Please know that with all good things, there are rules and exceptions to the rules (the tax code is full of exceptions).   Check out the list of  exempt items before heading to the store.  Happy Shopping.

Therefore, if you cannot pay, you can make payment arrangements. The IRS will allow you to pay your balance off in monthly installments. As long as you make your monthly payments as scheduled, they will not bother you.

Here’s how it works.  You determine how much you will be able to pay each month and what day of the month you’d like your payment to be due.  You then submit this information to the IRS and they have the option to approve or deny your installment.  However, most installments are approved.  Others are slightly altered.  If the payment amount you are requesting is too low, they might suggest you pay more.  Keep in mind, when requesting an installment agreement, make sure you request a monthly payment you can afford. It is better to pay more than less. If you miss a payment or pay less than your scheduled amount, it forfeits the installment agreement. If that happens, you will have to setup another installment agreement. Although, setting them up is not difficult, they are not free.   Each time you have to setup an installment agreement there’s a fee.

You can request an installment agreement online, over the phone or by completing Form 9465 and mailing it in.

I have found that many taxpayers do not realize that when you get married, (no matter what date) you are now required to file a married return. I know there are tax preparers out there that will tell you otherwise but I am not one of those. The tax code says a taxpayer’s marital status on the last day of the year determines their filing status for the entire year. Therefore, whether you get married in June or December, you still have to file a married tax return for that tax year. (The same holds true if you get a divorce.) Remember your filing status for tax purposes is determined by your marital status on the last day of the year.

We at By The Book Accounting we do your taxes the legal way. If you want your taxes done “right” give us a call. All others need not apply.

Listen to this 15 minute interivew and let me know if you learned something that help you give yourself a raise!

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BEWARE!!!!!  It’s a scam!!!!!

Here are a few facts about the IRS that you might find useful: 

• They don’t want to pay tax refunds, so they will never send you an email (or a letter) for that matter saying…. “We owe you money”. PERIOD!
• The IRS generally communicates via snail mail and telephone (and of course, the occasional in person visit….to the people who ignore them….that’s another post!!)

Keep in mind the IRS does not send unsolicited emails about your taxes.  If you get an email that appears to be from the IRS, it may be an attempt to steal your private information.  Don’t click on any links in the message!!!  Forward the email to: phishing@irs.gov.

 Knowing and following this advice just might save your life.

Whether you file your taxes yourself or pay someone else to file them, you are ultimately responsible for what is reported on your tax return. So choosing a tax preparer is a task that you should not take lightly.

Here are some tips that will help:

1. Be knowledgeable. Although you are not (nor do you desire to be) an accountant, you should have some degree of knowledge when it comes to taxes. If you do not know, you need to find someone who does and can explain it to you.

2. Word of Mouth. When searching for an accountant you want to find someone who is reliable and trustworthy. Word of mouth is the best mode of advertising so ask for referrals from family, friends and co-workers whom you respect and trust.

3. Availability. Having an accountant who is readily available to you is invaluable. When you have questions after tax season or the IRS sends you a “love” letter, you want someone who will be there to meet your needs.

4. Simplicity. It is a known fact that the U.S. Tax Code is written in a language that we do not speak. You want an accountant who can “translate” the code into plain English.

5. Qualified. This goes without saying but I thought I would say it anyway: choose someone who is qualified. Check out their educational background and experience. Be sure the person is current on all of the tax law changes and has experience in your area of need. Be leery of someone who claims to know it all. You know how the old adage goes, “Jack of all trades, and master of NONE!”

6. Guarantees. Listen carefully to the guarantees an accountant gives. If they guarantee you a refund without assessing your financial situation, you should run the other way. A true tax professional knows that you cannot give that type of guarantee without knowing your particular situation.  Do however pay attention to accountants who guarantee their work.  These types are guarantees are rare and priceless.

Choosing a tax preparer can be a difficult task but these tips can make it a lot easier.

Here are some year end tax tips that could drastically change your tax situation.

Get Current. One of the most important tax tips I can give is to make sure your accounting is up-to-date. It is important that you have a complete understanding of your financial situation. Scheduling a year-end planning session with your accountant is a good idea and a good start.

Procrastinate. I know this may sound crazy, but hear me out. If your cash flow can sustain it, then wait until January to bill those end of the year clients. Any cash you receive in December must be included on your 2008 tax return as income, but if you wait just a few more days you can defer payment of taxes on that income for another year.

Shop ‘til you drop. Purchase items that your business will need in the near future. Again this is if your cash flow permits. Some things you should consider are office supplies, equipment purchases or pay some bills early (i.e. business cell phone bill, utilities, rent, etc).

More blessed to give. We’ve all heard the saying, “it’s more blessed to give than to receive”. And it’s true in more ways than one. Push an early 2009 charitable donation back to 2008, which allows you to take the deduction in 2009 instead of waiting until 2010. Be sure you get a receipt to support the tax deduction.

Sock it Away. This is a great time to make payments to your retirement plan or setup one to reduce your business income before the year ends. Meet with your financial planner to verify the contribution limits and deadlines.

That covers the business owners, now I hear the individual taxpayers saying, “What about us?” Here are some deductions for individuals that are often times overlooked.

1. Job-related moving expenses
2. Job-skill improvement classes (including travel)
3. Professional and investment publications
4. Union or professional dues
5. Job-hunting expenses (including travel)
6. Child care expenses
7. Costs associated with operating a business from a home-office
8. New or used clothes, toys, and household goods given to charity
9. Fees for tax or investment advice and tax return preparation
10. IRA fees
11. Client gifts

Note: These year-end tips will apply differently to each individual’s situation and accounting method. Seek professional advice to determine the best strategy for your transactions for tax purposes.

1. Commingling funds – So many business owners are guilty of either using the business account to pay for personal expenses or paying business expenses through the personal account. This is a big NO NO!

2. Misclassifying workers – Times are tough and staffs are getting smaller and smaller. Many business owners are classifying workers as independent contractors when they really are employees. This mistake can shut your business down.

3. Not reconciling books to bank statements each month – This is a practice that should be done each month. It ensures that all charges on your bank statement are legitimate and it also ensures that all charges on your bank statements are recorded in your books.

4. No backup – A paper trial of documentation should exist for all computer records. Technology is a wonderful thing when it works. Telling an IRS audit that your computer records were stolen or lost in a fire will not be sufficient.

5. Miscategorization or over categorization – This occurs when expenses are either recorded in the wrong category or there are too many categories created.

6. Improper use of petty cash – A system must be put in place where a set amount of money is placed in the petty cash fund and accurate records of expenses and replishments are recorded.

7. Missing deadlines – Filing returns late can create unwanted penalties and interest.

8. Excluding startup expenses – Failing to keep accurate records of the expense incurred prior to opening the business doors. These expenses are often time paid from the personal account and are often times overlooked.

9. Including equipment purchases with supplies – Equipment is a capital expenditure, and capital expenditures have to be depreciated, which means they get written off over several years.

10. Improper auto expenses – There are many options for calculating deductions when you use your car for business. (Actual expenses OR mileage)

11. Claiming too much for gifts – You may claim gifts given to your client but keep in mind that you can only deduct $25/per client/per year. So if you give a $50 gift you can only deduct $25/per client per year.

12. Writing checks out of sequence - Writing checks out of sequence opens your business up to theft from employees or vendors. 

Have you heard a tip that you didn’t know about?  Which one?  What are you going to do to clean up your books?  We’d love to hear from you.

Avoid Extra Tax With A Wise Business Purchasing Plan!

Avoid the dreaded Alternative Minimum Tax by postponing purchases of depreciable assets or leasing rather than purchasing depreciable assets in years when you have high income and itemized deductions.  The alternative minimum tax is calculated by adding to your alternative minimum tax base any accelerated depreciation taken in a tax year.

Most busy business owners are not paying attention to the tax consequences and real money saving ramifications of their purchases.  In many cases, armed with up-to-date sales and revenue figures (especially 6 or 8 months into the year) you can properly plan when the best time would be to purchase that next “big thing” you need to run your business.  And again, in most cases, you can wait a couple of months and buy after the first of the year or in other cases, spend the money before December 31st.  Hey, on large purchases, it really does make a huge difference on your tax return!

SECRET TAX TIP #7

Defer Taxes Owed By Following The Installment Sales Rules

Use the Installment Sales rules to defer the tax you have to pay when you sell property by structuring your transactions so that you receive payments from the sale in more than one year.   For example, if your gain on the sale of property would be $40,000, you would owe tax on only half of that amount if you arranged to receive only half of the cash for the sale this year.

Too often, greed sets in and people want to get paid all up front.  But, if a deal is structured properly, getting paid some now and some over the next couple of years tends to dramatically help on the tax side of things.  Now of course, you don’t know what is going to happen with your financial picture in the future, but you might as well defer as many tax dollars as possible now and make other adjustments with future money in those coming years.  If given a choice, most of us would choose to give Uncle Sam his money later rather than earlier.

Now, those are 7 STRATEGIC ways you can benefit from the existing tax code and increase your profits this year.  But obviously there are thousands more tax savings strategies available.  Depending on your specific tax situation, you can use them all (if they apply) if you wanted to.

Even Small Deductions Can Add Up To Big Tax Savings!

Don’t forget the “de minimis” fringe benefits for maximum tax savings.  Did you know that the tax code allows you to deduct for things such as (a) tickets to theatres and sporting events, (b) cocktail parties for employees and guests and (c) the holiday gifts you give?   Although these expenditures may not seem large, they can really add up!

Again, the reason most American’s do not take advantage of these kinds of “tax breaks” is they do not have a simple system to follow.  No, I did NOT say complex.  If tracking your tax deductions throughout the year is complicated, you won’t do it.  So choose any system you want, just make sure it is right for you, your lifestyle and your personality.  If you are a detailed person who likes to track expenses and you love technology gadgets, then you’ll go about choosing a monthly tax deductions organizer differently than someone who has a hard time balancing their check book. 

The problem is not the system you choose.  The problem is continuing to believe a bunch of little deductions will not add up to big tax savings.  They do and if you need to throw a wad of cash down your toilet this month to help you experience the pain wasting money, please do so.  But, if you rather not, then start tracking those tax deductions and watch the net gain back to you add up big time come tax time!

SECRET TAX TIP #5

“EAP” Offers Tax Relief Through Your Employees!

Use an Education Assistance Plan (“EAP’) to get a $5,250 deduction per employee and reimburse your employees for their college education expenses.  With an EAP you can also take the same deduction and help pay for your child’s education.  

Look, this is definitely a win / win proposition.  The people who work for you and represent your business get more education and you get to write off for over $5,000 per employee!  And what is the down side?  Well, what if your employees need more education and you need more tax deductions?  If you don’t use a EAP, sounds like to me you are in for a double whammy!