The frequency of audits on taxpayers has increased by 500% in 2009 as compared to 2008. This year the IRS has successfully challenged (audited) several taxpayers with employee business expenses.

What else is being challenged:

·         Claims for the Earned Income Tax Credit

·         Large charitable deductions

·         The tax credits for home buyers

·         Deductions claimed by self-employed taxpayers

·         Schedule C: Advertising, Vehicle, Meal and Entertainment expenses

What this means: Small businesses are in the IRS spotlight and improper business expense reporting could lead to audits, fines and penalties.

Christine Reiner, CPA, ensures legitimate, ethical and accurate tax reporting for your small business. Contact our office today to set up your appointment and protect your small business!

Christine Reiner, CPA, studies tax law changes and trends very closely. Contact our office for expert advice.

Source: June 30, 2010 Taxpayer Advocate Service Report to Congress for the fiscal year 2011.

Your business will now have to keep records of all purchases sorted by Taxpayer Identification Number (TIN).

Christine Reiner, CPA, studies tax law changes and trends very closely. Contact our office for expert advice.

Source: June 30, 2010 Taxpayer Advocate Service Report to Congress for the fiscal year 2011.

1. Expenses must be spent on a job search in your current occupation.
2. You can deduct employment and outplacement agency fees.
3. You can deduct amounts spent to prepare your resume.
4. You can deduct travel expenses to and from the area, if the purpose is to look for a job.
5. You cannot deduct job search expenses if you are looking for a job for the first time.

Source: IRS Publication 529

These are the rules:

·         Cost of day camp may count as an expense towards the child and dependent care credit.

·         Expenses for overnight camps do not qualify.

·         The actual credit can be up to 35 percent of your qualifying expenses, depending on your income.

·         You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two.

IRS agents are being instructed to obtain a copy of the taxpayer’s database for examinations for any taxpayer who uses QuickBooks.  

Can you refuse to provide your QuickBooks files? – NO!

Inaccurate, poorly-kept QuickBooks files could cost you thousands of dollars in fines and taxes!

Please contact Christine Reiner, CPA, today for help with your QuickBooks files.

Colorado Property Taxes, Amendment 60 will appear on the November 2, 2010 state ballot as an initiated constitutional amendment.^[1] Amendment 60 proposes limiting how property taxes are raised and reversing recent tax laws which increased taxes. Additionally it proposes cutting mill levies in half by 2020.^[2][3]

According to reports Amendment 60 would:^[4]

• restore TABOR tax limits
• cut current mill levy rates in half by 2020
• set expiration dates for tax rate and revenue increases
• apply 10 year limit on future property tax increases

Read the full article here:

http://ballotpedia.org/wiki/index.php/Colorado_Property_Taxes,_Amendment_60_%282010%29

House Resolution 4213 “The American Jobs and Closing Tax Loopholes Act of 2010″ passed May 28, 2010.

This Act was passed to extend jobless benefits and boost infrastructure programs in an effort to stimulate the economy. Lawmakers are seeking to raise tax revenues to pay for these jobs initiatives by taxing the profits of S-Corps.

This bill is estimated to raise $11.249 billion over 10 years, and would help offset the cost of the various tax break extensions and unemployment benefit extensions in the bill.

This Act includes provisions to:

• Promote American job creation
• Provide relief for working families
• Prevent the outsourcing of American jobs
• Close tax loopholes
• Maintain access to affordable health care
• Ensure corporate accountability

How this act affects S-Corps

This act includes a provision, Section 413, intended to prevent service professionals from routing their self-employment income through an S corporation to avoid paying Social Security and Medicare taxes.

The provision applies to:

• Situations where an S corporation is engaged in a professional service business that is principally based on the reputation and skill of three or fewer individuals.
• Situations where an S corporation that is a partner in a professional service business.
• The provision would also clarify that individuals who are engaged in professional service businesses are unable to avoid employment taxes by routing their earnings through an LLC or a limited partnership.

“Unscrupulous businesses do use S corporation status to avoid paying their proper share of taxes and they should be caught and punished. But the Internal Revenue Service is already empowered to address that issue. This tax hike lumps together the good and the bad, penalizing thousands of honest small businesses that follow the rules. We strongly urge Congress not to support this inappropriate tax increase.” - George H. Miller, TheHill.com

More reading about The American Jobs and Closing Tax Loopholes Act of 2010

Read the full article on WebCPA.com:
http://www.webcpa.com/news/Accounting-Groups-Protest-S-Corp-Tax-Hike-54655-1.html

And on TheHill.com:
http://thehill.com/blogs/congress-blog/labor/101685-congress-and-the-s-corp-tax-hike

The Washington Post summarizes this Bill very nicely:
http://www.washingtonpost.com/wp-dyn/content/article/2010/05/24/AR2010052403585.html

To ensure taxpayers are familiar with the difference between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items that are not included in your income:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your income are:

• Life Insurance: If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
• Scholarship or Fellowship Grant: If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
• Non-cash income: Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items – including income such as wages, salaries and tips – must be included in your income unless it is specifically excluded by law.

Amid the economic crisis, many retirees are returning to the work force.  And for some people already receiving Social Security benefits, a little-known provision in the federal retirement program can provide some much-needed assistance in shoring up retirement finances.

The key is to put your Social Security benefits on hold.  As unpalatable as that may sound, the strategy — officially known as “claim and suspend” — will enable you to pocket a higher monthly Social Security check later, when you retire — again.  Some might argue that it makes more sense for those earning a regular paycheck from an employer to save their Social Security — by investing their benefits or stashing the money in a bank account.

But by asking Social Security to suspend your payments altogether, you can ultimately lock in a substantial monthly raise.  For every year those entitled to Social Security defer tapping their benefits between the so-called full retirement age — which is 66 for those born between 1943 and 1954 — and age 70, the Social Security Administration increases their monthly benefit by 8%.

On top of that, Social Security recipients typically receive an annual cost-of-living adjustment.  (That said, with consumer prices this year either flat or declining, beneficiaries in 2010 might not see an adjustment.)

Moreover, this strategy might produce a larger “survivor” benefit for your spouse if you die first.

The claim-and-suspend approach doesn’t make sense for everyone, however.  Those 70 or older have nothing to gain by suspending benefits since they don’t qualify for the annual 8% adjustments, according to Andrew Eschtruth, a spokesman for the Center for Retirement Research at Boston College.

Also, only Social Security recipients who are at or beyond the full retirement age can use the claim-and-suspend strategy. (Learn more about full retirement ages at www.ssa.gov/retire2/agereduction.htm).

People who suspect they and their spouses may have relatively short life expectancies should think twice about putting Social Security on hold since they may never recoup their suspended benefits.

And what if you are retired but younger than full retirement age — and are now considering a return to work? Here, you might run into Social Security’s “earnings test.”

For every $2 above $14,160 a recipient younger than 66 earns in 2009, his or her Social Security benefits are reduced by $1.  The penalty changes in the year you will reach your full retirement age — $1 in benefits will be deducted for each $3 earned above a different limit. Then it ends once you hit full retirement age.

The silver lining?  For those who are penalized, the Social Security Administration increases their benefits at full retirement age by an amount designed to compensate them — over their life expectancies — for the benefits withheld earlier.