Highpoint Accounting, Inc. Blog

Illinois Income Tax Update

As you have heard, the Illinois legislators passed an income tax hike earlier this month which is effective July 1, 2017.  What does this mean for you? Illinois income tax rates increased from 3.75 percent to 4.95 percent for individuals, trusts and estates. Beginning with tax year 2017, individuals filing married filing joint returns with income exceeding $500,000 and $250,000 for all other returns may not claim the following: Personal exemption allowance K-12 Education Expense Credit Property Tax Credit Corporate tax rates (excluding S Corporations) increased from 5.25 percent to 7 percent. Beginning with tax year 2018, the Domestic Production Activities Deduction allowed from profitable corporations and partnerships which flow to your federal tax returns must be added back to income on the Illinois tax returns. This income tax rate hike means paying an extra $12 on each $1,000 of income.   However, if you earn at least $501,000 as a married couple, your tax hike is more as you lose the personal allowances and above-mentioned credits. You can minimize your tax liability by saving more in your 401(k)s, IRAs and business retirement accounts.  Retirement income is not taxable in Illinois as of yet.  You can also minimize your tax liability by saving money for your kids’ college education in one of Illinois two 529 college savings plans.  However, another state’s 529 college savings plan is not deductible.  You will not ever pay taxes on monies contributed to Illinois 529 accounts or its earnings if the funds pay for college. If you would like to learn more about this tax strategy, please call Susan at...

2017 Mileage Rates

The Internal Revenue Service has issued its 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is: 53.5 cents per mile for business miles driven, down from 54 cents in 2016. 17 cents per mile driven for medical or moving purposes, down from 19 cents in 2016. 14 cents per mile driven in service of charitable organizations, same rate as in 2016. You always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. If you would like to learn more about this tax strategy, please call Susan at...

Deducting Business Education Expenses

The rules for business education deductions are as follows: You must already work in the business the education relates.¹ You must have already met the minimum educational requirements for the work.² If your education meets the above requirements, the rules let you deduct almost all of your related expenses, including³ Tuition, books, supplies, lab fees, and similar items Certain transportation and travel costs; and Other educational expenses, such as the cost of research for papers. If you are an independent contractor or a sole proprietor, you report your qualifying business education expenses on Schedule C which reduces your self-employment, federal and state income taxes. If your business operates as a corporation, making you an employee, the business can directly pay or reimburse you for the costs.  The corporation takes the deduction, and you receive the free education. Another way to take business education expenses is as Start-up Costs. If you take business related course(s) after starting your business, you can claim your education costs as a “start-up” expense.  Start-up expenses are costs related to the investigation, purchase, or creation of a new business that would qualify as deductible expenses if you incurred them for an existing business in the same field.4  You can elect to deduct up to $5,000 of start-up costs in the year your business begins, reduced (but not below zero) by the amount by which the costs exceed $50,000.  You then deduct the remainder of your start-up costs using straight-line amortization over the 15-year period beginning the month your business starts.5 If you close your business before the start-up costs are fully amortized, you deduct any...

Expedited Nonresidential Qualified Leasehold Improvement Tax Deductions

First let’s explain what qualifies as a nonresidential leasehold improvement: A qualified leasehold improvement is any improvement made to the interior portion of a nonresidential building if¹: The improvement is made pursuant to a lease by the lessee, sub lessee or lessor as long as the lease is not made between related parties. Lessee occupies the portion being improved, and Improvement(s) is placed into service more than three years after the date the building was first placed into service. Qualified leasehold improvement expenses exclude any improvements for² Enlarging the building Elevators or escalators Structural components for the common area of the building, or Internal structural framework of the building (load-bearing walls, columns and beams) Qualified leasehold improvements include the following: Utilities Framing Walls Doors Windows Pipes and fittings Fire protection HVAC (heating, ventilation and air conditioning) Permanent interior finishes Permanent floor coverings, and Millwork and trim Qualified leasehold improvements qualify for the following tax deductions: Immediate Section 179 expensing up to $500,000³ Immediate 50 % bonus depreciation until year 2019 4 15-year depreciation on the basis remainder 5 In other words, you spend $600,000 on qualified leasehold improvements.  You use Section 179 expensing to expense $500,000 this year, then apply the 50% bonus depreciation of $50,000 and leaves you with a basis of $50,000 to expense over the 15-year period beginning this year. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880 ¹ IRC Section 168(e)(6)(A) ² IRC Section 168(e)(6)(B) ³ IRC Section 179(f)(2)(A) 4 IRC Section 168(k)(2)(A)(i) 5 IRC Section 168(e)(3)(E) (iv)...

Failed Rental Property Purchase Tax Procedure

When your attempt to purchase rental property fails, two types of costs are considered Capital acquisition costs Start-up expenses Capital acquisition costs are those costs that you capitalize and add to basis.  Two examples of rental capital acquisition costs are Earnest money Inspection and appraisal Because you entered into this capital acquisition to make a profit, you can deduct your failed capital acquisition as a loss on IRS Form 4797¹ for the full amount of the costs. Start-Up expenses are costs incurred to create or acquire a business or rental.  For example, if you incurred travel expenses in pursuit of starting your rental business which failed, your travel costs are in oblivion. If you start another rental business, the failed travel costs will produce tax benefits on the new rental as start-up expenses. If you do not start another rental business, the travel costs are lost when you die. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880 ¹ IRC Section...

American Opportunity Credit for Education

The American Opportunity Credit is for education expenses of an eligible student who is a taxpayer, spouse or dependent(s). The maximum credit amount is $2,500 per eligible student. 100% of the first $2,000 of qualified education expenses 25% of the next $2,000 of qualified education expenses Qualified expenses are tuition, fees, and course materials required for enrollment or attendance at an eligible educational institution.    An eligible educational institution is any college, university, vocational school, or any other post secondary educational institution.  They include almost all accredited post secondary schools.  Qualified expenses also include student activity fees if the fees must be paid as a condition of enrollment, books, supplies, and equipment needed for a course of study. An eligible student is as follows: Student has not already claimed the American Opportunity Credit in at least four prior tax years. Student has not completed the first four years of post secondary undergraduate education before the tax year as determined by the educational institution. For at least one academic period beginning during the tax year, the student was enrolled at least half time in a program leading to a degree, certificate, or other recognized educational credential. The student had no federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. The American Opportunity Credit also has restrictions as follows: Income limit for 2015 is modified AGI between $80,000 and $90,000($160,000 and $180,000 MFJ).  These amounts are adjusted for inflation each year. No credit is allowed if: Filing status is Married Filing Separately Taxpayer is claimed as a dependent on another...

Section 179 Depreciation Deduction

Starting in year 2015, the Section 179 deduction limit in now permanent at $500,000 with the investment limit at $2,000,000 and indexed for inflation.  If the total cost of Section 179 property exceeds the investment limit, the available Section 179 deduction is reduced by the amount of the excess (but not below zero).  Amounts disallowed because of the investment limit may not be carried over.  However, if the business income limit prevents a business from deducting all or part of the cost of Section 179 property, the disallowed amount is carried over to the next tax year. Off-the-shelf software eligible for Section 179 is also now permanent. A Section 179 deduction made may be revoked or modified without IRS approval by filing an amended tax return.  Once revoked, the election cannot be reinstated. Carryover of Section 179 attributable to qualified real property provision is now permanent. If you would like to learn more about this tax strategy, please call Susan at...

2016 Health Insurance for S Corporation Owners

Deducting health insurance is a 3 step process for the more than 2% S corporation employee-shareholder.   However, before discussing the 3 step process, the health insurance plan for the more than 2% S corporation employee-shareholder must be established by one of the following:ᵃ The S corporation makes the premium payments for the health insurance policy covering the more than 2% employee-shareholder (and his/her spouse or dependents, if applicable). The more than 2% employee-shareholder makes the premium payments to the insurance company and furnishes proof to the S corporation, which reimburses the more than 2% employee-shareholder . Now here are the 3 steps: The cost of the health insurance premium are on the S corporation books. The S corporation must include the health insurance premium on the more than 2% S corporation employee-shareholder’s Form W-2 in Box 1.  The income is not subject to Social Security and Medicare.ᵇ The more than 2% S corporation employee-shareholder claims the health insurance deduction on page 1 of Form 1040. However, to claim the self-employed health insurance deduction on page 1 of the Form 1040, the more than 2% employee-shareholder must substantiate the following: The more than 2% employee-shareholder cannot take this insurance deduction if s/he or spouse is eligible for employer-subsidized health insurance.ᶜ The more than 2% employee-shareholder premiums cannot exceed the amount of S corporation salary.ᵈ If your S corporation employs less than 50 full-time employees,ᵉ then you do not have to provide health insurance benefits to your employees.  However, when you provide medical benefits to non-owner employees, your S corporation will be penalized $100-a-day if your S corporation reimburses employees for...

What is New for Desktop QuickBooks 2016

The following features are included with QuickBooks Pro and Premier 2016 and QuickBooks Enterprise Desktop 16.0 Bill Tracker  You can access it from either the menu bar, select Vendors, then Bill Tracker or from the Vendor Center or from the top or left navigation bars.   With the new Bill Tracker dashboard you can: View real-time data and status of the money-out transactions for the business Filter the displayed details by clicking on any of the color blocks at the top Filter the displayed details specifically for: Vendor, which includes a subtotal and the option to expeand or collapse selected vendor details Type of transaction Status of transactions including all, open or overdue Date range Group the displayed information by Vendor Clear/Show all will reset any filters you have selected   Bulk Clear Send Forms You can access it from the menu bar, select File, then Send Forms   With the Bulk Clear Send Forms, you can remove the Email Later selection on the Create Invoice window in batch from the Send Forms menus. Fiscal Year-to-Last Month Report Filter You can access from any report that permits you to filter for a specific date range.  From a displayed report, select the Dates drop-down then choose This Fiscal Year-to-Last Month.     These are just a few items new to QuickBooks,.  If you would like to learn more about these and other new QuickBooks tips and the QuickBook improvements, please call Susan at...

2016 Mileage Rates

Beginning Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is: 54 cents per mile for business miles driven 19 cents per mile driven for medical or moving purposes 14 cents per mile driven in service of charitable organizations You always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. If you would like to learn more about this tax strategy, please call Susan at...
Create Recurring Invoices

Create Recurring Invoices

When you have customers that you charge each month for the same services, QuickBooks Online has a “make recurring” feature.   Click on the Gear Icon at the upper right side then click Recurring Transactions under Lists.   The above screen will appear.  Select Scheduled in the box to the right of Template Type and select Invoice in the box to the right of Transaction Type. Next fill in all the pertinent information above.  You can check the box for “Automatically send emails” so the invoices are e-mailed at your desired interval.  Click the Save Template button on the bottom right side after filling in all the information. Another option to setting up Recurring Invoices is clicking the Plus Sign in the middle of the screen then selecting Invoice under Customers.   You can then fill in the pertinent information then click “make recurring” at the middle bottom of the screen.   This will take you to the recurring transaction screen as shown in Figure 3 above. If you do not check the the box for “Automatically send emails” then you can print the Invoices from the Transactions>Sales click on the box on the left side next to Invoice then select batch action select Print Transactions.  You can then preview the invoice as below.   If you would like to learn more about this QuickBooks Online Strategy, please call Susan at...
Charging for Reimbursable Expenses in QuickBooks Online

Charging for Reimbursable Expenses in QuickBooks Online

Perhaps you would like to be reimbursed by your customers for expenses incurred on their behalf.   With QuickBooks Online, these expenses, called Billable Expenses, can be tracked and invoiced to your customer for reimbursement. To activate the feature that allows you to mark an expense as billable to a customer, you must set the proper preferences in the Company Settings prior to entering transactions. You can find the Company Settings under the gear icon then under Settings.  In the Expenses section, click on the pencil to the right in order to open the box to check the box Make expenses and items billable.     This will add a billable column on bills and checks. When you record an expense, specify an account or product/service item. QuickBooks Online will not allow you to post billable expenses to an income account. Then check the box in the billable column and specify the associated customer or sub-customer. In addition to the financial transaction recording the expenditure, when the transaction is marked as billable to a customer, QuickBooks Online creates a billable expense charge. Billable expense charges are non-posting transactions that are linked to the originating transaction. Changes to the originating expense transaction update the billable expense charge. If the originating expense transaction is un-checked as billable to a customer, the billable expense charge is deleted.   When an invoice is created for a customer that has billable expense charges associated that are not otherwise associated to another invoice, the “drawer”(box(es) to the right titled “Billable expense) will automatically show suggesting you add the charge(s) to the invoice. The drawer will only show charges...
QuickBooks Online Tips

QuickBooks Online Tips

  The following are a few QuickBooks Online tips designed to save you time while working in your file: After logging into your QuickBooks Online company, right-click in either in your Chrome or Internet Explorer browser, then left-click Duplicate in Chrome or Duplicate Tab in Internet Explorer. This gives you two tabs for your QuickBooks Online company.  You may repeat duplicating tabs as needed.  You may also pull tabs to other screens then work on these windows independently of each other. If you are receiving unexpected results when working in QuickBooks Online or are having problems logging in, clear your cache and cookies. Click CTRL+ to zoom in and CTRL- to zoom out. Keyboard shortcuts Ctrl+Alt+/ displays the screen where you find your Company ID which might be needed if calling technical support. When you are in a date field, you may move forward and back a day at a time by using + and – keys. You may type in a letter in the date field for the following: T for Today W for first day of the week K for last day of the week M for the first day of the month H for the last day of the month Y for the first day of the year R for the last day of the year – Are you catching the pattern here? If you are in the rate or amount fields of a transaction, enter your first number and one of the mathematical functions then your next number; the result is entered directly into the transaction. If you would like to learn more about this...

Maintain Your Business Mileage with Simple Apps and GPS Tools

For each business trip you take, you need the following: How far you drove; When you drove Where you drove; and the business purpose for the travel Check out the following apps and GPS Tools that track mileage automatically: MileIQ The Mileage Ace GPS Log Book One of the most common actions taken in an IRS audit is the dis-allowance of business travel. If you would like to learn more about this tax strategy, please call Susan at...

2015 Mileage Rates

Beginning Jan. 1, 2015, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is:  57.5 cents per mile for business miles driven 23 cents per mile driven for medical or moving purposes 14 cents per mile driven in service of charitable organizations You always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. If you would like to learn more about this tax strategy, please call Susan at...

Is an Activity a Repair or an Improvement?

Improvements, which must be capitalized, fall into three categories.¹ Betterment² – activity that contributes towards improving an asset’s performance and/or increasing its value. Restoration³ – activity that returns something to its original condition. Adaption4 to a new or different use – activity is if the adapted unit of property is not consistent with the taxpayer’s ordinary use of the unit when the unit was originally placed in service by the taxpayer. If the activity does not fall into one of the three above categories, then the activity can be considered a repair which is expensed for the year.  However, if the activity is an improvement then the activity must be allocated over the appropriate years. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880. ¹ Treas. Reg. §1.263(a)-3(d) ² Treas. Reg. §1.263(a)-3(j) ³ Treas. Reg. §1.263(a)-3(k) 4 Treas. Reg. §1.263(a)-3(l)...

Last Call for Landlords/Tenants in 2013

Do you own or rent commercial property? If so, you should seriously consider making “qualified leasehold improvements” in 2013.  This year, you can take a Section 179 deduction¹, if eligible, of up to $250,000, then 50% bonus depreciation² and finally, 15-year depreciation³.  For example, if you spent $500,000  Take the Section 179 deduction of $250,000 first Then take $125,00 in bonus depreciation ($500,000-250,000)*50% Finally, deduct $4,163 with the IRS’s first year midyear convention using 15-year depreciation. So in year 2013, you could, if taxable income allows, take a total depreciation expense of $379,163.  If you wait until year 2014, your depreciation expense is $12,305 since commercial property will be depreciated over 39 years. What qualifies as Leasehold Improvement Property?  Utilities Framing Walls Doors Windows Pipe and fittings Plumbing fixtures  Fire protection HVAC (heating, ventilation and air conditioning) Permanent interior finishes Permanent floor coverings Millwork and trim In addition,  The improvement must be made under or pursuant to a lease by the lessee (or any sub-lessee) of the interior portion, or by the lessor of that interior portion: The interior portion of the building is to be occupied exclusively by the lessee ( or any sub-lessee) of that interior portion; and The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880. ¹ IRC Section 179(f). 2 Reg. Section 1.168(k)-1(b)(2)(D). 3 IRC Section...

2013 Mileage Rates

Beginning on Jan. 1, 2013, the standard mileage rates for the use of your car (also vans, pickups or panel trucks) will be: 56.5 cents per mile for business miles driven. 24 cents per mile driven for medical or moving purposes. 14 cents per mile driven in service of charitable organizations. The rate for business miles driven during 2013 increases 1 cent from the 2012 rate. The medical and moving rate is also up 1 cent per mile from the 2012 rate. You always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, your business standard mileage rate cannot be used for more than four vehicles used simultaneously. If you would like to learn more about this tax strategy, please call Susan at...

Healthcare Reform Act Items Effective in 2013

In 2013, we will see the following become effective in the Healthcare Reform Act: A 2.3% excise tax on the initial sale of medical devices by the manufacturer, producer or importer.  This tax affects hospitals and other organizations purchasing supplies and equipment.1 Certain health insurance companies will face limitations on the amount that can be deducted for executive compensation.2  Also physician performance information3 will be publicly reported for consumers to use in making decisions about their health care.4 A 3.8% Medicare tax on net investment income referred as “Medicare tax on unearned income” (MTUI) if modified adjusted gross income (MAGI) exceeds $200,000 (or $250,000 for joint filers (MFJ) and $125,000 for married filing separately (MFS)). A .9% increase to the current 1.45% (2.35% total) in Medicare taxes referred as “Medicare earned income increase” (MEII) on earned income (including net self-employment income) in excess of $200,000 (or $250,000 MFJ or $125,000 MFS). For taxpayers with MAGI amounts high enough to trigger the 3.8% “(MTUI), the new Medicare tax applies to the lesser of: The amount of net investment income, or The amount of MAGI in excess of the $200,000 threshold (or $250,000 for MFJ  or $125,000 for MFS). ‘Net investment income” is composed of the following amounts, less any otherwise deductible expenses properly attributable to these items. Gross income from interest, dividends, annuities, royalties and rents unless such income is received in the ordinary course of a trade or business Other gross income from any passive trade or business Net realized gain arising from the disposition of property other than property held in a trade or business. Net investment income...

What’s New in QuickBooks 2013

On the Desktop version for all versions: If you are a current QuickBooks user, you will notice immediately when opening QuickBooks 2013 the visual design overhaul has a larger font size which is easier on the eyes than prior versions of QuickBooks.   When you open QB 2013 for the first time, it has a lay over screen which highlights the new features from the home page. The navigation icon bar is defaulted to the left side of the home page.  Intuit also added My Shortcuts, My Apps, To Do, View Balances and Run Favorite Reports along with Do More With QuickBooks on the Icon Bar when it is on the left.  This allows for one click access.  Please note you can change the icon bar to the top, however, it will only show the navigation icons. Quickly and easily enter groups of transactions, or paste and save more than 1,000 transactions from Excel into QuickBooks. Ribbons on transaction windows – Easy access to commonly used menu items in forms such as Add Time/Costs and Refund/Credit on Invoices and Select PO and Pay Bill on Bills. In addition to the features listed above, the Enterprise edition includes the following new and/or improved features: Default Class Assignment Increased List Limits from 10,000 to 100,000 such as chart of accounts Inventory report now includes Use Available Quantity for Re-order Points Auto create Purchase Orders Bin Tracking Bar Code Scanning directly in QuickBooks New Features for QuickBooks Online include: Downloaded Transactions: This feature eliminates human error by automatically importing and categorizing new transaction information. Money Bar: Get paid faster by using Money...

Buy the Building, Rent It to Your Business and Avoid the Self-Rental Trap

You purchase a building as an individual, S corporation or single-member LLC then rent it to your business.  You have the choice to treat the rental and business separately for your federal tax reporting.  However, if you treat them separately, you created a self-rental problem since self-rental profit is not passive income that offsets passive losses from other activities.  On a self-rental, your profit is simply taxable profit, and your losses are passive losses. Fortunately, federal tax law provides an election, Section 469, that combines the two activities (one passive and the other non-passive) for income and deduction purposes and you also achieve legal protection too. If you would like to learn more about this tax strategy, please call Susan at...

What Qualifies as Regular Use for the Home-Office Deduction?

To deduct an office in the home, you must pass the regular-use test in addition to exclusive use. The IRS audit manual states:¹ Regular use means that you use the exclusive business area on a continuing basis.  The occasional or incidental business use of an area in your home does not meet the regular use test even if that part of your home is used for no other purpose. The IRS, in its proposed regulations, states that it makes its determination of regular use of the home office in light of all your facts and circumstances.² How do you prove your regular use? You can use two sets of information to prove regular use of your home office: A log of time spent (use your home office an average of 10 hours or more per week),  and Documents that corroborate the time spent. Corroborative evidence can be: Keep the emails Have clients/vendors sign your guest log, and make phone calls on your home office telephone so that you have a billing statement that shows you made the calls from your home office at the times you stated in the log. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880. ¹Internal Revenue Manual Exhibit 4.10.10-3  – Standard Explanation Paragraph 4814 Test for Home Office (Last Revised: 01-11-2011).                          ² Prop. Reg. Section...

Deducting Vehicle Expenses

When claiming vehicle expenses, keep in mind one rule: No mileage log = No deduction. Whether you are claiming: Mileage at the IRS 2012 rate of 55.5 cents a mile, or Actual expenses which includes depreciation, interest, gas, vehicle licenses, oil, repairs, etc. A mileage log is a must.  Your mileage log should include miles driven on a daily basis broken down into the required components of investment, business, personal and commuting miles.   For business purposes , you should state the purpose of the trip in addition to the miles driven. Whether you are claiming the mileage method or actual expenses method, you may also deduct loan interest and parking and tolls. If you would like to learn more about this tax strategy, please call Susan at...

2012 Mileage Rates

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: 55.5 cents per mile for business miles driven 23 cents per mile driven for medical or moving purposes 14 cents per mile driven in service of charitable organizations The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. If you would like to learn more about this tax strategy, please call Susan at...

How to Protect Your S Corporation

In order to protect your S Corporation, you need the corporation to look, feel and act like a corporation, and you need a salary that will stand up to the IRS as a reasonable salary. For the corporation to stand up to scrutiny, you want the corporation as the entity to authorize the conduct of business and the employer of the agent (you) to make the sales. First, establish the corporation as a bona fide legal entity then have the corporation execute contracts, receive checks in its name and direct your activities(have your “corporate self” talk to your “employee self” in writing). Checks must be payable to your Corporate Name.  No Exceptions are allowed.  The law says that “gross income” includes all income, from whatever source derived, including compensation for services, fees and commissions.¹ If you as an individual receive Form 1099-Misc, then the government believes you earned the income.  This pierces the corporate veil. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880. ¹ IRC Section...

Reporting S Corporation’s HSA

When your S corporation contributes to your employees’  HSA accounts, the contributions become the employees’ property.  Your employees use the money to pay their current or future medical expenses. The HSA contributions are tax-free fringe benefits to your employees. and a deduction to your S corporation.  Your S corporation must report these contributions on Form W-2 in box 12 using the code W. The trustee or custodian of the HSA is generally a bank or an insurance company.  It reports distributions from the HSA on Form 1099-SA. If employees are more than 2 percent shareholders, HSA contributions by your S corporation are treated as wages.  Thus, the HSA shareholders-employees’ contributions are added in box 1 of Form W-2.  The shareholders-employees deduct the contributions on individual tax return Form 1040 by completing Form 8889. If you would like to learn more about this tax strategy, please call Susan at...

Deducting Your Holiday Party

Are you having a Holiday Party? The party is 100% deductible for employees and their spouses. Thus, you will need to categorize the party to an account perhaps titled “100% deductible entertainment.” To prove your deduction, you should document the names of the employees and spouses who attended the party. Plus, you should have both receipts and canceled checks to prove your expenditures. There are no limits on this deduction other than the standard requirement that the expenses may not be lavish and extravagant. However, if your only employees are your spouse and children then the holiday party is not deductible.  Under ownership attribution rules that apply to entertainment expenses, the law deems that your ownership interest applies equally to your spouse and children. Thus, if you own 100 percent of the business, so do your children and your spouse. If you are inviting your customers,vendors, prospects and friends to your holiday party, you  must prove that your party is either directly related to the active conduct of your business, or associated with a directly related discussion that preceded or followed the party. These people are subject to the normal entertainment thus only 50% deductible. If you are inviting Independent Contractors to your holiday party, they also are only 50% deductible.  They do not qualify as employees for entertainment purposes. In order to support your deduction, you should have a list of guests. For employees and their spouses, the employees’ names give you the business reason for the party. To deduct the cost of the party attributable to customers, independent contractors and friends, you must have either a directly...

Collecting Money owed from your Customers

Collecting money from customers is  simply not an enjoyable job.  It takes much energy and patience.  Some people believe when asking  customers for money they owe they will be offended.  No one wants to offend and risk losing customers. They are the lifeline to businesses so one can put ‘bread  on the table.’ So here are some tips in asking customers to pay invoice(s). When initially sending an invoice, call the accounts payable person of the customer’s company stating you are sending the invoice and ask if the e-mail, mailing address or fax number is correct before sending the invoice so you know they received the invoice. If your terms are net  30 days and the invoice is not paid in the 30 days then send the invoice again with a message giving your customer the benefit of the doubt.  You can state for example, “I know you are real busy or perhaps it was a simple oversight,  but our records  show you owe us for the attached invoice.  Please make payment to us at this time.  If you are unable to pay it all, please pay half now, half next month.”  You can also design a payment plan for individual customers based on their circumstances. If you still have not  heard from the customer in 60 days, then call the customer.  Be patient and understanding, let he/she explain why they have not paid or cannot pay.  With listening,  you can go a very long way.  Their explanation can give you ideas for payment plan you can work with him/her.  Also, by listening, you are giving he/she a chance...