I recently received a notice from the IRS relating to my business tax return from 2007. I talked to my CPA before I replied, and I also called the IRS just to be sure I was giving them what they wanted. I found the person I talked to knowledgeable, and I didn't have to spend much time on hold. (Of course, this isn't the middle of tax season.) They were slow with their written response, but they sent a letter telling me that they were working on the issue, which I thought was helpful, kind of.

What Has Been Your Experience with the IRS? Have you found them helpful? Or has it been a nightmare? If you have an IRS story, particularly one relating to business taxes, write it up briefly in response to my "Readers Respond" article: What is Your Experience with the IRS?

By the way, the issue was resolved. I actually got a small refund.

You get a six month dental checkup, and an eye exam every year, right? It is just as important to do a checkup on your business expenses, to make sure you are capturing all these expenses so you can deduct them.

At mid-year, many tax and financial advisers do a review with clients to make sure they are keeping up with tax deductions and record-keeping. July is a good time to take stock and see where you are with tax deductions. Are you recording all your expenses, so you can claim them at tax time? Here is a list of some expenses you might have missed:

Accounting, bookkeeping, auditing and tax expenses

Property and casualty losses, and forced sale losses

Taxes (Other than Income Tax)
Many of these taxes are embedded in other costs, but make sure you have included them when you prepare your lists of expenses for the year.

Employee expenses, including
Training and education expenses
Employee benefit expenses
And other employee-related expenses.

For a more complete list of business tax deductions, see my article on Business Tax Deductions A to Z.

Another holiday?! You don't have to worry about giving your employees the day off for this one; in fact, you will need them. State sales tax holidays are usually run in late summer, before school starts. The "holiday" is from state sales taxes on specific items. If you sell these items, and your business is open during the holiday dates, your state requires you to omit sales taxes on any sales during these dates.

A list of state sales tax holidays reveals most are in late July or early August. These holidays are used to encourage people to buy school supplies, school clothing and shoes, and computers.

Other states have sales tax holidays for other purposes:

• Energy products: Texas, Virginia, West Virginia, Missouri and Georgia
  
• Hurricane preparedness products: Virginia and Louisiana in May each year, before the start of hurricane season.

  If you need more information, contact your state department of revenue

  .

You sold merchandise or equipment to a customer. Now you hear that customer has declared bankruptcy. Can you get back the items you sold? What do you do? You do have some rights and some recourse to get the goods back, both before and after the customer declares bankruptcy.

If a customer becomes insolvent (that is, the company cannot pay its bills), you can get back the items you sold that customer, under a process of "reclamation rights." You can exercise your reclamation rights against that property by going through a reclamation process within a prescribed period of time.

Reclaiming Before Bankruptcy
Reclamation before bankruptcy falls under the Uniform Commercial Code. You must issue a demand letter within 10 days after the customer receives the goods.

Reclaiming After Bankruptcy
After bankruptcy, the U.S. Bankruptcy Code controls the process of reclamation. The 2005 bankruptcy law (the Bankruptcy Abuse Prevention and Consumer Protection Act) allows you 45 days to demand the return of the item after the customer receives the goods.

Check with a bankruptcy attorney or an attorney who deals with commercial issues for more information about this process and to get help writing the demand letter.

I read in a trucker owner/operator magazine called LandLine about trucking companies that have applied for the new Small Business Administration's "America's Recovery Capital" emergency loan program. These trucking company owners were promised quick response (days) and they are still waiting weeks later. This is really sad to hear.

The new ARC loan program began June 15. Under this program, small businesses can get up to $35,000 in emergency cash to pay loans and other bills that are due. Then, the business has up to 5 years to pay back the bank, backed by the SBA. This sounds like a great program to help small businesses that are dealing with a cash flow crisis.

But if the loans are not processed quickly, it may be too late for some businesses, like the trucking company mentioned in the LandLine article. A small business who has a payment due today needs the loan today, not weeks from now. Tomorrow may be too late to save a small company from bankruptcy and shut-down.

Have you tried to get an ARC emergency loan? What has been your experience? Go to my Readers Respond article where you can give your comments. Read more about the ARC loans and let other readers know about your experience.

The New York Times reports that the unemployment rate is an unacceptable 9.5 percent in June. If you are among those who have left your job, voluntarily or not, you may have considered starting a home based business.

Starting a home based business has lots of benefits:

• You can work anytime you want, dressed however you want
  
• You can keep your costs low because you don't have an office to maintain
  
• You can deduct certain home expenses related to use of your home for business
  
• You can get started easily and quickly with little capital required.

To learn more about starting a simple home based business, read my article on Simple Business Start-up. Then check out my new article about home business expenses and income tax deductions.

Be sure to check out Randy Duermyer's Home Business GuideSite here at About.com. Randy gives you lots of information about home businesses, including a weekly list of legitimate home business opportunities.

The IRS Taxpayer Advocate has released a report, which she shared with Congress, detailing some of the taxpayer advocate issues she feels are most important. One issue I wanted to share with you is her concern about the poor quality of returns prepared by preparer services.

The Tax Advocate says:

Tax return preparers complete about 62 percent of all individual income tax returns and therefore play a critical role in facilitating tax compliance. However, “shopping visits” conducted by the Government Accountability Office, the Treasury Inspector General for Tax Administration, and others suggest that a high percentage of preparers prepare inaccurate returns, fail to perform sufficient due diligence, and even take positions that they know are not supportable. This conduct usually results in understatements of tax (reducing federal tax revenue and potentially subjecting taxpayers to enforcement actions) and sometimes results in overstatements of tax (causing taxpayers to pay more than they owe).

The Tax Advocate recommends that unenrolled preparers be identified and given a Preparer ID Number, so these preparers can be tracked and those that provide inaccurate returns can be noted. The report doesn't say what kinds of actions could be taken against these preparers.

The Best Tax Preparer/Audit Representative
Although many people can represent you before the IRS, he best person to prepare your taxes and help in case of a tax audit is your CPA, your tax attorney, or an Enrolled Agent. These individuals have the training and certification to understand the tax laws, and they are all required to keep up their credentials with continuing education, so they are knowledgeable about tax law changes. This is another one of those "you get what you pay for" situations. I know who I would want standing with me in front of the IRS. What about you?

The sales tax wars are getting heated up again. "World's Largest Bookseller" Amazon has "fired" its Rhode Island affiliates because RI is working on legislation which would require Amazon to collect sales tax for these affiliate sellers. According to the Providence Business News, Amazon has also cut off its relationships with affiliates in North Carolina, for the same reason. Online jeweler Blue Nile has also cut off its North Carolina affiliaites.

The Impact on U.S. States. U.S. states, which are under budgetary pressures, are looking at ways to increase revenue, and many states are trying to capture what they believe are lost sales tax revenues from online transactions (called "remote sales.") Sales taxes have been traditionally charged on transactions with companies which have a physical location in a state. But if an online seller has no physical location in that state, there has been no way for the state to collect sales taxes. It has been near impossible for individual states to monitor all Internet sales looking for in-state transactions.

Now, states are going after bigger online sellers like Amazon, asserting that if Amazon has an affiliate in, say, Rhode Island, it has a physical presence in that state and must collect sales tax. In one example I found, Minnesota is proposing similar legislation, broadening the definition of "affiliated entity" to include a "solicitor", where the retailer has an agreement with a Minnesota "resident," and where the resident refers potential customers to the retailer. The stakes are huge for the states; the Minnesota proposal estimates $60 million in potential revenue annually (based on New York's revenues from the same legislation).

The Impact on Online Retailers. Sales taxes are a huge issue for Amazon and its Associates, indeed for all online vendors, because buyers are willing to purchase from online vendors and pay shipping fees, but the buyers don't want the additional cost of sales tax. With increased shipping costs, and additional taxes, many online sellers could see their revenues fall significantly as buyers go back to "brick and mortar" stores. Online seller eBay makes this strong statement:

eBay opposes raising taxes on the Internet or its users, as well as any attempt to impose remote sales tax collection burdens on the small businesses who can least afford it. This is certainly not the time to impose a major new tax burden on Internet vendors working to implement successful new business models, nor is it wise macro-economic policy to impose what is effectively a tax increase on American consumers.

The Amazon affiliates, called Amazon Associates, sell products on Amazon, which collects a fee for processing. With Associates in many states, Amazon has been in the forefront of the fight against "remote sales." Amazon's strategy appears to be to try to pressure states into backing off from their plans to attempt to collect sales taxes on Internet sales.

What is the Background? A 1992 Supreme Court decision (affirming an earlier decision) grants sellers the right not to collect sales tax unless they have a physical presence in that state. U.S. states have been fighting for the right to collect sales taxes, and they have banded together under a Streamlined Sales Tax coalition, hoping that if all states collect sales taxes, we will in essence have a national sales tax and every state will be able to collect sales tax on every online transaction.

The Rhode Island legislation has been passed by both houses and is awaiting a decision by the governor, and other states are watching New York. We will see if the states can impose these taxes, which many consider unconstitutional. And we'll see what happens with Amazon's attempts to get states to back off.

If your business were hit by a hurricane and looked like the one below, would you be able to recover your business records?

Yesterday I discussed some ways to get relief and loans from U.S. agencies if disaster strikes your small business. Today, I'm focusing on disaster preparedness for your business records. The SBA's disaster preparedness plan shows disasters prevalent in each area of the U.S., and I don't see any disaster-free zones. While damage to your business location can be devastating, destruction of your business records can be even more disastrous. Take steps now to assure the safety of your business records:

Keep physical records (documents and computer data) in a safe location. A fire-proof box in your office is not going to do it. If there is a tornado or hurricane, that box could be flying through the air; if there is a flood, it could be under a foot of water. Keep copies of your important papers (including tax returns, bank statements, and financial statement) off-site or scan them and put them in a safe deposit box. You can also put scanned documents on a CD or flash drive. If you have important software (financial or proprietary software, or software for your particular kind of business) make a copy if you can and put that software in a safe place, along with your data. For example, if you have your financial data on QuickBooks and you don't have the program, you may find it difficult to retrieve the data when you need it.

Take photos of your business location and assets. Digital photos taken shortly before the disaster can show more precisely what assets your business owns. Don't count on your memory; you will be under stress and likely not to remember crucial pieces of equipment. Don't forget the asset records for all of your business equipment, so you can substantiate the cost basis for those assets to your insurance carrier.

Plan for hardware loss. Losing your business server can keep you out of business for many weeks. Backing up your server on a network located somewhere off-site or through an online program like Carbonite can get you back up and running much more quickly.

Update your business emergency plan. If you don't have one, now is the time to get one. Look at it every year - July 1 might be a good time to do that - and review it with new employees and employees whose responsibilities have changed. When the hurricane is bearing down is no time to be checking on your business emergency plan. Make sure the plan includes care of business records and data.

Planning for Disaster. H-P has prepared a disaster risk analysis plan for SCORE that helps you review business data and determine the probability and severity of business risks and how to mitigate (minimize) these risks. Read more about Disaster Preparedness on the SBA website.

Many areas of the U.S. were hit with storms. floods, tornadoes and wildfires this spring, and Hurricane Season begins tomorrow (July 1). If your small business is affected by a disaster, several federal agencies can help.

New Federal Disaster Relief Site. First, check the new federal disaster assistance website (disasterassistance.gov) which consolidates disaster assistance from all federal agencies in one place. Although there is no specific section of the site dealing with small businesses, you can select from categories of assistance available and see what programs are available from various federal agencies.

The National Disaster Relief Act of 2008 (part of the Emergency Economic Stabilization Act of 2008) provides help for individuals and small businesses affected by disaster. The Act

• Allows all taxpayers, not just those who itemize, to claim the casualty loss deduction regardless of the taxpayer’s adjusted gross income level;
  
• Removes the requirement that the net casualty loss deduction be allowed only if the casualty loss exceeds 10 percent of the taxpayer’s adjusted gross income;
  
• Provides a five-year net operating loss (NOL) carryback for qualified natural disaster losses.

For business taxpayers, the Act also:

• Allows an affected business taxpayer to deduct certain qualified disaster cleanup expenses;
  
• Allows an affected business taxpayer to deduct 50 percent of the cost of qualifying property in addition to the regular depreciation allowance that is normally available; and
  
• Increases the limits that an affected business taxpayer can expense for qualifying section 179 property.

Small Business Administration. You can apply for a disaster recovery loan for physical damage to your business and for economic damage, through the Small Business Administration.

Internal Revenue Service.

• A list of states with specific information about disaster relief or tax provisions affecting individual states
  
• Tax relief for businesses suffering disasters is included in the provisions of the National Disaster Relief Act.

  Finally, check out the Disaster Preparedness and Recovery information available from SCORE (the Service Corps of Retired Executives).