receipts
If you’ve been in business for any amount of time, you’ve probably heard something about keeping your receipts.  And we’ve heard some good myths about when and when you don’t have to keep them.  We’re here to set the record straight and tell you exactly when you need to keep receipts.

First, let me explain that there are different suggested records for different types of transactions.  For example, what you keep to prove the purchase of inventory is different than gas for your car.  We’re going to explore two categories today: General, and Travel/Entertainment expenses. But there are many more that we’re not discussing today.

General Expenses

What are they?

General expenses are things like paper, utilities, cell phone, etc.  Those types of expenses must be be proved with a bank/credit card statement, receipt, or invoice that shows the date, amount, and busienss purpose.

How long should I keep records for?

Generally speaking, you’ll want to keep records for at least 3 years from when you claimed them on your tax return.  The good news is that you can keep them in paper form, or electronically.  We’re a big fan of using the mobile app for Xero to take a snapshot of the receipt, and recording the transaction right on the spot when it happens.  You can also use other systems like Evernote, Google Drive, Dropbox and Box to store your records.  If you choose to keep paper, then have a good file system organized by year and type of expense, at the very least.

 

Travel & Entertainment Expenses

What are they?

41131785-business-team-on-the-way-to-meetingsJust as it sounds, expenses you incur to travel, take clients out to lunch.  It also covers lodging, rental cars, transportation, and a host of other things.  See IRS Publication 463 that is referenced below for more things that qualify as travel and entertainment expenses.

 

 

How should I keep records and for how long?

The trick here is to have “adequate” records.  There are 4 main points that you must prove in order to have a deemed adequate expense in this category:

  1. Amount
  2. Time (for travel)
  3. Place or Description
  4. Business Purpose

What that basically means is that you must have a receipt, log book, or some kind of record that proves those 4 main points for each expenses you deduct.  Estimates don’t count.  The long and short of this is: that you keep all receipts/invoices for each expense in this category.  There are only a few exceptions, one of them being that if your expense in under $75 (except lodging), you can simply provide bank statements to prove you expense.  Of course there are more exceptions, but we don’t have time to go into them in this post.

And like above, you should keep these records for 3 years after you file the tax return for the year you’re taking the deduction in.

 

The IRS has some pretty elaborate articles and publications on this topic.  We referenced IRS Publication 463.  Feel free to check it out if you need to dive in a bit deeper.  Or, leave a comment and reach out to us and we can help you navigate the murky waters of business deductions.

 

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Ok, you’re a personal trainer, and it’s tax time.  Does your tax bill hit you like a ton of bricks?  Chances are you’ve experienced this pain.  But, there are ways you can plan so that your not working for “Uncle Sam” and paying too much of your heard earned money!

The first thing to consider is how you’re getting taxed–as an employee or contractor?  If you just filed taxes, then this is easy to find out.  If you received a 1099, then you are a contractor.  if you received a W-2, then you are an employee.

What’s The Difference?

If you are a contractor getting a 1099, you are technically self employed.  Meaning, that you will owe self employment tax on whatever your net income is.  This also changes how you file your tax return by requiring you to report your income, and any expenses associated with that income, on a business form called Schedule C.

Getting a W-2 is inherently easier.  You report the W-2 as wages, and there is no self employment tax.

 Which One Is Better?

There is a good, and a bad list to each one.  If you’re detailed, you can save a lot of tax by being self employed.  However, it’s much less complicated to receive a W-2 and report the wages.  Whatever you’re preference is, there are ways to make sure you’re minimizing your tax.

If you need help or have questions, feel free to reach out or leave a comment!  If you have friends that would find this useful, tweet, share, plus this over to them!

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Question: How do I know if I have to file quarterly individual estimated tax payments?

Answer: If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers.

Contact us if you are unsure whether you need to make an estimated tax payment. The first estimated payment for 2012 is due April 15, 2013.

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The end of the tax filing season is almost here. Even though your tax return is not due until April 15, you can make tax time easier on yourself by starting now. Here are 10 important tips to ensure a smooth process.

1. Gather your records.  Round up any documents you will need when filing your taxes, including receipts, canceled checks and other documents that support income or deductions you will be claiming on your tax return. Store them in a safe place.

2. Report all your income.  You will need all your Forms W-2, Wage and Tax Statements, and 1099 income statements to report your income when you file your tax return. To ensure you don’t misplace them, add them to your other records.

3. Get answers to questions.  Use the Interactive Tax Assistant tool available on the IRS website to find answers to your questions about tax credits and deductions.

4. Use Free File.  There is at least one option available for everyone to prepare and e-file a tax return at no cost. Let IRS Free File do the work for you with brand-name tax software or online fillable forms. It’s available exclusively at IRS.gov. If your income was $57,000 or less, you qualify to use free tax software. If your income was higher, or you are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic version of IRS paper forms. Visit IRS.gov/freefile to review your options.

5. Try IRS e-file.  IRS e-file is the best way to file an accurate tax return. It’s safe, easy and the way most taxpayers file their return. Last year, more than 80 percent of taxpayers used IRS e-file. Many tax preparers are now required to use e-file. If you owe taxes, you have the option to file early and pay by April 15.

6. Weigh your filing options.  You have several options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free, face-to-face help at a volunteer site. Weigh your options and choose the one that works best for you.

7. Use direct deposit.  Combining e-file with direct deposit is the fastest and safest way for you to get your refund.

8. Visit the IRS website.  The IRS website at IRS.gov is a great place to find everything you need to file your tax return. This includes many online tools, filing tips, answers to frequently asked questions, the latest tax law changes, forms and publications.

9. Remember number 17.  Check out Publication 17, Your Federal Income Tax, on the IRS website. It’s a complete tax resource that includes information such as whether you need to file or how to choose your filing status.

10. Review your return.  Don’t rush. We all make mistakes when we rush. Mistakes slow down the processing of your return. Be sure to double check all Social Security numbers and math calculations on your return as these are the most common errors. If you run into a problem, remember the IRS is here to help. Start with IRS.gov.

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If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you’re required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits.

Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file. Here are five reasons why:

1. Federal Income Tax Withheld. If your employer withheld federal income tax from your pay, if you made estimated tax payments, or if you had a prior year overpayment applied to this year’s tax, you could be due a refund. File a return to claim any excess tax you paid during the year.

2. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. EITC is a refundable tax credit; which means if you qualify you could receive EITC as a tax refund. Families with qualifying children may qualify to get up to $5,891. You can’t get the credit unless you file a return and claim it. Give us a call if you’re not sure you qualify for the EITC.

3. Additional Child Tax Credit. If you have at least one qualifying child and you don’t get the full amount of the Child Tax Credit, you may qualify for this additional refundable credit. You must file and use new Schedule 8812, Child Tax Credit, to claim the credit. If you need help filling out this form, please give us a call.

4. American Opportunity Credit. If you or someone you support is a student, you might be eligible for this credit. Students in their first four years of postsecondary education may qualify for as much as $2,500 through this partially refundable credit. Even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student. You must file Form 8863, Education Credits, and submit it with your tax return to claim the credit. Don’t hesitate to give us a call if you need help with this form.

5. Health Coverage Tax Credit. If you’re receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2012 Health Coverage Tax Credit. Spouses and dependents may also be eligible. Email or call us today to see whether you’re eligible for a 72.5 percent tax credit on payments you made for qualified health insurance premiums.

Want more information about filing requirements and tax credits? Give us a call. We’re here to help.

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While in the mode of holiday shopping, consider these 3 tax-smart purchases.

Make Charitable Contributions

Consider making charitable contributions before year-end both to obtain the maximum tax deduction and to fulfill any charitable programs or commitments you may have established for the year.

Pay Tax-Deductible Expenses

Consider paying tax-deductible expenses prior to year-end. Some common examples are real estate taxes, quarterly state or local income taxes, investment-related expenses, and dues. These must be paid by December 31 to obtain a deduction this year. Please call us if you’d like to discuss these deductions further.

Buy a New Car

If you need a new car, now is a great time to purchase or lease one. Frequently, dealers are anxious to clear out last year’s inventory prior to year-end. In making your choice, consider the federal tax (and occasional state tax) advantages for buying fuel-efficient vehicles such as plug-in hybrids and electric vehicles.

Evaluate Your Spending Plan

If you’re one of the rare few who are disciplined enough to create and hold yourself to a budget, December is a great time to evaluate how close your spending went compared to plan for the year. You’ll learn lessons from the areas you overspent that will help you create an even better plan for 2013.

For the rest of us mere mortals, recalculate your net worth. Compare it to the value at the beginning of the year. How did you do?

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