Ho-Ho-Holiday Write-Offs!

I know; I know…when you’re shopping and party-planning for the holidays, you’re likely not considering the deductibility of your expenditures. But be careful in your partying and your gift-giving – or you could end up giving your favorite uncle a celebration, as well. Following are a few guidelines for your business holidays.

CLIENT GIFTS

You’re allowed to spend whatever you like, but you’ll only be able to deduct $25 per person per year. In the case of a couple, they count as one person, so you may only deduct $25 of gifts to that couple during the year. This limit does not include ‘incidental’ costs such as gift wrap, engraving, shipping, etc, as these add nothing to the value of the gift.

But, of course, there are loopholes. When the client gift exceeds the $25 maximum, perhaps entertainment gifts might be a better option. So, what are entertainment gifts? These gifts generally include tickets to concerts, sporting events, movies, etc. You may deduct 50% of the cost of entertainment gifts.

Also, instead of gifting one individual, consider sending a gift basket or similar gift to the client’s staff. These are also not subject to the $25 limit.

Another opportunity here encompasses certain gifts commonly given where: the value is minimal ($4 or less), it’s engraved with your company name/logo and/or the gifts are identical to others you distribute. This would include such items as mugs, keychains, pen sets, etc. These are 100% deductible.

EMPLOYEE GIFTS

The rules are a little different for gifts given to employees. If the gifts are de minimis (of minimal value, for example, food items, small gift cards, etc), the company can deduct these and they are not included in the employees’ pay. These are deductible 100% up to a maximum of $25 per employee per year.

If the gifts are larger (holiday bonuses, awards, etc), the company can deduct them, but they must be reflected in the employees’ pay. For purposes of withholding, they are treated as any other supplemental pay; withholding is generally at the highest federal and state rates.

HOLIDAY PARTIES

Holiday parties you host for your employees and their families are 100% deductible; they are not subject to the 50% limit. Also, holiday parties to which you invite the general public are 100% deductible.

However, holiday parties you host for clients are deductible at 50%, same as other meals and entertainment. Further, they must have a “substantial” business component. If the purpose of the party is to promote goodwill, or something of the sort, no part of it is deductible.

Be careful of inviting your friends. If your friends are not clients or employees, NO portion of the cost of the event attributable to them is deductible.

So, for example, your holiday party to which you’ve invited 10 employees, 10 clients and 10 friends cost $1800. You will be able to deduct $900: $600 (100% of $1800/3) for your employees, $300 (50% of $1800/3) for your clients and $0 for your friends.

Of course, documentation will be key. Maintain a copy of the invitation for your records; make certain the business purpose of the event is on the invitation. Keep a list of the invited guests. And, if you’re really brave, a video of the event would be priceless.

MILEAGE

Be sure to account carefully for miles driven during the holidays. If you’re attending a company or client event these are considered business miles. When you hit the stores to purchase gifts for clients and employees, this mileage is also considered business. Therefore, plan your holiday driving carefully so as to maximize your deductible miles.

So, this holiday season be generous with your employees and clients, but not so much so your Uncle Sam. Shop carefully and maximize your holiday season write-offs.

And should you have any questions regarding these or other tax matters, please give us a call at

NumberCrunchers Business & Financial Services 805-660-3658

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HAPPY HOLIDAYS!!

Oh, No! I Owe!

An overwhelming majority of taxpayers get a refund when they file their returns; they’ve made IRS an interest-free loan throughout the year and IRS is repaying that loan. Sometimes, however, you’ve played W-4 roulette – or you’ve failed to pay estimated quarterly taxes — and lost. You wanted that bigger paycheck or more money in the bank and now you owe. What to do?

Obviously, the best way to deal with owing tax – is not to. As a service to our clients, we will calculate your federal and state withholding for you at no charge. If you’d rather do it yourself, here’s a handy tool that will assist you. IRS Withholding Calculator. We’ll also estimate any quarterlies you might need to pay and provide payment vouchers for you.

But in the event you do owe the government, don’t worry. We’ll help you resolve it as painlessly as possible.

PAY THE BILL

— When you get a bill, pay it. The sooner you full pay the balance, the fewer the penalties and interest. In some cases, borrowing to pay off the debt could be less expensive. If you pay in cash, walk it in to an IRS office and be sure to get a receipt. If you pay by mail, send it certified and keep the return receipt. You can also pay online directly from your bank account or by using a debit or a credit card. To use your debit or credit card, the company will charge you a fee, but that fee could be much smaller than what IRS charges to set up a payment arrangement. Here is the link to pay IRS on line: IRS Online Payments

PAY ELECTRONICALLY

You can also pay via the Electronic Federal Tax Payment System (EFTPS). If you regularly make payments, setting up an EFTPS account is a good idea. Visit EFTPS to set up and use the system. You can also pay by phone using EFTPS by calling 800-555-4477.

SHORT-TERM PAYMENT PLAN

You can apply for a short-term payment arrangement if you can full pay the debt in 120 days or less. Call IRS at the phone number listed on your bill; if you can’t find the number, call 800-829-1040; they will direct you. IRS generally doesn’t charge a fee for a short-term payment arrangement. If you want to avoid IRS’ long hold times, just bring your notice to us. We’ll get a few pieces of information and make the arrangements for you.

SIMPLIFIED INSTALLMENT AGREEMENT

If none of the above will work for you, consider making an installment agreement. If you owe less than $50,000, we can arrange a payment plan over a maximum of 72 months without providing IRS a financial statement. While this repayment period will result in the lowest payment, we strongly encourage you to pay the balance off as soon as possible, as penalties and interest will continue to accrue until the debt is paid off. If you agree to pay via direct debit, IRS will generally refrain from filing a lien against your property.

There is a one-time user fee associated with requesting an installment agreement. IRS will charge $105, unless you agree to direct debit, in which case, the fee is reduced to $53 ($43, if your income is below a certain level).

STANDARD INSTALLMENT AGREEMENT

So, what if you owe IRS more than $50,000 or you need longer than 72 months to pay? Then we’ll request an installment agreement (Form 9465 Installment Agreement Request) for you and we’ll submit a financial statement (Form 433F, Collection Information Statement). The same user fees apply.

OFFER IN COMPROMISE

In the event you owe more than you foresee being able to pay within the collection statute (10 years), we should consider an Offer in Compromise. An OIC allows you to settle your tax debt for less than the full amount. This is one of the areas in which we specialize. Unlike the myriad other companies who advertise this service, we don’t take your retainer unless we determine you will qualify for an adequate settlement. Settlements are generally based on your assets and your income; we sometimes have to turn applicants away. Our average settlement is five cents on the dollar.

IRS’ Fresh Start Initiative makes it much easier for individual taxpayers and small businesses to pay their back taxes and avoid liens and levies. Give us a call and let us see how it can help you.

Many of these resolution methods are available when you owe your state, as well. The terms and repayment periods will vary. Just give us a call and we’ll be happy to help you work things out.

Of Course, I Have a Retirement Plan! Powerball!!

Powerball fever swept across America last week, with a record jackpot of $1.5 billion eventually being split by three winners in the January 13 drawing. Millions lined up for lottery tickets, hoping to realize their dreams of being rich, independent, and carefree.1,2

This infinitesimal chance at massive wealth was certainly alluring – to too many, more alluring than the practical steps that can be taken in pursuit of personal wealth and retirement security.

The passion for Powerball defied logic. It may have been a commentary on our wishful thinking, and on the lack of financial literacy in America as well.

As Creighton University professor Brad Klontz remarked to CNBC, “A lot of individuals who are not saving for their retirement are standing in line to buy a Powerball ticket. It’s a lot more seductive than instituting a savings plan.”1

On January 13, a Powerball ticket buyer had a 1-in-292-million chance to win the big prize. In comparison, the odds of someone being killed by a falling vending machine within the next 365 days are 1 in 112 million, and the odds of a person being struck by both lightning and a meteorite during their lifetime are 1 in 210 million.2

When the Powerball jackpot reached $1.3 billion last week, a widely circulated Internet meme claimed that the jackpot could end poverty, stating that every American would get $4.3 million if were divided equally among the population. This was passed along as truth rather than colossally bad math – it would only apply if there were 300 Americans. Since there are roughly 300 million Americans, divvying up the $1.3 billion across the entire U.S. population would give each of us $4.33, give or take a few cents – enough to buy a flavored latte.3

What if we simply saved $4.33 per day, or more? Our financial lives might take a turn for the better.

Usually, wealth is not a matter of fate or luck. We can all take practical steps toward financial freedom, and even if we do not end up rich, those steps may improve our personal finances and retirement prospects.

First, spend less than what you make. Two or three percent less, 5% less, 10% less – whatever the number, it must be calculated from a comparison of your monthly income versus your monthly budget. That comparison may take a half an hour, but it is time well spent. Size up the money coming into your household per month with the money going out of it per month, and set a percentage that you would like to save every month. In effect, you will be paying yourself X dollars a month – and paying yourself, rather than your creditors, is a fundamental move for financial independence.

Two, direct these savings into investment accounts as well as savings accounts. It is vital to build up savings so that you can have an emergency fund – a good, strong emergency fund amounts to several months’ worth of salary. Another portion of the money can go into retirement savings accounts, preferably to be invested in equities. Yes, 2016 has started poorly on Wall Street, but one bad month (or year) is not the historical norm for the market.

Three, cut down bad debts. There are some “good debts” in life – debts that we take on in pursuit of a worthy outcome, such as a home loan or an education loan. Bad debts outnumber them, and the average credit card statement will note many. Some financial professionals and consumer advocates will tell you to try and pay off the debt with the highest interest rate first, then the one with the next highest interest rate, and so on; others will tell you to eliminate the smallest debt first and work your way up to the largest. One way or the other, you want less debt and you want to pay off any credit card balances in full each month.

Four, chat with a financial professional to determine your money goals. When will you have enough savings to retire? When should you claim Social Security, and how long should you keep working? How much monthly income might you need when you are retired? Most people retire without any answers to these questions, only guesses. It is important to know not only what you are doing, but also where you are going – and through a long-run saving and investing strategy, you can set objectives and measure your progress toward them over time.

The fantasy of receiving great wealth with no effort inspires people to play the lottery and try other forms of gambling. The reality is that building wealth and saving for retirement take planning and commitment. While some may not want to acknowledge this reality, those who do may find themselves making financial strides as others struggle.

Provided by H.A. Reniger, III may be reached at 805/520-3888 or hreniger@mackinacstrategies.com.
MackinacStrategies.com

What Do You Mean, I Can’t Deduct My Guard Frog!?

The Minnesota Society of Certified Public Accountants recently surveyed its member on the most outrageous tax deductions clients tried to take on their tax returns. The resulting list shows that, more often than not, clients don’t know which deductions are allowed — and can get really creative trying.

#10 – Expensive Clothing
We all like to look nice, especially for business purposes. But you’re expected to arrive to work fully clothed (looking nice is a bonus).

# 9 – Baby Grand Piano
A client, who was a humanities professor, thought he could deduct a piano. Unless the professor was providing lessons as part of a small business, this was not an acceptable deduction.

# 8 – Misinterpretations of Charitable Donation
Unfortunately for one client, gambling losses didn’t qualify as a charitable donation to casinos or the Minnesota State Lottery.

# 7 – Foot Powder for Smelly Feet
Not stinking up the office doesn’t qualify as a tax write-off.

# 6 – ‘Business’ Boat
One client wanted to depreciate the cost of a large boat because it was used occasionally for client entertainment. You better set sail on that idea.

# 5 – Amusement Park Season Tickets
Unfortunately, theme parks don’t qualify for a day care deduction.

# 4 – Cat Food and Litter
Sorry, crazy cat ladies. Your kitties may be used to keep mice out of the barn, but their bare necessities aren’t deductible. In general, pet expenses aren’t deductible.

# 3 – A Wedding to Remember
A client wanted to deduct part of his wedding costs because more than half the guests were business-related contacts. Nice try.

# 2 – Keeping Yourself Rejuvenated
Botox, tanning, nails and the like do not qualify as acceptable deductions. But the spa…what about the spa?

# 1 – Commuting to Work
You can get mileage reimbursement either through your work (if offered) or the government for mileage incurred while on the clock and for business purposes, but driving to and from work is not going to stick. Not even in Southern California.

Who knew Minnesotans could be so creative? Californians, the competition is on!

Did Someone Say Molasses in January? Where’s My Refund?

No, hell won’t freeze over, but it’ll get pretty chilly. Refunds will be much slower in 2016, but they’ll get here…eventually.

Last year’s income tax season was marked by an explosion of refund theft. Will this year be any different?
Increased protections may cut down on fraud but will likely draw out the wait for your money. Changes will be visible when you use tax preparation firms and filing software, with warnings akin to those from your bank if you try to log in from a new device or change account information. Less visible will be broader changes, such as revamped fraud-sniffing programs used by the IRS, states, and the tax prep industry, as well as new information-sharing agreements among all three.

Whether these measures will make it appreciably harder for someone to use your identity to claim your refund isn’t clear. One of the best consumer defenses against refund fraud is to file as early as possible, starting Jan. 19, beating would-be thieves who depend on your procrastination. But the best defense is to set your deductions ahead of time so that you get no refund at all.

Here’s what taxpayers can expect this season:

More Identity Verification

Yes, this means wider use of those multiple-choice questions about where you lived 30 years ago if you’re filing electronically. It also means “a lot more reactive warnings to users that something has been changed, and making sure it was them that changed it,” said JoAnn Kintzel, chief executive of Tax Act, a tax software firm. “If an e-mail address changes, a message will go both to the new e-mail and the old e-mail.”

Taxpayers will also get a notice if bank deposit information or their home address is changed, said Julie Miller, a spokesperson for tax software company TurboTax, and companies will check to see if more than one account is using the same Social Security number.

Leading tax prep and software companies, as well as payroll and tax financial payment processors, working with states and the IRS, have all agreed to a set of minimum security measures. Companies and states may put in place additional measures, as Alabama did this year, requiring anyone filing electronically in that state to provide information from a driver’s license or state ID card.

Stronger Passwords

Though complex passwords are commonplace on other consumer and bank websites, the tax industry has finally joined the club. The passwords must now include a lowercase letter, an uppercase letter, a symbol, and a number (for example, ‪#‎H8This‬). A new timed lockout feature will kick in after repeated failed login attempts.

The IRS launched a consumer education and awareness campaign this past November about security basics. They include not using the same password for multiple accounts, using anti-virus protection, and encrypting sensitive data.

Looser Refund Timing

There will be less certainty about when taxpayers can expect state refund checks, said Verenda Smith, deputy director of the Federation of Tax Administrators. “In the past, there was a political imperative to get refunds out the door, and that has certainly changed,” she said. “You may have a perfectly fine return, but the state will take just a little longer to confirm that it’s you who is filing it.”

More Paper Checks

There may also be more refunds that come in paper checks, even for those who request direct deposit. That may prove particularly true for first-time filers, said Smith.

Last year, many fraudsters changed a taxpayer’s preferences in favor of direct deposit to a prepaid debit card account created before filing the false return. So this year, Utah will directly deposit a refund only into a bank account or prepaid debit card issued by a taxpayer’s financial institution. Alabama also changed its policy so that its Department of Revenue can send paper checks to your mailbox even if a taxpayer requested direct deposit, which will be done on a case-by-case basis.

“Prepaid cards are the currency of criminals,” IRS Commissioner John Koskinen told 60 Minutes in 2014. “Our problem is you can’t distinguish the number of a prepaid card from a legitimate bank account.”

SUZANNE WOOLEY
BLOOMBERG
01/08/16

A Gift? For Us? Yes, You Should Have!

GREAT NEWS! – Today President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act of 2015! The PATH Act of 2015 is the result of cooperation by both chambers of Congress and renews/makes permanent some important tax incentives for individuals and businesses.

Each year, my business taxpayers sit on pins and needles as they wait to find out – at the end of the year or early the following year – whether the money they’ve spent purchasing new equipment all year will be deductible in full or whether they’ll have to take tiny bites over seven or more years. Well, the Section 179 expense tax provision has been enhanced — as well as permanently extended! We can actually — uh — plan!!

Now, come down off the ceiling and read this quick summary of the PATH Act of 2015.

The following tax incentives will be made permanent:
• Enhanced Child Tax Credit
• Enhanced American Opportunity Tax Credit
• Enhanced Earned Income Tax Credit
• Above-the-line educator deduction
• Sales tax (as an alternative to state income tax) deduction
• Enhanced mass transit and parking pass benefits
• IRA donation to charity (California automatically conforms)
• Research & Development credit
• IRC §179 — $500,000 write-off on up to $2,000,000 of equipment; up from $25,000 on $200,000
• Enhanced exclusion of gain on sale of small business stock
• Built-in gains holding period
• Write off of retail/restaurant improvements over 15 years

The following will be extended through 2019:
• Bonus depreciation (this will phase out gradually)
• Enhanced first year bonus depreciation on automobiles
• Work Opportunity Tax Credit — tax incentive to hire the disabled, welfare recipients and other economically challenged individuals.

The following will be extended, but only through 2016:
• Qualified tuition deduction
• Nonbusiness Energy Property Credit
• Exclusion from income of cancelled mortgage indebtedness
• Mortgage insurance premium deductible as interest

I’ll share more details with you when we visit, but I know some of you are so excited you just can’t wait. Okay, so you’re not all tax geeks like yours truly; I’ll forgive you. But should you have questions in the interim, please give me a call.

Welcome To Our Blog — Money Talks

No more tax “stuff” clogging your inbox!

This is the spot in which we’ll be posting the tax and financial news you want to know. Occasionally a tax joke, cartoon or puzzle will find its way here, as well. No more trying to remember which issue of the newsletter contained the info you didn’t know you’d want when it first arrived.

If this isn’t enough of us for you, I welcome you to stalk me on FaceBook. That’s where you’ll find everything I forgot to publish on the website. Here’s where I hang out: NumberCrunchers Business & Financial Services

Please feel free to send me your input — including topics you’d like me to address: pwilliams@number-crunchers.com

I’d love to hear from you!