Know When You Can, and Can’t, Write Off the Fun Stuff

Recruiting and gaining clients gets your business the work it needs to stay afloat. So, when pitching your firm’s services to those prospective clients over lunch, make sure to follow all the rules when deducting expenses for meals and travel.

To be able to wine and dine – and deduct – the main purpose of the event must be business. A requirement is that a client or customer be present, and you’ll likely be able to deduct half of the meal’s price tag as a business entertainment expense. Also, take notes after, as you’ll have to document the business discussed during the meal.

If you’re traveling, then half of the meal costs related to traveling and business are deductible (including tip and tax). But, if your business trip isn’t an overnighter, then your meals don’t count.

You don’t need to necessarily travel cheap to deduct transportation costs for traveling, but don’t overdo it. Booking that cruise through the Caribbean on your way to Europe probably won’t be considered appropriate. First class can pass, but know the IRS may ask you about it.

Adding some personal time to your business trip is doable, but don’t think you can deduct non-business expenses. It’s convenient to tack on a couple days to that business trip or bring people like family. But, you’ll only be able to deduct the costs for getting to your location and for going back home. The original purpose of the trip must be business related, too.

Running your own business or firm is exciting, along with the traveling and eating that goes with it. But no amount of meals or traveling can get rid of that back tax debt owed to the IRS.

If you owe back tax debt to the IRS, hiring a tax attorney or seasoned tax professional is your best way to increase your chances of obtaining an outcome that works in your favor. And after everything is worked out, you may be able to go out for a nice meal with the money you save.

 

IRS Commissioner Cautions Americans on Next Filing Season

If you think your tax filings this year have been confusing, just wait until next year’s.

That was the warning IRS Commissioner Doug Shulman gave taxpayers. He said if Congress waits until after the November elections to determine next year’s tax rates, the 2013 filing season could be a disaster.

The 2011 tax filing season gave a preview of what could come. The IRS delayed the start of the filing season for some taxpayers because Washington made changes to the tax code the previous December, during a lame duck session of Congress.

The delay lasted weeks with some taxpayers having to wait until mid to late-February to file their returns.

Tax filing seasons typically begin at the beginning of the new year, but the IRS had to reprogram its processing system due to the late-2010 changes.

With the Bush tax cuts and payroll tax cuts set to expire at the end of this year, Congress isn’t expected to do anything with an election season approaching. Action on those rates will likely come until after Nov. 6 Presidential election.

Also on Washington’s need-to-do list: the Alternative Minimum Tax and other tax breaks for research and development, ethanol production and those for teachers who buy supplies for the classroom.

If Congress doesn’t get its act together and resolve those matters, individual and some corporate taxpayers won’t know how high or low their tax burden will be, a situation Commissioner Shulman labeled “total confusion” for taxpayers.

Only time will tell whether Congress resolves these matters swiftly and allow taxpayers to plan ahead with a bit more certainty.

But if you’re certain you owe back tax debt to the IRS, hiring a tax attorney can help bring your financial situation out of limbo and into safe waters.

Tax rates may change after the election, but a tax attorney knows all the ins and outs of the tax codes and what the changes mean for you. That can help you avoid “total confusion” when dealing with an IRS agent.

Criminals Use Others’ Social Security Numbers for Fake Refunds

Being a victim of identity theft can put you in a very frustrating situation. Not only can someone take out loans in your name and have you pay for it, they can also file a tax return with your Social Security number and get a refund worth thousands of dollars.

If you get a letter in the mail from the IRS stating that you filed more than one tax return or someone has already filed using your personal information, that’s a strong sign you’re a victim.

Other signs are IRS letters stating that you received wages from an employer you haven’t worked for, or you have a balance due, refund offset or have collection actions against you for a year you didn’t file.

The IRS recommends responding to any of these letters immediately. If you’re an identity theft victim in a non-tax manner, like with fraudulent lines of credit, the IRS recommends you contact the agency’s Identity Protection Specialized Unit at (800) 908-4490. You’ll also need to fill out Form 14039, the IRS Identity Theft Affidavit.

Identity theft tax fraud is soaring. The IRS stopped more than 260,000 fake identity theft returns from getting processed in 2011, with scammers trying to get a total of $1.5 billion. The previous year, the IRS stopped almost 50,000 fake returns totaling nearly $250 million in refunds.

About 140 million tax returns are processed by the IRS every year, and fake returns use someone else’s Social Security number. Any crackdown on identity tax theft may take a while to kick in, as staff members need to get the right training.

IRS staffers not trained in identity theft may audit a victim’s returns instead of using them in an investigation. That’s why preventing yourself from becoming a victim is key. The IRS never sends emails to taxpayers, so if you get an email from someone at the IRS, it’s fake.

Learning that you’re a victim of identity theft can be a horrible feeling. Facing an IRS audit can also feel pretty bad.

But you don’t have to deal with the IRS on your own. Hiring a tax attorney or tax professional enables you to protect as much of your assets as possible from the IRS’s collection actions. That’s one way to help you avoid a financial identity crisis.

Watch Out for These Common Tax Errors

With April 15 coming up in a matter of weeks filing your tax returns will soon be off your to-do list – if you haven’t already filed.

But being busy with work, kids or running a business can cause us to make mistakes on tax returns. Some mistakes seem small, but can have a big impact when it comes to getting your return. (Like forgetting your signature.)

Other returns are more substantive. Here’s a look at some of them.

• Claiming the Making Work Pay Tax Credit: If you file Form 1040 or 1040A, you’ll use a Schedule M form to figure out this credit. But make sure to get it right. It’ll help you determine whether you’ve already received the full credit in your paychecks or if you have more money coming your way.
• Direct Deposit Information: Taxpayers can have their refunds deposited into as many as three accounts. But entering the wrong account or routing number can cause you to lose your entire refund. It can go to another person’s account or back to the IRS, and there’s no IRS procedure to recoup lost funds transferred electronically.
• Understating Income: Your Social Security number is linked to your bank and investment accounts, and it also acts as your personal ID number with the IRS. So when you make any income, the IRS finds out the same time you do. Forgetting to include income on your tax return can lead to the IRS making you pay taxes on it, including interest.
• Deduction Mistakes: Everyone wants a smaller tax bill, so it can be tempting to make tax deductions that are “iffy” at best. Working at your home office can lead to some creative tax deductions (like that new coffee maker you bought) but it can lead to bigger problems down the line. Making sure your deductions are legitimate is an easy way to avoid problems with the IRS.

Other tax mistakes are much easier to make: entering the wrong Social Security number, basic math errors and misspelling a dependent’s last name, to name a few. But a small tax mistake now can lead to a big tax bill later.

If tax mistakes by you or a business partner are bringing you IRS scrutiny, make sure to have a tax attorney on your side. Facing the IRS alone can be intimidating, and is a tax mistake you could later regret.

When Children Pay Off

Raising kids can cost a fortune. In fact, the cost of raising children grew 40 percent over the past decade. But as the economy continues to drift upwards, there are some hidden deals you can take advantage of to help lower your tax bill and put more money in your pocket. Here are a few:

• Child Tax Credit: This credit can save you $1,000 come tax season and possibly give you a tax credit. To qualify, you have to claim the kid as a dependent and there’s no limit as to how many kids you can claim. The child must be related to the taxpayer, or be a stepchild or foster child or adopted child and under the age age 17 at the end of the tax year. The credit will decrease to $500 in 2013.
• Adoption Tax Credit: Taxpayers who adopted a child can claim up to $13,360 for each adopted kid for the past six years on their 2011 tax return. But act fast: 2011 may be the last year it can be claimed.
• Child Support: If you make child support payments mandated by a divorce settlement, they’re tax-free to the recipient.
• American Opportunity Credit: Formerly called the Hope college credit, this credit is worth up to $2,500 every year a taxpayer has a son or daughter in college, for the first four years.
• Exchange Students: Did you open your home so a foreign student could study in the U.S. for a part of the year? Then you can deduct $50 a month as a charitable contribution.
• Foster Care Payments: Foster parents can play an important part of a child’s life, so the government excludes qualifying payments from state or local agencies from a taxpayer’s income. The payments must be for the care of a child placed in their home.

While raising or looking after children is no easy task, keeping track of your tax obligations can also be difficult. You can tell the kids to take out the trash, but don’t expect them to navigate a Form 1040.

So if you end up owing back taxes to the IRS, make sure to hire a tax attorney to help resolve it as favorably as possible. You could end up with more money in your pocket, which is pocket change your kids would be happy to have.