Tips

The distinction between capital expenditures and expenses may seem obvious. But the IRS may see it differently.

There are capital expenditures and there are expenses. And most of the time, the line between them seems pretty clear to business owners come tax season. But there can be some gray areas.

If you bought new equipment like a computer, a bulldozer, or a coffee shop espresso machine, you probably know that these are capital expenditures you can write off in one year or deduct and depreciate over the years it is in use. Essentially, capital expenditures are assets that help you generate revenue for years to come but go down in value.

Expenses on the other hand, are simply the costs that occur in a year for supplies consumed doing business within that year. These are expenses like paper, breakroom coffee, travel costs, business cards and so on.

But because businesses are unique and everyone’s situation is different, there are gray areas that filers don’t always quite understand and improperly file as a result which can send a red flag to the IRS—especially in the Digital Age. What about a website? Or software? Where do these fall in relation to Capital Expenditures and Expenses?

Deductions for business owners can be tricky. It’s always best to use a qualified tax professional like us to help you ensure your chances of filing properly and minimizing your chances of an audit. Give us a call today!

If you’re taking care of a parent in their sunset years, you may be able to claim them as a dependent.

It doesn’t have to be a parent per se, it can be a family member that you are giving care to. It can be a family member such as an aunt or uncle.

Obviously you’ll need to meet some requirements to be eligible to claim them. Although, they don’t necessarily have to live with you. There are four tests that must be met to qualify. Here’s a list of the tests and you can see Publication 501 for more details:

• Not A Qualifying Child Test
• Member of The Household or Relationship Test
• Gross Income Test
• Support Test

We’re more than happy to help you understand if your unique situation qualifies for claiming your parent or elderly family member as a dependent. It’s always best to go with a qualified tax professional like us to relieve any ambiguity and help you from claiming someone when you’re not eligible for it.

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Did you invest in making your home more energy efficient last year? If so, you may qualify for a tax credit.

If you bought new insulation, doors, windows and/or roofing that improved the efficiency of your home, you may be able to get a credit of up to 10% of your costs. If you went really green and installed some serious energy savers such as solar panels or installed a wind turbine, you may get a credit for up to 30% of the installation costs.

As a bonus, if you traded in the gas guzzler for a hybrid or electric vehicle, you may be able to claim that purchase as well.

To make these deductions, you’ll need to file form 5695 with the IRS. We’ll be more than happy to take care of that for you to make sure you get all of the deductions you have coming to you—as well as making sure you don’t take deductions you’re not allowed to.

If you’re self-employed, there’s a treasure trove of expenses you can deduct.

There are all sorts of expenses you can deduct as a result of being self-employed. It’s important to note that even if you’re a full-time employee at a company but have a business on the side you can still deduct those expenses.

Here’s a list of expenses you can deduct:

• Home office: If you use your office for just an office, you can figure out what you pay for mortgage or rent by the total square footage of your home and then take the portion that is your home office to figure out what you pay for your office. It has to be an office though, a bedroom, kitchen or living room doesn’t count.
• Office supplies/Computers etc: Be careful of writing off that big screen TV you bought. You may need to prove that it was bought for the primary purpose of your business.
• Business Books: Books that are geared toward your industry or professional development like Good To Great.
• Subscriptions: This can be for software like Adobe Creative Suite and website hosting, or things like industry periodicals.
• Mileage: Commuting is not considered deductible. However driving to a client meeting is a deductible. The standard IRS rate is .55/mile as of 2013.
• Travel: Travel expenses such as flights, hotels, and meals can be deducted when traveling primarily for conducting business.

Check out the IRS’ self-employment tax center for more information. And of course, we are always ready and willing to help you with any questions about what you can and can’t deduct as a self-employed individual. It’s a best practice to always work with a professional like us to clear up any ambiguity around your unique situation.

Budgeting the same for all the months is a pitfall. Here’s some things unique to January that you should be budgeting for.

Christmas

What? Already? Yes. Saving for Christmas starts now because the alternative is paying off the previous Christmas. Saving for Christmas is much cheaper than paying interest on credit cards.

Staying or Getting Fit

If you’ve made the New Year’s resolution to hit the gym, you’re going to want to make sure you account for what you’re spending on it every month.

Valentine’s

If you want to treat your spouse to a nice gift on Valentine’s Day, you may want to spread that expense out over the next few paychecks rather than putting on a credit card a few days before valentine’s because you don’t get paid until the 15th and the special day lands on the 14th—just like every year.

Staying Warm

January can be the coldest month some years and this year is looking to be a very cold one across parts of the United States. This means heating bills will be at their peak. You may also want to invest in down comforters that can keep you warm enough you can turn the heat down at night. A good comforter can be pricey but you can get a nice return on investment over the next few years.

Receiving a notice from the IRS can be daunting. Here’s some facts to eliminate the fear of the unknown.

There are a multitude of reasons the IRS sends notices to millions of taxpayers per year.

More times than not, a notice sent by the IRS is specific to one issue. The most common reasons are:

• Request for Payment
• Notification of Account Changes
• Request for Additional information

Notices from the IRS are always sent by mail, so no need to fret missing an email from the IRS.

Notices from the IRS can also be to notify you of a correction they made after your taxes had been processed. This notification is sent to you to ensure you agree with the correction. If if is correct then there is usually no action you need to take. However, if you disagree, you're best bet is to contact us. We can help you craft a proper explanation that will increase your chances of have the correction solved in your favor. The IRS will respond in up to thirty days.

It’s best to notify us of any notice you receive from the IRS so we can help you choose the right response to begin with.

Children may raise your blood pressure but they can lower your taxes. Here’s how:

Depending on your situation, there are a few ways children can lower your taxable income.

• For children under seventeen, you may be eligible for the Child Tax Credit or the Additional Child Tax Credit.
• Starting in the year your child is born, you can also claim them as a dependent up until 26 if they are in school.
• If you pay for childcare while working or looking for work, you may be eligible for the Child and Dependent Care Credit if your child is under thirteen. You’ll want to make sure you have receipts for your childcare however.
• There are also expenses that can be deducted when adopting a child under the Adoption Credit.
  The Earned Income Tax Credit is for taxpayers that work and have earned income from wages, self-employment, or farming. The Earned Income Tax Credit (or EITC) lowers the amount of tax you may owe and it might also result in a refund.
• For children in college, there are also credits for student loan interest as well as the higher education tax credits.

 
We can help you make sure you are getting all the tax benefits available to you. Contact us for help!

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Dealing with unfiled past taxes isn’t as stressful as it you might think.

The longer you go without paying your taxes and filing a claim, the more expensive it gets. So it’s best to take care of it now. Even if you know you can’t pay all you owe, it’s best to make sure you file on time as you may qualify for a payment plan. However, paying by the due date is the way to go about paying the least.

And if it’s already late, here’s what you need to do:

• You most definitely want to see a tax professional like us. We know just how to deal with situations like the one you’re in. Get together all possible tax information you have relevant to the year you need to file for and set up an appointment with us.
• Then you need to make some sort of a payment when we file for you. Ideally, you’ll want to pay all that you owe. If not all, there are a few options such as an installment plan, an extension or perhaps a settlement.

 
Continuing to neglect filing your taxes can lead to serious enforcement actions taken by the IRS. We’ll take good care of you though. Let us help you through this time. Calling us now is the best first step you can take.

A third of major retailers’ revenue comes from the last 2 months of the year. So obviously the Holiday season gets people to spend way more than usual.

Let’s face it, there’s lots of pressure to buy gifts for lots of people. It seems once the buying starts, there’s more and more people you think of that you should buy a gift for. So we have 3 questions you should ask yourself before buying a gift for someone.

1. Why am I buying this? Are you buying someone a gift because you feel obligated to do so? Are they buying you something so you feel you have to buy them something? If you find yourself in this situation, go for thoughtful yet inexpensive. Most of the time people opt for expensive to overcompensate for not being very thoughtful. If you pay attention and listen to the person, you can probably come up with something that will mean a lot to them and not do too much damage to your budget.
2. Will I regret this? When we have people in our lives that we truly love and want to make happy, it’s easy to overdo it. But if you’ve only set aside $500 for gifts and you buy your spouse a $600 iPad, you may make them smile and happy in the moment but when they realize that in January you don’t have enough money for the things that are actually inline with your financial goals, he or she may not be that happy.
3. Is the gift something they want? Sure the basket of nice smelling soaps is “nice,” but more than likely it will go in that drawer in the cabinet. Not the nice drawer either, the one that’s in the plastic storage bin inside of the cabinet under the sink. And more than likely you’ll see all that soap there in the same place when next year’s Holiday comes along. And here, you blew it on two accounts: one, you wasted money and two, you failed to buy something that your spouse would actually use and enjoy. This is usually a case of buying something to buy something.

Rethink gift giving. Save money and be more thoughtful. It’s a win for everyone.

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If you sold your home this year for a profit, it may not be taxable income!

In most cases, if your home has been your primary residence 2 out of the 5 years you’ve owned it, you may not have to report it as income. Usually, you don’t have to report up to $500,000 dollars for joint returns—$250,000 for individuals.

If you received a 1099s, you’ll need to report the sell of your home as income however. But generally, the sell of your primary residence can be excluded.

If your have more than one home and sold a secondary home, you’ll need to report it as taxable income under a Proceeds From Real Estate Transactions, form 1099s.

While purchasing and selling real estate is viewed as investing, selling your primary home is not considered under a new tax law in 2013 called the Net Investment Income Tax.

One thing to consider though is that if you bought a home using the First-time Homebuyer Credit, you are more than likely not eligible for excluding the income from your taxable income.

Unfortunately, if you sold your home at a loss, you’re not able to claim the loss as a deduction.

Selling your home is a significant event; make sure you talk to us about the sell of your home so we can make sure you qualify for every advantage possible as well as making sure you meet all of your legal obligations.

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