Make Plans Now for Next Year’s Tax Return
Little things now can pay off big later
Most people stop thinking about taxes after they file their tax return. But there’s no better time to start tax planning than right now. And it’s never too early to set up a smart record keeping system. Here are six tips to help you start to plan for this year’s taxes:
- Take action when life changes occur. Some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay. To do that, you must file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. Use the IRS Withholding Calculator on IRS.gov to help you fill out the form or give your Peoples Tax Professional a quick call for assistance (804) 204-1040. If you receive advance payments of the premium tax credit it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace.
- Keep records safe. Put your 2013 tax return and supporting records in a safe place. That way if you ever need to refer to your return, you’ll know where to find it. For example, you may need a copy of your return if you apply for a home loan or financial aid. You can also use it as a guide when you do next year’s tax return.
- Stay organized. Make sure your family puts tax records in the same place during the year. This will avoid a search for misplaced records come tax time next year.
- Shop for a tax preparer. If you want to hire a tax preparer to help you with tax planning, start your search now. Choose a tax preparer wisely. You are responsible for the accuracy of your tax return no matter who prepares it. Review tips for choosing a preparer.
- Think about itemizing. If you usually claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductions instead. A donation to charity could mean some tax savings. See the instructions for Schedule A, Itemized Deductions, for a list of deductions.
- Keep up with changes. Subscribe to IRS Tax Tips to get emails about tax law changes, how to save money and much more. You can also get Tips on IRS.gov or IRS2Go, the IRS’s mobile app. The IRS issues tips each weekday in the tax filing season and three days a week in summer.
Remember, a little planning now can pay off big at tax time next year. Have questions or would you like a tax planning session? Give your local Peoples Tax Professional. We are happy to help! Call (804) 204-1040 or email us.
Mixing Business with Pleasure
Things you should know…
It’s not uncommon for business meetings and conventions to be located in vacation destinations, such as Las Vegas or Honolulu. If the trip is 100 percent business, there’s little question as to whether or not the cost of the trip is deductible. However, when business is mixed with pleasure, it becomes harder to determine what is and is not deductible. It’s important to keep accurate records to substantiate what are business expenses and what are personal expenses during the trip.
If your trip was mainly for business purposes, you should be able to fully deduct transportation expenses. Hotel costs are only deductible for the business days; the same is true for meal expenses with a 50 percent limitation. Hotel and meal costs are not deductible on personal days. However, if your convention or meeting takes place on Thursday, Friday and Monday, the weekend days are deductible, even if you spend the time enjoying personal activities. If you stay an additional day to sight see, these costs are personal and not deductible.
There are additional caveats when it comes to annual shareholder meetings, traveling on a cruise ship or to a resort, as well as traveling abroad. Consult with your Peoples Tax Professional and we can help you determine what you can deduct. Call today (804) 204-1040.
Ten Things You Should Know About IRS Notices and Letters
Each year, the IRS sends millions of notices and letters to taxpayers for a variety of reasons. Here are ten things to know in case one shows up in your mailbox.
- Don’t panic. You often only need to respond to take care of a notice.
- There are many reasons why the IRS may send a letter or notice. It typically is about a specific issue on your federal tax return or tax account. A notice may tell you about changes to your account or ask you for more information. It could also tell you that you must make a payment.
- Each notice has specific instructions about what you need to do.
- You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.
- If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.
- If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
- You shouldn’t have to call or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.
- Keep copies of any notices you receive with your other tax records.
- The IRS sends letters and notices by mail. The IRS does not contact people by email or social media to ask for personal or financial information.
- For more on this topic visit IRS.gov. Click on the link ‘Responding to a Notice’ at the bottom left of the home page. Also, see Publication 594, The IRS Collection Process. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Have questions? Give your local Peoples Tax Professional. We are happy to help! Call (804) 204-1040 or email us.
Ten Facts About Amended Returns
You can fix your mistake…
Did you discover that you made a mistake after you filed your federal tax return? You can make it right by filing an amended tax return. Here are the top ten things to know about filing an amended tax return.
- Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct errors on your tax return. You must file an amended return on paper. It can’t be e-filed.
- You usually should file an amended tax return if you made an error claiming your filing status, income, deductions or credits on your original return.
- You normally don’t need to file an amended return to correct math errors. The IRS will automatically make those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as a W-2 or schedule. The IRS will usually send you a request for those.
- You usually have three years from the date you filed your original tax return to file Form 1040X to claim a refund. You can file it within two years from the date you paid the tax, if that date is later. That means the last day for most people to file a 2010 claim for a refund is April 15, 2014. See the 1040X instructions for special rules that apply to certain claims.
- If you are amending more than one tax return, prepare a 1040X for each year. You should mail each year in separate envelopes. Note the tax year of the return you are amending at the top of Form 1040X. Check the form’s instructions for where to mail your return.
- If you use other IRS forms or schedules to make changes, make sure to attach them to your Form 1040X.
- If you are due a refund from your original return, wait to receive that refund before filing Form 1040X to claim an additional refund. Amended returns take up to 12 weeks to process. You may spend your original refund while you wait for any additional refund.
- If you owe more tax, file your Form 1040X and pay the tax as soon as possible. This will reduce any interest and penalties.
- You can track the status of your amended tax return three weeks after you file with ‘Where’s My Amended Return?’ This tool is available on IRS.gov or by phone at 866-464-2050. It’s available in English and in Spanish. The tool can track the status of an amended return for the current year and up to three years back.
- To use ‘Where’s My Amended Return?’ enter your taxpayer identification number, which is usually your Social Security number. You will also need your date of birth and zip code. If you have filed amended returns for multiple years, select each year one by one.
Have questions? Give your local Peoples Tax Professional. We are happy to help! Call (804) 204-1040 or email us.
Small Business Corner
How do I? Write off baseball season tickets to my business
Code Sec. 162 permits a business to deduct its ordinary and necessary expenses for carrying on the business. However, Code Sec. 274 restricts the deduction of entertainment expenses incurred for business by disallowing expenses of entertainment activities and entertainment facilities. Many expenses are totally disallowed; other amounts, if allowed under Code Sec. 274, are limited to 50 percent of the expense.
The income tax regulations define entertainment as any activity of a type generally considered to be entertainment, amusement, or recreation, such as entertaining at night clubs, lounges, theaters, country clubs, golf and athletic clubs, and sports events, as well as hunting, fishing, vacation and similar trips. There are special rules for the costs of facilities used to entertain the customer, such as a boat or a country club membership. Dues or fees for any social, athletic or sporting club or organization are treated as items involving facilities.
Expenses are allowed if the expense was either “directly related” to the active conduct of the taxpayer’s trade or business, or “associated with” the conduct of the trade or business. An activity is “associated with” business if the activity directly precedes or follows a substantial and bona fide business discussion.
Entertainment expenses are not directly related to the business if the activity occurred under circumstances with little or no possibility of engaging in the active conduct of the trade or business. These circumstances include an activity where the distractions are substantial, such as a meeting or discussion at a night club, theater, or sporting event. However, taking a customer to a meal at a restaurant or for drinks at a bar can be considered conducive to a business discussion, if there are no substantial distractions to a discussion.
Substantial business discussion
For expenses that are either directly related to or associated with business, the taxpayer must establish that the he or she conducted a substantial and bona fide business discussion with the customer. The IRS has said that there is no specified length for a discussion to be substantial; all facts and circumstances will be considered. The discussion is substantial if the active conduct of the business was the principal character of the combined business and entertainment activity, but it is not necessary that more time be devoted to business than to entertainment.
For an activity that is associated with, the discussion can directly precede or follow the activity. For a discussion to be directly before or after the activity, it generally must be on the same day as the activity. However, facts and circumstances may allow the entertainment and the discussion to be on consecutive days, for example if the customer is from out of town.
The special rules for facilities do not apply to season tickets. Instead, the taxpayer must allocate the cost of the season tickets to each separate entertainment event. The amount deductible is limited to the face value of the ticket. For a “skybox” or other area leased and used exclusively by the taxpayer and guests, the amount deductible is limited to the face value of non-luxury seats for the area covered by the lease.
Under these rules, it appears that the deductible costs of baseball season tickets must be determined separately for each baseball game. Attendance at a baseball game would involve a “distracting” activity that is not conducive to a business discussion, so the cost of the game would not be directly related to the conduct of the trade or business. However, attendance at a game before or after the conduct of a substantial business discussion could qualify as being associated with the business; in these circumstances, the cost of the event would be deductible.
If the taxpayer provided food to the customer at the baseball game, the cost of the food would be deductible as part of the cost of the event. Some “luxury” seats include food provided by the baseball team to the ticket user. It appears that the taxpayer would have to determine the fair market value of the ticket and the food separately, although the costs of food actually provided to the customer may still be deductible.