What every CFO, and small business owner should realize is that all fees associated with factoring is 100% tax deductible.
Factoring is turning your Invoices over to a Lender for immediate working capital, and usually requires a short 2 page application, without serious regard to your credit rating or the company's credit rating. What's important is the credit rating of the company who "owes" you.
If your business is "Invoice rich" and "cash flow poor" you can explore factoring, or Accounts Receivable Funding to increase your working capital.
PS: Factoring has been authorized by Congress as a legal transaction for Government Contractors
Thursday, June 28, 2012
Wednesday, June 27, 2012
The IRS Is Deeply Concerned and So are Tax Professionals
.
What is happening is hundreds of thousands of tax professionals who must pass the IRS's new RTRP Test in order to provide tax services for pay, have not done so. Most of us are thinking, no big deal we don't have to have to pass the test until December 31, 2013. True, but wrong. It is a seriously big deal.
What will happen is that there will be an average of 22,000 tax professionals trying to take the test each month, and there is not enough testing seats in order for all of us to take the test by the deadline.
I'm not sure what other tax professionals are doing, but I’m studying, after hours to make sure that I know each detail involved with each tax code. I'm not sure about the other tax professionals, but for over 12 years, I relied on the professional tax software to remember the hundreds of new tax laws which were voted on by Congress each year.
I fully realized that taxes is actually tax law, which is made up of tax codes.
I spent my time focusing on tax planning, legal tax loopholes, positive cash
flow for tax payers and the articles which I write for online circulation. I
studied the necessary tax codes to be correct in the articles, but relied on the
professional software when working. (In the State of California, you have to attend classes every year in order to renew your tax certification – so we can usually look
at a return and tell if the software make an error)
The test is open book, but there are 120 questions and there is not enough time to look up answers if you don't know them off the top of your head. Tax Law is complicated at best. Taking this test is no joke for any of us. We must buckle down and learn the exact formulas, codes and conditions for every major tax law involving personal income tax returns.
Below you will find the beginning of an article which was sent out by TaxPro. It explains the IRS's concerns and shares provides information state by state:
------------
Among IRS-supplied testing totals reported in various states: continue article
What is happening is hundreds of thousands of tax professionals who must pass the IRS's new RTRP Test in order to provide tax services for pay, have not done so. Most of us are thinking, no big deal we don't have to have to pass the test until December 31, 2013. True, but wrong. It is a seriously big deal.
What will happen is that there will be an average of 22,000 tax professionals trying to take the test each month, and there is not enough testing seats in order for all of us to take the test by the deadline.
I'm not sure what other tax professionals are doing, but I’m studying, after hours to make sure that I know each detail involved with each tax code. I'm not sure about the other tax professionals, but for over 12 years, I relied on the professional tax software to remember the hundreds of new tax laws which were voted on by Congress each year.
I fully realized that taxes is actually tax law, which is made up of tax codes.
The test is open book, but there are 120 questions and there is not enough time to look up answers if you don't know them off the top of your head. Tax Law is complicated at best. Taking this test is no joke for any of us. We must buckle down and learn the exact formulas, codes and conditions for every major tax law involving personal income tax returns.
Below you will find the beginning of an article which was sent out by TaxPro. It explains the IRS's concerns and shares provides information state by state:
------------
All non-exempt paid tax return preparers must, among other requirements, pass the one-time open-book test by Dec. 31, 2013. Totals reported recently reveal that an average of less than 1 percent of paid tax preparers who need to take the Registered Tax Return Preparer test have passed it so far -- lending weight to IRS warnings that preparers who wait until the last minute to schedule their tests risk running headlong into overbooked exam centers.
Among IRS-supplied testing totals reported in various states: continue article
Construction Factoring, Alternative to Construction Funding
According to the Construction Financial Management
Association it takes some construction contractors an average of 60 days to
collect on invoices.
And that’s not the half of it. Many experienced, well run construction
companies have to pass on certain jobs because they don’t have the resources to
fund the project. Getting a Line of
Credit from your local bank has been difficult in the past couple years.
Factoring commercial construction loans is a simple
solution to managing cash flow, meeting payroll, and paying bills on time. Even when the General Contractor is not able
or willing to pay construction invoices in a timely manner, sub-contractors can
factor out their invoices for immediate working capital, without incurring
debt. (Usually your credit is not an issue) Short App - Six Questions
It take more than a minute to fund such a project, and
any company who says they can do it over night, may be using questionable
marketing tactics. The best solution is
to apply for commercial construction “before” you actually need it. In fact, while you are in the process of
bidding the job, is a good time to contact your Accounts Receivable Construction
Lender. They can run a credit check on
the General Contractor or the Developer, and give you inside information which
can be useful in bidding the contract.
An experienced Construction Accounts Receivable
Specialist is one who can sort through the factoring companies, and come up
with the best Lender for you, based on 1) type of construction project 2)
amount of Invoices you will want to factor per month 3) your location 4) credit
rating of the General Contractor when you are a sub-contractor.
Learn
more, quick questions, no obligation, no fee for placement service. Construction Factoring
Tuesday, June 26, 2012
Urgent Announcement from the IRS - Also Which Group Will Be Targeted Next by the IRS
OK people, the IRS is starting to make a left turn, and what this means is: The next group of people they will be targeting are U.S. taxpayers who are living overseas, or offshore. It has been concluded that the Voluntary Disclosure Program is a success, and now they are starting phase II of the master plan.
Based on the IRS's actions in the last five years, it appears that they are throwing out an International "net" over offshore accounts of U.S. taxpayers, and now they have put it in writing that the "net" will be expanded to include U.S. taxpayers who live outside the United States (clearly stated at the bottom of the statement)
Below is the IRS statement, word for word, with no changes to the content of the announcement.
If you are an expat, and have not filed taxes for several years, we can help. Just click on the Contact Us button on the left of this blog, or click here.
-------------
Received: June 26, 2012
WASHINGTON — The Internal Revenue Service today announced that its offshore voluntary disclosure programs have exceeded the $5 billion mark and released new details regarding the voluntary disclosure program announced in January, including tightening the eligibility requirements.
"We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore," said IRS Commissioner Doug Shulman. "People are finding it tougher and tougher to keep their assets hidden in offshore accounts."
Shulman said the IRS offshore voluntary disclosure programs have so far resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January.
The voluntary disclosure programs are part of a wider effort by the IRS to stop offshore tax evasion and ensure tax compliance This includes beefed up enforcement, criminal prosecution and implementation of third-party reporting through the Foreign Account Tax Compliance Act (FATCA).
The IRS also closed a loophole that’s been used by some taxpayers with offshore accounts. Under existing law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the U.S. Justice Department of the appeal.
The IRS said that if the taxpayer fails to comply with this law and does not notify the U.S. Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the Offshore Voluntary Disclosure Program (OVDP). The IRS also put taxpayers on notice that their eligibility for OVDP could be terminated once the U.S. government has taken action in connection with their specific financial institution.
Additional details of these eligibility issues are available in a new set of questions and answers released today on the current OVDP, which was announced in January (see IR-2012-5). The IRS reopened the OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.
This program – which helps bring people back into the tax system -- will be open for an indefinite period until otherwise announced. The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward.
Under the current OVDP, the offshore penalty has been raised to 27.5 percent from 25 percent in the 2011 program. The reduced penalty categories of 5 percent and 12.5 percent are still available.
The IRS also announced a plan to help U.S. citizens residing overseas to catch up with tax filing obligations and assistance for people with foreign retirement plan issues. See IR-2012-65 also issued today.
Based on the IRS's actions in the last five years, it appears that they are throwing out an International "net" over offshore accounts of U.S. taxpayers, and now they have put it in writing that the "net" will be expanded to include U.S. taxpayers who live outside the United States (clearly stated at the bottom of the statement)
Below is the IRS statement, word for word, with no changes to the content of the announcement.
If you are an expat, and have not filed taxes for several years, we can help. Just click on the Contact Us button on the left of this blog, or click here.
-------------
Received: June 26, 2012
WASHINGTON — The Internal Revenue Service today announced that its offshore voluntary disclosure programs have exceeded the $5 billion mark and released new details regarding the voluntary disclosure program announced in January, including tightening the eligibility requirements.
"We continue to make strong progress in our international compliance efforts that help ensure honest taxpayers are not footing the bill for those hiding assets offshore," said IRS Commissioner Doug Shulman. "People are finding it tougher and tougher to keep their assets hidden in offshore accounts."
Shulman said the IRS offshore voluntary disclosure programs have so far resulted in the collection of more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January.
The voluntary disclosure programs are part of a wider effort by the IRS to stop offshore tax evasion and ensure tax compliance This includes beefed up enforcement, criminal prosecution and implementation of third-party reporting through the Foreign Account Tax Compliance Act (FATCA).
The IRS also closed a loophole that’s been used by some taxpayers with offshore accounts. Under existing law, if a taxpayer challenges in a foreign court the disclosure of tax information by that government, the taxpayer is required to notify the U.S. Justice Department of the appeal.
The IRS said that if the taxpayer fails to comply with this law and does not notify the U.S. Justice Department of the foreign appeal, the taxpayer will no longer be eligible for the Offshore Voluntary Disclosure Program (OVDP). The IRS also put taxpayers on notice that their eligibility for OVDP could be terminated once the U.S. government has taken action in connection with their specific financial institution.
Additional details of these eligibility issues are available in a new set of questions and answers released today on the current OVDP, which was announced in January (see IR-2012-5). The IRS reopened the OVDP following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs.
This program – which helps bring people back into the tax system -- will be open for an indefinite period until otherwise announced. The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply. However, the terms of the program could change at any time going forward.
Under the current OVDP, the offshore penalty has been raised to 27.5 percent from 25 percent in the 2011 program. The reduced penalty categories of 5 percent and 12.5 percent are still available.
The IRS also announced a plan to help U.S. citizens residing overseas to catch up with tax filing obligations and assistance for people with foreign retirement plan issues. See IR-2012-65 also issued today.
Friday, June 22, 2012
Tax Havens, Tax Free, No Taxes Legally - Retirement
To lower your taxes legally during Retirement, you have the option of moving to a no-tax foreign country. And this is how many Americans make their retirement dollars go a whole lot further.
There are states which do NOT impose state taxes, South Dakota and Texas to name a couple. However, you can save even more when you move to a no-tax foreign country.
You will need to speak to your Tax Attorney or Enrolled Agent to learn about the details
To learn more about which countries American, Canadians, and individuals from the UK are moving to, you can visit Forgot to Save for Retirement and visit, for sure,
There are states which do NOT impose state taxes, South Dakota and Texas to name a couple. However, you can save even more when you move to a no-tax foreign country.
You will need to speak to your Tax Attorney or Enrolled Agent to learn about the details
To learn more about which countries American, Canadians, and individuals from the UK are moving to, you can visit Forgot to Save for Retirement and visit, for sure,
How to Retire On Less
Than $740 a Month - Yes, Americans are living well, offshore, for less than $740 per month.
Note: I'll give you a hint, ..Malta is a tax haven...Andorra qualifies... So does Belize...and, in some ways, Uruguay and the Dominican Republic. However, the world's most user-friendly tax haven? That would be Panama, and my personal favorite, the Bahamas. Now, these are what you call real tax havens. Not for your business, but for yourself.
Saturday, June 16, 2012
Tax Loophole? An Asset the IRS Does Not Ask About
This is the latest tax loophole people are talking about. And this article from one of our affiliates is true and correct, at least for now (06/2012) There are certain assets the IRS does not talk about very often. And successful investors, who have made big in this market talk even less.
We ran across this information, because, of our Forgot To Save for Retirement website, which talks about retirement options for people who have limited monthly retirement income. Click here for information and help with making offshore decisions.
An asset the IRS doesn't want to know about
Surprise: Real Estate is an
asset that you do not have to report to the IRS… |
Foreign real estate.
Yes, you can own a second home (whether for investment or personal use) in a foreign country and you are not obliged to inform the U.S. tax authorities.
And, while new laws may make it easier for the government to get at your bank account overseas, it's a heck of a lot harder for someone (assuming they can track it down in the first place) to physically remove your foreign property.
The beauty of this is that you don't have to be super-rich to take up the idea of buying real estate overseas to protect your wealth. Opportunities to buy land, houses, and apartments, for both investment and personal use, exist at all price levels.
Learn more about offshore retirement options.
Tuesday, June 12, 2012
URGENT - IRS Announcement - Employers Have Extended Time for WOTC Tax Credit Up to $9,600 per Veteran
This just came in within the hour. Employers have until June 19 to take advantage of the Work Opportunity Tax Fredit (WOTC) for 2011 and early 2012. Read the IRS announcement below:
----------------------------------
Employers that hired unemployed veterans during late 2011 and early 2012 had an expanded period to request the required certification for claiming the expanded Work Opportunity Tax Credit (WOTC). That expanded period ends on Tuesday, June 19.
The IRS is reminding employers that for eligible veterans hired on or after Nov. 22, 2011 and before May 22, 2012, they have until June 19 to file certification forms with state workforce agencies.
Here are some important points to know about the credit and upcoming deadline:
• New rules provide for an expanded WOTC to employers that hire eligible unemployed veterans.
• The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 per veteran for tax-exempt organizations.
• The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hiring, the hours the veteran works and the amount of first-year wages paid.
• Employers hiring veterans with service-related disabilities may be eligible for the maximum credit.
• Normally, an eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency within 28 days after an eligible worker starts work. But under a special rule employers have until June 19, 2012, to file this form for veterans hired on or after Nov. 22, 2011, and before May 22, 2012.
• The 28-day rule for timely filing applies for eligible veterans hired on or after May 22, 2012, and before Jan. 1, 2013.
• Form 8850 can be faxed or electronically transmitted to the state workforce agency, as long as the agency is able to receive the certification forms that way.
• For-profit employers claim the credit on their income tax return using Form 5884, Work Opportunity Credit, and Form 3800, General Business Credit.
• Tax-exempt organizations follow a separate claim procedure using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.
More details about the expanded WOTC and the forms are available on IRS.gov.
----------------------------------
Employers that hired unemployed veterans during late 2011 and early 2012 had an expanded period to request the required certification for claiming the expanded Work Opportunity Tax Credit (WOTC). That expanded period ends on Tuesday, June 19.
The IRS is reminding employers that for eligible veterans hired on or after Nov. 22, 2011 and before May 22, 2012, they have until June 19 to file certification forms with state workforce agencies.
Here are some important points to know about the credit and upcoming deadline:
• New rules provide for an expanded WOTC to employers that hire eligible unemployed veterans.
• The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 per veteran for tax-exempt organizations.
• The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hiring, the hours the veteran works and the amount of first-year wages paid.
• Employers hiring veterans with service-related disabilities may be eligible for the maximum credit.
• Normally, an eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency within 28 days after an eligible worker starts work. But under a special rule employers have until June 19, 2012, to file this form for veterans hired on or after Nov. 22, 2011, and before May 22, 2012.
• The 28-day rule for timely filing applies for eligible veterans hired on or after May 22, 2012, and before Jan. 1, 2013.
• Form 8850 can be faxed or electronically transmitted to the state workforce agency, as long as the agency is able to receive the certification forms that way.
• For-profit employers claim the credit on their income tax return using Form 5884, Work Opportunity Credit, and Form 3800, General Business Credit.
• Tax-exempt organizations follow a separate claim procedure using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.
More details about the expanded WOTC and the forms are available on IRS.gov.
Saturday, June 9, 2012
Friday, June 8, 2012
$100K Online Ad Campaign, vs. $4 Million 30 Second Ad for Super Bowl
Yes, that is the question. Is $100,000 spent online, (in the correct ad channels) more effective or equally effective as advertising for 30 seconds during the Super Bowl?
I venture to say yes.
An annual, year long ad campaign, online can wrap circles around a Super Bowl ad, in the area of end results.
How and Why?
How? Because when done correctly, you can not only get into people's minds, but into their hearts with the correct online ad campaign. It's hard to get into someones heart in 30 seconds.
Why? Because, it takes six, seven, eight times for a potential client to see you and agree to allow you into their inner circle. Just because you have a big name and enough cash flow to spend on a Super Bowl ad, doesn't qualify you for acceptance into the "inner circle" of these new age kids and young adults. They are much smarter then most people realize.
You can't buy their action. You have to earn it. And if you have $100,000 to spend to help people get to know you, then you are talking not only success, but long term success.
Believe it or not, "nobody," hardly trust "anyone," online.
They have to get to know you. and if your name is "GM" and you are marketing to Facebook members, then you have to offer something much more important than a famous name.
If young adults see your ad 15 times and they ignored it 14 times, then the bottom line is, they only saw it once. Wake up GM, the kids and young adults, of today, are a lot different then their parents. They grow up in grade school, forming private clubs to keep their parents OUT. (I'm a retired pre-school and after-school teacher)
The only way you get in, is when you give them something of value, AND, if you pass their test. Your value and their value is different, and you never know what their test is!
Facebook is transparent, are you?
Let me see, where was I? Oh yes, being an certified Internet marketing person, I can almost guarantee any advertising department that $100,000 spent online, over one year, will and can bring about the same effects, if not greater, as a 30 second spot, during the Super Bowl.
For more information on Consultation On Online SEO Ad Campaigns, visit SEO Work in Progress
I venture to say yes.
An annual, year long ad campaign, online can wrap circles around a Super Bowl ad, in the area of end results.
How and Why?
How? Because when done correctly, you can not only get into people's minds, but into their hearts with the correct online ad campaign. It's hard to get into someones heart in 30 seconds.
Why? Because, it takes six, seven, eight times for a potential client to see you and agree to allow you into their inner circle. Just because you have a big name and enough cash flow to spend on a Super Bowl ad, doesn't qualify you for acceptance into the "inner circle" of these new age kids and young adults. They are much smarter then most people realize.
You can't buy their action. You have to earn it. And if you have $100,000 to spend to help people get to know you, then you are talking not only success, but long term success.
Believe it or not, "nobody," hardly trust "anyone," online.
They have to get to know you. and if your name is "GM" and you are marketing to Facebook members, then you have to offer something much more important than a famous name.
If young adults see your ad 15 times and they ignored it 14 times, then the bottom line is, they only saw it once. Wake up GM, the kids and young adults, of today, are a lot different then their parents. They grow up in grade school, forming private clubs to keep their parents OUT. (I'm a retired pre-school and after-school teacher)
The only way you get in, is when you give them something of value, AND, if you pass their test. Your value and their value is different, and you never know what their test is!
Facebook is transparent, are you?
Let me see, where was I? Oh yes, being an certified Internet marketing person, I can almost guarantee any advertising department that $100,000 spent online, over one year, will and can bring about the same effects, if not greater, as a 30 second spot, during the Super Bowl.
For more information on Consultation On Online SEO Ad Campaigns, visit SEO Work in Progress
Tuesday, June 5, 2012
Xica Love Stories, Free, Online
Xica Love Stories, Free, Online Love Stories.
Lovemaking, romantic, hot love stories for mature adults. Free read, short stories. You can enjoy well written short stories at Xica Love Stories dot com. Provide a valid email address or sign up on our facebook fan page. Great travel gifts, for online participation.
Each month a new short story is published. New and experienced authors are encouraged to submit a short story for publication. One of the site's top writers, Valinda, had her first short story published on Amzaon during the month of May. We are asking the Xica Online Community to please purchase the 99 cents short novel, to support Valinda and the Xica Online Reading Community.
Tweet about us in you e-Book Club. Let your friends know, they can read short stories on their mobile phone while writing in an office, riding a bus, or during a quick getaway.
Lovemaking, romantic, hot love stories for mature adults. Free read, short stories. You can enjoy well written short stories at Xica Love Stories dot com. Provide a valid email address or sign up on our facebook fan page. Great travel gifts, for online participation.
Each month a new short story is published. New and experienced authors are encouraged to submit a short story for publication. One of the site's top writers, Valinda, had her first short story published on Amzaon during the month of May. We are asking the Xica Online Community to please purchase the 99 cents short novel, to support Valinda and the Xica Online Reading Community.
Tweet about us in you e-Book Club. Let your friends know, they can read short stories on their mobile phone while writing in an office, riding a bus, or during a quick getaway.
Saturday, June 2, 2012
Top Ten+ Reasons for IRS Audits
(Note: Read the entire post to find the actions, which almost always brings about an audit)
Need Help With Back Taxes?
1.
Forgetting
to Report All Your Income
The IRS get a copy of ALL your 1099s and W-2s, and
when that income is not reported on your tax return, the IRS computer notifies
an IRS human who usually sends a 2000-PC Notice, which is a more like a paper
audit.
All sorts of red flags go up when the 1099s and or
W-2s don’t match the tax return that you file.
2.
Claiming
the Home Office Deduction
The IRS appears
to be drawn to any return which takes advantage of a legal tax loophole in a
big way. And claiming the Home Office
Deduction can reduce your tax liability greatly.
The Home Office
Deduction allows you to take a percentage of your rent, mortgage interest, home owners insurance, home improvements that
pertain to the home office, real estate taxes, utilities, and any other
expenses which are
If you qualify,
you can deduct a percentage of your rent, real estate taxes, utilities, phone
bills, insurance and other costs that are properly allocated to the home
office. That's a great deal. However, to take this write-off, you must use the
space exclusively and regularly as your principal place of business. That makes
it difficult to successfully claim a guest
· Taking Large Charitable Deductions
We all know that charitable contributions are a
great write-off and help you feel all warm and fuzzy inside. However, if your
charitable deductions are disproportionately large compared to your income, it
raises a red flag.
That's because IRS computers know what the average charitable donation is for folks at your income level. Also, if you don't get an appraisal for donations of valuable property, or if you fail to file Form 8283 for donations over $500, the chances of audit increase. And if you've donated a conservation easement to a charity, chances are good that you'll hear from the IRS. Be sure to keep all your supporting documents, including receipts for cash and property contributions made during the year, and abide by the documentation rules. And attach Form 8283 if required.
That's because IRS computers know what the average charitable donation is for folks at your income level. Also, if you don't get an appraisal for donations of valuable property, or if you fail to file Form 8283 for donations over $500, the chances of audit increase. And if you've donated a conservation easement to a charity, chances are good that you'll hear from the IRS. Be sure to keep all your supporting documents, including receipts for cash and property contributions made during the year, and abide by the documentation rules. And attach Form 8283 if required.
· Claiming the Home Office Deduction
Like Willie Sutton robbing banks (because that's
where the money is), the IRS is drawn to returns that claim home office
write-offs because it has found great success knocking down the deduction and
driving up the amount of tax collected for the government. If you qualify, you
can deduct a percentage of your rent, real estate taxes, utilities, phone
bills, insurance and other costs that are properly allocated to the home
office. That's a great deal. However, to take this write-off, you must use the
space exclusively and regularly as your principal place of business. That makes
it difficult to successfully claim a guest bedroom or children's playroom as a
home office, even if you also use the space to do your work. "Exclusive
use" means that a specific area of the home is used only for trade or
business, not also for the family to watch TV at night.
Don't be afraid to take the home office deduction if you're entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.
Don't be afraid to take the home office deduction if you're entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.
·
The documentation rules. And attach Form 8283 if
required.
· Claiming the Home Office Deduction
Like Willie Sutton robbing banks (because that's
where the money is), the IRS is drawn to returns that claim home office
write-offs because it has found great success knocking down the deduction and
driving up the amount of tax collected for the government. If you qualify, you
can deduct a percentage of your rent, real estate taxes, utilities, phone
bills, insurance and other costs that are properly allocated to the home
office. That's a great deal. However, to take this write-off, you must use the
space exclusively and regularly as your principal place of business. That makes
it difficult to successfully claim a guest bedroom or children's playroom as a
home office, even if you also use the space to do your work. "Exclusive
use" means that a specific area of the home is used only for trade or
business, not also for the family to watch TV at night.
Don't be afraid to take the home office deduction if you're entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.
Don't be afraid to take the home office deduction if you're entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.
· Claiming Rental Losses
Normally, the passive loss rules prevent the
deduction of rental real estate losses. But there are two important exceptions.
If you actively participate in the renting of your property, you can deduct up
to $25,000 of loss against your other income. But this $25,000 allowance phases
out as adjusted gross income exceeds $100,000 and disappears entirely once your
AGI reaches $150,000. A second exception applies to real estate professionals
who spend more than 50% of their working hours and 750 or more hours each year
materially participating in real estate as developers, brokers, landlords or
the like. They can write off losses without limitation. But the IRS is
scrutinizing rental real estate losses, especially those written off by
taxpayers claiming to be real estate pros. The agency will check to see whether
they worked the necessary hours, especially in cases of landlords whose day
jobs are not in the real estate business
· Deducting Business Meals, Travel and Entertainment
Schedule C is a treasure trove of tax deductions for
self-employed people. But it's also a gold mine for IRS agents, who know from
experience that self-employed people sometimes claim excessive deductions.
History shows that most underreporting of income and overstating of deductions
are done by those who are self-employed. And the IRS looks at both
higher-grossing sole proprietorships and smaller ones.
Big deductions for meals, travel and entertainment are always red flags. A large write-off here will set off alarm bells, especially if the amount seems too high for the business. Agents are on the lookout for personal meals or claims that don't satisfy the strict substantiation rules. To qualify for meal or entertainment deductions, you must keep detailed records that document for each expense the amount, the place, the people attending, the business purpose and the nature of the discussion or meeting. Also, you must keep receipts for expenditures over $75 or for any expense for lodging while traveling away from home. Without proper documentation, your deduction is toast.
Big deductions for meals, travel and entertainment are always red flags. A large write-off here will set off alarm bells, especially if the amount seems too high for the business. Agents are on the lookout for personal meals or claims that don't satisfy the strict substantiation rules. To qualify for meal or entertainment deductions, you must keep detailed records that document for each expense the amount, the place, the people attending, the business purpose and the nature of the discussion or meeting. Also, you must keep receipts for expenditures over $75 or for any expense for lodging while traveling away from home. Without proper documentation, your deduction is toast.
· Claiming 100% Business Use of a Vehicle
Another area ripe for IRS review is use of a
business vehicle. When you depreciate a car, you have to list on Form 4562 what
percentage of its use during the year was for business. Claiming 100% business
use of an automobile is red meat for IRS agents. They know that it's extremely
rare for an individual to use a vehicle solely for business, especially if no
other vehicle is available for personal use. IRS agents are trained to focus on
this issue and will scrutinize your records if you make such a claim. Make sure
you keep detailed mileage logs and precise calendar entries for the purpose of
every road trip. Sloppy record-keeping makes it easy for the revenue agent to
disallow the deduction. As a reminder, if you use the IRS' standard mileage
rate, you can't also claim actual expenses for maintenance, insurance and other
out-of-pocket costs. The IRS has seen such shenanigans and is on the lookout
for more.
· Writing off a Loss for a Hobby Activity
Your chances of winning the audit lottery increase
if you have wage income and file a Schedule C with large losses. And if the
loss-generating activity sounds like a hobby -- horse breeding, car racing and
such -- the IRS pays even more attention. Agents are specially trained to sniff
out those who improperly deduct hobby losses. Large Schedule C losses are
always audit bait, but reporting losses from activities in which it looks like
you're having a good time all but guarantees IRS scrutiny.
You must report any income you earn from a hobby, and you can deduct expenses up to the level of that income. But the law bans writing off losses from a hobby. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes that you're in business to make a profit, unless IRS establishes otherwise. If you're audited, the IRS is going to make you prove you have a legitimate business and not a hobby. So make sure you run your activity in a businesslike manner and can provide supporting documents for all expenses
You must report any income you earn from a hobby, and you can deduct expenses up to the level of that income. But the law bans writing off losses from a hobby. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes that you're in business to make a profit, unless IRS establishes otherwise. If you're audited, the IRS is going to make you prove you have a legitimate business and not a hobby. So make sure you run your activity in a businesslike manner and can provide supporting documents for all expenses
·
guarantees IRS scrutiny.
You must report any income you earn from a hobby, and you can deduct expenses up to the level of that income. But the law bans writing off losses from a hobby. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes that you're in business to make a profit, unless IRS establishes otherwise. If you're audited, the IRS is going to make you prove you have a legitimate business and not a hobby. So make sure you run your activity in a businesslike manner and can provide supporting documents for all expenses.
You must report any income you earn from a hobby, and you can deduct expenses up to the level of that income. But the law bans writing off losses from a hobby. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes that you're in business to make a profit, unless IRS establishes otherwise. If you're audited, the IRS is going to make you prove you have a legitimate business and not a hobby. So make sure you run your activity in a businesslike manner and can provide supporting documents for all expenses.
· Running a Cash Business
Small business owners, especially those in
cash-intensive businesses -- think taxis, car washes, bars, hair salons,
restaurants and the like -- are a tempting target for IRS auditors. Experience
shows that those who receive primarily cash are less likely to accurately
report all of their taxable income. The IRS has a guide for agents to use when auditing
cash-intensive businesses, telling how to interview owners and noting various
indicators of unreported income
· Failing to Report a Foreign Bank Account
The IRS is intensely interested in people with
offshore accounts, especially those in tax havens, and the federal government
has had success getting foreign banks to disclose account information. The IRS
has also used voluntary compliance programs to encourage folks with undisclosed
foreign accounts to come clean -- in exchange for reduced penalties. The IRS
has learned a lot from these programs and has collected a boatload of money
($4.4 billion so far).
Failure to report a foreign bank account can lead to severe penalties, and the IRS has made this issue a top priority. Make sure that if you have any such accounts, you properly report them when you file your return
Failure to report a foreign bank account can lead to severe penalties, and the IRS has made this issue a top priority. Make sure that if you have any such accounts, you properly report them when you file your return
·
reasonable expectation of making a profit. If
your activity generates profit three out of every five years (or two out of
seven years for horse breeding), the law presumes that you're in business to
make a profit, unless IRS establishes otherwise. If you're audited, the IRS is
going to make you prove you have a legitimate business and not a hobby. So make
sure you run your activity in a businesslike manner and can provide supporting documents
for all expenses.
· Running a Cash Business
Small business owners, especially those in
cash-intensive businesses -- think taxis, car washes, bars, hair salons,
restaurants and the like -- are a tempting target for IRS auditors. Experience
shows that those who receive primarily cash are less likely to accurately
report all of their taxable income. The IRS has a guide for agents to use when
auditing cash-intensive businesses, telling how to interview owners and noting
various indicators of unreported income.
· Engaging in Currency Transactions
The IRS gets many reports of cash transactions in
excess of $10,000 involving banks, casinos, car dealers and other businesses,
plus suspicious-activity reports from banks and disclosures of foreign
accounts.
A report by Treasury inspectors concluded that these currency transaction
reports are a valuable source of audit leads for sniffing out unreported
income. The IRS agrees, and it will make greater use of these forms in its
audit process. So if you make large cash purchases or deposits, be prepared for
IRS scrutiny. Also, be aware that banks and other institutions file reports on
suspicious activities that appear be designed to avoid the currency transaction
rules (such as persons depositing $9,500 in cash one day and an additional
$9,500 in cash two days later)
· Taking Higher-than-Average Deductions
If deductions on your return are disproportionately
large compared with your income, the IRS may pull your return for review. But
if you have the proper documentation for your deduction, don't be afraid to
claim it. There's no reason to ever pay the IRS more tax than you actually owe
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