Posts Tagged ‘Tax deduction’

When Should You File Your Tax Return?

January 7, 2014

IRS ReturnThe IRS announced that it would begin accepting individual tax returns (Forms 1040 and 1041) on January 31, 2014.  Business returns (Forms 1120, 1120S and 1065 ) will start being accepted on Jan 13, 2014.  Unincorporated businesses that report their income on Form 1040 Schedule C, Schedule E or Schedule F are not included as business returns so the January 31 date applies.

When is the best time to file your tax return?  There is a simple answer.  That depends.

Many people want to file their returns early to get their refund back as soon as possible.  That is one consideration.  If you have a simple return and really need the money this is probably a good strategy for you.  And yet there are other considerations.

The earlier you file your return, the more months the IRS has to decide if there is something that needs further explanation.  More months of exposure to IRS examination.

And the later you file, the more returns are already in the audit pipeline when yours arrives.  This may reduce your audit exposure (but no guarantees).  Many of our clients pay their tax when they file their extension on April 15 but wait until October 15 to file the actual return for this very reason.

Look at all your personal factors and then decide what is best for you.  If you have a question, contact a tax professional.

Are You Ready?

October 23, 2013

Selected for AuditOur tax software vendor just let us know that “According to IRS tax gap studies, small businesses account for 40% of the $450 billion annual loss in tax revenue to the US Treasury, largely due to the under-reporting of income and overstating of credits and deductions. As a result, the IRS focuses much of its audit activity on small businesses, especially in field audit examinations.”  Let’s see, 40% of $450 billion (with a “B”)…that is not pocket change.

However, this is really not surprising.   Small business has always been a prime target for the IRS.  Many times the business owner is good at creating and delivering their product or service but not quite as good at the administrative side.  So if you were the IRS, would you audit a well-prepared business that  has their records in perfect shape and understands the tax law or would you go after the under-prepared small business owner.  Hmmmm.  Let me think.

The IRS will tell you that their goal is to determine the correct tax liability (whatever that means).   However, if they can disallow a deduction because of bad records or no records, it is much easier and faster than spending hours going through records and arguing tax law with a Taxpayer or their representative.

I had an IRS Appeals Officer once tell me that more deductions were disallowed because of inadequate records than for tax law interpretations.  This has been the case since I was an IRS Agent and will probably continue until people learn to keep better records.  The most frequently disallowed deductions are vehicle expenses, meals & entertainment and travel simply because the required documentation is clearly defined in the Internal Revenue Code (The Law).

Are you ready for an IRS Audit?  You only have one chance with the Auditor to show the credibility of your records.  If you fail that first impression, you should prepare to spend a lot of time with the Auditor and write a sizable check at the end .

Records don’t have to be complicated to be credible.  Ask yourself “Am I willing to spend a little time on keeping records NOW that will save me considerable money and time in the future?” Good records can also  significantly add to your peace of mind.  Priceless.

MyTaxBuddy is a simple-to-use system that you use from your smartphone, tablet and computer and provides complete, IRS-credible records for all your income, activity and expenses, all in one place.  Having all the pieces required for travel, meals & entertainment and vehicle mileage documentation is not difficult if you can remember it all.  We provide the structure. MyTaxBuddy is as simple as using an online calendar.   If you start today it could save your bacon when the IRS comes calling.  That is why we are your Buddy!

Similar Questions – Different Answers

September 21, 2013

Groucho SmartOn the surface, the questions “Can I deduct it?” and “Is it deductible?” seem very similar.  They are not.

“Can I deduct it?” means that a person has enough guts to put it on their tax return and risk the consequences if they are wrong.  It does not necessarily mean that there is any legal support to take the deduction.

“Is it deductible?” means the same as “Is there any legal justification for taking this deduction?”  A whole different question.

Many people get tax advice from “interesting” places – party talk, their stylist, realtor, mechanic, business associates, at church.  If you do get tax advice from those sources, be certain the person knows the actual tax law and have not just heard it somewhere then had the guts to deduct something on their own return.

Although a heart surgeon and a motorcycle mechanic both understand how systems work together to make a unit operate properly as a whole, I’m not letting my mechanic do heart surgery.

But I’m just funny that way.

An Expense By Any Other Name

September 11, 2013

RoseA tax deduction is a tax deduction is a tax deduction.

People ask me all the time “What should I call this expense or that?” If you can show that there is a business purpose, it doesn’t matter to the IRS what you call it.  What is important is what it means to you in managing your business.

If you purchase an inkjet cartridge to print off brochures, you could call it computer supplies, advertising, office supplies, printing or anything else that has a meaning for you.

I once had a client bring in her list of expenses and saw a category called ESP.  When I asked her what that was, she told me Error Some Place.  Since it took place in her business account, we took the deduction (of course we called it something else).  And at the same time don’t use a label that will call attention to the deduction either.

The important thing is to keep your records and receipts so that when the IRS asks, you can easily support your deductions.


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