Posted by: tammi1040 | November 4, 2014

Self-Employeds Get Tax Breaks

When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.

  • Save for retirement. When you’re self-employed, you’re allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
  • Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That’s because your child’s earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
  • Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an “above the line” deduction, subject to certain restrictions.
  • Take business-use deductions. Self-employed individuals can also deduct “mixed-use” items directly against their business income. Use your car for business and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.

Please give us a call to find out more about the tax breaks available to self-employed individuals.

Posted by: tammi1040 | August 13, 2014

Oops! You Forgot Something On Your Tax Return. Now What?

Whew! The rush is over once your personal income tax return is done for another year – or so you thought, right up until the moment you discover information you forgot to include.

Now what?

The action you take depends on the type of information you forgot. For instance, say you reported all your income on the return you mailed to the IRS. But now you realize you neglected to attach a copy of your wage statement. In this case, doing nothing is the best option. You’ll eventually get a notice from the IRS requesting the missing form.

Other mistakes, such as omitting income or deductions, or deciding you’re eligible for a credit you didn’t claim may require amending your return.

To do this, you’ll need to complete Form 1040X. Explain any changes and mail the form to the IRS after your original return has been processed. At present, e-filing isn’t available for Form 1040X, so you’ll have to use a paper return, even if you submitted the original electronically.

As a general rule, Form 1040X has no set due date. But if the information you left off increases the amount of tax you owe, filing promptly can help reduce interest and penalties.

When the correction results in less tax, you’ll need to file before the time for claiming your refund expires (usually three years from the due date of the original return). Please contact us if you find additional information after filing your federal and state tax returns. We’ll be glad to help you make any necessary changes.

Posted by: tammi1040 | August 7, 2014

Avoid Five Common Mistakes in Your 401(k) Plan

Participating in a 401(k) or similar retirement plan is a tax-advantaged way to save for retirement. If you have the option of participating in a 401(k) plan, avoid these five common mistakes.

* Failing to participate fully. Too many employees opt out of the plan or don’t contribute as much as they can afford. At a minimum, try to set aside enough to receive the full employer-matching contribution. For example, your employer might offer to match 30% of the first 3% of payroll. That match is equivalent to a 30% first-year return on the amount you contribute.

* Over-investing in company stock. Don’t invest too much of your plan contributions in company stock. Remember, even if the company is doing well now, things can change. And if the worst happens and you lose your job, you don’t want to lose your retirement savings too. (Think of Enron employees.) If your employer uses company stock for the matching contribution, you may have no choice. But at least you can select other investments for your own contributions.

* Failing to diversify. Choose a well-diversified mix of investments in the plan. Then continually monitor and rebalance your investments as they grow. Coordinate your investment choices with your non-401(k) savings to make sure you have an appropriate mix. Seek professional advice if you need it.

* Borrowing from your plan. Take a loan from the plan only as a last resort. Remember, these savings are for your retirement, not to fund everyday needs. When you borrow from the plan, you’re losing the tax-deferred growth on those funds.

* Withdrawing your savings if you change jobs. It’s tempting to cash out your savings if you change jobs. But if you do, you’ll owe taxes and probably a penalty. More important, you’ll lose the future tax-favored growth that you might need in retirement. Instead, arrange a direct rollover into an IRA or your new employer’s plan.

Posted by: tammi1040 | July 30, 2014

Consider Tax Filing Status If You’re Divorcing

It’s difficult enough to think about taxes under normal circumstances. Finding yourself amid a divorce action can make this task even more daunting. A little planning, however, may ease this burden. Consider, for example, the following ideas about your tax filing status if your divorce isn’t final by December 31, 2014.

Advantages of filing a joint tax return. It is often better, tax-wise, to file a joint return because of certain benefits that are available to joint filers. Benefits such as the earned income credit, the credit for the elderly, and certain other tax credits and deductions are reduced or unavailable for married taxpayers who file separate returns.

Advantages of filing a separate tax return. Filing a separate return may make sense in a situation where your spouse isn’t cooperating with you. This could especially be true if your bank requires a tax return before they’ll approve a loan. Another reason for filing a separate tax return may be that you suspect that your spouse has unreported income. Filing separate returns in these situations may be a practical solution.

Sometimes it makes sense to file a separate return because you’ll owe less tax. An example is where medical expenses are not deductible because your joint income is too high. With a separate return, you may be able to claim a deduction.

Can you change your mind about your filing status after your return has been filed? You can change from separate to joint filing status by filing an amended return. However, once a joint return has been filed, you may not change to separate filing status after the return’s due date.

The bottom line: You should calculate your tax liability under both joint and separate filing choices to see which results in a lower tax. Numerous other tax and financial issues could be affected by your divorce. If you’d like tax planning assistance, give us a call. We can work with your attorney to help you make informed choices that take taxes into account.

Posted by: tammi1040 | March 26, 2014

Don’t Pay Tax on Nontaxable Income

There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

* Borrowed money, such as from banks or personal loans.

* Money received as a gift or inheritance from family or friends.

* Money paid on your behalf directly to a school or medical facility.

* Most life insurance proceeds.

* Cash rebates from businesses when you buy an item.

* Child support payments.

* Money you receive for sustaining an injury.

* Scholarships for tuition and books.

* Disability insurance proceeds from a policy purchased with after-tax dollars.

* Up to $500,000 of profit for a married couple selling their personal residence.

* Interest received on municipal bonds.

If you have included any of these as taxable income on your income tax return for the past three years, you can amend your return for a tax refund.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

Posted by: tammi1040 | March 21, 2014

Four Things You Should Know if You Barter

Bartering is the trading of one product or service for another. Often there is no exchange of cash. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services.

If you barter, you should know that the value of products or services from bartering is taxable income.

Here are four facts about bartering:

1. Barter exchanges.  A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income.  Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get.

3. Tax implications.  Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules.  How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.

For more information, see the Bartering Tax Center in the business section on

Posted by: tammi1040 | March 13, 2014

Deductions for Business Travel Expenses Need Support

If you intend to deduct business travel expenses on your income tax return, keep adequate records. If you are later audited, you will be able to substantiate your deductions. Your oral summary of your business expenses will not hold up to an IRS audit. Besides, audits are often a year or so after the events which make it more difficult to recall what took place if you don’t have proper documentation.

The easiest way to keep good records is to do so near the time the expense was incurred. Consider using a large envelope for each trip to keep all receipts and other trip information. Take a few seconds to write the business purpose and/or customer names on the back of appropriate receipts. If you are lacking a specific receipt, write your account of the event, the date, and the money paid out and save it along with your other travel documentation. Take time also to document the business miles travelled.

If you maintain an expense report on a weekly basis for the expenses of that week, it will be considered a timely kept record for IRS purposes. If you account to your employer under an accountable plan, the rules are different.

For assistance in setting up a record system for your business travel, please contact us.


Posted by: tammi1040 | February 26, 2014

Emergency Savings: How Much is Enough?

We all need an emergency fund, but what’s considered “an emergency?” Any unexpected hit to your finances, including layoffs, unanticipated illnesses, and natural disasters. Car insurance premiums and regular home maintenance are (or should be) anticipated, so they’re not emergencies. The same is true of credit card bills for vacations and visits to the dentist’s office. An emergency fund is designed to keep your life intact during temporary setbacks and to help you avoid unnecessary debt. 

How much emergency savings is enough? In general, your emergency fund should cover three to six months of expenses. How much you’ll need will vary based on your financial situation, including the vulnerability of your income. For example, a one-earner household is more vulnerable than a two-earner household when it comes to paychecks. So the one-earner family generally should set aside more for emergencies. Or if you don’t have disability insurance, you might consider setting aside a bigger balance in an emergency account. Some companies provide payment for accrued vacation and/or sick leave to laid off employees. If your company provides such benefits and you maintain significant balances in these accounts, you may not need as much in an emergency fund (at least to help you weather an unexpected layoff). 

Another factor to consider is your ongoing debt payments. Putting excess cash toward high interest credit card balances might make more sense than funding a savings account that earns four percent interest. Also, in a true emergency some spending can be reduced and postponed, such as retirement plan contributions, vacations, and entertainment. Ask yourself, “How much will I need to cover my minimum monthly expenses without resorting to credit cards or lines of credit?” That’s a good starting point for determining how much to set aside in an emergency fund. 

Once you have a savings goal in mind, don’t wait. You can start small and increase contributions as you receive pay increases or windfalls. The money should be liquid – easy to get at – so don’t put it in investments with withdrawal penalties. A savings or money market account is a great place to set aside cash for a rainy day.

Then post a sign on the account: “Use only in case of emergency.”

Posted by: tammi1040 | February 21, 2014

IRS Alerts Taxpayers to Latest Tax Scams

The IRS has issued a warning about the latest phone scam. The caller claims to be from the IRS and tells the intended victims they owe taxes which must be paid immediately with a pre-paid debit card or wire transfer. Individuals who don’t pay up are threatened with arrest or loss of their business or driver’s license.

Watch for these signs that the call is a scam:

Use of fake IRS badge numbers.

Caller knows the last four digits of your social security number.

Caller ID appears as if IRS is calling.

Bogus IRS e-mail is sent as follow-up.

Second call claims to be from police or DMV, again supported by fraudulent caller ID.

Don’t respond in any way to these scams; instead forward the scam e-mail to, or file a complaint at

Posted by: tammi1040 | February 13, 2014

Every Small Business Should Establish Controls

Every Small Business Should Establish Controls.

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