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 blog some QuickBooks Tips.  I hope that you find them useful.

As we say here at my firm: 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 REALLY need 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!

SHILLER’S FAVORITE FINANCIAL IDEA

The following article is from the July Forbes magazine. I thought you may be interested in what Robert J. Shiller, an economist at Yale University, view is on the American government. He predicted both the Internet and housing bubbles.

The American government should go public- literally. Here’s how it could work: The federal government would issue a trillion shares against our $15 trillion GDP and sell them to the public in an IPO. These so-called Trills would pay dividends in perpetuity or until the government decided to buy them back. Trill investors probably would accept relatively low dividends in expectation of future GDP growth, meaning America could refinance its debt at better rates. “Governments need to end their historic reliance on debt financing. Issuing shares in GDP is analogous to corporations issuing equity.” Shiller says. “Substituting Trills for conventional debt helps deleverage the government, something whose importance has become clear with the European debt crisis. Had European countries financed themselves with Trills in the past, there would be no crisis today.”

FORGIVENESS OF CREDIT CARD DEBT IS USUALLY TAXABLE, BUT NOT IN THIS CASE

A man who owed on his credit cards failed to pay up, and the credit card company eventually wrote off his debt. More than 10 years later, a firm that acquired the debt from the credit card company contacted him to collect, but he did not owe the debt because of the states statute of limitation had run out.

He protested and the firm ceased its collection efforts. But, the new collection company issued him a Form 1099-C reporting debt cancellation income for that year. The IRS said that meant he owed tax on the amount listed on the form.The taxpayer won but had to go all the way to the Tax Court. In its view, the debt was discharged years ago, which is when the 1099-C should have been issued. (Stewart, TC Summ. Op. 2012-46)

WHY DOESN'T THE PREACHER TALK POLITICS FROM THE PULPIT

If nonprofits start talking politics, they could lose their tax exempt status. Now the IRS is stepping up its scrutiny of nonprofits in this election year to ensure they are complying with the rules on intervening in political campaigns.

Charities are barred from participating in political campaigns. Social welfare groups may engage in some political activity, as long as that is not their primary activity.

The IRS has been sending questionnaires about political activities to some groups that are applying for a tax exemption, and leads are pouring in about organizations on both sides of the political spectrum that may be trying to get around the rules.

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”