Slicer from my best friend, I can honestly say my life is complete now. Something has always been missing. Oh sure, the mellon-baller I got from my mom was something, as well as the grape peeler. But for the life of me, I could not figure out how to handle these bananas without saying, “Forget it, yogurt this morning it is” (if only they would make a yogurt seal-opener…). Now, I can’t stop eating bananas,which has actually caused problems in and of itself. But it is worth it to have such a strikingly pointless device in my gadget drawer. It brings joy where it was never needed, and happiness with each perfect banana shape. I honestly am enthralled to see what will come next, I hope it deals with those devilish strawberries and their many seeds. ”

 

6 Tips for Charitable Taxpayers

I don’t like linking charity with taxes.  I’m of the mind that if you feel compelled to give money to a person or an organization, you should go ahead and do it, and the tax benefits should be an afterthought.  I’m glad that the IRS does allow some tax benefits for charitable giving, but before I get into those, I just wanted to stress that you should follow your heart, not your 1040 in this instance.

OK, now that I’ve said that, if you DO give and want to see how to maximize the benefits, here are 6 tips from the IRS:

1. Tax-exempt status. Contributions must be made to qualified charitable organizations to be deductible. Ask the charity about its tax-exempt status, or look for it on IRS.gov in the Exempt Organizations Select Check, an online search tool that allows users to select an exempt organization and check certain information about its federal tax status as well as information about tax forms an organization may file that are available for public review. This search tool can also be used to find which charities have had their exempt status automatically revoked.

2. Itemizing. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3. Fair market value. Cash contributions and the fair market value of most property you donate to a qualified organization are usually deductible. Special rules apply to several types of donated property, including cars, boats, clothing and household items. If you receive something in return for your donation, such as merchandise, goods, services, admission to a charity banquet or sporting event only the amount exceeding the fair market value of the benefit received can be deducted.

4. Records to keep. You should keep good records of any donation you make, regardless of the amount. All cash contributions must be documented to be deductible – even donations of small amounts. A cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity that includes the charity’s name, contribution date and amount usually fulfill this record-keeping requirement.

5. Large donations. All contributions valued at $250 and above require additional documentation to be deductible. For these, you should receive a written statement from the charity acknowledging your donation. The statement should specify the amount of cash donated and/or provide a description and fair market value of the property donated. It should also say whether the charity provided any goods or services in exchange for your donation. If you donate non-cash items valued at $500 or more, you must also complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a contribution of noncash property worth more than $5,000, you typically must obtain a property appraisal and attach it to your return along with Form 8283.

6. Timing. If you pledge to donate to a qualified charity, keep in mind that for most taxpayers contributions are only deductible in the tax year they are actually made. For example, if you pledged $500 in September but paid the charity just $200 by Dec. 31 of that same year, only $200 of the pledged amount may qualify as tax-deductible for that tax year. End-of-year donations by check or credit card usually qualify as tax-deductible for that tax year, even though you may not pay the credit card bill or have your bank account debited until after Dec. 31.
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Tax Tips for Selling Your Home

Have you recently sold your home?  First off — congrats…that can be tough to do in this market!  This post is going to cover some of the basics on the tax consequences of selling your home.  These tips should cover most people’s situation, but if you have something that is more complicated (like, you rented out part of your main home, or used part of it as a home office), then I would suggest that you contact a tax professional.  Hey — I just happen to know a really good CPA firm you may want to use….

OK here we go —

Some basics first — your house is considered a capital asset.  Very simply, if you buy it for $100,000 and then sell it 5 years later for $150,000, you have a $50,000 long term capital gain.  Normally, capital gains are taxable, but there are special rules when we are talking about your home.

  • In general, you can exclude the gain from income from the sale of your house if you have owned and used your home as your main home for two out of the last five years.
  • If you do have a gain from the sale of your main home, you can exclude up to $250,000 of the gain ($500,000 if you are married filing joint), in most cases.
  • If in the last 2 years you sold a previous home and excluded the gain, you are not eligible for the full exclusion.
  • If you can exclude all of the gain, you do not need to report the sale of your home on your tax return at all.
  • If you can’t exclude all of the gain, then you need to report the sale of your home on Schedule D, Capital Gains and Losses.
  • You can’t deduct a loss from the sale of your main home.  Sorry — bummer.
  • If you have more than one home, you can exclude a gain only from the sale of your main home.
  • If you received the first time home buyer credit in an earlier year — you need to take a look at page 33 of Publication 523 (pdf) for directions.

 

For more information, take a look at Publication 523 (pdf) , Selling your Home.  Most tax software is set up to handle the calculations involved with the sale of your main home.  But, like I mentioned earlier — if you have any kind of complexity involved, it is worth it to consult a tax professional.

Starting a New Business

Thinking of starting a new business?  Congrats and thank you!!  Small businesses are what keep our country running.  I thought I’d post a few things to think about if you are starting a new business.  Of course, this isn’t an exhaustive list, and I’d encourage you to take the time to speak with a lawyer and a good CPA to make sure that all your ducks are in a row.  The expertise is worth the cost.

Having said that, here are a few things to think about:

 

  1. What type of business will it be?  There are all sorts of types of businesses — the most common is the sole proprietorship.  This is by far the easiest and simplest business structure.  When I used to tutor, I was considered a sole proprietorship.  I reported my income and expenses on Schedule C of my 1040.  There are other types of businesses as well — partnerships, S-corporations, LLCs, among others.  One of the positives about an LLC (which stands for Limited Liability Company) is that the owner(s) will have limited personal liability for the business debts.  This type of business needs to be formally set up, usually through a lawyer’s office.  In any case, if you decide to meet with a lawyer or a CPA, this will probably be one of the things they discuss with you.
  2. What types of taxes will I be responsible for?  The type of business structure that you choose will also determine what types of taxes you pay and how you will pay them.  The four general types of business taxes are income tax, self-employment tax, payroll taxes, and excise taxes.  If you decide to have an employee as a part of your business (side note: it is not your decision on whether or not someone who works for you is an employee or a subcontractor, they either are or they aren’t), then I would recommend you have a bookkeeping program like QuickBooks and sign up for their payroll subscription.  It is a very cost effective way to do a small payroll.
  3. Employer Identification Numbers: Typically, a new business will need a Federal Employer Identification Number (FEIN or sometimes just EIN).  You can go to irs.gov and see if you need to get one for your business.
  4. Recordkeeping: No matter what type of business you set up, you need to keep track of what comes in and what goes out.  This may be as simple as a spreadsheet (that’s what I used for my tutoring), or you may want to get software like QuickBooks.  Good recordkeeping also includes keeping the support documents for your numbers, like receipts and invoices.  Also, just from an accounting standpoint, it is almost impossible to run a business well if you don’t know how much money is coming in and where the money goes as it goes out the door.

 

I hope this gives you some things to think about.  Take a look at IRS Publication 583 (Starting a Business and Keeping Records)  and Publication 334 (Tax Guide for Small Business) for some more fun reading.

Tips or Service Charge? Guidance for restaurant owners and servers

There’s new guidance out on whether a payment by a diner is a tip or a service charge.  (For a primer on how to handle the taxes on tip income for servers, take a look here.)

In the new guidance, the IRS attempts to clarify the difference between a tip and a service charge.  A service charge is to be treated as wages, not tips.  Service charges are not to be included in any calculation that arrives at an hourly tip rate, a tip rate calculated on percentage of sales, or any other rate determination method.

Here are the criteria for how the IRS views tips:

1. The payment must be made free from compulsion

2. The customer must have the unrestricted right to determine the amount

3. The payment should not be the subject of negotiation or dictated by employer policy

4. Generally, the customer has the right to determine who receives the payment

So, for example, if a restaurant has a policy that automatically adds a gratuity of 18% for all parties over 8 people, and the money is split among the servers and bussers, then that would be a service charge.  If a restaurant leaves the tip line blank on a bill, but the restaurant shows sample tip calculations of 15%, 18%, and 20%, then the amount filled in by the customer would be treated as a tip.

 

 

Vacation Home Rentals

Do you have a vacation home?  Do you rent it out for part of the year, or even for just a week or two?  Should you include that on your tax return??  Read on! [Read more…]

Payroll reports are due 7/31

Just a quick reminder to everyone that is in charge of a payroll that the quarterly reports for the second quarter are due at the end of the month.

Typically this involves the 941 for the IRS, and then a report for your state’s Department of Revenue for your withholding for the 2nd quarter, and then another report for your state’s Department of Labor for your unemployment payment for the 2nd quarter wages.  Obviously, depending on your situation, your reports may vary.

QuickBooks Enhanced payroll has the reports as a built in functionality of that subscription, so that makes it quick and easy.  Or, if you use a payroll service like Paychex or ADP, they can handle the reports for you.

It’s a good idea to keep a copy of the reports filed for your records as well as the backup support.  The Payroll Summary report from QuickBooks usually gives good detail as backup.  I also like running the Employee Earnings Summary report and I keep that on file as backup too.

If you are in charge of payroll and have questions, feel free to leave a comment in the box below and we’ll try to give you a tip or two!  Or, please give our office a call at 770-478-7424 no matter where you are in the country, and we can set something up to assist you.

Should I be paying estimated tax?

Should you be paying estimated tax?

Well, the quick and easy answer is — if you are earning income and not having any taxes withheld from it, then probably yes.

As mentioned in the video below, the US operates on a pay-as-you-go tax system.  In other words, as you earn money, you need to pay taxes on it.  Usually, this is accomplished through employer withholding your tax from regular salaries and wages, but many times, people may have income that is not subject to withholding. [Read more…]