Posts Tagged ‘United States’

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.


Good News. Bad News.

August 31, 2013

When buying furniture and equipment, the Internal Revenue Code Section 179 allows a business an option to write off the total cost in the year purchased. This is true whether or not you have made all the payments for the purchase.  So if you bought it on Good News Bad Newscredit you can still get the deduction. That is the good news. And that is the bad news.

The good news is that the deduction reduces your current year taxable income and possibly your tax.

The bad news is that you may need the deductions more in a future year.  And the deduction may be limited depending on your income.  And the rules have some twists and turns.  And, if you sell it, all the proceeds are taxable.

Don’t presume that it is best to take the deduction this year. Ask your Tax Professional.  More good news,  you now have enough information to ask some intelligent questions.

And, of course, you must keep good records.

Hint – Make a folder for each of your large purchases that have a warranty.  Put a copy of the receipt, warranty and instruction book in the folder.  A few months ago, I received a new part for my office chair because I could easily put my hands on the warranty and receipt.

Meet Your IRS Auditor – The Computer

July 12, 2013

IRS Audit SelectedWith all the news about the Government gathering information on us through the NSA, FBI, CIA, etc., is it any wonder that the IRS is using computers to audit your tax return.  In the past, IRS has “scored” your tax return based on a magical statistical formula to see what is the probability of getting money from you.  They still do that.

But now, in case you haven’t noticed, IRS forms are asking more questions that could be audit triggers.    When you claim vehicle expense for your business – “Do you have evidence to support your deduction?” “If “yes,” is the evidence written?”  What do think happens if you answer NO to these questions.   And how about “Did you make any payments in 2012 that would require you to file Form(s) 1099?” “If “Yes,” did you or will you file required Forms 1099?” Thanks for asking.

And then there is the program that matches W-2s and Forms 1099 to what is reported on your tax return.  And the more detailed reporting of security and stock sales.  And the list goes on.

In the last several years, we have seen a significant increase in the number of computer generated notices that our clients have received.  I have had clients bring in a stack of unopened IRS notices because they just didn’t want to know what was inside.  Not a good idea.  Even if you don’t open the envelopes, you are still responsible for the contents.  And there might be a time clock running which, if missed, could cost you a bundle.

Then Congress, in its infinite wisdom, has made your tax preparer responsible for YOUR tax return and could be penalized for deductions not properly documented.  Do you think that might that limit what you can deduct if you don’t have proper records.  (More on this later.)

If the IRS Computer sent you a notice today, how easy would it be to “send in” your documents to support the questioned deductions?  It could be extremely difficult and cumbersome.  Unless you have a good system.

Shameless plug – we recommend you take a look at for a simple, online system for people who hate accounting and taxes.  It could make your life much easier when you get the “Greetings” from the IRS.

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