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.
November is National Peanut Butter Lover’s Month. I grew up on peanut butter and jelly sandwiches. I still have one of these comfort, stand-by sandwiches every once in a while. And I love peanut butter cookies! .. Can you deduct peanut butter? Not if it is just your own, or your children’s meal. And chances are you’re not going to offer a peanut butter sandwich to your business client. But you could decide to serve a fancied up sandwich at a business get-together. Think about a working lunch or a special afternoon tea type theme to your business meeting. .. If you run a sandwich shop, peanut butter can be an ingredient in one of your menu items. If you run a daycare center, you will certainly be serving this staple at lunch. Cookies can become a business gift. And maybe you want to have your clients over for an afternoon celebration. Of course, if your guest list includes someone with a peanut allergy, peanut butter will not be on the menu. But then this peanut butter could be the cause of a medical deduction. So there can be several ways peanut butter and taxes really are related. .. The IRS loves the words “ordinary and necessary”, “generally” and “usually”. To be deductible your meal or entertainment expense must be “directly related to” or “associated with” the active conduct of a trade or business. It can also be for the production or collection of income. It cannot be lavish or extravagant. It must be reasonable considering the facts and circumstances. .. Do you remember the five Ws of journalism? Who, what, when, where, why and then add how much you spent.. Who did you entertain? What did your discuss. When did you have this meal? Where did you go? What was the business purpose or what did you want to talk about at this restaurant? And how much did you spend? Your deduction can include the cost of the food, beverage and tip, but is limited to 50%. The cost of your own meal at a restaurant is not deductible. Meals with coworkers or business associates are not deductible unless you can show a clear business purpose. .. You must show that the main purpose for this meal or entertainment was for business; that you engaged in business during this meal or activity. You must also have more than a general expectation of receiving income or some other specific business benefit in the future. .. Instead of “directly related”, where you discuss business over a meal, your business discussion can be “associated with” the meal or entertainment. How much talking could possibly go on during a concert, at the theater or at a rousing sporting event or a backyard bar-b-que? If you are entertaining at your home, be sure to have a guest book for your records. Have each of your guests sign in. .. If the business discussion or transaction is substantial (and directly before or after the meal or entertainment) it can be deductible. There is no requirement that you spend more time on business than on the meal or entertainment. .. Employers have exceptions to the 50% deduction limit. If you provide meals to more than half of your employees on your business premises and for your convenience (not the convenience of the employee), those meals are a 100% deductible fringe benefit. Employer provided social or recreational expenses, like a company party or picnic, for the benefit of employees who are not highly compensated employees, are 100% deductible. .. I can’t emphasize enough your need to keep adequate records. This is for your tax audit protection.
Yes! You may qualify for the Child and Dependent Care tax CREDIT. How do you qualify? Your dependent must be age 12 or younger, when the care is given. No credit is allowed in the year your child turns 13. An older dependent or spouse may qualify if they are mentally or physically unable to care tor themselves. Your dependent must have lived with you for more than half the year. There are special exceptions for dependents who are born or who die during the year. You will list their names and social security numbers on the tax credit form plus how much you paid for each individual person’s care. This care must be given in order for you to go to work or look for work. You must have income from wages or other taxable compensation. If you are married and filing a joint return, this work requirement applies to both of you. What if you are a stay-at-home parent and don’t have a job? If you go to school full time, you may be considered as having earned income for this credit. This credit is not available to spouses choosing the “married but filing separately” tax filing status. This payment has to be made to someone other than your spouse, You cannot take a credit if you pay the parent of your qualifying person for the care. Payments you make to someone you claim as a dependent on your tax return do not qualify for the credit. If you do pay for your own child, who is not a dependent on your tax return, they must be age 19 or older that year. You will list each care-giver’s name, address, social security number or employer ID number PLUS the total amount you paid that care giver. The Internal Revenue Service tax law will dictate how much credit is allowed on the amount of expense you incurred. Some care-givers are people who run their businesses “on the side.” If they do not provide you with their social security or employer identification number, you do not get to claim the credit. They are cheating the tax system. And you are paying their tax. (Just sayin’.) Is theirs the only care you can get for your child? Is theirs the only care you can afford for your child? You are able to give someone up to $13,000 per year for this year. That gift amount can change every year. That gift is not taxable to them and is not deductible by you. Generally a gift is given with no expectation of anything in return. Day care given in exchange for money or something else of value is not a gift. The income the care giver receives is their taxable income, whether they have a hobby or a business. Money you pay for your babies in day care may qualify for the credit. Money you pay for older children’s after school care may qualify. What about summer school? The tuition is not deductible. But the cost for care after summer school class may qualify for the tax credit. What about summer camp? Day camp may qualify but a camp where the child stays overnight does not qualify. And what about if the dependent who needs care is an adult? There is also adult day care. Your expenses for all of these different types of dependent care may qualify for the Child and Dependent Care tax Credit. The tax laws are always changing and get more and more complicated. There will always be more that needs to be said. I hope this blog has helped you understand some of the CREDIT that your family may qualify for. If you have questions about your day care situation, post your question in the comment section of this blog or consult your tax advisor. I’ll talk about Education Tax Credits and Education Expenses in another blog.