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Thursday, August 11, 2016

Factors you must prove to document & substantiate business expenditures


The tax law requires All business owners to keep accurate and complete business records that clearly reflect income and expenses. The tax law also requires specific records be kept that document and substantiate various expenses reported on the tax return.

Failure to comply with the tax law could result in the IRS disallowing the deduction and also subject the taxpayer to additional taxes, various penalties, and interest charges.

Below are some record keeping rules all business owners should  follow for various expenses that are often high audit targets.

Automobile Records (Appointment Book, Calendar, Automobile Use Log etc.)

            Date-Date of each business use of the vehicle.

            Place-Destination by name of state, city or town.

            Total Mileage-Total mileage broken down into business mileage & non-business mileage.

            Business Purpose-Business reason or nature of business benefit derived or expected to be derived.

            Business Relationship-Occupations or other information about persons visited such as, name, title, & organization which establishes the business relationship.      

Business Gifts

            Date-Date of each gift.

            Amount-Total cost of gift.

            Description-Description of gift item.

            Business Purpose-Business reason or nature of business benefit derived or expected to be derived.

            Business Relationship-Occupation or or other information about recipient, such as name, title, & organization which establishes the business relationship.

            (Note: The tax deduction allowed for business gifts is limited to $25 per recipient per year)

Entertainment & Meals

            Date-Date of each entertainment & meal or use of qualifying facility.

            Place-Name and address of place of entertainment/meal.

            Amount-Total amount of each expenditure.

            Business Purpose-Business reason or nature of business benefit derived or expected to be derived, and, the nature of business discussed.

            Business Relationship-Occupations or other information about persons entertained such as, name, title, & organization which establishes the business relationship.

            (Note: The tax deduction allowed for entertainment & meals is limited to 50% of the total allowed expenditure). (Other deduction limitations also apply to certain entertainment).

Travel Away From Home Overnight

            Date-Dates of departure and return and number of days attributable to business activities.

            Place-Destination by name of state, city, or town, (or foreign country, if applicable)

            Amount-Amount of each separate expenditure for travel, local transportation, lodging, entertainment, meals, and other incidental expenses.

            Business Purpose-Business reason for travel or nature of business benefit derived or expected to    be derived.           

            Business Relationship-Occupations or other information about persons visited such as,name, title, & organization which establishes the business relationship.

Casual & Contract Labor

            Each year, every independent contractor MUST provide a completed Form W-9 Request For Taxpayer ID Number

            Contractor's bill/invoice detailing date work was performed and a description of work completed on each project.

            Proof of payment (canceled check, credit card statement)

            Form 1099-Miscellaneous Income to the contractor

            NOTE: Even though you may not be required to issue a Form 1099, doing so will document and substantiate you business expense

CLIENT COSTS INCURRED: Are either reimbursed or not reimbursed.

Client Costs ARE Reimbursed. (Reimbursed Expenses ARE Taxable Income)

            Date-Date expense was incurred

            Description- Description of expense incurred

            Amount-Amount of each expense

            Amount-Amount of each reimbursement

            Business Purpose-Business reason or nature of business benefit derived or expected to be derived, and, the nature of business discussed.

            Business Relationship-Name and business relationship of the party for whom the expense was paid for.  

Client Costs ARE NOT Reimbursed. (Client cost is a Deductible ordinary & necessary business expense)

            Date-Date expense was incurred

            Description- Description of expense incurred

            Amount-Amount of each expense

            Business Purpose-Business reason or nature of business benefit derived or expected to be derived, and, the nature of business discussed.

            Business Relationship-Name and business relationship of the party for whom the expense was paid for.  

Supporting Documents AND Proof of Payment   

Bank Statements

Credit Card Statements

Canceled Check

Electronic Funds Transfer Confirmation

Vendor Invoices & Receipts/Work Orders/Purchase Requests

1099's 

Expense Record Logs

Other

Employees & Independent Contractors

If you hire employees, you MUST do the following-failure to do so could result in substantial penalties and interest charges.

1-Have every employee provide you with a completed Form I-9 (Employment Eligibility Verification)

2-Have every employee provide you with a completed Form W-4 (Employee Withholding Allowance Certificate) (this should also be updated every year with each employee)

If you hire independent contractors, you MUST do the following:

1-Have every independent contractor provide you with a completed Form W-9 (Request for Taxpayer Identification Number).

2-Give every independent contractor a Form 1099-Miscellaneous Income at the end of the year.

            (even if an independent contractor is not required to be issued a Form 1099 Miscellaneous Income Statement, by doing so you will protect yourself if you are ever audited and the IRS requests documentation and substantiation of your deduction for this expense).


This article was written by  Donald M. Scherzi, CPA, CFP, LLC 
Mike Lupo, SCORE Counsel

 

Friday, August 5, 2016

Florida and Innovation


Apparently there is a Bloomberg analysis report that ranks Florida 35 out of the 50 states on an innovation index. The index examines the following: R&D intensity; productivity; high tech density; STEM concentration (science, technology, engineering, math); science/engineering degrees; and, patents. Innovation normally leads to high skilled jobs and creates other jobs as well.

Another report, this one by a group of Florida organizations, stated that the state ranks 50 out of 50 (lowest) in funding full time students, with a huge gap in “very high research” Universities.

 
Do you see “opportunities” in this data?

 
Steve Koenig, SCORE Counselor


 

 

Monday, August 1, 2016

Deducting Business Travel Expenses


Business owners can deduct business related travel expenses if the travel is:
Ordinary AND necessary
Business related
Temporary
Away From Tax Home
Documented and Substantiated in writing
Not personal (unrelated to business)

An ordinary expense is one that is common and accepted in your trade or business.

A necessary expense is one that is helpful and appropriate for your business.

A business related expense is one that is incurred for the active conduct of present or future business.

Travel is temporary if it is reasonably expected to last (and does in fact last) for 1 year or less.

Traveling away from home occurs if:

Your duties require you to be away from the general area of your tax home substantially longer than an ordinary day's work, and

You need sleep or rest to meet the demands of your work while away from home.

Tax Home is your regular or main place of business, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.

You must document and substantiate travel expenses included on your tax return with the following information:
Dates
Locations
Description and amount of each travel expense
Business Purpose
Business Relationship

The following business related travel expenses are generally deductible:
Airfare
Bus
Limo
Subway
Taxi
Auto Rental
Dry Cleaning/Laundry
Entertainment
Lodging
Meals
Parking
Road Tolls
Telephone/Fax Fees
Tips
Wi Fi fees
Other if business related.

You can deduct travel expenses of someone who goes with you (an employee, business associates, a spouse) if that person:
                        1- Is your employee
                        2-Has a substantial (bona fide or real) business purpose for the travel, and
                        3-Would otherwise be allowed to deduct the travel expenses.

Personal and Not Business Related
You cannot deduct personal travel days or expenses that are personal in nature and unrelated to the active conduct of business.

This article was written by  Donald M. Scherzi, CPA, CFP, LLC 
Mike Lupo, SCORE Counselor

 

Finance Posts FYI


Just a short note to let you know that the Finance posts will no longer be labeled and numbered. They simply will be titled as are all other posts.

 

Thanks

 

Steve Koenig, SCORE Counselor


 

 

Sunday, July 17, 2016

Finance 12 S Corporation Stock and Debt Basis


With an S Corporation, there are three shareholder loss limitation rules. Each limitation must be met, in the following order, before a shareholder is allowed to claim a flow-through loss deduction.

1. Stock and Debt Basis Limitations

2. At Risk Limitations

3. Passive Activity Loss Limitations

S Corporation Shareholders are Required to Compute Both Stock and Debt Basis EACH year, which increases or decreases based upon the S corporation's operations.

This is important for the following reasons:

In order for a shareholder to claim a flow through loss or deduction item, they need to have adequate stock and or debt basis.

In order for a shareholder to determine whether or not a non-dividend distribution is non-taxable, they need to demonstrate they have adequate stock basis. When a shareholder receives a non-dividend distribution, the distribution is tax-free to the extent it does not exceed the shareholder's stock basis. debt basis is not considered when determining the taxability of a distribution).

As with any asset, when the stock is sold or disposed of, basis needs to be established in order to determine the proper gain or loss on the sale or disposition.

When computing stock basis, the shareholder starts with their initial capital contribution to the S Corporation or the initial cost of the stock they purchased.

A shareholder's stock basis is increased for the following items:

Ordinary business income

Separately stated income items

Tax exempt income

A shareholder's stock basis is decreased for the following items:

Ordinary business loss

Separately stated loss items

Non-deductible non-capital expenses

Non-dividend distributions

There is an ORDERING RULE that must be followed in computing stock basis as follows:

Stock Basis is adjusted annually, as of the last day of the S corporation year, in the following order:

1st-Increased for all income items

2nd-Decreased for non-dividend distributions

3rd-Decreased for non-deductible non-capital expenses

4th-Decreased for loss and deduction items.

As stated earlier, when determining the taxability of a non-dividend distribution, the shareholder looks solely to his/her stock basis (debt basis in not considered).

For loss and deduction items, which exceed a shareholder's stock basis, the shareholder is allowed to deduct the excess up to the shareholder's debt basis (which are shareholder loans personally made the the S corporation).

If a shareholder has S corporation loss and deduction items in excess of stock basis and those losses and deductions are claimed based on debt basis, the debt basis of the shareholder will be reduced by the claimed losses and deductions.

It is important to note that if an S corporation repays reduced debt basis to the shareholder, part or all of the repayment is taxable to the shareholder.

Also, for a shareholder to have debt basis, the shareholder must personally make a (real) loan of money to the corporation. A loan guarantee is not sufficient to create debt basis.

The loss and deduction items in excess of stock and debt basis:

Retain their character

Are treated as loss and deduction items in the subsequent tax year and will be allowed if the shareholder has increased and or restored stock and or debt basis

Carryover indefinitely or until all of the shareholder's stock is disposed of

Tracking stock and debt basis each year will help the shareholder plan for potential distributions and losses and deductions and ensure there are no unexpected and no unintended surprises at tax time.


This article was written by  Donald M. Scherzi, CPA, CFP, LLC 
Mike Lupo, SCORE Counselor

 

Monday, July 11, 2016

BISBO SCORE and Lynn U



New SCORE Logo jpeg
     Big Ideas for Small Business Owners

 
 
SCORE and LYNN UNIVERSITY
PROUDLY ANNOUNCE
The Business Event of the Year
for Small Businesses With 
GOOGLE-APPLE-GODADDY-YELP-CONSTANT CONTACT AND 20 OTHER SEMINARS AND EXPERTS
LIMITED TO 500 ATTENDEES
BISBO -  "Big Ideas for Small Business Owners"
Saturday, Sept 10th, 8:00 AM to 4:00 PM
Lynn University, Boca Raton

Here's why you should attend:
Apple's Business Development Executive Jay Matheson will show you and teach you how to Brand like Apple.  Yes, you can do it too using his methods. 

 
Google's Stasia Kudrez* will show you how to get the customers you want to your website, get found on search and get Google to verify your business at the event.
 
Yelp's Genna Gold*, manager of local business outreach, will help you learn the tricks on how to get your customers to Rave about you online.
 
GoDaddy's Shawn Pfunder* will teach you fun ways to get and keep customers
 
Constant Contact's Pamela Starr*, director of training for all of North America, will teach you how to build relationships to build your business. You will get a free trial account and free setup help at the conference.
 
Exclusive Appearances by all Speakers*
(only time in Florida this year)
MORE - MUCH MORE
  • Hi-speed 3D Printer demo
  • The latest in ROBOTS that work and talk
  • DRONE Demo and how to use them in business
  • Virtual Reality in Action Demo and how to use it in your business!
  • Workshops, Roundtables With Major Speakers and Over 20 Seminars
Networking during the included Breakfast and Lunch
SPECIAL FEATURE:

Hear from 3 successful local entrepreneurs who have built Multi-million dollar businesses from Scratch. Learn how they did it and get timely tips from them and participate in an Open Q & A

As a summer special early bird is 
extended to July 31st
 
Just $39 per ticket until July 31st 
SEATS ARE GOING FAST ACT NOW! 
 
After July 31st
1 ticket $ 59.00
2 tickets $ 99.00
Tickets at the door $69 per ticket - Credit Card Only

DON'T MISS OUT!
Refund Policy: Refunds will be given until September 1st
South Palm Beach SCORE
7999 North Federal Highway
Suite 201
Boca Raton, FL 33487
(561)981-5180 
 


 




Tuesday, July 5, 2016

Florida rated #1


A Harris poll in November 2015 rated Florida #1 as the most desirable state to live in. It seems it is all about the beach and living near he water. More that 25% of those who come to Florida were born between the mid 1940’s and mid 1960’s.. aka “baby boomers”. 

 

What does this mean for your business?

 

Steve Koenig, SCORE Counselor