Archive for IRS

Home Office Tax Deduction Options

Home officeIf you use a portion of your home exclusively as a home office, you can usually deduct it as a business expense.

And if you use a portion of your home exclusively for other business uses, such as product storage, you may also be able to deduct that expense.

There are two options available to calculate the tax deduction.

The simplified version uses a cost of $5 per square foot up to a maximum of 300 square feet.

The traditional calculation requires filing Form 8829 with your tax return.

Form 8829 requires you to detail all the related costs of your home business use and may result in a higher deduction in return for the greater effort of filling out the form.

IRS Publication 587 gives you all the details or you can discuss it with your tax preparer to see if you qualify.


‘Tis the Season to Give – 6 Tips on Deducting Charitable Donations

paper calendar pages flippingAs we move into the end of 2017, many folks are looking at making their final charitable donations for the year. Here are a few tax related tips:

1. The IRS requires written documentation for donations of ANY amount – keep your credit card statements, check copies or electronic transfer confirmations. The documentation should show the name of the charity, the date & the amount. Also, don’t throw away the thank you letter you get after the charity receives your donation as that counts as documentation.

2. For non-cash donations (e.g., furniture, electronics, household items) get a written receipt from the charity that includes a description of the items. If you use a self service type of drop box, make a written record of what you dropped off, the date & charitable organization’s name.

3. Non-cash donations are deductible based on their Fair Market Value, not what you originally paid for the item.

4. Contributions charged to a credit card are generally deductible on the date charged, not the date the credit card is paid. So if you contribute to a charity using your credit card in December, it will count for your 2015 taxes – even if you pay the bill in 2016 (subject to any other limitations on your deductions).

5. If you are getting something of value in return for the donation, it affects the deductible amount for tax purposes. The tax deductible amount is reduced by the value of the item received. The acknowledgment from the charity should detail this for you, but check with your accountant if you aren’t sure how much to deduct.

6. If you rely on your bank to store all the copies of your checks & transfers online for easy access, don’t forget to save them electronically or by printing if you decide to switch banks. Once the account is closed, it’s costly & time consuming to try to retrieve copies of old transactions.

You can find more donation deduction information on the IRS site or ask your accountant.


The IRS Goes Mobile

IRS2GO mobile appYou know it’s a mobile world when even the IRS has an APP.

Feeling like you want to be closer to the IRS?

If you still feel the same way after you lie down for a while, IRS2GO is for you.

Seriously, though, IRS2Go is a free app for Android & iPhone that is available through iTunes & Google Play Store.

The APP will give you easy access to:

• Your refund status (always nice to know when it will arrive)
• The location of the nearest VITA tax assistance locations
• Where to find Tax Assistance for the Elderly programs
Tax tips
So, if you just can’t help yourself & want to know more, check out the video below.

IRS2GO is available in both English & Spanish versions.


Can’t get your taxes together by April 15th? File for an extension.

Tax filing extensionYou can apply for an automatic extension for filing your personal federal income taxes (Form 1040) by filling out Form 4868.

It’s simple & the 6 month extension is automatic. Here’s the big caveat, though. It is only an extension of time to file your tax return, NOT an extension of time to pay your taxes.

 This is an important distinction. If you don’t pay your full amount of tax, you’ll be liable for paying interest and penalties through the date that you do pay the tax bill in full.

Most states offer a similar extension option, but it is not automatic. You must file & ask for the state extension separately.

So if you don’t have a final answer about how much tax you owe, estimate it as closely as you can & send the payment with your extension to avoid any extra expense of penalty or interest.

You can get Form 4868 on the IRS website, & look for the state version on your state’s individual income tax information page.


Free Tax Filing

Tax Services Highway SignTax filing deadline stress is runs pretty high for many of us.

If your income is $64,000 or less, make it a little easier on yourself by using the IRS FreeFile website to file your federal 1040 return.

You’ll have a choice of online software programs provided by most of the major tax preparation companies.

The software will walk you through the tax return preparation process & allow you to file electronically, which will also cut the time until you receive your refund.

Not sure what information you’ll need? There’s a list of tax information on IRS website that will tell you what you need.


New Simplified Home Office Deduction Option

Starting this year, there will be two ways to calculate the home office deduction. You can use the new simpler option of deducting $5 per square foot up to 300 square feet for your home office or stick with the traditional calculation by tracking and allocating all your housing expenses between home office and personal use.

If you opt for the $5 per square foot version, you can fully deduct all your mortgage interest & real estate taxes on Schedule A. This differs from the regular calculation, which requires splitting those costs between Schedule A and Form 8829.

With either method, you need to meet all the requirements of home office business use to take the deduction.


Don’t Have the Money to Pay Your Tax Bill?

Time’s up for procrastinating about your taxes. If you don’t have enough money to pay your taxes due today, you have a couple of options. You can:

  • Pay with a credit card  through an approved IRS payment processor. There is a service fee added to this payment, however there is an initial service fee charged upfront & then there are the credit card interest charges on the balance. You can get detailed information on how to pay by credit card on the IRS site.
  • Apply to the IRS for an installment payment plan. If the balance is under $50,000, you can apply online. If it is greater than $50,000, or you prefer paper, use Form 9465.  There is an initial setup fee that varies depending upon your circumstances. Payments can be made through direct debit to your bank account or through payroll deductions to make it easier. Once you apply, the IRS will consider your request and, hopefully, approve it. This agreement does not protect you from interest or penalties; it just allows you to pay in installments.

To avoid this happening next year, consider increasing your payroll tax withholding on your earnings or set up quarterly estimated tax payments.


Estimated $900 Million in 2009 Tax Refunds Due

If you didn’t file a 2009 tax return, now could be the time to do so. The IRS estimates that there is over $900 million in 2009 tax refunds languishing in IRS coffers because hundreds of thousands of people did not file a 2009 tax return in order to claim their tax refund.

That’s a seriously large amount of refund money.

But time is running out. After April 15, 2013 it will be too late to file for a 2009 tax refund.

Didn’t Owe any 2009 Taxes?

You may not have owed any taxes, but if you had taxes withheld from your paycheck or paid estimated taxes and then didn’t file a return, you left those taxes on deposit.  Also, for EITC (Earned Income Tax Credit) eligible taxpayers, you can’t get the benefit of the EITC if you don’t file a return, so that money might be left on the table too.

Failed to File Your Taxes?

People don’t file tax returns for a variety of reasons. But the IRS doesn’t automatically calculate tax refunds based on the information in their system.

Whatever the reason, if you are due a 2009 refund, time is running out to get it. So check with your accountant to discuss whether or not you should do so before the April 15th deadline.


Home Office Tax Deduction

How and when to take the home office deduction on your taxes can be confusing, but if you meet the criteria, it’s a legitimate deduction so don’t just discard the idea. There has always been scuttlebutt that using the deduction raises your risk of audit. Not true, according to the IRS. So what do you do?

Since there is no way to know for sure, having good documentation is the best way to protect your home office deduction in case it’s questioned. You need to show that you are using the home office “exclusively and regularly” for managing your business and performing administrative tasks.

Proving Home Office Use

The type of documentation that supports this deduction includes:

  • Tracking the home overhead expenses involved, such as rent, mortgage, utilities, etc.
  • Saving receipts for any specific alterations you make to create the home office space
  •  Having a floor plan showing the actual area dedicated to the business, including any areas you use for storage of products or supplies
  • Contemporaneous records of time spent in the home office working vs. being out on sales calls or meetings

The last item is sometimes a bit trickier to document, but a good start is to keep activity notes. If you’re in your home office making calls, meeting with your bookkeeper, ordering materials or doing other administrative tasks, it’s easy enough to note that activity in your calendar at the end of the day.  That way it’s documented the same way that your out of office business activities are.

An accountant can answer specifics about your situation and tax software will help walk you through the calculations if you prepare your own taxes.  And detailed home office information is also available on the IRS website.

The good news is that the IRS may be making this calculation easier in 2013. We’ll keep you posted if they do.


Tax Returns and Identity Theft

words identity theft and magnifying glassWe’re all aware that Identity Theft is a growing problem, but you may not realize how it can impact your tax return. Using stolen identities, thieves are filing fraudulent tax returns and stealing billions of dollars annually.

To combat this, the IRS has created an entire division (The Identity Theft Clearing House) to investigate and stop these identity thieves.

What is Tax Return ID Theft?

After stealing your identity information, someone will electronically file a fraudulent tax return in your name and generating a refund amount due. Unless the IRS flags it as a questionable return & stops the processing, the thief gets the refund. You end up with a major problem to solve.

So basically, they get the money and you get the headaches.

How Do You Know?

The usual way you find out is that after you file your return, you’ll get a notice telling you that you’ve filed two returns or that there is a balance due on a return you did not file. That’s when the fun begins and you have to work with the IRS to straighten out your tax account.

The IRS is focused on dealing with these situations and has a procedure in place, but it will still take longer than you would like to resolve and will involve personal affidavits and paperwork.

It Doesn’t Stop with the IRS

By the time you know there is a problem, you may have other identity theft consequences, such as fraudulent credit applications in your name or charges to existing credit accounts. And your information may even be used to obtain fraudulent medical services, which can compromise your medical records and coverage.

What Can You Do to Prevent ID Theft?

These are sophisticated theft rings and there are data breaches in companies all the time, so exercise extreme caution every day with your personal information.

Protecting your identity is an ongoing process. Some steps that help are:

  • Don’t give out your Social Security number unless absolutely required.
  • Use financial account passwords that are difficult for someone to guess.
  • If you are asked to supply your Social Security number on a form, question why it’s necessary before giving it out.
  • Check your free credit report every 12 months or sign up for a credit service to monitor it for you.
  • Don’t give out personal credit information unless you are certain about the trustworthiness of the recipient.
  • Don’t click on links in emails that ask for identifying information.
  • Shred documents that have personal identifying information on them

No one is immune from identity theft, so be vigilant with your personal information.