Friday, July 10, 2009
Q&A - Separate bank accounts for business and personal
Question
I do not have a separate bank account for my business. Is this necessary and does the IRS require it?
Linda, Denver, Colorado
Answer
It is not necessary to have a separate bank account (and no, the IRS does not formally require it) but it is STRONGLY RECOMMENDED that you separate your personal and business financial lives.
First, having a separate bank account is one factor in your favor should the IRS ever audit your business and try to disallow any losses you may have claimed (as not being business related). The most important factor is the manner (how) in which you operate your business. If you do not have a separate bank account, how serious do you think the IRS will be in concluding that you had an intent to make a profit at your business?
By keeping accurate records, maintaining a separate bank account and telephone number for your business, getting a tax ID number for the business, and always trying to make a profit, you will satisfy the IRS’ rules and regulations concerning your profit motive and will be able to claim any results on your tax return.
In addition, having a separate bank account is a very good idea from an asset protection perspective and keeping your business separate and distinct from your personal assets.:
Wednesday, July 1, 2009
July Greetings from the IRS
The IRS has issued additional guidance for victims of Ponzi schemes (not only those victims of the Madoff schemes but at least two dozen other schemes the IRS has recently identified). The IRS is trying to be sympathetic to those taxpayers who lost money in scams in which there was never any real economic or legitimate investment activities. For additional guidance on this, please see Revenue Procedure 2009-20, available at www.irs.gov.
The IRS has indicated that any rebates received from current tax legislation (including a potential bill to pay taxpayers to remove old cars and buy new ones– known as the “Cash for Clunkers” bill) will NOT be taxable to the recipient.
The annual contribution caps for Health Savings Account for 2009 will be increased to $6,150 (for family coverage) and $3,050 for self-only coverage. The minimum policy deductibles will also rise to $2,400 for families and $1,200 for singles.
IRS has ruled that the first-time homebuyer tax credit (up to $8,000) can be used for a down payment. The FHA will allow lenders to provide a bridge loan in the amount of the tax credit and buyers can repay the lender when the tax refund arrives. This is another avenue of potential relief to encourage home purchases and assist the depressed real estate market.
The IRS will begin doing employment tax audits in November 2009 and will be increasing the number of audits due to the many new leads it has received from workers unhappy with their independent contractor status. At least 6000 companies with potential employees will be audited. The IRS will be focusing on worker classification, treatment of fringe benefits (i.e. are they taxable?) and expense reimbursement plans and recordkeeping.
The IRS is moving forward with its plan to regulate tax return preparers who aren’t already licensed. Thus, any preparers who are not Attorneys, CPAs or Enrolled Agents would need to meet certain minimum education, training and continuing education requirements before they would be permitted to prepare tax returns for a fee. Congress would need to approve the final plan before it is implemented and the IRS is modeling its plan on the one used by the State of Oregon.
Finally, the IRS is considering easing its rules on cell phones used by businesses. As we have previously discussed, cell phones are considered to be “listed property” and thus time logs need to be kept to determine how much of the phone is used for business purposes (with personal use not tax deductible). Some ideas include a flat percentage (25% is being considered) to use for personal calls or some sampling methods. The IRS will decide how to proceed after September 4, 2009.
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The IRS has indicated that any rebates received from current tax legislation (including a potential bill to pay taxpayers to remove old cars and buy new ones– known as the “Cash for Clunkers” bill) will NOT be taxable to the recipient.
The annual contribution caps for Health Savings Account for 2009 will be increased to $6,150 (for family coverage) and $3,050 for self-only coverage. The minimum policy deductibles will also rise to $2,400 for families and $1,200 for singles.
IRS has ruled that the first-time homebuyer tax credit (up to $8,000) can be used for a down payment. The FHA will allow lenders to provide a bridge loan in the amount of the tax credit and buyers can repay the lender when the tax refund arrives. This is another avenue of potential relief to encourage home purchases and assist the depressed real estate market.
The IRS will begin doing employment tax audits in November 2009 and will be increasing the number of audits due to the many new leads it has received from workers unhappy with their independent contractor status. At least 6000 companies with potential employees will be audited. The IRS will be focusing on worker classification, treatment of fringe benefits (i.e. are they taxable?) and expense reimbursement plans and recordkeeping.
The IRS is moving forward with its plan to regulate tax return preparers who aren’t already licensed. Thus, any preparers who are not Attorneys, CPAs or Enrolled Agents would need to meet certain minimum education, training and continuing education requirements before they would be permitted to prepare tax returns for a fee. Congress would need to approve the final plan before it is implemented and the IRS is modeling its plan on the one used by the State of Oregon.
Finally, the IRS is considering easing its rules on cell phones used by businesses. As we have previously discussed, cell phones are considered to be “listed property” and thus time logs need to be kept to determine how much of the phone is used for business purposes (with personal use not tax deductible). Some ideas include a flat percentage (25% is being considered) to use for personal calls or some sampling methods. The IRS will decide how to proceed after September 4, 2009.
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Monday, June 29, 2009
Conventions and Seminars – How to Deduct
So you are heading to Las Vegas or Hawaii to attend a seminar or convention for your business. Of course, you also want to have some fun while you are there (all work and no play makes one a dull person!). Here are some tips to keep in mind so that you can claim a valid tax deduction while still enjoying the perks associated with this type of business travel (shows, sightseeing, gambling, recreation, beaches, fishing, etc.):
- Save as much information from the seminar or convention as you possibly can. For instance, make sure you keep a copy of the itinerary, program handouts, registration forms, course materials, business cards and any other information specific to the seminar or convention. This will assist if the IRS questions how or why this event was related to your business (i.e. why this was a “business” expense and not “personal”).
- Keep copies of all receipts, including those for your hotel (required no matter what the cost), meals, entertainment and the fees associated directly with the seminar (for registration, specific programs, books/tapes purchased, etc.). It is critical that you keep these, along with proof of payment (cash, check, credit card) so that you can prove that you really incurred the expenses. While receipts are not required for some travel expenses under $75, I still recommend that you obtain them if at all possible, as it makes these issues in an audit much easier to resolve.
- Make sure that you can prove how the seminar/convention helped your business. For instance, nearly any seminar on taxes, marketing, client satisfaction and the like can be deducted. Do not try to claim a business tax deduction for lifestyle or investment seminars unless that is also your specific business.
- Ensure that the seminar or convention is held in the “North American” area– this includes all of the U.S., the Caribbean, Mexico, Canada and Central America. It is much more difficult to claim valid tax deductions if the seminar is held outside of this geographic area.
- Make sure that you spend more than half of the day on “business” at the seminar or convention. This means that you should, at a minimum, spend at least 4 hours and 1 minute per day attending the event. Do not go to a seminar and then not participate and expect to be able to claim a valid business deduction. You will still have much time for socializing or sightseeing but you must work a bit in order to claim the favorable tax deductions.
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