Tyler Martin, CPA

ADVICE FOR CHOOSING A TAX RETURN PREPARER

January 10th, 2008

Taxpayers who pay someone to do their taxes should choose a preparer wisely.  If you choose to use a paid tax preparer, it is important that you find a qualified tax professional. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else
 
The most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions, and other items.  By doing so, they have your best interest in mind and are trying to help you avoid penalties, interest, or additional taxes that could result from later IRS contacts. 
 
While most tax return preparers are professional and honest, taxpayers can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.

• Ask about service fees.  Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee  a refund or base fees on a percentage of the amount of the refund.

• Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one who will be responsive to your needs.

• Get References. Ask questions and get references from clients who have used the tax professional before.  Were they satisfied with the service received? 

• Research. Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.

• Determine if the preparer’s credentials meet your needs.  Does your state have licensing or registration requirements for paid preparers?  Is he or she an Enrolled Agent, Certified Public Accountant, or Attorney?  If so, the preparer can represent taxpayers before the IRS on all matters – including audits, collections, and appeals.   Other return preparers can represent taxpayers only in audits regarding a return signed as a preparer.

  • IRS Provides Simplified Method for Business Phone Excise Tax Refund

    March 5th, 2007

    IRS has announced (IR 2006-179) a formula that will allow businesses and tax-exempt organizations to estimate the amount of refund they are entitled to for federal telephone excise tax paid for long-distance telephone service.

    Businesses and tax-exempt organizations can figure their refund amounts by comparing two telephone bills to determine the percentage of their telephone expenses attributable to the long-distance excise tax. The bills they should use are the bills with statement dates in April and September 2006. They must first figure the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which included only the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds. The refund is capped at 2% of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees. The refund is capped at 1% for those with more than 250 employees.

    Example: Business X has an Apr. 2006 telephone bill of $1,000, which includes a telephone excise tax of $28. The tax percentage is 2.8% ($28 ÷ $1,000). If the Sept. 2006 bill is $1,100 including a telephone excise tax of $16.50, the tax percentage is 1.5% ($16.50 ÷ $1,100). X’s long-distance excise tax percentage is 1.3% (2.8% for Apr. minus 1.5% for Sept.). The business multiplies 1.3 percent by its total phone expenses over the 41-month period to arrive at the amount of its refund. If X had more than 250 employees, its refund is limited to 1% of its total phone expenses for the period. If the business had 250 or fewer employees, the 2% cap would apply and would not limit the amount of the refund.

    Alternatively, telephone expenses can be estimated based on the amounts reported as business-related telephone expense on tax returns for tax years 2003 through 2006 (prorating the telephone expense for a particular year if part of the year falls outside the 41-month refund period).

    The formula can be used even if the organization or business only operated for part of the 41-month period. However, a refund can only be requested for months for which the telephone tax was paid. If the entity was not in business or operating April through September 2006, the formula cannot be used.

    IRS notes that use of the formula is optional. Any business or tax-exempt organization can request a refund based on the actual amount of long-distance excise tax billed during the 41-month period.

    We have provided two worksheets for determining the business or tax-exempt entity excise tax refund:

    Business Simplified Method

    Business Actual Method

    We highly recommend that the data for either the actual or the simplified method be accumulated prior to your tax appointment so as not to delay or cause a distraction during the appointment. If you have questions, please give this office a call.

  • Frequently Overlooked Business Deductions

    March 4th, 2007

    When rounding up the business deductions for the year, small business owners often will overlook expenses that are partially personal and attributable to business. Here is a brief rundown of such expenses:

    Business Vehicle Interest – Generally, consumer interest is not deductible except when associated with the purchase of an asset for business. Most vehicles used by small businesses also are used personally, so some portion of the interest on the purchase of the vehicle is allocable as a business expense.

    Business Vehicle Taxes and Licenses – The vehicle license fee and personal property taxes also would be allocated in the same manner as the interest.

    Medical Insurance – Self-employed individuals, to the extent of the profits from their business, may deduct the cost of medical insurance premiums above-the-line. Although most taxpayers immediately think of hospital and medical insurance, many overlook dental insurance, Medicare-B and -D premiums, and long-term care insurance.

    Tax Preparation and Counseling – If your business income and expenses are reported on Schedule C as part of your overall individual tax return, then some portion of the preparation fee can be allocated as a business deduction. The allocation amount will depend upon the complexity of the Schedule C as related to the personal parts of the return.

    Tips – While the tips for waiters and waitresses are generally included in the meal charge, there are a number of tips that are paid out-of-pocket in cash, and if they are paid as a part of a business event or trip, they are deductible. Don’t overlook the skycap, parking attendant, hotel bellman, taxi driver, hotel shuttle bus driver, etc.

    Parking, Tolls, Etc. – Like some tips, parking fees and tolls usually are paid in cash out-of-pocket. Don’t overlook them, because they can become substantial throughout the course of the year.

    Loss From the Sale of a Business Asset – If, during the year, you dispose of, scrap, or sell a business asset for less than the depreciated basis, that disposition would result in a taxable loss. Generally assets that are used in a small business decline in value quickly, but should the disposition result in a gain, it must be reported.

    Hopefully, these examples will help you think of other overlooked business deductions. If you have a question, please give this office a call.

  • Is that Holiday Turkey Deductible?

    March 3rd, 2007

    It has become common practice for business people to give their customers and employees gifts during the holiday season. One would think that such gifts would be allowable as a business tax deduction. However, it is a little more complicated than that, and the rules are actually quite different for customers and employees.

    For Customers: The tax law allows ordinary and necessary business gifts, but it does impose an annual limit of $25 to any one individual. Seem like a small dollar amount? It is, because that amount has been the limit as far back as most can remember and has not been adjusted for inflation, thus making it difficult to keep reasonable business gifts under the limit. The law does allow an additional gift amount, not to exceed $4, for items of general distribution and on which the giver’s name is clearly and permanently imprinted.

    For Employees: The tax law specifically denies a deduction for gifts of any kind to employees except what is termed “de minimis fringe benefits” for promoting goodwill. This would include items of general distribution such as hams, turkeys, or other items of nominal value during holiday periods. But if the gifts are cash, gift certificates or similar items of readily convertible cash value, the value of the gifts is additional wages or salary, regardless of the value.

    To substantiate business gift expenses (other than employee compensation), records must show: (1) a description of the gift, (2) the taxpayer’s cost, (3) when the gift was made, (4) the occupation or other information about the gift’s recipient, including name, title, or other information to establish the business relationship, and (5) the business reason for making the gift or benefit derived or expected.

  • Car and Truck Expense Deduction Reminders

    March 2nd, 2007

    The Internal Revenue Service in Fact Sheet (FS-2006-26) reminds taxpayers to become familiar with the tax law related to deducting car- and truck-related business expenses.

    Deductible Car and Truck Expenses - Ordinarily, expenses related to the use of a car, van, pickup or panel truck for business can be deducted as transportation expenses. Use of larger vehicles, such as tractor-trailers, is treated differently and is not part of this discussion. In order to claim a deduction for the business use of a car or truck, a taxpayer must have ordinary and necessary costs related to one or more of the following:

    • Traveling from one work location to another within the taxpayer’s tax home area. (Generally, the tax home is the entire city or general area where the taxpayer’s main place of business is located, regardless of where he or she resides.)

    • Visiting customers.

    • Attending a business meeting away from the regular workplace.

    • Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer’s tax home area.)

    Expenses related to travel away from home overnight are travel expenses. However, if a taxpayer uses a car while traveling away from home overnight on business, the rules for claiming car or truck expenses are the same as stated above.

    It is important to note that costs related to travel between a taxpayer’s home and regular place of work are commuting expenses and are not deductible.

    Taxpayers can choose to use either the standard mileage rate or actual expenses to compute their allowable business deduction. They may want to figure the deduction using both methods to see which provides a larger deduction.

    Standard Mileage Rate Method - The standard mileage rate may be used to figure the deductible costs of a vehicle that is owned or leased. If a taxpayer wishes to use the standard mileage rate for a leased vehicle, it must be used for the entire lease period.

    In other words, a taxpayer must use the standard mileage rate for the first year a vehicle is available for business use in order to use the standard mileage rate in subsequent years.

    The standard mileage rate is adjusted annually by the IRS to reflect changes in the cost of operating a vehicle. In some situations it is adjusted during the year. The 2006 standard mileage rate is 44.5 cents per mile.

    The standard mileage rate is used in place of actual expenses. Taxpayers who choose the standard mileage rate may not deduct actual expenses, such as depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance or vehicle registration fees. Business-related parking fees and tolls may be deducted in addition to the standard mileage rate. Fees for parking at a taxpayer’s main place of business or tolls related to commuting to and from that main place of business are personal expenses which are not deductible.

    The standard mileage rate cannot be used if the taxpayer:
    • Uses the car for hire (such as a taxi).
    • Uses five or more cars at the same time (as in fleet operations).
    • Claims depreciation or a Section 179 deduction.
    • Is a rural mail carrier who receives a qualified reimbursement.

    Actual Expenses Method - Actual car or truck expenses include:
    • Depreciation
    • Lease payments
    • Registration fees
    • Licenses
    • Gas
    • Insurance
    • Repairs
    • Oil
    • Garage rent
    • Tires
    • Tolls
    • Parking fees

    These and other expenses are discussed in detail beginning on page 16 of Publication 463. If business use of the vehicle is less than 100 percent, expenses must be allocated between business and personal use. Only the business use percentage of each expense is deductible.

    For example, if, based on records maintained by a taxpayer, total actual vehicle expenses for a given year are $2,500 and the vehicle is used 75 percent for business, the allowable deduction using the actual expense method is $1,875 ($2,500 x 75 percent).

    Recordkeeping - It is important to keep complete records to substantiate items reported on a tax return. In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.

    To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.

    For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes, they need to show the original cost of the vehicle and any improvements, as well as the date it was placed in service.

  • Column: Look for a San Jose CPA carefully

    January 28th, 2007

    Here is a great article with tips on finding a great San Jose CPA:

    With income tax filing season already upon us, some small business owners are likely thinking of finding an accountant or other tax professional, or maybe changing over to a new one.

    Ideally, the search for a new certified public accountant takes place long before tax season, but the sooner you do it, the better. Many small business owners have found out the hard way that overwhelmed accountants can be hard-pressed in March and April to help brand-new clients. Show up at a CPA’s office on April 1 hoping to have your Schedule C completed and you’re likely to hear that you’ll need to get an extension of the filing deadline.

    Full Article

  • A Quick Word About non-Deductible IRAs…

    January 27th, 2007

    If you have contributed all you can to your 401K, a non-deductible IRA might make sense.

    The strategy here is to accumulate your non-deductible IRA contributions and then convert them down the line into a more tax favorable retirement account.

    This is not a one size fits all strategy so talk to your CPA or financial planner before proceeding.

  • Tips for Recently Married or Divorced Taxpayers

    January 26th, 2007

    From the IRS Tax Tips Site…

    Newlyweds and the recently divorced should ensure the name on their tax return matches the name registered with the Social Security Administration. A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.
    • For recently married taxpayers, the tax scenario begins when the bride says “I do.” If she takes her husband’s last name, but doesn’t tell the SSA about the name change, a complication may result. If the couple files a joint tax return with her new name, the IRS computers will not be able to match the new name with the Social Security Number.

    • After a divorce, a woman who had taken her husband’s name and made that change known to the SSA should contact the SSA if she reassumes a previous name.
    It’s easy to inform the SSA of a name change by filing Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. The form is available on the agency’s Web site, www.socialsecurity.gov, by calling 800-772-1213 and at local offices. The SSA Web site provides the addresses of local offices.
    Generally, taxpayers must provide SSNs for each dependent claimed on the tax return. For adopted children without SSNs, the parents can apply for an adoption taxpayer identification number, or ATIN, by filing Form W-7A with the IRS. The ATIN is used in place of the SSN on the tax return. The form is available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

  • Advice for Choosing a San Jose Tax Return Preparer

    January 24th, 2007

    From the IRS Tax Tip site…. 

    Taxpayers who pay someone to do their taxes should choose a preparer wisely. If you choose to use a paid tax preparer, it is important that you find a qualified tax professional. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else
     
    The most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions, and other items.  By doing so, they have your best interest in mind and are trying to help you avoid penalties, interest, or additional taxes that could result from later IRS contacts.  
     
    While most tax return preparers are professional and honest, taxpayers can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.

    • Ask about service fees.  Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee results or base fees on a percentage of the amount of the refund.
         
    • Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one that will be responsive to your needs.   
    • Get References. Ask questions and get references from clients who have used the tax professional before.  Were they satisfied with the service received?   
    • Research. Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.  
    • Determine if the preparer’s credentials meet your needs. Are they an Enrolled Agent, Certified Public Accountant or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return they signed as a preparer.

    Report suspected tax fraud and abusive tax preparers to the IRS on Form 3949-A, Information Referral, or by sending a letter to Internal Revenue Service, Fresno, CA 93888.  Download Form 3949-A from IRS.gov or order by mail at 1-800-829-3676.

  • Seven Ways to Get a Jump Start on Your Taxes

    January 24th, 2007

    From The IRS Tax Tip Site:

    IRS Tax Tip 2007-01; January 2, 2007

    Earlier is better when it comes to working on your taxes. Taxpayers are encouraged to get a head start on tax preparation, especially since early filers avoid the last minute rush and get their refunds sooner. 

    Here are seven easy ways to get a good jump on your taxes long before the April deadline is here:

    1. Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.

    2. Get the right forms. They’re available around the clock on the IRS Web site, IRS.gov.

    3. Take your time. Don’t forget to leave room for a coffee break when filling out your tax return as rushing can mean making a mistake.

    4. Double-check your math and verify all Social Security numbers. These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS and speed up your refund.

    5. Get the fastest refund. When you file early, you receive your refund faster. When you choose direct deposit, you receive your refund sooner than waiting for a check.

    6. E-filing is easy. E-filing catches math problems, provides confirmation your return has been received and gives you a faster refund.

    7. Don’t panic. If you have a problem or a question, remember the IRS is there to help. Try the IRS Web site at IRS.gov or call the IRS customer service number at 1-800-829-1040.