This is a special episode because this is my first return guest and for good reason. John Eckle is a CPA and has come to give us some tips about out taxes. This episode is packed with tips for write-offs and forms you may need. I have never had a contracted employee but John gives us some tips on what we need to consider.
Obviously we are just touching the tip of the ice burg when it comes to taxes in this interview but it’s my goal to give you some information so you can at least start getting the dialog going with who ever is doing your taxes.
Below is a list of links we mention and below that is an outline John sent me to help you be the most prepared and questions to consider.

Make sure you’re subscribed to the podcast wherever you listen and if you know anyone who could benefit from what John shared please pass this along. ūüôā

Links:

IRS forms and publications
Schedule C
Verify you CPA’s license

 

The book I recommended “Small Time Operator” is available on Amazon. It’s a great book feel free to check out the ratings! The edition I linked here is the 14th Edition. Personally, I have the 13th edition.

 

I.                    How to be prepared for your meeting with a CPA, Enrolled Agent, or Tax Preparer

a.       Different types of tax preparers

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†i.¬†¬†¬†¬†¬†¬†CPA ‚Äď licensed by the state, must have an IRS issued PTIN

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†ii.¬†¬†¬†¬†¬†¬†Enrolled Agent ‚Äď licensed by the IRS

¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†¬†iii.¬†¬†¬†¬†¬†¬†Tax Preparer ‚Äď possesses a PTIN. Not licensed by IRS or the state

b.      Begin collecting official documents by the end of January

                                                               i.      Make sure you have all official documents before your tax apt

                                                             ii.      These could include W-2s, 1099s (1099-MISC, 1099-INT, 1099-DIV, 1099-G, 1099-SA, 1099-R, 1099-1099-K Рfairly new, etc…), K-1s, etc…

                                                            iii.      In some cases, you should also receive detail supporting the 1099s you receive, as in the case of 1099s received from investment brokers (Schwab, Dean Witter, etc…) Bring these year-end reports with you.

                                                           iv.      If you have everything you expect to receive except for maybe one document, ask your tax preparer if you could set your appointment, and then drop off or send the last remaining document later

1.       i.e., K-1s are often late, and are not required to be issued until 4/15 each year!

                                                             v.      Bring list of personal deductions (

c.       If you own a business, bring your annual P&L, and if available, a balance sheet and cash flow report as well.

                                                               i.      Some accounting software (i.e., Quickbooks) will produce these reports, while other software (i.e,, Quicken) may not.

                                                             ii.      If you have access to your accounting software on your laptop or online, you may want to bring that along with you in case there are any questions.

                                                            iii.      Ask your tax preparer if he/she is familiar with your accounting software, and whether they want access to the detail for reference while preparing your returns.

                                                           iv.      Make sure you have reconciled your business bank account (separate bank account highly recommended, if you don’t already have one), and have accounted for all business transactions (deposits and checks).

                                                             v.      Make sure you have included all business credit card charges as expenses. If a credit card account is used exclusively for business, reconcile that statement as well.

                                                           vi.      Accumulate all business-related 1099s you have received (i.e., 1099-MISC forms received from other businesses. Required when they pay you > $600 during the calendar year), and reconcile the total with your reported revenues. Your revenues should be equal to or greater than the total of all 1099s.

1.       If the 1099s totals are greater than your reported revenues, you have a problem and should discuss this with your tax preparer.

                                                          vii.      If you use your vehicle for business purposes, be ready to provide:

1.       the date you began using it for business

2.       the total miles you drove for the year (ideally, beginning and ending odometer readings)

3.       the miles you drove for business purposes. You should be able to provide a log of these miles, if requested. (Note: The IRS requires this detailed log of each business trip)

                                                        viii.      List of any equipment, furniture, home improvements, or leasehold improvements purchased during the year, including date began using for business (may not be same as purchase date), amount of purchase, and description.

                                                           ix.      If you want to deduct an office in a home, you must use it for more than just the storage of business records

1.       It must be a room used exclusively for business (family rooms and garages don’t usually qualify, in most cases)

2.       Any improvements or repairs to the room (shelves, storage, painting, electrical) may qualify

3.       You must use it exclusively for production or meeting with customers or clients.

4.       If a room (or your garage) qualifies, you can write off a portion of your rent, mortgage, insurance, property taxes, utilities, etc… of the entire house, based on a ratio of square footage for the room, compared with the entire house. You can also add depreciation

5.¬†¬†¬†¬†¬†¬†¬†WARNING ‚Äď However, if you depreciate, then you will have to recapture‚Ķ.

d.      Mistakes business owners make:

                                                               i.      They don’t document auto mileage properly

                                                             ii.      They don’t document expenses properly (i.e., give example of meals and entertainment)

                                                            iii.      They don’t include all business expenses. If you are not sure, include the expense on a separate list, and ask your tax preparer.

1.       If the expense is in any way related to your business, ask!

                                                           iv.      They confuse cash flow with revenue or expense

1.       Loans or business cash transfers are not income, nor are they expense, unless they include some form of interest for the use of money.

                                                             v.      They don’t have accurate, reconciled accounting records

                                                           vi.      They don’t use bank accounts or credit cards exclusively for business.

1.       Although not against the law, this is not best practice

2.       Remember, if you are audited, you will have to provide all your records related to business income and expense, to the IRS

                                                          vii.      They wait until the last minute to make their tax appointment

                                                        viii.      They don’t ask their tax preparer for a tax projection before year end

1.       This may cost something (usually around 30 min to an hour’s billed time.

2.       You should also ask what you can do before year end to reduce your tax liability

                                                           ix.      They just ignore the 1099-MISC forms they receive, and don’t reconcile them with annual revenue totals

                                                             x.      If they have employees, they don’t report wages and payroll taxes accurately

                                                           xi.      They have not reported loans (either payable or receivable) correctly in their accounting records

e.      How to get 2017 off to a good start

                                                               i.      If you are not using a good accounting software (I recommend QB Online), to track income and expenses

1.       purchase an easy to use accounting software to track income and expenses

2.       become familiar with your P&L and Balance Sheet

a.       get help from a professional if you don’t understand what you are doing

b.      commit to reconcile your bank and credit card statements on a monthly basis

3.¬†¬†¬†¬†¬†¬†¬†Value your accounting records as much as the product or service you are providing ‚Äď be diligent and consistent

4.       If you prepare your own tax returns, consider hiring a CPA or Enrolled Agent to prepare your returns

a.       Ask to meet with them ahead of time for a tax projection, and for ways to reduce your tax liability