Yes, I said “BUY” deductions. They do cost you money, you know.
Did you know that our government has a FREE deduction for most of us?
That free deduction is called the STANDARD deduction. I say it’s ” free” because you don’t have to spend a dime to claim this one. The amount of your standard deduction does change from year to year and is based on your filing status. Single, Married Filing Jointly, Married Filing Separately, Head-of-Household status – each one has a different standard deduction.
There are various categories of deductions that are allowable on 1040 tax return form Schedule A, Itemized Deductions. These different categories are:
- Medical and Dental Expenses
- Taxes You Paid
- Interest You Paid
- Gifts to Charity
- Casualty and Theft Losses
- Job Expenses and Certain Miscellaneous Deductions
- Other Miscellaneous Deductions
In deciding whether to take the standard deduction or whether to itemize deductions, I ask my clients if they own their own home. And if that answer is yes, I ask if they have a mortgage on their home. The reason…Interest paid on a home mortgage is usually the largest of deductions. If you own your own home, you also pay real estate taxes. If you live in a state that has an income tax, those taxes you paid or had withheld from your paycheck are deductible. Since there are states that do NOT impose an income tax, the government allows us to choose to deduct sales taxes paid instead of income taxes paid. And if you have a car, you may also be able to deduct the license plate registration fee.
Unusually large medical expenses can also shift you from taking the standard deduction to itemizing deductions. I tell my clients that this is NOT the big deduction I want them to have. Amounts you pay for medical insurance, doctor and dentist visits, prescriptions and lab fees are the common deductions. There are costs that are deductible and there are costs that are NOT deductible. How do you know which is which? Talk to your trusted tax advisor.
If you know you want to itemize, then you will also want to look at the gifts you gave to a qualifying charity during the year. These gifts can be money and they can be what I call “stuff.” Money does not just mean paid by cash. Money means cash, check, credit card. The important key is to get a RECEIPT for your gift. The Internal Revenue Service is paying much closer attention to this deduction because of fraudulent deductions claimed every year.
Deductions take money OUT of your pocket. Is your expense ordinary and necessary? Is your expense one you decided you needed only because you wanted to lower your tax bill?
Did you know that if you are in the 15% tax bracket and you spend $1000 on an “elective” deduction, you might save $150 of tax, but you are still out $1000! If you don’t need this deductible expense, don’t spend the $1000. Pay $150 more in taxes and you still have $850 in your pocket! If you have a choice, what is YOUR choice?
The IRS has more than one employee. They have more than one division. Do they have more than one mind? They do have one mission. The mission of the Examination Division is to determine if the correct amount of tax was paid.
When it comes to your tax returns, IRS has certain requirements.
My Top 5 Tips are simple. Here is a recap of the 5 tips I gave you in my last blog of 2014.
- Keep your copies of your tax returns FOREVER.
- The Internal Revenue Service has THREE YEARS time to examine your tax records. This is called the Statute of Limitations for examination or audit.
- Your state has MORE time. Arizona has ONE more year. California has TWO more years. Which state are you in? How much longer do they have to look at your tax records?
- For calendar-year tax return items, you must keep your records AT LEAST five years. But some records need to be kept even longer.
- Don’t be in too big a hurry to get rid of the paperwork. Keep the original documents. Scan them. Use a cross-cut shredder to really destroy the no-longer needed documents.
Now, I’ll share HOW to easily use a multi-drawer cabinet. Once you design your own system, it will save you time, money and tax headaches…
- A plastic cabinet is convenient, but not secure like a locking cabinet. How many drawers does it have? Have one drawer for each of the 5 prior years plus a drawer for the current year. Permanent files will take up more space over time, so you may want a more secure place for your long-term permanent file.
- Label the drawers 2015 (current paperwork for the coming year.) 2014, 2013, 2012, 2011 and 2010 for the years still open for audit. Look at the date you filed your 2010 tax return. Count forward five years to determine when (what date) it is actually safe for you to begin shredding.
- In each of the 5 years’ drawers keep your tax return for that year. Keep a small box for your income records, your expense receipts and records of anything you sold in that year.
- Keep a file of paperwork related to assets or investments you still own. You will use this “basis” information In the year you sell an asset or investment. It will help your determine the gain or loss on the sale. In the year of sale, that paperwork will go into that year’s tax box.Because state returns are generally based on the federal return, keep the IRS return and the state return’s documents together.
- Save the tax returns in your permanent drawer. Shred the documents that are related to items only pertinent to a single year’s tax return for which the statute of limitations has already expired. For 2010 returns timely filed in 2011, the IRS statute “tolls”, or expires, in year 2014. The Arizona statute for 2010 returns runs out in 2015. The California 2010 tax return expires in 2016.
If you have been flirting with tax evasion or tax fraud, the IRS has more than three years to look at your return. They have FOREVER to look at a fraudulent tax return. You be the judge. Let your conscience be your guide. Stay out of tax jail. Be honest with yourself and on your tax return. Have a happy year!
December is the holiday month. We just had Thanksgiving, coming up is Christmas and then New Year’s. What must you do before the clock strikes midnight?
Individuals need to know about their numbers. Anyone who has a business needs to know about keeping track of their income and expenses. What is the key to tracking your income and expenses? Do not let this word scare you, it is really just a simple activity. This word is one of only three words in the English language that have three double letters in a row. This word is bookkeeping. It just means keeping the books, keeping the numbers.
Your Statement of Income is keeping the numbers for your money in. Your Statement of Expenses is keeping the numbers for your money out. Businesses combines the income and expenses statements into one Profit and Loss Statement.
There is a very popular software program that many business owners use to help them – QuickBooks. The personal version is more of a checkbook tool called Quicken. Some of my clients use QuickBooks and many of my colleagues use QuickBooks Pro.
The danger with any software is that it is just a tool. Do you know how to best use this tool? My friend, Joe DiChiara, a CPA in New York, says that QuickBooks is a pretty good tool. He believes it has more features than most of us need to use. My friend, Barbara Starley, a CPA in Arizona, is a QuickBooks Pro Advisor. She helps people untangle their bookkeeping software missteps.
For years, I used a professional accounting software to help my clients with their accounting needs. The software company was sold to another company whose professional cost priced me out of providing accounting services. That was when I began using Excel spreadsheets to track my income and expenses. The spreadsheet method might be just fine for you, but it does not create the balance sheet we need.
What does the balance sheet show? What does it balance? The balance sheet is like a teeter totter. On one side you list your assets, what you own, and their values. On the other side you list your liabilities, the money you owe, and your equities, the value you hold as an owner of your company.
Double entry means for every entry you have on the left side of your ledger, you have an equal entry on the right side of your ledger. When they are equal, or when they match, they balance. And that is what you want in a double entry set of books. Do not mistake double entry books with a double set of books. If you have two sets of books, you are looking for trouble.
Do you have to have certified financial statements? Only if your banker requires them for a loan. But you certainly wants to stay on top of your numbers.
If you are an employer, you are expected to deposit the taxes you withhold from your employees on a timely basis. If you owe less than $2,500 total for the quarter, you may make this payment with your Form 941 report. This report includes both Federal Income Taxes withheld AND the combination of social security and medicare taxes withheld (known as FICA) from the employees’ paychecks PLUS the employer’s matching FICA amount. If you owe less than $2,500, you could be a business with a small number of employees.
If you are a business that will owe more than $2,500 for the three months in the quarter, you must pay your “trust fund” taxes on a monthly basis. The taxes you withhold from your employees are called “trust fund” taxes because your employees are trusting you to pay the taxes withheld from their checks to the Internal Revenue service for their individual tax benefit.
If you do NOT withhold the proper amount of social security or medicare taxes from your employees’ checks, you could be responsible to pay what should have been withheld. If you do not pay what you are responsible for paying, you could (you probably will) be charged with penalties. Those penalties can be substantial and they can be BIG.
Do not run your business on your employee’s monies. That decision can put you out of business. If you are trusting one of your employees to make these deposits, make sure they are being made. Trusting an employee who is not trustworthy can also put you out of business.
If an employee seems so dedicated to their job that they do not take any time off this could be a warning sign to you. The employee who refuses vacation and sick leave could feel they must be there every minute of every day to make sure their deception, their theft from you, remains undetected.
Yes, we must trust our employees, but we must also be vigilant in conducting our businesses. The newspapers are full of stories of big-hearted people who are taken advantage of by people with self-centered ulterior motives.
Are YOU are the one to sign the reports, to sign the checks, to decide who gets paid this month and who must wait if there is not enough money to pay all of the bills? Do not decide to make the IRS wait for these taxes. The IRS could decide to give you (the decision maker) more time, jail time that is. That can put you out of business, too.
It is not always easy being the business owner. You are the one that can put “The Buck Stops Here” sign on your desk. I wish you only the best in your business. I wish you only the best when it comes to your tax situation. If you need help, consult your tax professional.
The word TAX can have several meanings. At Bullet Proof Your Taxes, the talk is all about income tax…I want you to pay only your lowest legal tax and not a penny more.
The definition I found online that fits is “a compulsory contribution to state revenue, levied by the government on workers’ income and business profits or added to the cost of some goods, services and transactions.” Tax has also been defined as “a sum of money demanded by a government and a burdensome charge.”
What is a TIP? This word also has several meanings. I regularly give tips, secret information and advice in my articles and on my radio show. However, today I am talking about TIPS which is the acronym for To Insure Prompt Service. A tip, and the amount of the tip, is given for a service performed or a service anticipated.
Tips are a matter of social custom which varies between countries and settings. In some settings a tip is discouraged and considered an insult. While in other circumstances, like law enforcement situations, tips are illegal and could be considered a bribe. In most US locations a tip has become expected, but watch your bill because if you are part of a group at a restaurant, a service charge may been added and included in the total bill. You may not want to add any additional tip because the tip will be paid through that service charge. If you add just a single penny, one lone cent to your tip, you are telling the server that you appreciate their exceptionally good service.
For you servers, tips are considered income and are subject to income tax. If your tips are paid by credit card to the establishment, your employer’s policy will determine whether you are paid them daily in cash or whether they are accumulated and included in your paycheck.
Your tips may be paid by your customer directly to you as cash or gift cards or casino tokens or other cash equivalents. If you receive $20 or more in a calendar month while working for any one employer you must report the total (not just the amount over $20) to your employer by the 10th day of the following month. The amount of those tips will then be reported on your W2. There is a special box on the W2 form just for allocated tip income for workers of large food or beverage establishments.
According to the IRS, at least 40% of tips to servers are not reported for taxation. The IRS has done special focus examinations on tip earners. As a server, it is easy to pocket your cash tips and spend them on the way home for groceries, gasoline, etc. You may not even realize you made more money than your paycheck reflects.
If you think those tips are “free” money to save up for something special, think again. The IRS pays special attention to tip income. It is up to you to keep track of your own total income. Remember, all income is taxable except that which we are told is not taxable.
Medical Expenses are not the deduction I want you to have. But medical expenses are deductible if you itemize your deductions. Here are 8 tips direct from the Internal Revenue Service and one more from me.
“If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:
- AGI threshold increase. Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10 percent of your adjusted gross income. The threshold was 7.5 percent of AGI in prior years.
- Temporary exception for age 65. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016.
- You must itemize. You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction.
- Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.
- Costs to include. You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.
- Expenses that qualify. You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.
- Travel costs count. You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013.
- No double benefit. You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.”
And here’s the extra tip from Nellie. If you wonder if your disability insurance is deductible. Yes it is. But I encourage you NOT to deduct this insurance. If your disability insurance premium is about $800 each year and you have enough medical expenses to exceed your AGI threshold, you could deduct this $800.
For easy math, if your tax bracket is 25%, this deduction could save you $200 of tax. But if you ever file a claim and collect on this disability insurance, those insurance benefits will be income taxable. And when you are out of work due to disability, do you want to add to your tax bill?
The Good, The Bad and The Ugly is a catchy phrase and makes reference to one of the most popular “spaghetti” western movies. This phrase seems to describe lots of situations we experience. In this case….Income Tax Season.
In January, I talked about the different tax forms you need to watch for. Most will come to your mailbox while others will be sent to you electronically. You may even be able to download them yourself from secure websites.
Some of my clients last year didn’t really understand why I couldn’t finish everything in progress by April 15th. Sometimes it is just not possible. There are only 24 hours in any one day. No one person can work well without sleep day after day..
The clock ticks away every minute. We simply run out of time. I tell everyone in my first letter of the tax season that I may file an extension for returns not completed by April 1st.
What does “extension” mean? Quite simply, it is a request for more time to file a tax return. An extension is not automatic. And it is not a request for more time to PAY your taxes.
It is important to know that if your taxes are not paid in full by the due date of your return, the extension will not be valid. In other words, if you owe tax on April 15th and do not pay that tax by April 15th, no request for more to time to file will be valid. In other words, your return will be considered late, or delinquent. Interest and penalties may apply to that balance paid after April 15th.
How can you change this undesirable position? Even if you have given your preparer everything necessary to file a proper return, you may still want to file an extension. The key is having your tax paid in full. You can send a payment in with your extension request. Realize this is a request, it is not automatic. An extension will only give you more time to submit your tax return.
Do you need to increase your paycheck withholding? Do you need to adjust the amount you pay with your quarterly estimated tax payments? Did you have something unusual happen during the year that caused you to owe more tax this year than in earlier years?
The bottom line is, if you know for certain you will not owe taxes on April 15th, you can request that extension for more time to submit your return without penalty. Be sure to mark your calendar so you remember your new extended due date. Any return filed after that date will be considered delinquent. And a late return with taxes due will cost you interest and penalties.
What holiday you ask? I’m talking about the totally American holiday of Thanksgiving Day. Why is this so American? I did a little research for you. In representing a client in a tax case I must often research tax law. I learned a lot that I hadn’t know before in researching the history of Thanksgiving. How much of this did your already know?
In 1621, the Pilgrims and some of the members of the Native American Wampanoag tribe came together to celebrate a successful harvest. They feasted for three days on fowl and deer and berries and most likely boiled pumpkin and plums. Mmmm.
By 1777, all thirteen colonies celebrated a day of thanksgiving. In 1789, President George Washington declared a day of public thanksgiving and prayer. We were forming a new nation and establishing a new constitution and this was cause for the new national holiday and annual day of celebration.
President Abraham Lincoln issued a proclamation in 1863 declaring the last Thursday in November to be a day of thanksgiving and praise. He wanted a way to bring our nation together after our Civil War.
Climbing out of our Great Depression, in 1939 President Franklin D Roosevelt heard the merchants’ cry. The last November Thursday in 1939 fell on November 30th. And that only left 24 days to shop for Christmas. So FDR moved Thanksgiving to the second Thursday in the month. There was a lot of confusion and controversy around the new “Franksgiving”, but the shopping wasn’t really affected. (Deductible Gift giving was the subject of earlier blogs. Do you want me to address tax deductions of gifts again? Leave me a comment and let me know.)
Congress passed a law on December 26, 1941 declaring Thanksgiving would be held every year on the fourth Thursday of November. This year that date is November 26th. We will have only 26 days until Christmas Eve.
Most American’s will celebrate this family holiday. You are hard-pressed to take a tax deduction. But it can be done. Are you a restaurant or cafe or other eating establishment in the business of feeding people? Then you’ve got business income and business expenses. Keep track of those numbers.
Most people will spend this day with their family. But are you throwing a business event on the holiday? If so, what business will you be discussing? Have your guests sign the guest book so you can prove who you were entertaining. And of course, keep your receipts.
Maybe you will volunteer your time to help out at your local charity dining hall. You may not deduct the value of your time. But if you gave a turkey, or other items for the banquet, keep your receipts for what you spent AND get a letter of acknowledgement from the charity. Chances are you did some driving. If you made a special shopping trip for the charity, or if you drove to the dining hall to volunteer your time, keep track of those miles. Charitable miles are deductible at 14 cents per mile. You can choose not to track those miles. But if you don’t keep that mileage log, you don’t get to claim the deduction.
One more thing. The day after Thanksgiving is called Black Friday. Why? Because that is traditionally the busiest holiday shopping day of the year. Many retailers’ profits move from the “red” to the “black” on Black Friday.
I am grateful for all that I have. Everyday I thank God for my new day. I hope you have a blessed day of giving thanks.
Through Danielle Rama Hoffman’s advanced spiritual work with Thoth, she was introduced to the Council of Light—an intergalactic group of thousands of light beings from across the Multiverse. Their purpose is to support individuals as they shift into Unity Consciousness and return to their natural state of joy. The Council transmitted the teachings in this book for those seeking to accelerate their journey toward health, wealth, happiness, and their soul’s deepest desires. Order today and receive an array of valuable gifts www.counciloflightbook.com.
Money Amplification Exercise A Wealth Spiral
We would like to take you through an exercise around the energy of money. You are reaching a financial threshold where through your allowing, through spending more time doing the things that you enjoy, more of the abundance that you have been asking for is realized. This exercise with money is unlike any that you have done before.
Attraction and Allowing
Money wants to be a part of your life. Money wants to flow through you. Money is waiting at your door, and you have realized that money is not in direct relationship to action. It is in direct relationship to attraction and to allowing. Money comes from the unlimited source of energy, the infinite energy. Just like Reiki or life-force energy, at its base, it is made of the same material as anything else that you may have in your life.
Drawing Exercise: Infinite Source Spiral
We would invite you to do an exercise with money. Take out a piece of paper and a pen. Leave the center of the paper blank. Now draw a large circle, almost filling up the paper. Choose twelve categories of things that you have done with money and would like to do with money, and write them on the outside of the circle, like a clock. Write one item at noon, the next at one, and the next at two, and go all around the circle of the clock, leaving the center open. The center represents the infinite supply of the universal energy of money.
Starting on the outside of your paper, begin to draw a line between these different outcomes, these different things that you have done or would do with money, and slowly draw a spiral toward the center. You are creating a web into the center, spiraling it into the center, until you connect all of your money choices with the center, the source of unlimited life-force energy in its purest essence. In actuality it is the liquid form of money, or the pre-form of money. Continue drawing spirals from the outside of your paper into the center of the paper, and then from the center of the paper back out to the things you would do with money. You are spiraling the tangible items into the infinite energy, back and forth, in and out. Knowing that as you are drawing the finite experiences of money into the infinite energy of money, you are expanding your money and expanding the connection to the infinite supply of money. Take all the time that you would like with this exercise.
The Spiraling Energy of Manifestation
The money spiraling exercise allows you to see that things in physical form exist in a spiral, an evolution of the infinite source, or vice versa: that things spiral back to their source. When you can align or create a connection between the thing that you have drawn and then break it down into and spiral it with the energy of money, then it manifests. Let’s say you would like to own your house and that this is the largest financial goal that you have at this time. This would cost (fill in the blank) dollars. This seems like quite a bit of money, however, you are in the house, you are visualizing the house, you draw the house, and then from the house you draw a spiral creating a web from the house into the infinite unlimited source of money. In a sense you only have to touch the vibration of your desire with the infinite source of energy, which is pre-form money. Just get them to connect.
Let’s try this exercise together.
Energetic Exercise: Wealth Spiral
Let’s say you have your house and you have the unlimited life-force energy, the infinite energy. You take your energetic pen and you draw through your house and you spiral and circle through the infinite energy. Then you bring that energy into your house and then you spiral back into the infinite energy and you bring it into your house.
Again you spiral into the infinite energy and bring it back into your house with the process going like this: infinite, in your house, infinite, in your house, infinite, and so on until it speeds up and creates this vortex of flowing energy. Visualize it. Money is flowing into your house and your house is flowing out into the infinite, and then it’s flowing in and out, in and out, and it keeps flowing this way as long as you are aware of it.
To magnify this process you can state the following aloud, “I command a wealth spiral to spin so that I own (with my family who lives with me) this house with ease and grace. I activate a wealth spiral from the infinite source to this house and it is flowing and spiraling, flowing and spiraling, flowing and spiraling. I activate a wealth spiral.”
By activating this wealth spiral you see the individual particles that make up the house and are able to break it down to see that the source is the infinite energy, the same energy as money, and the same energy as divinity. It is a little bit like focusing on a glass vase and as you do so you are able to see that it’s actually made up of liquid glass. You do not have to create something new or something outside, it is just a shift in perspective and an inclusion.
You’re starting to see the energy of the house, how it breaks down into the infinite source of energy, and how as a part of that there are these connectors that you call money; it is the energy of money that is equated or connected to owning every inch of the house. Bring a spiral of wealth, a spiral of abundance, a spiral of money into your awareness of the energy of the house. You are kissing this wealth spiral into all areas of your life. As you do this you realize that the house or any other area of your life you would like to expand into already holds the energy or the frequency of money and you are expanding this money awareness. It is the law of attraction and it is a vibrational match. It’s already there you’re just slowing things down in your awareness so you can see it.
This is a powerful exercise that we would recommend you do on a regular basis. You may choose to do the larger exercise of twelve areas of your life you would like to put the energy of money into, or choose one item a day and focus on that item for the day. You may feel called to use a colored pen that you enjoy or that represents money to you to energize this exercise even further or to simply visualize the wealth spiral.
The money that you are seeking is seeking you. Remember, you being you is like sending your address out to the universe so it can find you and bring money to you.
Excerpt from The Council of Light: Divine Transmissions for Manifesting the Deepest Desires of the Soul By Danielle Rama Hoffman
© Reprinted by permission. All rights reserved.
Danielle Rama Hoffman is an ancient wisdom keeper, divine transmitter, and a leader in the shift into Unity Consciousness. She is the author of The Temples of Light and The Council of Light and creator of Divine Transmissions Inc. She provides energy facilitation and consciousness coaching to empower empaths, visionaries and new thought leaders to prosperously share their purpose and manifest the deepest desires of their soul.