Don’t Miss Credit Card Charges

I have long maintained, based on real life knowledge, that the conventional wisdom that everyone cheats on their taxes is 180 degrees off from how things really are. The truth is that most people overpay their taxes, mostly because of lousy bookkeeping. That is why we have been very forceful in requiring our clients to set their accounts up on QuickBooks. I will be explaining many of the benefits of doing this, especially for personal non-business accounts, in this blog and on my web site over the next several weeks.

One of the biggest areas where people shortchange themselves in terms of claiming perfectly legitimate deductions, is when credit cards are involved. Most people, when getting their info together for their tax preparer, only look through their checkbooks and completely overlook their credit card activity. There is also a misconception that you can only deduct those charges that have been paid off by the end of the year. Not true. IRS treats credit card charges exactly the same as cash payments. This is not even a grey area and has been official IRS policy for as long as I have been doing taxes (27+ years). You can literally go to Best Buy on December 31 and buy a computer with a credit card and deduct it on that year’s taxes, even though the bill won’t arrive until next year. It also doesn’t matter when, or if, you ever pay off the credit card. An additional benefit is that, if a charge was for legitimate business reasons, all subsequent finance charges on that balance are deductible on the same tax return schedule where the original charge was claimed. This is another often overlooked deduction, because most people are under the assumption that credit card interest is a non-deductible personal expense.

The only way to accurately account for all of your credit card activity is to post all of the transactions in QuickBooks, along with all of your bank accounts. A separate account should be set up for each card and it should be reconciled with the credit card statement each month to ensure completeness. Each charge should be entered into the card’s register and coded to the appropriate expense as of the date of the charge.

KMK

It will take a pretty large roll of tape to take care of all of the liberals in the media and in the JackAss Party who can’t stop lying about the effects of tax rate cuts.

IRS Claims Homeless Man Owes Six Million Dollars

Proving once again that all IRS notices should be verified before being accepted as accurate.

IRS Carrot To Entice E-Filing

I mentioned several weeks ago that IRS was planning to make some new efficient web based services available to tax practitioners who participate in their e-filing program. I really liked the ideas for the new services and, although I still think actually using e-filing for clients of the kind I work with (complicated) is irresponsible, I mentioned that I might just sign up with IRS as an e-filer in order to be able to use the new services.

It doesn’t look like that is going to be possible, according to this news release from IRS. They are only going to allow the new web based services to be accessed by practitioners who e-file at least 100 1040s each year. That counts me out.

I guess I’ll have to continue dealing with IRS via the old fashioned ways until they realize that they are just hurting themselves by denying us non e-filers access to the more efficient methods. It may take several years for IRS to come to that realization since they don’t do anything quickly and are not exactly filled with rocket scientists. But, I do have to give IRS some credit for using the Carrot approach to encouraging e-filing rather than the Stick approach being discussed by the PRC to make e-filing mandatory there.

KMK

Taxes In the PRC

Having worked for several years on the Left Coast, I long ago learned that, when it comes to collecting taxes, the most ruthless bunch in the entire country are the Franchise Tax Board. While it may be hard to believe, they are much more trigger happy than even the IRS. In fact, the FTB trains IRS employees on better means of collecting past due taxes.

That came to mind when I saw this item from Spidell that the PRC is planning to be much more aggressive than IRS in its desire to have taxpayers file their returns electronically. They are discussing making it mandatory for practitioners who prepare more than 50 (or 100) tax returns each year. Then to top it off, they are planning to charge the practitioners an annual fee for use of the Tax Practitioner Hotline.

If these changes make it through in the PRC, you can expect them to spread across other states and even to the IRS.

KMK

Churches Getting More Online Donations

This make a lot of sense as well. All charities should be able to accept donations online. It’s a big convenience for both them and their donors. I’m a big fan of PayPal and have been using it for the past few years. In fact, when I am shopping online, such as at eBay (where I find the lowest prices for new software), I select vendors who accept PayPal.

KMK

Doctors Add Fees For Calls, e-mails

This makes a lot of sense to me. Of course, it’s because I long ago understood the motivating power of money to influence behavior and have always charged for my services purely based on time spent. Doctors who do start charging will find they receive fewer calls from people who are – for lack of a better term – too lazy to look for things on their own. It happens here in our office every year. We receive calls from clients who can’t find the tax organizer we sent them and want us to mail them another copy. When Sherry notifies them that they will be charged for the time it takes us to print and mail a new copy, it’s amazing how the clients are all of a sudden willing to look a little harder and can locate the earlier copy we sent. It will be no different for doctors’ patients.

KMK

QuickBooks Training Guide

As always, I am running behind in the production of my new QuickBooks training video. In the meantime, I have posted the official QuickBooks training tools that are supplied to us Certified QuickBooks Pro Advisors on my website.

Tax Free Residence Sales

Even the “experts” get confused on the rules. Gail Buckner had this erroneous explanation on how the pro-rated exclusion works when a home is sold after less than 24 months.

Here is my e-mail to her:

Ms. Buckner:

Your explanation in today’s FoxNews.com column on the reduced primary residence exclusion was wrong. The excludable gain itself isn’t pro-rated. The maximum exclusion is prorated.

For example, someone who owned & lived in the home for 12 months and was selling for valid unforeseen circumstances would be entitled to half of the maximum excludable gain, which would be $125,000 for a single person or $250,000 for a married couple. If their gain is less than those amounts, their entire gain would be tax free; not just a portion of it as in your example.

I have much more on this rule on my website at:

http://www.taxguru.org/re/primary.htm

It may seem like being overly picky, but it does make a difference.