Friday, August 26, 2016

3 Tips for Keeping Your Books in Order Before the Holiday Season

You know that spring you get in your step when you’ve just finished off your business’s financial checklist? Profound relief washes over you; the knots ease from your shoulders. Well, let’s be honest -- it can often get well into the holiday season before that feeling arrives.
You may feel you have plenty of time, but if you don’t start checking those tasks off now, you’ll be drowning in a black hole of to-dos by the time Hanukkah rolls around. That’s why spending a little time now -- in the summer months -- to update your books and check the financial health of your business could save you trouble down the line and give you far better insight into how your business is doing on a daily basis.

While it’s easy to put off looking at that stack of documents and those Excel spreadsheets, businesses are often busiest as the last quarter rolls around, and by procrastinating, you risk ruining your holiday season with the undue stress that results from missing funds or disordered invoices.
If you run a small business or are a solopreneur, it can be even harder to get a proactive grip on your finances. When you’re wearing many hats at once -- from marketing to technology -- you don’t always ask for the help you need. At my accounting consulting firm SUM Innovation, we’ve had clients come to us after their new CPA told them to sort their accounts out. One company had been procrastinating so long that it had failed to file taxes for seven years!
Unfortunately, once you get that fateful letter from the IRS, it’s too late to learn your lesson. At best, failing to file your taxes will result in an audit. At worst, orange could become your new black.
Save yourself the hassle, and do a little light summer accounting instead. Here are three tips that will help you get ahead of the holiday season so you can get that spring in your step before the groundhog even emerges from his burrow.

1. Annotate receipts.

Note taking isn’t just a habit of successful students; it’s also a habit of successful business owners. (Studies show that writing notes will improve memory and retention.) If you leave your notes until the end of the year, however, you’ll forget what that working lunch was for or whether that train ride was for business or pleasure. Get into the habit of scribbling a quick “had a business lunch with Karen Smith” or “took a cab to the bank” on your receipts.
American Express’ ReceiptMatch app allows you to snap a picture of your receipts and upload them to your online statements. The app also has a note-taking feature, meaning you can type up a few keywords that will jog your memory at the end of the year. If you don’t use American Express, Expensify and Hubdoc offer similar capabilities.

2. Don’t go it alone.

You started your business because you wanted to see your passions come to fruition. Unfortunately, making sure your finances are in order comes with the territory. And although doing your accounts can be a lonely business, it doesn’t have to be.
If you’re finding that you haven’t got time to prioritize accounting, contact an outside firm to help you. You don’t have to hand over your whole organization, but at least hire an accounting consultant to help accelerate your growth strategy and provide tremendous value.
3. Treat yo’ self.
Doing your accounts can be painful, especially if you’ve been putting them off and your “books” are really just a collection of sticky, crumpled receipts of unclear origin. However, if you confront your accounts this summer, you’ll find your stocking full of gold come Christmas morning.
Turn yourself into Pavlov’s dog by associating keeping up with your finances with something lovely. You could try pairing half an hour of accounting with an episode of "Game of Thrones” or a planning session for your holiday party (the one that you can afford now that you have your finances in order).
By the time the holiday season rolls around, you’ll be so on top of your business that you’ll actually be able to enjoy a glass of eggnog without those pesky numbers running through your head. Just get into the habit of taking notes, asking for help if you need it and treating yourself to something nice with every accounting session.

Thursday, August 25, 2016

Take These Tax Credits To Campus


Education tax credits could shave $10,000 off the cost of a college education -- up to $2,500 a year for an eligible student -- but many consumers and financial professionals are unaware of them, says Larry Pon, head of CPA firm Pon & Associates in Redwood City, Calif.

Pon, a speaker on the student loan debt crisis at a recent roundtable hosted by the California Society of CPAs (CalCPA), is trying to get the word out about the credits. “I don’t know about you,” he says, “but I don’t walk away from $2,500.”

The figures pertain to the American Opportunity Tax Credit, which applies to tuition, fees, books and supplies during the first four years of higher education. Education tax credits that are more commonly used by adults attending graduate or professional school are the Lifetime Learning Credit and the Tuition and Fees Deduction. The Lifetime Learning Credit is worth up to $2,000 per tax return for an unlimited number of years. The Tuition and Fees Deduction can reduce taxable income by up to $4,000.

Only one tax credit per individual is allowed in a given year, but parents can include more than one credit on a tax return if multiple family members, including themselves, are qualified students. An interactive tool on the IRS website helps give families an idea of which education tax credits they may be eligible for, but it’s hard to really know without good financial and tax planning, says Pon, who is also a CFP and PFS.

The American Opportunity Tax credit is completely phased out when adjusted gross income hits $90,000 for a single filer or $180,000 for a married couple filing jointly. Even so, “there is plenty we can do to get below these thresholds,” says Pon. Questions he suggests for taxpayers include, “Do I have capital losses that can be used to offset some capital gains?” “Am I maxing out on a 401(k) plan?” “If I’m age 50 or above, am I taking advantage of catch-up provisions on my 401(k)?” and “Do I have access to a deferred compensation plan and, if so, can I defer my bonus?”

Doing a Roth conversion may not be a good idea for a parent trying to qualify for these credits, he says, because it adds taxable income. When kids are in college, older parents may wish to delay or suspend Social Security benefits to reduce adjusted gross income, he adds. High-income parents should also consider having their children pay their own taxes, says Pon.

Students attending school at least halftime are eligible, regardless of their tax liability, for the $1,000 refundable portion of the American Opportunity Tax Credit, but need at least a $1,500 tax liability for the $1,500 nonrefundable portion of this credit to kick in, he says.

Pon used the Lifetime Learning Credit while earning his master’s in taxation, but the credit doesn’t require enrollment in a degree program. For example, it could be used by a computer professional earning certifications, a chef taking classes at a culinary academy or a financial advisor taking continuing education classes, he says.

Taxpayers seeking education tax credits must file a Form 1098-T, Tuition Statement. It’s provided by accredited schools and shows expenses paid for the year. Parents can download this record at if their children forget to give it to them. Pon has used this service, which is provided by ACS Education Services, a Xerox company.

Pon suggests advisors refer to IRS Publication 970, Tax Benefits For Education. “Any of the nitty-gritty details you want to look at, they’ve got it in here,” he says.

Wednesday, August 24, 2016

Uber Drivers, Airbnb Hosts Get Tax Tips As IRS Launches New Web Page On Shared Economy


A friend recently suggested to me that the 9-to-5 job is dead. He may be right. You no longer have to be at a certain place at a certain time to make money. You can, with the right apps, connect with others in ways that allow you to capitalize on lending or renting goods and services from practically any space at any time. The idea that you can share, rent, or lend your skill set, home or car with the click of a mouse is sometimes referred to as the gig economy or sharing economy.

You’ve likely already seen or used the sharing economy, even if you didn’t know what it’s called. Examples include Uber and Lyft, where drivers turn into near-chauffeurs with a few clicks, Airbnb, where homeowners become hoteliers, and DogVacay, where dog lovers can transform their spaces into temporary kennels.

The shared economy poses new challenges when it comes to how we view goods and services – especially when it comes to tax. To assist taxpayers, the Internal Revenue Service (IRS) has launched a new web page designed to help taxpayers involved in the sharing economy figure out what they need to know about reporting, filing and paying tax.

“This rapidly evolving area often presents new challenges for people engaged in these economic activities, whether they are renting a room or providing a ride,” said IRS Commissioner John Koskinen. “The IRS is working to help people in this area by providing them the information and resources they need to file accurate tax returns.”

The web page, dubbed the Sharing Economy Resource Center by IRS, offers tips and resources on a variety of topics ranging from filing requirements and making quarterly estimated tax payments to self-employment taxes and special rules for reporting vacation home rentals.

Tax tips on the page include:

Income received is generally taxable, even if the recipient does not receive a form 1099, form W-2 or other income statement. This is true if the sharing economy activity is only part-time or a sideline business and even if the recipient is paid in cash.

Depending on the circumstances, some or all business expenses may be deductible.

Special rules apply to the rental of a home or apartment used by the taxpayer as a residence during the taxable year. Usually, rental income must be reported in full; any expenses need to be divided between personal and business purposes. But if your home or apartment is rented out fewer than 15 days during the year, none of the rental income is reportable, and none of the rental expenses are deductible.

Taxpayers involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, September 15 and January 15; penalties may apply for failure to pay on time.

You’ll also find links to sites used to make tax payments, “how to” videos, and IRS Publications.

To find more tips and links for the shared economy, click over to the page found at

Tuesday, August 23, 2016

Combining business and vacation travel: What can you deduct?

From Mike Scholz

If you go on a business trip within the United States and tack on some vacation days, you can deduct some of your expenses. But exactly what can you write off?

Transportation expenses

Transportation costs to and from the location of your business activity are 100% deductible as long as the primary reason for the trip is business rather than pleasure. On the other hand, if vacation is the primary reason for your travel, then generally none of your transportation expenses are deductible.
What costs can be included? Travel to and from your departure airport, airfare, baggage fees, tips, cabs, and so forth. Costs for rail travel or driving your personal car are also eligible.

Business days vs. pleasure days

The number of days spent on business vs. pleasure is the key factor in determining if the primary reason for domestic travel is business. Your travel days count as business days, as do weekends and holidays if they fall between days devoted to business, and it would be impractical to return home.
Standby days (days when your physical presence is required) also count as business days, even if you aren’t called upon to work those days. Any other day principally devoted to business activities during normal business hours also counts as a business day, and so are days when you intended to work, but couldn’t due to reasons beyond your control (such as local transportation difficulties).
You should be able to claim business was the primary reason for a domestic trip if business days exceed personal days. Be sure to accumulate proof and keep it with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or training seminar, keep the program and take notes to show you attended the sessions.
Once at the destination, your out-of-pocket expenses for business days are fully deductible. These expenses include lodging, hotel tips, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. Expenses for personal days are nondeductible.

Monday, August 22, 2016

Self-Employed? Everything You Need to Know About Taxes


As a freelancer or a self-employed individual, your take-home pay may be significantly more than if you were working for a corporation. Not only are taxes not taken out, but also you don't have a company directly deducting health care, 401k or other financial costs from your paycheck.

This can lead to a temptation to spend it all, but self-employed professionals shouldn't be fooled into thinking they actually have the full amount of their check.

"Business owners, whether they are self-employed freelancers or corporation owners, are responsible for complying with tax law with respect to their business," said Shoshana Deutschkron, VP of communications at freelance job platform Upwork. "Financial literacy is a critical skill, [and] that literacy includes an understanding of taxation."

"You need to hold onto some of your money," added Lisa Greene-Lewis, CPA and TurboTax tax expert. "You should pretend you don't have that much money, because your income varies so often. You have to think about paying your taxes."

If you're filing as "self-employed" with the IRS, here are the basics of filing, paying and saving for taxes.

Self-employment tax obligations

Freelancers must take their taxes into account when setting their pricing, consider tax burden in planning their finances for the year (e.g., saving money vs. re-investing it in the business), and track their business expenses to deduct them at the end of the year, Deutschkron said.

According to the IRS, self-employed individuals are classified as:

Carrying on a trade or business as a sole proprietor or an independent contractor.
Being the member of a partnership that carries on a trade or business.
Being otherwise in business for yourself (including a part-time business)
When you're self-employed, you must pay a self-employment tax (SE tax) as well as an income tax. The SE tax is a Social Security and Medicare tax that is primarily for individuals who work for themselves. This is separate from income tax.

Before you can determine your tax obligations, you must figure out your net profit or net loss from your business. You can calculate this by subtracting business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income. However, if your expenses are more than your income, the difference is a net loss.

You have to file a Schedule C (Form 1040) income tax return if your net earnings from self-employment were $400 or more. Even if your net earnings from self-employment were less than $400, you still have to file a return if you meet any other requirements listed in the 1040 form. You should also file if you are eligible for any of the following credits:

Earned-income credit.
Additional child tax credit.
American opportunity credit.
Credit for federal tax on fuels.
Premium tax credit.
Health coverage tax credit.

According to the IRS, self-employed taxpayers who expect to owe more than $1,000 in SE taxes must make estimated tax payments four times per year. You will need to use IRS Form 1040 to file these quarterly taxes.

You can estimate your expected SE tax using free calculator tools like this one offered by Quickbooks.

How to file your taxes

Quarterly payments
If you expect to make quarterly estimated tax payments, use the Form 1040-ES, Estimated Tax for Individuals, which contains a worksheet that is similar to Form 1040. Be sure to keep track of your return from one year to the next, as you will need your prior year's annual tax return to fill out Form 1040-ES.

The IRS allows you to fill out Form 1040-ES, which contains blank vouchers you can use when you mail your estimated tax payments, or you may make your payments using the Electronic Federal Tax Payment System (EFTPS). If this is your first year of being self-employed, you will need to estimate the amount of income you expect to earn for the year. See the IRS's Estimated Taxes page for more information.

Annual return
To file your annual tax return, you will need to report your income or loss from a business you operated or a profession you practiced as a sole proprietor. To report your Social Security and Medicare taxes, you must file Schedule SE (Form 1040), Self-Employment Tax.

Use the income or loss calculated on Schedule C or Schedule C-EZ to calculate the amount of Social Security and Medicare taxes you should have paid during the year. The instructions for Schedule SE may be helpful in filing out the form.

Ways to save on taxes
If you're transitioning from a full-time position, here are six tax-saving tips that may assist you as a first-time self-employed taxpayer, according to TurboTax:

Startup costs: Newly formed businesses may be able to deduct startup costs, including legal fees, cost of experimentation and advertisements.

Vehicle expenses: In addition to the mileage deduction and other expenses, self-employed taxpayers may be able to deduct up to $25,000 of the cost of their car or SUV.
Home office deduction: Self-employed workers who have a dedicated space in their home that they used only for business can deduct a percentage of their home expenses, including mortgage payments, utilities and property taxes.

Supplies and equipment: Office supplies, from paper to computers — even snacks for customers — may be deductible if they were used exclusively for business.

Social Security and Medicare taxes: Self-employed workers must pay the entire 15.3 percent Social Security and Medicare tax, but get a break by writing off half of what they pay.
Health insurance premiums: Self-employed workers may be able to deduct what they pay for medical insurance for themselves and their family.

"You may be surprised about what is tax-deductible," Greene-Lewis said. "For example, advertising helps people make money, but it's also a big deduction for people."

Other expenses to consider
As a self-employed professional, you won't have access to any corporate-backed benefits. While you're not required by law to have things like a retirement plan, for instance, other benefits, like health insurance, are absolutely imperative. Under the Affordable Care Act (ACA), you must purchase a health care plan before the beginning of the next tax season to avoid tax penalties.

Without coverage, you could owe 2.5 percent of your household income, or a maximum of the total yearly premium for the national-average price of a Bronze plan under the ACA. This could mean a penalty of $695 per adult, or a maximum of $2,085

Sunday, August 21, 2016

Keep taxes in mind year-round

We all need to save more money, pay off debt and build a solid nest egg for our retirement years. One strategy is to lower your tax liabilities. You’ll get best results if you start working on it now, rather than waiting until the April 15, 2017, filing deadline is looming. Here are some ways to keep more of your hard-earned dollars through advance tax planning:
• Contribute to your retirement accounts now. The best bet for saving on taxes is to contribute as much as you can to tax-deferred retirement accounts such as IRAs and 401(k) plans, especially if the account carries an employer match. Many workers wait until the end of the year, or until the tax deadline, to make contributions. However, the earlier you contribute, the earlier those funds begin to earn compound returns, tax-deferred. Contribute midyear, and consider increasing your contribution amount, to increase the amount of money earning investment gains and to get tax breaks on more of your 2016 earnings.
• Keep records of spending so you can itemize. Itemizing your tax deductions rather than taking the standard deduction can save significant tax dollars, especially for self-employed people and people with high medical expenses. But you have to keep detailed records throughout the year so that you can compare your qualified expenses with the standard deduction, which for 2016 is $9,300 for heads of households, $6,300 for singles and married filing separate, and $12,600 for married couples filing jointly. Areas in which itemizing may pay off include medical expenses (you may deduct the amount above 10 percent of your adjusted gross income), mortgage interest and charitable donations. You also can deduct miscellaneous expenses above 2 percent of your AGI including business expenses such as travel, clothing and transportation; job-hunting costs; home office expenses, professional dues and subscriptions; and many more. See
• Open a health savings account. Check to see if you employer offers a high-deductible health care plan with a health savings account (HSA). The HSA allows you to build up funds with pre-tax dollars to pay for future medical care expenses, including post-retirement. Contributions, earnings and withdrawals are tax-free on the federal level. While premiums tend to be low, out-of-pocket expenses can be high. However, many employers contribute matching funds to HSAs, a very powerful incentive. Money left in your account at year’s end carries over to the next year, so it can be a smart move to pay as many medical expenses out of pocket as you can and let the HSA build into a large fund for your medical expenses after you retire.

Saturday, August 20, 2016

Back to School Tax Tips for 2016

As the final weeks of summer tick away, back-to-school sales are ramping up and it's time to think about getting those kids back in the classroom. It's also a good time to think about a variety of tax breaks and deductions available for qualifying expenses.
Most Americans don’t think about taxes when it comes to school, and understanding which school costs are deductible or not deductible can be challenging.  For example, private school tuition is not deductible, but the child care component of private school tuition may be deductible for children under the age of 13. Also, for parents of college students, 529 plans are not federally taxable. Any money withdrawn from the account, as long as it is used for qualifying college expenses like a laptop or books, is not taxable.
The tax tips include:
  • Private school tuition and school uniformsThe cost of private school or parochial school tuition is not deductible. However, the child care component costs of private school tuition for children under 13 may qualify the taxpayer for a tax credit. School uniforms are also not deductible even if they are required.
  • Before and after school care can be deductedFor a child under the age of 13, the cost of before or after school care may qualify the taxpayer for a tax credit if it is a qualifying expense. 
  • Tax deductions for school fundraisers are limitedYou are required to reduce your deduction by the market value of any goods or services received in return for your charitable donation. 
  • Moving expenses to go to college are NOT deductibleGoing away to college is not moving for a job and is not considered a moving expense deduction by the IRS. However, the expenses for moving from college for that first job may be eligible for the moving expenses deduction.
  • Earnings in 529 plans are NOT federally taxableThe earnings in 529 plans are not taxable. The money grows tax-free and withdrawals are not taxable as long as the money is used for eligible college expenses.
  • Use tax-deferred accounts to pay for educational expensesYou can use tax-deferred accounts (i.e., a Coverdell Educational Savings Account) to pay for qualified educational expenses including books and computers for elementary, high school and college expenses.
  • Student loan interest is deductible above the lineStudent loan interest is generally deductible as an above the line deduction, meaning you do not have to itemize in order to claim the deduction on your federal income tax return. There is a student loan interest deduction of up to $2,500 for paying interest on a student loan used for higher education. The amount of the student loan interest deduction is gradually reduced if the taxpayer’s modified adjusted gross income is within a certain range.
  • American Opportunity Credit (AOC)The AOC can amount to $2,500 in tax credits per eligible student and is available for the first four years of post-secondary education at a qualified education institution. Up to 40% of the credit is refundable, which means that the taxpayer may be able to receive up to $1,000, even if the taxpayer has no tax liability. Eligible expenses include tuition at an eligible institution, books and required supplies, but not room and board, medical expenses, insurance, etc. Income limits apply. The taxpayer is now required to have the 1098-T from the qualified educational institution to take the AOC, and the credit has to be based on amount paid and not billed.
  • Lifetime Learning CreditUp to a maximum of $2,000 credit per year for qualified education expenses paid for a student enrolled in an eligible educational institution. The credit is a nonrefundable credit of 20% of a maximum $10,000 in qualified education expenses. There is currently no limit on the number of years a taxpayer can claim the credit. Income limits apply. Please keep in mind, this credit does not allow for some of the items that are allowed for the AOC. This credit is generally applied only to tuition and fees.
  • Tuition and Fees DeductionThe Tuition and Fees Deduction is an above the line adjustment and applies to qualified education expenses for higher education for an eligible student taking undergraduate, graduate or post graduate courses. The deduction gradually phases out after a certain income range. There is no limit to the number of years the deduction can be claimed. 
  • Roth IRARemember, up to $5,500 of the income earned from summer and/or after school employment by the student can be contributed to a Roth IRA, which will grow tax-free. The earnings are taxable and subject to a penalty only if withdrawn before the age of 59 ½.