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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