Ray Clark, CPA, MBA | Clark & Clark PC | 203 East 800 South | Salt Lake City, UT 84111 | 801-521-4538 | staff@clarkaccountingcpa.com

       

 

Can I Ask You a Favor?

 

If you are a Client of mine, please call our Testimonial Hotline & give us your feedback  and what you like about our firm at:

 

800-609-9006 extension 2124

Here's an Example:

 

Thank you!

Ray Clark, CPA, MBA

CLARK & CLARK PC

 

 


 

 

 


 

 

4 Ways to Safeguard Your Tax Records + 7 Guidelines for Deducting Business Expenses

 

Although we're relatively safe here in Utah, it is tornado season in the Midwest and hurricane season recently started. 

 

And since you never know when mother nature will strike or an accident will happen, I along with the Internal Revenue Service advises individuals and businesses to safeguard their records against natural disasters by taking a few simple steps.

Create an Electronic Additional Set of Records

Taxpayers should keep a duplicate set of records including bank statements, tax returns, identifications and insurance policies in a safe place such as a waterproof container, and away from the original set.

Keeping an additional set of records is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are only provided on paper, these can be scanned into an electronic format. This way, taxpayers can save them to the cloud, download them to a storage device such as an external hard drive or USB flash drive, or burn them to a CD or DVD.

Document Valuables

Another step a taxpayer can take to prepare for a disaster is to photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

A photographic record can help an individual prove the fair market value of items for insurance and casualty loss claims. Ideally, photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs.

 

When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

 

Make your plans ahead of time and practice them.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

IRS Ready to Help

If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.
Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return.

 

Alternatively, transcripts showing most line items on these returns can be ordered by calling 1-800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.

 


 

7 Guidelines for Deducting Business Expenses

 

Business expenses are the cost of carrying on a trade or business.

 

These expenses are usually deductible if the business operates to make a profit.

- What Can I Deduct?
- Cost of Goods Sold
- Capital Expenses
- Personal versus Business Expenses
- Business Use of Your Home
- Business Use of Your Car
- Other Types of Business Expenses

What Can I Deduct?

To be deductible, a business expense must be both ordinary and necessary. 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 trade or business. An expense does not have to be indispensable to be considered necessary.

It is important to separate business expenses from the following expenses:
- The expenses used to figure the cost of goods sold,
- Capital Expenses, and
- Personal Expenses.

Cost of Goods Sold

If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Some of your expenses may be included in figuring the cost of goods sold. The cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.

The following are types of expenses that go into figuring the cost of goods sold.

- The cost of products or raw materials, including freight
- Storage
- Direct labor costs (including contributions to pensions or annuity plans) for workers who produce the products
- Factory overhead

Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs.

This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million.

For additional information, refer to the chapter on Cost of Goods Sold, Publication 334, Tax Guide for Small Businesses and the chapter on Inventories, Publication 538, Accounting Periods and Methods.

Capital Expenses

You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called capital expenses. Capital expenses are considered assets in your business. In general, there are three types of costs you capitalize.

- Business start-up cost (See the note below)
- Business assets
- Improvements

Note: You can elect to deduct or amortize certain business start-up costs. Refer to chapters 7 and 8 of Publication 535, Business Expenses.

Personal versus Business Expenses

Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and is not deductible. Refer to chapter 4 of Publication 535, Business Expenses, for information on deducting interest and the allocation rules.

Business Use of Your Home

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Refer to Home Office Deduction and Publication 587, Business Use of Your Home, for more information.

Business Use of Your Car

If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. Refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses. For a list of current and prior year mileage rates see the Standard Mileage Rates.

Other Types of Business Expenses

- Employees' Pay: You can generally deduct the pay you give your employees for the services they perform for your business.


- Retirement Plans: Retirement plans are savings plans that offer you tax advantages to set aside money for your own, and your employees' retirement.
 

- Rent Expense: Rent is any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
 

- Interest: Business interest expense is an amount charged for the use of money you borrowed for business activities.
 

- Taxes: You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses.
 

- Insurance: Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business, or profession.

This list is not all inclusive of the types of business expenses that you can deduct. For additional information, refer to Publication 535, Business Expenses.

 

If you have comments or questions on the information in these articles, as usual feel free to call our offices at 801-521-4538.

 

Ray Clark, CPA, MBA

 


Ray Clark, CPA, MBA | Clark & Clark PC | 203 East 800 South | Salt Lake City, UT 84111 | 801-521-4538 | staff@clarkaccountingcpa.com

 

www.clarkaccountingcpa.net

 Connect With Me on Linkedin

 

 

 

 

 

 

CONFIDENTIALITY NOTICE: The information contained in this electronic mail message is legally privileged and confidential information intended only for the use of the individual or entity named above. If the reader of this message is not the intended recipient, you are hereby notified that any dissemination, distribution or copy of this electronic message is strictly prohibited. If you have received this electronic mail message in error, please immediately notify this office, return the original message to us at the above email address, and delete the message from your computer. Thank you.

 

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.