Sunday April 20, 2014
The owner of a carpet cleaning business reported business use on 9 vehicles. He admitted he used the vehicles sometimes for personal use, but all he had to prove business use was a handwritten summary, with no receipts. The IRS denied his claim for 75% business use for 4 vehicles. The Tax Court was willing to give the business owner some business expenses for these vehicles, but he had no acceptable evidence to support his claim. So no deduction for business use.
Points to note:
- The burden of proof is on the taxpayer.
- The default is no deduction for business use.
- You don't have to prove personal use, just business use.
- The proof is a contemporaneous (at the time) log, or other evidence created, according to the Tax Court, "at or near the time of use."
- You can't deduct commuting expenses back and forth from home to work, except in some specific cases.
Getting "Business Use" Deductions
To be able to deduct expenses for business travel and for business use of vehicles, you must be able to prove business use with records that are complete, accurate, and timely (made at the time of the expense). Your records must:
- Show that the trip was for business purposes
- Include date
- Note the mileage, if the expenses are for driving
The IRS clarifies timely by noting:
You do not need to write down the elements of every expense on the day of the expense. If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record.
Talk with your tax professional about the best way to keep good records, then find a system and stick to it. Yes, there's an App for that, too!
Source: T.C. Summ. Op. 2014-16
Wednesday April 16, 2014
1. The Employer Shared Responsibility (ESR) requirement (AKA employer mandate) starts in 2015 for larger employers (with over 100 employees) and in 2016 for employers with between 50 and 100 employees. All employers with 50 or more employees must begin collecting date in 2014.
2. ESR is for employers with 50 or more full-time equivalent employees. What does this mean? A full-time employee, for this purpose, works an average of 30 hours a week. If your business has 50 full-time employees, or if you have a combination of full-time and part-time employees equaling 50, your company is subject to the ESR payment requirement. There are some exceptions for seasonal workers and some other requirements. It's too complicated to detail here. (How to calculate FTE's)
3. Required coverage. Employers subject to ESR (that is, with 50 or more FTE employees) "must offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents)," (my emphasis here) OR make ESR payments. BUT,
4. No ESR payment is required unless at least one full-time employee receives a premium tax credit for "purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace)." The IRS will let employers know of employees receiving premium tax credits.
4. If you own more than one small business, your businesses may be combined for ESR purposes. The IRS says,
[I]f an individual owns 80% or more of two businesses that are separate legal entities, the total number of full-time employees of that employer is based on the full-time employees (including full-time equivalents) in both businesses combined together.
5. If your business is subject to the ESR requirements, you will need to file an annual return, beginning in 2015, reporting whether and what health insurance you offered employees. You must include:
- the amount of the employee's monthly health insurance coverage,
- the employee's share of the lowest-cost monthly premiums for self-only insurance
The return will be based on 2014 data. The report form 1095-C is still in draft. I'll provide more information when this form is finalized.
7. Transition relief is available to help employers get up to speed on ESR requirements. But it's complicated. Read more about transition relief from the IRS.
Still confused? Yes, it's a difficult complex deal, but it's important to know if your business will be affected by ESR requirements. Read more from the IRS: Questions and Answers on Employer Shared Responsibility
Friday April 11, 2014
Before you file that business tax return (along with your personal income taxes), stop and check:
- Do you have the correct tax return for your business type?
- Do you have the correct Social Security Number or EIN on your tax return?
- Did you include information about any 1099-MISC forms you received for work you did as an independent contractor?
- Did you include self-employment tax calculations on Schedule SE?
- Did you calculate your tax correctly, from the tax tables, or with tax preparation software?
- Did you double check all computation and math errors?
- Did you place withholding and estimated tax payments on the right line?
- Did you enter the correct information for e-filing and direct deposit?
- And, most important, did you sign and date your return?
Common Filing Errors list from the IRS
Wednesday April 9, 2014
After a long cold winter, everyone is cleaning up - and cleaning out. Or maybe you want to open a booth at a flea market or farmer's market this summer. Being aware of regulatory issues in your community and your state can save you money and hassle.
Before you begin, find out requirements in your (a) city or town, (b) county, and (c) state:
Permits and licenses. For just one garage sale? Yes, you may need a permit. It depends on your locality. Check with both your city and county to see if a permit is required.
Income taxes. If you make a profit on the sale, you must pay federal and state income taxes. But, in most cases, you are selling at a loss - just to get rid of the stuff, right? - so there's no profit. If you sell craft items, though, and you're making a profit over the cost of the items, you should keep track of the cost and your expenses. You may have to file a Schedule C as a business.
Sales taxes. Most states are not going to worry about "casual" sales, like a one-time garage sale. But if you're selling at a market, you will have to deal with sales taxes. Each state has different regulations regarding sales taxes. Check with your state's taxing authority just to be sure.
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