Monthly Archives: June 2017

How to Deduct 100% of Meal Expenses

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Taxpayers are normally allowed to deduct 50% of their meal and entertainment expenses.  The reason is because the IRS believes that taxpayers inflate the amount of meal and entertainment expenses they claim as deductions, and therefore the IRS automatically throws out 50% of these expenses.  The IRS has some trust issues.

Fortunately, there are exceptions to the 50% rule.  If any of these exceptions are met, taxpayers may deduct 100% of their meal expenses.

The exceptions are:

De Minimis Meals

These are usually small, occasional meals that an employer provides to employees (e.g., coffee and occasional bagels).  The IRS requires that accounting for these food items is unreasonable or administratively impracticable.

Recreational or Social Meals

These include expenses related to recreational, social, or similar activities incurred primarily for the benefit of employees (e.g., company picnics, holiday parties).  If these events are only held for highly compensated employees, they will not qualify under this exception.  This exception only applies to employees; it does not apply to independent contractors.

Meals for the General Public

Examples of this exception include free hotdogs and popcorn at a grocery store.  The exception also applies to food provided to potential customers as part of a sales presentation (e.g., a free meal provided by a real estate broker to potential real estate investors).  This exception does not apply if the meals are provided on an invitation-basis only and not otherwise available to the general public.

Department of Transportation Meals

Individuals whose work is subject to the hours of service limitations of the Department of Transportation (e.g., interstate truckers, certain railroad employees) can deduct 80% of their food expenses.

Meals Treated as Compensation to Employees

Meals that are included in an employee’s W2 as wages are not subject to the 50% limitation by the employer.  The employer will claim a 100% deduction for the meal expenses as a payroll expense.  However, if the employee tries to deduct the meal expenses, she will be subject to the 50% limitation.

Meals Reimbursed under an Accountable Plan

When an employee or independent contract is reimbursed for meal expenses by a business owner under an accountable plan, the employee or independent contractor will not include any of the meal reimbursement as income (i.e., 100% of the meal reimbursement is excluded from income).  However, the employer will be limited to a 50% deduction for the meal expenses that it reimbursed.

Meals for Nonemployees who Receive a Form 1099

When a business provides a meal to a nonemployee and issues the nonemployee a Form 1099 for the value of the meal, the business can obtain a 100% deduction for the meal cost.  An example would include a business that holds a raffle and the winner receives a free dinner for himself and his family valued at $500.  If the business issues a Form 1099 reporting the $500 as income to the winner, the business can obtain a $500 deduction.

Meals during a Move that are Reimbursed by the Employer

An employer may obtain a 100% deduction for meal expenses she reimburses an employee during a move required for employment or business reasons.

Meals Sold by a Business

This exception is a technical exception to prevent businesses such as restaurants and daycare centers that sell food from being disallowed a valid deduction for cost of goods sold.

Meal expenses may be substantial.  If a business incurs any of the above expenses, they should be accounted for separately from meals that will be subject to the 50% disallowance rule.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Pros and Cons of a Paperless Business

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Has your bank, broker, credit card company, or maybe even your phone or utility company sent you information about getting your statements online instead of through the mail? Going paperless has its advantages — not the least of which may be seeing your countertop for the first time in months. But it also has its drawbacks. Before you completely eliminate paper statements, look at both the pros and cons.

The Benefits

When customers manage their accounts online, companies can save substantial amounts of money in printing and mailing costs. That’s why many companies offer incentives, such as reducing interest rates or fees or making donations to environmental groups, to encourage customers to go paperless. And fewer mailings mean there’s less risk that someone could steal personal documents from your mailbox and use the information fraudulently.

The Drawbacks

While companies claim financial information sent electronically is more secure, not everyone agrees. When they happen, security breaches can put your personal information at risk. And it may be easier to miss the e-mail or forget about reviewing statements or paying bills when you don’t have them right in front of you.

Another potential drawback: Retrieving statements that are more than a few months old may be difficult, although many companies say they’re working on archiving several years’ worth of documents.

Going paperless may be to your advantage, but weigh everything carefully before you sign up.

Take charge of your financial future. Give us a call, today, to find out how we can assist you and your business.

Taxes and Your Social Security

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social security income tax

If you thought Uncle Sam would forget about taxes on your Social Security retirement benefits, think again. When you have other income, up to 85% of your benefit could be taxable. Your “combined income” determines whether — and how much of — your benefits will be subject to federal income tax.

What’s Combined Income?

Your combined income comprises all the income you receive from any source, with only a few exceptions. Combined income includes wages and self-employment income; rental income; investment income, such as interest, dividends, and capital gains; income from pensions and retirement accounts (but not tax-free Roth distributions); and — here’s the kicker — even tax-exempt interest from municipal bonds. In addition, you have to add in half your Social Security benefits when you are figuring your combined income.*

The Thresholds

You won’t pay taxes on your Social Security if:

  • Your combined income is not more than $25,000 and your filing status is single or head of household
  • Your and your spouse’s combined income is not more than $32,000 and you file a joint return

Up to 50% of benefits are taxable if you have combined income between:

  • $25,000 and $34,000 (single/head of household)
  • $32,000 and $44,000 (married joint)

Up to 85% of benefits are taxable if you have combined income of more than:

  • $34,000 (single/head of household)
  • $44,000 (married joint)

And if you’re a married taxpayer filing a separate return, you’ll probably have to pay taxes on your benefits. Connect with us today for all the latest and most current tax rules and regulations.

* You have to take certain adjustments into account in the combined income calculation.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

How to Improve Your Cash Flow

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money-2328715_1920Slow paying customers, seasonal revenue variations, an unexpected downturn in sales, higher expenses — any number of business conditions can contribute to a cash flow crunch. If you own a small business, you may find the suggestions that follow helpful in minimizing cash flow problems.

Billing and collections. Your employees need to work with clear guidelines. If you don’t have a standardized process for billing and collections, make it a priority to develop one. Consider sending invoices electronically instead of by mail. And encourage customers to pay via electronic funds transfer rather than by check. If you don’t offer a discount for timely payment, consider adding one to your payment terms.

Expense management. Know when bills are due. As often as possible, pay suppliers within the period that allows you to take advantage of any prompt-payment incentives. Remember that foregoing a discount in order to pay later is essentially financing your purchase.

Take another look at your costs for ongoing goods and services, including telecommunications, shipping and delivery, utilities, etc. If you or your employees travel frequently for in-person meetings, consider holding more web conferences to reduce costs.

Inventory. Focus on inventory management, if applicable, to avoid tying up cash unnecessarily. Determine the minimum quantities you need to keep on hand to promptly serve customers. Systematically track inventory levels to avoid overbuying.

Debt management. Consider how you use credit. Before you commit to financing, compare terms from more than one lender and keep the amount to a manageable level. For flexibility, consider establishing a line of credit if you do not already have one. You will be charged interest only on the amount drawn from the credit line.

Control taxes. Make sure you are taking advantage of available tax breaks, such as the Section 179 deduction for equipment purchases, to limit taxes.

Develop a cash flow budget. Projecting monthly or weekly cash inflows and outflows gives you a critical snapshot of your business’s cash position and shows whether you’ll have enough cash on hand to meet your company’s needs.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

IRS Issues Reminder of What Is Needed to Prove Charitable Deductions

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charitable donationsAs people are getting their last minute tax deductions in before the end of the year, the IRS published reminders to taxpayers of what documentation is needed to claim charitable donations.

The documentation requirements are strict and if there is any deficiency in proof, the IRS can disallow the deduction even if you can prove payment with a canceled check or receipt.

So, here are the requirements:

Rules for Clothing & Household Items

To be deductible, clothing and household items must be in good condition or better. A clothing or household item (e.g., furniture, furnishings, electronics, etc.) for which a taxpayer claims a deduction of over $500 does not have to be in good condition if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgment from the charity for all gifts worth $250 or more.

Rules for Donating Money

To deduct donations of money, regardless of amount, the taxpayer must have a bank record or a written statement from the charity showing the name of the charity and the date and amount of the contribution.

Bank records include: canceled checks, bank or credit union statements, and credit card statements. The bank record should show the name of the charity, the date of the donation, and the amount paid.

For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 showing donations, or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

For money donations $250 or more, the taxpayer MUST receive an acknowledgment from the charity BEFORE filing the tax return in order to claim the deduction. If an acknowledgment is not received, the taxpayer cannot claim the deduction even if proof of donation is established by bank record.

Other Reminders

Only donations to qualified organizations are deductible. Donations directly to needy individuals are not deductible. The IRS maintains a database of qualifying organizations at https://apps.irs.gov/app/eos/mainSearch.do;jsessionid=mg3hp1dT8jJZjNPqoF3SdA__?mainSearchChoice=pub78&dispatchMethod=selectSearch

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2015 even if the credit card bill isn’t paid until the following year. Donations by check are deductible in 2015 if they are mailed out before the end of the year.

For individuals, only taxpayers who itemize their deductions can claim deductions for charitable contributions.

For donations of all property, including clothing and household items, the taxpayer should get from the charity a receipt that includes the name of the charity, the date of the contribution, and a reasonably detailed description of the donated property.

To see how this applies to you, give us a call at 248-538-5331.

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

IRS to Its Auditors:  Info on IRS.gov Isn’t Reliable

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irs faqsThe IRS Small Business/Self-Employed Division recently issued a memo to its Field Examination Area Directors [auditors] stating that frequently asked questions (FAQs) and other items posted on IRS.gov, that have not been published in the Internal Revenue Bulletin, are not legal authority.

The Internal Revenue Bulletin is the authoritative instrument for announcing official rulings and procedures of the IRS and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest.

Background

The IRS makes frequent postings to its website.  In many cases, these postings are in the form of FAQs.  Often, these items are not reproduced in pronouncements that form part of the Internal Revenue Bulletin.

The memo states that it is the policy of the IRS to publish in the Internal Revenue Bulletin all substantive rulings necessary to promote a uniform application of the tax laws.  IRS employees must follow items published in the Internal Revenue Bulletin, and taxpayers may rely on them.  FAQs that appear on IRS.gov but that have not been published in the Internal Revenue Bulletin are not legal authority and should not be used to sustain a position unless the items explicitly indicate otherwise or IRS indicates otherwise by press release or by notice or announcement published in the Internal Revenue Bulletin.

So Why Bother Viewing Info on IRS.gov?

While information cannot be cited as support for a tax position, the information on IRS.gov is still useful if you need an overview of a tax topic.  The information on IRS.gov also tends to cite sources that can be used as legal authority (such as tax statutes, regulations, etc.).  While you can’t cite the information on IRS.gov as legal authority, the site will usually point you to source material that can be used as legal authority.  By the way, you probably shouldn’t be doing tax research in the first place—talk to a tax professional if you have a complicated tax issue.

What Are Your Financial Ratios Telling You?

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hulksterHow’s business? Most business owners can answer that question without consulting a financial statement. But what if someone asks about “return on assets” or “average collection period”? To answer those questions, you need the help of financial ratios.

Inside the Numbers

A financial ratio is the numerical relationship between certain figures on your income statement and balance sheet. “Profit margin” is probably the most familiar financial ratio. Expressed as a percentage, profit margin is calculated by dividing net income by sales.

There are many useful ratios. They can provide information about liquidity, turnover, and debt, as well as profit. Digging “inside” the numbers can reveal such things as how quickly receivables are collected, how frequently inventory is turning over, and whether you’re in a good position to repay your financial obligations on time.

Putting Ratios to Work

While the numbers themselves are interesting, the real value comes from analyzing financial ratios. You can use ratios to spot trends, both good and bad, by comparing your company’s current situation with the past. And ratio analysis can help you with forecasting and goal setting.

Ratios can also be used to compare your company’s financial performance with that of other companies and with the industry as a whole. Another important use: Bankers frequently review a company’s financial ratios as part of the loan application process.

Some Common Ratios

The following key financial ratios are essential business management tools.

Current Ratio Current assets ÷

current liabilities

Does the company have sufficient resources to meet current liabilities when they come due?
Debt-to-Equity Total liabilities ÷

stockholders’ equity

How heavily is the company leveraged?
Gross Profit Margin Gross profit ÷ sales How much profit is available to cover operating expenses?
Net Profit Margin Net income ÷ sales How much profit is earned on each sales dollar after all expenses are accounted for?

For more tips on how to keep business best practices front and center for your company, give us a call today.

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