Many small business owners, self employed individuals, and employees working for others use their automobile for business purposes. If you use your car entirely for that purpose then you may generally deduct the entire cost of operation, subject to some limits. If you use your car both for personal and business purposes, you may deduct on the costs associated with business use only. Below is some helpful information related to auto expenses:

1) Two Methods: You may generally figure the amount of your deductible car expense using one of two methods: 1) The Standard Mileage Rate Method, or 2) The Actual Expense Method. If you qualify to use both methods you may want to figure your deduction both ways to see which gives you the larger deduction.

2) Standard Mileage Rate: 55.5 cents per mile for the 2012 tax year. To use the standard mileage rate method you must own or lease the car and you must not have claimed a depreciation deduction using the Modified Cost Recovery System (MACRS) on the car in an earlier year or any first year additional bonus deprecation. Also, you must not have claimed a Section 179 deduction on the car.

a) Cars you Own: To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then in later years you can choose to use the standard mileage rate or actual expenses.

b) Leased Cars: You must use the standard mileage rate method for the entire lease period, including renewals.

3) Actual Expense Method: To use the actual expense method, you must determine what it actually costs to operate the car for the business portion of the car’s use. These costs include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation or lease payments that are attributable to the business miles driven.

4) Mileage Logs and Documentation: The law requires that you substantiate your expenses by adequate records or by other sufficient evidence. A mileage diary is an excellent way to document mileage and expenses.

In summary, just remember there are two different methods to claiming automobile expenses for tax purposes, the Standard Mileage Method and the Actual Expense Method. Be sure you understand the methods so you can track the proper information for during the year.  It’s very important that you document mileage daily and save your receipts throughout the year.

For additional information see IRS Publication 463 – Travel, Entertainment, Gift, and Car Expenses for more information. If you need assistance from a professional to discuss your specific situation, contact Stephen or Taylor Scott by sending an email to info@scottcpa.com or calling us at 314-984-9829.

Each individual tax return is different from another but some tax rules affect every taxpayer who files a federal income tax return. Dependents and exemptions are two such rules. Below are six important facts about dependents and exemptions that will help you file your 2011 tax return.

1. Exemptions reduce your taxable income:
   There are two types of exemptions, personal and dependent exemptions. For each exemption you can deduct $3,700 on your 2011 tax return.
2. Your spouse is never considered your dependent:
   On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
3. Exemptions for dependents:
   In general can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent on your form 1040 for whom you claim an exemption.
4. If someone else claims you as a dependent, you may still be required to file your own tax return:
   Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income,
   your marital status and any special taxes you owe.  Be sure to consider this for you children.
5. If you are a dependent, you may not claim an exemption:
   If someone else, such as your parent, claims you as a dependent on their tax return, you may not claim your personal exemption on your own tax return.
6. Who cannot be claimed as your dependent:
   Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

Are you in need a tax professional?  If you are in need of professional tax services feel free to contact Stephen Scott, CPA at info@scottcpa.com to setup an appointment to discuss your specific tax needs.  Scott, Scott & Co, CPA, PC is a Certified Public Accounting firm that works with middle to high income clients, small business owners, and those looking for personal service from a tax and accounting professional.

Some medical professionals such as hospitalists are considered self employed for tax purposes and receive a 1099 from the facility for whom they provide services.  For these professionals tax treatment is much different than a W-2 employee.  As with other self employed individuals it is necessary to report income and related expenses on Schedule C.

Here are some important topics to consider:
1) Be on the lookout for your 1099(s).  Your reported income for Schedule C should include all income received and should match the total of the 1099s received.  There may be timing issues so be sure to reconcile your records to report the correct amounts and prevent the possibility of receive an IRS underreporting notice.

2) SEP Plan:  If you are self employed, you should consider investigating the tax benefits of a SEP plan.  We can your review your situation, discuss tax benefits and how to implement, maximum contribution calculations, and any limitations.  It’s important to consider using these tax rules to your benefit.

3) Record Keeping:  This is an important topic.  Be sure you understand IRS record keeping requirements and how to design a good bookeeping and records system.  We can help you identify the areas of weakness to help protect yourself in case of an audit.

4) Depreciation:  If you purchase any fixed assets be sure to understand how these items should be reported and possibly depreciated.

5) Self Employment Tax:  You should understand what it is, how it’s calcuated and that it exists.  Many new Schedule C owners forget about this tax and maybe surprised by when they prepare their taxes in the spring.

6) Estimated Taxes:  As a self employed hospitalist or other medical professional you will be required to pay quarterly tax estimates.  A CPA can assist you with budgeting for the year and help you keep up with tax estimates.  The IRS and states can impose additional penalties for not paying quarterly estimated taxes throughout the tax year.

If you are a self employed hospitalist or other medical professional feel free to contact our firm to discuss your tax needs.  We can help you with your tax filings, estimated taxes, and provide peace of mind.  Contact Stephen Scott, CPA at info@scottcpa.com to schedule an appointment to discuss your tax and other financial needs.

For most Missourians your home is one of your most valuable assets.  Sales and purchases are typically high dollar transactions so it’s wise to educate yourself about the tax ramifications of buying or selling. There are several key tax topics homeowners should be aware of when planning to sell a home.  If you do have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten important tax rules to keep in mind when selling your home:

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. See IRS Publication 523, Selling Your Home, worksheets are included to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.  Your tax advisor can help you with this too.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the
   Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move use Form 8822, Change of Address, to notify the IRS of your address change.  Be sure to update your address with the IRS, the U.S Postal Service, and any appropriate agencies within the State of Missouri to ensure you receive refunds due and correspondence from the IRS or Missouri Deparment of Revenue.

Related Publications & Forms:

Publication 523 – Selling Your Home
Form 5405 – First-Time Homebuyer Credit
Form 8822 – IRS Chane of Address Form

If you need assistance with your taxes contact Stephen Scott by sending an email to info@scottcpa.com or call 314-984-9829 and ask for Stephen Scott or Taylor Scott.

If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are some key tips every taxpayer should know before deducting charitable donations.

1. Make sure the organization qualifies:  Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or search IRS Publication 78 online.
2. You must itemize:  Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. What you can deduct:  You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.  Ask your CPA for tax assistance if you need it.
4. When you receive something in return:  If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Recordkeeping: Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
6. Pledges and payments: Only contributions actually made during the tax year are deductible. For example, if you pledged $600 in September but paid the charity only $300 by Dec. 31, you can only deduct $300.
7. Donations made near the end of the year: Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. Large donations: For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
9. Tax Exemption Revoked Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

IRS Resources:
1) Publication 78 – Online Search for Charities
2) Publication 561 -  Determining the Value of Donated Property

If you need assitance with your 1040 Individual tax return or your small business tax return (1120, 1120-2, 1065) contact Stephen Scott, CPA at info@scottcpa.com.  I would be happy to meet with you to discuss your immediate and long term tax needs.  Our firm, Scott, Scott & Co, CPA, PC is located in Kirkwood, Missouri. 

Outsourcing payroll duties to third-party service providers can streamline business operations and save on internal employee and software costs, but employers should be aware that employers are ultimately responsible for paying federal tax liabilities, not the payroll service.

In recent years there have been prosecutions of individuals and companies who, acting under the guise of a payroll service provider, have stolen funds intended for payment of employment taxes.  It is important that employers who outsource payroll are aware of the following three tips:

1. Employer Responsibility:
The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though
you forward the tax payments to the third party to make the tax deposits, you, the employer, are the responsible party.

If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.

2. Correspondence:
If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.

3. EFTPS:
Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.  Visit www.eftps.gov to create an EFTPS account for your business.

As a small business owner or manager, it’s important to stay in tune with all aspects of your business whether you outsource certain functions or perform them in-house.  Mistakes can happen.  Be sure to stay on top of any payroll related tax notices, and ensure your payroll provider takes prompt action and follows through to final resolution.  Additionally, any payroll IRS or state payroll tax issues need to be documented properly in your files in case you need this documentation again at a later date, should the problem “re-appear”.  You can also work with your CPA to help you navigate these payroll issues to ensure they are handled appropriately.

]]> http://www.scottcpa.com/wp/?feed=rss2&p=133 0 http://www.scottcpa.com/wp/?p=153 http://www.scottcpa.com/wp/?p=153#comments Wed, 07 Sep 2011 16:43:44 +0000 Stephen P Scott, CPA http://www.scottcpa.com/wp/?p=153

What is Phishing?
Phishing is a scam typically carried out by unsolicited e-mail and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information.  Occasionally you may receive an email from someone claiming to be with the IRS.  Don’t be fooled.  The IRS does NOT initiate taxpayer communications through email.  They send paper notices in the mail.

All unsolicited e-mail claiming to be from either the IRS or any other IRS-related components such as EFTPS, should be reported to phishing@irs.gov.

What to do if you receive a suspicious IRS-related communication:

If you receive an email claiming to be from the IRS that contains a request for personal information:
1) Do not reply.
2) Do not open any attachments.  They may contain malicious code that could infect your computer.
3) Do not click on any links.
4) Forward the email “as is” to the IRS at phishing@irs.gov
5) After you forward the email and/or header information to the IRS delete the original email message you received.

If you need representation dealing with IRS notices please contact your CPA.  If you need help contact Stephen Scott or Taylor Scott at 314-984-9829, or email info@scottcpa.com.

You may not be thinking about your tax return right now, but summer is a great time to start planning for next year. Organized records not only make preparing your return easier, but may also remind you of relevant transactions, help you prepare a response if you receive an IRS notice, or substantiate items on your return if you are selected for an audit.
Here are a few things the IRS wants you to know about recordkeeping.

1. In most cases, the IRS does not require you to keep records in any special manner. Generally, you should keep any and all documents that may have an impact on your federal tax return. It’s a good idea to have a designated place for tax documents and receipts.

2. Individual taxpayers should usually keep the following records supporting
items on their tax returns for at least three years:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other
  proof of payment
• Any other records to support deductions or credits you
  claim on your return

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

• A home purchase or improvement
• Stocks and other investments
• Individual Retirement Arrangement transactions
• Rental property records

3. If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices, Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

These publications are available at www.IRS.gov.

Resources:
Publication 552 – Record Keeping for Individuals
Publication 583 – Starting a Business and Keeping Records
Publication 463 – Travel, Enterrainment, Gift and Car Expenses

Contact Stephen Scott at info@scottcpa.com  if you have individual or business tax needs in the St Louis area.

Every year the Internal Revenue Service and the Missouri Department of Revenue send millions of letters and notices to taxpayers, but that doesn’t mean you need to worry. Here are nine things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response. (many times it will take longer…don’t panic)
7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. Have a copy of your tax return and the correspondence available when you call.
8. It’s important that you keep copies of any correspondence with your records.
9. If you don’t feel comfortable handling this on your own contact your tax preparer.  A tax preparer can complete the proper Power of Attorney forms so that they may communicate directly with the IRS, Missouri Department of Revenue, and other state taxing agency on your behalf to resolve the issue. 

If you need tax assistance contact Stephen Scott by sending an email to info@scottcpa.com

Whether you’re a recent graduate going to college for the first time or a returning student, it will soon be time to get to campus – and payment deadlines for tuition and other fees are not far behind.  Students or parents paying such expenses should keep receipts and be aware of some tax benefits that can help offset college costs.

Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

1. American Opportunity Credit: This credit, originally created under the American Recovery and Reinvestment Act, has been extended for an additional two years - 2011 and 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).
2. Lifetime Learning Credit  In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).
3. Tuition and Fees Deduction: This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).
4. Student loan interest deduction: Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.

You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

Self Help:
For more information, visit the Tax Benefits for Education Information Center at www.irs.gov or check out Publication
970, Tax Benefits for Education, which can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).