EMPLOYEE THAT DID NOT TURN IN EXPENSES LOSES A DEDUCTION

Here is a  reminder to employees about taking business expenses as an itemized deduction on Schedule A:

According to a recent Tax Court case, any expenses that an employer would have reimbursed are not deductible even if they are legitimate deductable expenses.   In the case, a taxpayer listed many business expenses on his tax return, such as the cost of overnight travel, meals and parking fees that were reimbursable under his employer’s policy. The taxpayer failed to complete his expense report on time, so he didn’t seek reimbursement. Since the company would have covered the costs, he can’t claim an income tax deduction for them (Stidham, TC Summ. Op. 2012-61).

WHO IS PAYING THE TAX - BY STATE

President Obama recently called for letting the Bush tax cuts expire for people who make more than $250,000 a year. Senator Chuck Schumer and Representative Nancy Pelosi had previously called for an extension of the tax cuts for those earning up to $1 million dollars, only to abandon that position in favor of President Obama’s proposal.

Recently, and for the first time, the IRS published state-level data on tax returns with adjusted gross incomes over $1 million for tax year 2010. Together with data on incomes over $200,000, we can finally take a look at who might win and who might lose as a result of President Obama’s tax proposal.

Here is what people need to realize. Returns with adjusted gross income over $1 million a year were only 0.19% of total tax returns, but 22% of total taxes paid. Those making over $200,000 were 3% of returns, but nearly 50% of income tax paid.

The Tax Foundation just published a map that looks at the percentage of federal income tax revenue from each state that is paid by filers with incomes over $200,000. Such filers make up a small percent of the population but pay a high percent of total tax revenue. Given that President Obama proposes to let the Bush tax cuts expire for single filers earning over this threshold (and for married filers earning over $250,000) this map gives an idea of the states that would be most affected.

QUICKBOOKS SETUP ERROR & HOW TO FIX IT #1

Since many of you use Quickbooks over the next few weeks I am going to pass on some Quickbooks tips.

As they say: Garbage in = Garbage out… so proper setup is crucial. Here is 1 QuickBooks setup error that we see the most AND how to fix it.

Chart of accounts

Account list not appropriate to reporting needs: If you are unsure if your chart of accounts is appropriate for you and your business, do a Google search. Chances are you aren’t too far off base or not as far off as you thought you were.

Redundant or duplicate accounts: You don’t want a bloated Chart of Accounts, you want a lean mean account machine so LESS is MORE! And let’s be honest here, you don’t REALLYneed two or three accounts for, let’s say, telephone expenses.

Here are a few alternatives for you:
Since it is most likely that your telephone expenses are paid to different vendors, if you want to know how much you paid in cell phone expense versus what you paid in office phone expenses – you can either run a Vendor Transaction Report or run a General Ledger Report for the account in question and sort it by the vendor paid.

If you must separate them, make them sub-accounts of a main account – for instance, Cell Phone Expense & Office Phone Expense would be sub-accounts of Telephone Expenses.

If you find that you have duplicate accounts, you can merge them.

Unused accounts: During the setup process, QuickBooks can (and will) generate a Chart of Accounts for you. Sometimes, it creates accounts that just don’t make any sense for you and your business. No big deal. Here’s what you do. If you notice that there are accounts that you have never used and you will never use, you can do one of two things:

(1) if you are unsure and just want it to “disappear” for now, make the account inactive but if you are absolutely positive that you will never use the account, you can
(2) delete it

As I’ve heard it said, standing in a garage, doesn’t make you a car… knowing a bit about QuickBooks and being able to navigate it, does not make you an accounting expert. Don’t be afraid to ask for some help from us!

FAMILY MEDICAL LEAVE ACT (FMLA)

Q:I have 10 employees. Some are part time. I have two of my employees pregnant. I can't afford to give them a lot of time off. What do I have to do?

A: First, hopefully I read you wrong.You say that "I have two of my employees pregnant." I hope that doesn't mean that you are the responsible one. If so, you may have more problems than time off.

Anyway, this is a complicated subject so when in doubt check with an attorney that practices in the HR area. Here are the basics.

The federal law does not apply to businesses with fewer than 50 employees. However, many states have additional laws with different rights that apply to employers with fewer employees. And many states also grant employees leave for reasons and periods beyond those granted under the FMLA.

If you are subject, covered employers must grant an eligible employee up to a total of 12 work weeks of unpaid leave during a 12-month period for one or more of the following reasons:

• For the birth and care of the newborn child of the employee.
• For placement with the employee of a son or daughter for adoption or foster care.
• To care for an immediate family member (spouse, child, or parent) with a serious health condition.
• To take medical leave when the employee is unable to work because of a serious health condition.

That's the basics but each situation and state is different.

INVESTMENTS DO BETTER WHEN CONGRESS IS OUT OF SESSION

I just received a flier from Edward Jones Company talking about the performance of stocks and bonds under Democratic or Republican rule.

I found it interesting to note that the study found:

“more than 90% of the capital gains in the Dow Jones Industrial Average from 1997 to 2004 took place when Congress was out of session”

I WON A CAR, HOW DOES THAT IMPACT MY TAXES?

Q:  I recently won a car.  How does this impact my taxes?

A:  Congratulations on the win of the car. The fair market value of the vehicle will be ordinary income to you. There really isn’t too much you can do to reduce the tax consequences. 

The following are some of the items involved:

• You will want to watch the fair market value of the vehicle that is reported on the 1099. Sometimes the value reported on the 1099 is considerably higher than the actual fair market value. This is especially true in the case of a vehicle where the sticker price is considerably higher than the real value. I would consider comparing the 1099 value to the Bluebook value. If there is a big difference, we might want to re-discuss this.
• You do not need to worry about any penalty for underpayment of estimates as long as the amount that you have withheld from your paychecks is greater than last year’s tax liability. If this is the case, you should not have to worry about underpayment penalties.
• If you are not in alternative minimum tax (AMT) and itemize deductions, you might want to consider paying your state income tax prior to the end of the year. This will allow you to have that itemized deduction in the 2012 year as opposed to 2013. In addition to this, there is some discussion of changing the tax code and eliminating the state income tax deduction. If this should happen, it would be best if you could pay that this year. It’s hard for me to give advice without seeing your actual tax situation regarding the AMT.
• This is considered gambling winnings so, therefore; should you have any gambling losses you should keep track, in that, they would be deductible. Keep documentation of your losses.  There is a court case where tickets were disallowed because there were foot prints on the tickets. You will need to show that you actually had cash withdrawals to support the deduction.

Again, congratulations!  Drive the new car proudly.

FLEXIBLE SPENDING ACCOUNT RULES ARE CHANGING

I like flexible spending accounts (FSA's) because employees can use pretax dollars to pay for medical expenses and dependent care costs.  In addition it allows employers to have lower taxable wages which reduces payroll taxes.  

Obama Care put a cap on contributions starting next year which will take away some of the advantages, but Congress is eyeing a bunch of easings that would help workers who participate in flex plans.

Currently, there is no ceiling on contributions to health FSAs, although many firms impose one in the neighborhood of $5,000.  Per Obama Care, a $2,500 cap will apply for plan years starting in 2013. The IRS says if an FSA has a July 1-June 30 fiscal year, the $2,500 maximum takes effect July 1, 2013.

Payins to flexible spending accounts for dependent care are not affected by this change  Contributions to those plans will remain subject to a $5,000 max.

The days of the use-it-or-lose-it rule are numbered. Under this IRS rule, any employee set-asides that aren’t used by the end of the plan year or grace period must be forfeited. IRS wanted to prevent FSAs from being used to defer compensation, but it now realizes that the $2,500 annual maximum lessens the potential for abuse.