During tax season a very common opportunity often missed comes from understanding how you use your cars as a tax deduction on your tax return. It is very common for people who have a schedule C sole proprietor business to claim their mileage on automobiles, but the privilege of using personal deductions on a tax return is not limited to someone who is a schedule C. For instance, a landlord might own three apartment buildings and file a schedule E on his personal tax return and not feel like they are “self-employed” as they have a full-time W-2 job. Continue reading “Don’t drive past the best tax deduction option for cars!”
Tax Season is just starting, but the folks that are coming into our offices remind me to remind everyone of a few good housekeeping tips that will make the season easy to deal with from the taxpayer’s perspective, and successful in not overpaying income tax due to lack of having proper documentation of legal deductions. Continue reading “Tips for people who are in a hurry to file whom have no or little record keeping.”
Business owners often come to us for ideas on how to cut their taxes and at some point in the conversation, it almost always is asked, “Hey can’t I deduct my life insurance premium?” Over the years, the IRS has had several rulings that make the deduction of premiums less transparent, more difficult. They might even say not able to be done, but the life insurance industry knows two things. There is a huge need for business owners to own enough life insurance to not just protect their families, but also fund buy/sell arrangements with partners, so that if there’s a death of a partner in their business, they can buy that business owner share from their spouse for each other. So with the permanent need of a large amount of coverage, often the business owner will try to find a way to make that premium deductible. That’s a very long and roundabout way of answering the question, isn’t it. Well, like many things that people ask their CPAs, the answer is, it depends. There are several arrangements where the paying of premium can be pre-tax or at least done in such a way that there is a benefit to the business owner from a tax perspective. Deduction is too strong a word, but many arrangements exist. The problem is business owners aren’t dealing with people that understand all of those strategies. They’re just going to your “average life insurance salesman” who doesn’t know what can be done in the advanced arenas to foster benefits to business owners. Our tax firm has numerous experts around the country that it works with that fully understand all of the strategies that are in place, when they’re appropriate, and if there is any IRS risk associated to the benefit being taken. If you’re a business owner, chances are you need more life insurance than you own. Call us today. We’ll determine whether or not an advanced life case design is possible for your company to in some way benefit from a tax perspective to having those additional coverages in place. We’ll work with your CPA and your current advisors, not try to replace them. Call us today at 954-655-7111 or e-mail us at email@example.com and let us explain to you and evaluate for you what can be done.
Well, phantom income generally is the deposits of a company were accurately reported, because those people get sent 1099s from their jobs. They deposit money in their checking account. It’s not hard to track the income of a company from deposits and tax records that are mailed to them by the people that pay them so that part’s almost always right. The problem is people don’t know how to properly categorize, document, nor do they even think about expenses being a business expense rather than a personal expense when they are a sole proprietor. They simply don’t claim the deductions, the offsets that are supposed to go against those gross revenues before they report their profit to the IRS.
A $58,000 business consulting income, because a teacher retires from a school district and helps a struggling school district to set up new management and work flows as an independent contractor, gets his 1099 from the two schools that he worked for totaling $58,000. He did most of the work from his home computer and his cell phone. He drove to each one of the schools a couple of times a week. He claimed a few dollars in mileage, but reports $45,000 of profit after expenses against the 58K on schedule C on his tax return. That escalated the teachers’ pension and other incomes up to the 33% tax bracket. That’s phantom income that we at our tax planning firm see over and over again, because nobody on earth has a business that returns a 500% profit. They simply didn’t know how to deduct or properly categorize or document the things that they considered personal expenses, but by the IRS’ guidelines could have easily been actual expenses against that income. They said yes and did the consulting, but then they didn’t take a course in properly documenting use of vehicles, meals and entertainment, travel, personal education, legal fees, office expenses, and all of the other things that they took for granted and did not deduct.
Expenses like a home office deduction, cost of a new laptop, all sorts of things that were supposed to be taken as deductions against that gross income but simply weren’t because they walked into a tax office and said, “Oh, I earned this consulting this year”, to which preparer asked, “do you have any expenses to go against this?” and they said, “hmmmm, not really, some mileage I guess”, not realizing how detrimental the lack of caring about the deductions would be on their personal tax return until it was too late.
Go onto Google and look how much average percentage of profit does the owner of a restaurant make? How much profit does the owner of a tire store make? You won’t see 100% profit, 50% profit, as industry averages of Fortune 500 companies, the margins are much smaller. When you see it happen on a personal tax return, out of the lack of taking deductions, make them think in these same terms.
Most of the time it’s deductions that make phantom income go away. They’re legal, they’re applicable, and they’re so often completely missed. Unfortunately reported to the IRS by preparer`s that didn’t want to force the conversation and say “no” to filing an incomplete tax return.
Bring in your returns without deduction and we will give you tools to help you keep track, education on what to do and file an amended return and get you that tax you should not have paid back!