How to Pay Less for Your Summer Vacation
The summer travel season is almost upon us. While you look forward to lazing on the beach, visiting the theme parks, and enjoying ice cream cones, also consider ways to fit some business in to your trips.
The idea is to take advantage of tax deductions for which you become eligible when you devote part of your trip to business. As long as most of your travel days are for business purposes, you can deduct the cost of travel (airplanes, trains, cars, etc.) and for hotels, parking, taxi service, meals, and so on.
As defined by the IRS, travel expenses are the Ordinary and Necessary expenses of traveling away from home for your business, profession, or job. An Ordinary expense is one that is common and accepted in your field of trade, business, or profession. A Necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.
The key factor is that your trip must be primarily for business. Days of leisure can be added to a trip and still be considered primarily for business. The more days and time per day spent on business will help substantiate the trip. There are no set rules on how many days and how much time per day need to be spent on business for your trip to be considered business related.
Keep all the documentation for business-related travel, including confirmations of appointments, emails, phone records, registration to conferences, etc. The days spent traveling to and from a business trip are considered part of the trip. This includes the weekend if it is impractical to come home between weekday business meetings. Planning ahead can make this happen.
Traveling with Your Spouse
If a spouse goes with you on a business trip or to a business convention, his or her travel expenses can only be deducted if your spouse
To be an employee, your spouse must be on the payroll and payroll taxes must be paid. If your spouse is not an employee and travels with you on vacation, you can still deduct the cost of your room at the single-occupancy-per-day rate, rather than half the rate. Meals could also be deductible. If you are paying for lunch or dinner for a customer or business associate and that person's spouse, the full cost of the meals might qualify under the 50% meal deduction. Let us know if you're unclear on this deduction; we can give you the details.
With travel outside of the United States, the transportation for business trips of one week or less may be deducted. However, only a portion of transportation costs for longer trips is deductible.
What Expenses Are Deductible?
Here's what you can deduct when you travel away from home for business.
Taxi, Commuter Bus, Subway, and Airport Limousine Fares
Baggage and Shipping Expenses
Lodging and Meals
If you have any questions about how to grab some tax deductions from your summer travels this year, just give us a call or send us an email.
Sell Your Home But Keep the Profits
With the real estate market looking up in many areas, money is out there to be made. Sellers, it's time to take a close look at the exclusion rules and cost basis of your home to reduce your taxable gain.
The IRS home sale exclusion rule now allows an exclusion of a gain up to $250,000 for a single taxpayer or $500,000 for a married couple filing jointly. This exclusion can be used over and over during your lifetime, unlike the previous one-time exemption, as long as you meet the following Ownership and Use tests.
During the 5-year period ending on the date of the sale, you must have:
Tip: The Ownership and Use periods need not be concurrent. Two years may consist of a full 24 months or 730 days within a 5-year period. Short absences, such as for a summer vacation, count in the period of use. Longer breaks, such as a 1-year sabbatical, do not.
If you own more than one home, you can exclude the gain only on your main home. The IRS uses several factors to determine which home is a principal residence: place of employment, location of family members' main home, mailing address on bills, correspondence, tax returns, driver's license, car registration, voter registration, location of banks you use, and location of recreational clubs and religious organizations you belong to.
Tip: As we said, the exclusion can be used repeatedly, every time you reestablish your primary residence. When you do change homes, let us know your new address so we can ensure the IRS has your current address on file.
Note: Only taxable gain on the sale of your home needs to be reported on your taxes. Further, loss on the sale of your main home cannot be deducted. Ask us for details.
Improvements Increase the Cost Basis
Additionally, when selling your home, consider all improvements made to the home over the years. Improvements will increase the cost basis of the home and thereby reduce the capital gain.
Additions and other improvements that have a useful life of more than one year can be added to the cost basis of your home.
Examples of Improvements
Partial Use of the Exclusion Rules
If you do not meet the Ownership and Use tests, you may be allowed to exclude a portion of the gain realized on the sale of your home if you sold your home because of health reasons, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.
Example: If you get divorced after living in your home for approximately 1 1/2 years or 438 days and have a gain of $120,000 on the sale of your home, you can take 60% of the capital gain exclusion, as you lived in the house for 60% of the 2-year exclusion period (438 days divided by 730 days, or 60%). Therefore, you would be allowed to deduct $150,000 of the capital gain (60% of the $250,000 exclusion). You would NOT need to report any gain on this sale.
Good recordkeeping is essential for determining the adjusted cost basis of your home. Ordinarily, you must keep records for 3 years after the filing due date. However, keep records proving your home's cost basis for as long as you own your house.
The records you should keep include:
Tax considerations can be confusing. If you have any questions on taxes related to the sale of your home, give us a call.
The Best Financial Tool for Business Owners
If there were a tool that helped you create crystal-clear plans . . . that provided you with continual feedback on how well your plan was working . . . that told you exactly what's working and what isn't, allowing you to consistently make smart business decisions to keep your business on track for success - wouldn't you want to take advantage of it?
Well, there is such a tool. It's called the Budget vs. Actual report.
Clarifying Your Plan
Clarity is power. The clearer you are with your business goals, the more likely you are to achieve them.
Creating a budget forces you to drill down in to the details of your goals. It prods you to think about how one business decision affects all other aspects of the company's operations.
You see, a budget is really a planning tool that makes you clarify your dreams. And planning is the first step in making your dreams real.
Navigating the Ship
Once you've clarified your goals, you start making business decisions to help you reach your desired outcome. Some of those decisions will be great and give you better than expected results. And some decisions will give you poor results.
This is where the Budget vs Actual shines.
When you compare your budgeted sales and expenses to your actual results, you see exactly how far you are off your plan. Sometimes you need to adjust your plan (budget) and sometimes you need to focus more attention to the areas of your business that are not performing as well as you planned.
Either way, you are gleaning valuable insights into your business.
It's like sailing a boat. You are off-course most of the time - but having a clear goal and making many adjustments helps you reach your destination.
Just Do It
Nike knows the power of the phrase "Just Do It." We often know what we need to do but don't take the necessary action.
It may seem like a huge hassle to create a budget and then create a Budget vs. Actual report every month. But as with any new skill, although it's hard at first, it does get easier.
Let us help you. We can guide you through the budgeting process. We can ask you questions that help you gain clarity.
You'll feel energized after it's done. You may even have fun.
So "just do it." Give us a call and we'll help you turn your dreams into reality.
Getting Withholdings Right This Tax Year
In most situations, the tax withheld from your pay will be close to the tax you figure on your return - if you follow these two rules.
But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations:
If you need help downloading Form W-4 or have questions on how to fill it out properly, give us a call. We're happy to help.
Tips on Tips
Do you work at a hair salon, barber shop, casino, golf course, hotel, or restaurant, or do you drive a taxicab? The tip income you receive as an employee from those services is taxable income.
Here are some tips about tips:
Tips can be tricky. Don't hesitate to contact us if you have questions.
Are Your Social Security Benefits Taxable?
How much, if any, of your Social Security benefits are taxable? It depends on your total income and marital status. Generally, if Social Security benefits are your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.
If you receive income from other sources in addition to Social Security and your modified adjusted gross income is not more than the base amount for your filing status, then your benefits will also not be taxed. (See below for more on base amounts.)
This quick computation will help you determine whether some of your benefits are taxable:
The 2011 base amounts are:
According to the Social Security Administration, less than one-third of all current beneficiaries pay taxes on their benefits.
Call us for additional information on the taxability of Social Security benefits.
Six Tips for Paying Estimated Taxes
Estimated tax is a method used to pay tax on income that is not subject to withholding. Depending on what you do for a living and what type of income you receive, you may need to pay estimated taxes during the year.
These six tips from the IRS will provide you with a quick look at estimated taxes and how to pay them...
Take our advice and don't ignore your estimated tax payments. And please call us with any questions.
Protecting Your QuickBooks Data Against Hackers
Every month, we provide information on how to better use QuickBooks. By implementing the best methods for managing your accounting data, you can actually improve your financial bottom line.
But all of your careful work is for naught if a malicious hacker gets in to your computers, or if you experience identity theft by an employee. Social Security and credit card numbers, home phone numbers and addresses, an excruciatingly detailed profile of your company - all can be lost in the time it takes to realize that it's gone.
Are you guarding all of that precious data? QuickBooks provides ways to help you. Some are automatic, but you have to initiate others.
QuickBooks displays some screens using Internet Explorer (IE); the browser opens when you access certain features. It's important that you set the security level correctly so that you're not exposed to shady outside influences.
To check your configuration, launch IE and go to Tools | Internet Options. This window opens:
Figure 1: Be sure that your Internet zone in Internet Explorer is set to Medium.
Click on Security, then on Internet, and move the slider bar to Medium (Intuit recommends this). Click OK and close IE.
Your best defense is a good antivirus program. If you've hesitated to buy one because of the price or the software's intrusiveness, consider Microsoft Security Essentials. It's free, it's good, it can be used in businesses that have up to ten PCs, and it guards against viruses, spyware, and other malicious software (malware).
If you have QuickBooks on a network, or multiple people sign in and out on the same PC, you will want to limit the access of employees to only their work areas. Go to Company | Set Up Users and Passwords | Set Up Users, and you'll see the User List window. Click Add User, and enter a username and password in the next window (if you've already set up passwords but not permissions, highlight a name and click Edit User). Click Next.
Unless the person should have full access, choose Selected Areas of QuickBooks and click Next. You'll see this:
Figure 2: As you go through each module, you'll select an access level for the current employee.
You'll work through a series of windows, including Inventory, Checking and Credit Cards, and Payroll and Employees, indicating in each window how much access should be granted to the user. When employees sign in, they will only see the allowed screens.
Payroll - A Special Case
Be very careful when you assign Payroll permissions. Employee Social Security numbers are stored there, and anyone granted full access can see them. If you've assigned Selective Access to an employee for creating and printing payroll transactions and reports, he or she will still be able to view them on printouts and in reports.
To prevent this, go to Edit | Preferences and click the Payroll & Employees tab, then Company Preferences. At the bottom of the window, you'll see a line that reads Display employee social security numbers in headers on reports. Make sure this is checked only if you want the numbers to appear.
And, of course, you may not want Social Security numbers printed on paycheck stubs and vouchers (though you may not have a choice; the state of California, for one, requires it). In this same window, click on Pay Stub & Voucher Printing to make your wishes known. You'll see this:
Figure 3: Do not check the box next to Employee social security number unless you want it printed on paycheck vouchers.
Intuit and You
Intuit, publisher of QuickBooks, works hard to keep your data safe. The company:
Figure 4: Regular backup is more than a good idea. It could save your business someday.
But it's important that you do your part. Use passwords wherever offered, make them complex, and change them frequently. Maintain regular backup files on your own if you don't subscribe to Intuit's service. Cross-train employees so that if you experience a disaster, more than one employee knows the ropes. Know a lot about who is managing your network.
To be doubly safe, ask us to evaluate your whole system's security profile. We can help you if your business suffers a breach, but better to try to avoid it ahead of time.
Review Your Insurance Policies
Lower Your Utility Costs
Analyze Budget vs Actuals
Tax Due Dates for June 2011
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