I have been asked numerous times whether congress will vote to extend the home buyers credit.  It is situations like this that help to make the point that the more people try to game the system, the more difficult the IRS is to deal with.

Government investigators revealed today that fraud is rampant in the First-Time Homebuyer Tax Credit program. Over 100,000 taxpayers have tried to cheat the system, the IRS says. Some of filers for the credit were just four years old.

The program allows people who haven’t bought a home in the past three years to claim up to an $8,000 tax credit, based on the home purchase price and their income level. It is credited with helping lift the housing market, and Realtors and other real estate industry groups are lobbying for its expansion and extension.

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There are plenty of taxation philosopher who decry the use of tax credits/deductions to regulate the economy:

The objective of most sound tax policy is for the tax code to interfere with household and business decisions as little as possible—that is, to let decisions be made on economic fundamentals, not based on their tax treatment. Housing tax subsidies have violated this tenet of sound tax policy and distorted household decisions in several important ways. First, they encourage investment in housing over investment elsewhere in the economy, namely business investment. Secondly—and this is something that should be appreciated more right now—the deductions for mortgage interest and real estate taxes paid grow with the size of the house and the mortgage, encouraging the financing of oversized houses with oversized loans. It would go too far to blame the current housing crisis on the existing tax subsidies, but they certainly haven’t helped matters.

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It is too late and too political to remove overly complicated politically motivated creaziness from the tax code, but perhaps a little awareness can help.

A Denver-area house cleaner could hardly believe her eyes when she opened up the mail. She was expecting to pay the Internal Revenue Service, but instead she received a refund check for more than $100,000.

Laura Schultz readily admits she’s not a wealthy woman. Her job with Sunshine Maids does not put her in the category that would bring a refund in the hundreds of thousands of dollars; but the IRS sent her a check for $122,783.51.

“It didn’t make sense,” Schultz said.

It certainly was a real check.

“I didn’t feel I was owed that much money, so I called the IRS,” Schultz said. “They told me to void it.”

CBS4′s Rick Sallinger asked the IRS what would happen if somebody decided to keep a mistaken $122,000 check. An official said if they were caught they’d have to pay it back, plus interest.

Schultz voided the check as the IRS requested.

“I feel pretty good about turning it in.”

The IRS says it cannot comment on what caused the error, but Schultz still has to pay the $80 she owed.

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Taxes are meant to raise revenue, not micromanage a complex economy. Tax policy should not add unnecessary and discriminatory market distortions. In general, political efforts to manipulate the economy make markets less efficient by influencing consumers, retailers, and manufacturers to consume, sell, and produce more or less of a product than they otherwise would. While the economic costs of these distortions may be difficult to measure, they are real and economically damaging.

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The Swiss banking giant UBS has agreed to turn over the names of 4,450 American clients suspected of tax evasion in the US. Switzerland has always had strong bank secrecy laws and has therefore been an attractive option for individuals seeking to hide income. According to the IRS the 4,450 accounts held over $18 billion at one point. The New York Times reports:

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Low inflation has made food and gas more affordable during the recession, but there’s a downside: Social Security beneficiaries probably won’t get a raise next year, and the IRS may reduce the amount workers can contribute to their 401(k) plans.

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Rep. Thaddeus McCotter (R-MI) has introduced H.R. 3501, the “Humanity and Pets Partnered Through the Years” (HAPPY) Act, which would allow taxpayers to deduct up to $3,500 per year in pet expenses from their federal taxes.

Ruh ro! As an organization that put a sad-looking puppy on its newsletter recently, we can’t very well criticize policy efforts that take advantage of Americans’ love of man’s-best-friend. And yes, those expenses quickly add up: a friend of mine this past week shelled out $700 after Sweet Pea swallowed a pill that fell on the floor.

Pets are good and caring for pets is good, but doing it through the tax code is problematic. MSN catalogues some of the problems associated with this bill:

“Qualified pet expenses” appears to include a wide variety of undefined things involved in providing care, with the exception of acquisition costs. Thus, the adoption fee at the pound would not be included. But would you get a tax break for the grooming session that includes nail polish for FiFi, or every can of Fancy Feast or each new toy? Or how about the little castle you buy for the fish tank?

Kathy at Blogging For Michigan also notes that people can deduct expenses for their own medical care only if those costs exceed 7.5% of adjusted gross income, so the bill would give your pet’s medical bills better tax treatment than your own.

No doubt the IRS will spend an inordinate amount of time coming up with what a “qualified pet expense” is, and it will be either so broad to be ridiculous or so narrow as to be useless. Either way it’ll be a mess of government micromanagement.

If you want to cut taxes, cut taxes. But this type of targeted tax break is precisely the thing that mucks up the tax code and adds complexity and uncertainty. (Check out the mocked-up Individual Pet Tax Return (Form W-K9) for some insight as to why.) A federal government program for pet expenses would never fly, yet this bill would achieve the same thing via a less-scrutinized tax deduction. And the acronym is ridiculous. TTH: Trying Too Hard.

People shouldn’t get pets just because the tax code encourages them to do so. In fact, such people would probably be the worst pet owners. I’d hate to see loving pet owners become dependent on the government for their pet care.

Politicians should use the tax code to raise revenue, not to shape people’s behavior in ways they think is nice.

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Many people are upset that the mileage rate (from the IRS) has decreased. The mileage rate decreased because fuel costs have decreased.

(All of you conspiracy theorists might want to note that the same thing happened last year at this time too. Hmmm, just in time for us to drive around and do Christmas Shopping……)

When I talk to a Small Business Owner, I hear disappointment that the IRS mileage rates dropped. When I talked to an accountant friend of mine, she was happy – “I’d rather pay less for gas than have a higher deduction.”

Better spending habits are far, far more valuable for tax savings than spending more and getting more “write-offs”.

IRS Announces 2009 Standard Mileage Rates

IR-2008-131, Nov. 24, 2008

WASHINGTON — The Internal Revenue Service today issued the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

*
55 cents per mile for business miles driven
*
24 cents per mile driven for medical or moving purposes
*
14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.

The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.

The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Revenue Procedure 2008-72 contains additional information on these standard mileage rates.

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Recently Beth posted the following question on the FAQ’s page:

Hi Jim,

I have belonged to a bartering organization for some time. The fees are being raised, and since my business is growing, I am rethinking my need for a bartering group. Jim, can you tell me the pros and cons on taxes for bartering? I always receive a 1099 from the bartering broker, usually between 1,000 and 6,0000 per year. Should I have this barter income come as my business, or my personal income (I have used bartering for personal use and business needs) and I am not sure how this affect my taxable income.

thanks

Beth Caldwell
Pittsburgh Professional Women

Great question Beth! As cash gets tighter, barter activity tends to increase.

The short Answer:

It’s not worth the trouble.

The Long Answer:

Let’s start off by reviewing barter exchanges by taking a look at a short note about this in the September “Small Biz Builder”:

Barter Exchange Defined

“Transactions involving the exchange of property or services instead of cash are called barter exchanges. The fair market value (FMV) of the property or services received in an exchange is taxable income to the recipient.

For example, an auto mechanic repairs a landlord’s car in return for 6 months rent-free use of an apartment. The landlord reports the FMV of the auto repair as rental income and the mechanic reports the fair market rental value of the apartment as self-employment income.

Caution: due to increased bartering activity via the Internet, the IRS has recently signaled its intent to pursue tracking barter exchanges.”

Now for my opinion:

I have never seen any increase in tax efficiency that results from Barter Exchanges. (But tax efficiency isn’t everything, as we will see in later paragraphs.) In fact, bartering may result in a greater likelihood that your accounting may be considered inaccurate by the taxing agencies!

(After all, the IRS has “recently signaled its intent to pursue tracking barter exchanges”. This is because taxing agencies don’t believe that barter income and expense are receiving the proper treatment)

In most cases, we have found that trading goods and services for other goods and services is less efficient than trading trading dollars for goods and services. And this is not only due to the complexity inherent in reporting bartering, but also due to the service fees charged by barter systems.

When Bartering might make sense:

There is, however, a case where barter might make sense: If a Business Owner has extra “stuff” that wouldn’t get used otherwise, offering this “stuff” as payment for a needed service would be a way to increase the business’ financial efficiency.

Here are (2) examples:

Example 1: A hotel that has capacity during a slow time. They have all cost for those rooms even if the room were never reserved. But they can offer the rooms, something they were paying for anyway, as an exchange for another good or service.

Example 2: A caterer has 10 gallons of milk that need to be used in the next (2) days. The caterer can offer to provide some food to a Chamber of Commerce in return for free admision to future events. The caterer saved the loss of their inventory, and also got something in return that the caterer was going to use anyway (Admission to the chamber events).

Your Tax Situation:

As far as what to do with your taxes, we would need to apply the appropriate proportion of income/expense to both business and personal tax returns. I know it’s kind of a pain, but the best thing to do would be to pull out your monthly barter statements for the year, and start adding up the business transactions and adding up the personal transactions. Oh, and by the way, this is an example of the increased complexity that results from bartering transactions.

The business income/expense gets reported on the business return and the personal income/expense would get reported on your personal return. If you want a more technical answer, email me directly and I will go into it with you.

(And if I could make an unrelated observation, your financial life, beyond dealing with barter exchanges, would be better if you didn’t intermingle business and personal transactions!)

For you Beth, largely because you offer a service, I would recommend trading those little green rectangles of paper that we call money for the goods and services that you need.

This is from a Padgett press release:

Accounting Today has named Padgett President Roger Harris to
its “2008 Top 100 Most Influential People in Accounting”
list.

This year’s list, entitled “New Frontiers”,
focuses on the abounding changes in the accounting industry and
details how the individuals featured in the Top 100 are impacting and
advancing the field. The list includes not only accounting
professionals but also government officials and regulators.

“The profession stands poised to cross the
threshold into largely unexplored territories, such as the inevitable
convergence of U.S. GAAP and International Financial Reporting
Standards, new technologies, a potential revamp of the Tax Code and
dizzying changes in workforce demographics,” said Accounting
Today editor Bill Carlino. “This year’s Top 100 People roster
includes many of those who are spearheading the profession’s
journey into these brave new worlds.”

Padgett Business Services
is at the forefront of this journey, educating policy-makers and
shaping legislation in Washington. Through the efforts of the
Padgett Foundation, Padgett Business Services
is actively participating to ensure that new regulations enhance the
accounting profession; Harris recently testified on behalf of Padgett
in the IRS hearings on one of the most pressing issues in the
accounting industry today – preparer penalty rules.

However, the primary focus of Padgett’s work
in Washington is to shape legislation so that it benefits America’s
small business owners. Acting on behalf of Padgett’s small
business clients throughout North America and associations of tax
practitioners, Harris has testified several times on IRS reform and
has testified before the Senate Small Business Committee and the
House Ways and Means Committee. He has also been featured as an
expert panelist on Tax Talk Today, the IRS monthly web-cast.

Accounting Today describes Harris as “a veteran tax policy
advisor to the IRS and Congress, his influence and insight are
welcomed in Washington as well as on Main Street.”

This is not the first time that Padgett Business Services
has appeared on the “Top 100 Most Influential People in Accounting”
list; Vice Chairman Dan Sautner has also been honored on the list and
Accounting Today has recognized Padgett in the past with the
following citations: Top 100 Firms, Top 10 Fastest Growing Firms in
America (without merger for growth), Merit Award for Achievement in
Client Service, Gold Medal Award for Achievement in Client Service.

Not only is Padgett recognized as a
leader in the accounting industry, but they are also recognized as a
leading international franchisor. Padgett has been ranked as a top
franchise by Entrepreneur, Success, and Income
Opportunities magazines, and was also ranked in Franchise
Business Review’s Franchise 50 2008 Franchisee Satisfaction
Awards.

Great article from the IRS site on “Independent Contractor vs. Employee”. This is always a difficult issue for Business Owners and many times the determination is skewed by an emotional Business Owner who desperately wants to avoid payroll taxes.

The IRS doesn’t have a clear set of yes/no questions for this. No flow chart or decision tree. But, for a cool head, usually there isn’t much question about worker classification. If you are unsure, best bet is to classify the worker as an employee. Call the office if you have any questions.

IRS Summertime Tax Tip 2008-24

Are your workers independent contractors or employees? The answer can have a profound impact on how much tax you pay as a small business owner. Knowing whether your workers are or are not employees will affect the amount of taxes you must withhold from their pay. It will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

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A trucking and earthwork business operator has been accused of allegedly threatening to shoot two Internal Revenue Service officers.

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Huh?

This paper reexamines the responsiveness of taxable income to changes in in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995. The data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income. This small group of executives can account for as much as 20% of the aggregate change in wage and salary income for the 1 million richest taxpayers and one person alone can account for over 2%. But the decline is almost entirely a short-run shift in the timing of compensation rather than a permanent reduction in taxable income. The short-run elasticity of taxable income with respect to the net of tax share exceeds one but the elasticity after one year is at most 0.4 and probably close to 0. The response comes almost entirely from a large increase in the exercise of stock options in the year before the tax change, followed by a decline in the year of the tax change and the change is concentrated among executives at the top of the income distribution. Executives without stock options are 6 times less responsive to taxation. Other types of compensation such as salary and bonus or nontaxed income are either not responsive to tax rates or not large enough to make a difference. The estimated elasticities show that the dead weight loss of recent tax increases was around 15-25 percent of the revenue generated.

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This article says it all. But, I think it is funny (and Embarrassing for Congress) that Congress is blaming the IRS. The IRS has no choice but to enforce the laws that Congress passes. I don’t think that there is a person in the IRS that actually thinks the antiquated regulations regarding the cell phone deductions are appropriate. But what are they going to do? Just ignore the law?

If Congress would change the law, then “IRS Weenies” (see the last paragraph of the quoted article) would be enforcing the appropriate laws instead of being saddled with an unwieldy tax code.

I just kills me how Congress likes to blame the IRS. If Congress passed and update laws as appropriate, then these issues wouldn’t occur. I think that such out-in-out pandering and posturing makes Texas Representative Sam Johnson the “Weenie”.

When I explain this Regulation (or any of the many other inappropriate regulations) to my clients, I place the blame where it belongs: on Congress, not the IRS

Bet you didn’t even know: If you use a cell phone for work (one provided by your company), you’re supposed to keep a detailed log of every call you make on that phone, recording whether each call is for work or for personal use. If you don’t, and even if 100 percent of the calls are for work purposes, your employer, by law, can’t consider your phone a business expense. Instead, it has to consider the phone a perk provided by the company, which means its value has to be treated as taxable income to you.

If this sounds crazy it’s because virtually no one follows the letter of the law on this issue. (If anyone out there has a work-provided cell phone and has the value of its service tacked on to their W-2 at the end of the year, let me know.) But it is the law, and it’s basically remained unchanged since cell phone service began as an outrageous luxury for the rich in 1989.

While most employers have simply been ignoring the law—the same way that no one itemizes and pays taxes on out-of-state purchases—the IRS has of late been cracking down on the issue. According to the L.A. Times, UCLA got slapped with a $239,000 bill for back taxes because employees hadn’t been keeping the aforementioned logs. UC San Diego received a similar, $186,000 bill. The University of California system provides some 13,000 workers with University-issued cell phones, so its potential liability is huge. Nationally, 5.5 million people have phones provided by their employers, which must have IRS agents’ eyes lighting up with giant dollar signs like Scrooge McDuck.

The good news? Our Congressmen are trying to ride to the rescue to change the law that requires the absurd recordkeeping. Both the House and Senate have pending legislation to take cell phones off the list of taxable fringe benefits, and even the IRS’ Advisory Committee now considers the rules to be overly “burdensome for any employer” and recommended relaxing the requirements.

See more details from the Times at the link below, including this gem of a quote from Texas Representative Sam Johnson: “In 1989 when cellphones were huge and when it cost a lot of money to make a phone call. Nowadays they’re a dime a dozen and the cost is way down. If you don’t log all your telephone calls, you’re going to have some IRS weenie after you. That’s why we’re trying to get the law changed—because it just doesn’t make any sense anymore.”

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In March, agents served the orig­inal summons, calling Wesson to testify and produce certain books, records, papers and data account­ing for his taxes dating back to 2003. Instead, Wesson demanded a cer­tified copy of an IRS agent’s oath and a copy of the agent’s photo ID, according to court documents.

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Small Business Owners across the land are tightening their belts due to our challenging economy. But one thing that we forget sometimes is the IRS is also doing business in the same economy.

“In an era of growing federal deficits and amidst reports of an increasingly gloomy fiscal outlook, the federal government cannot afford to allow businesses to continue to accumulate unpaid payroll tax debt with little consequence,” Sebastian said.

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Like most legislation passed by congress that involves taxes, the newly enacted $15.1 billion package of housing tax incentives entitled the “Housing Assistance Tax Act of 2008” (the Housing Act) is quite complicated. I have compiled only a few of the highlights below.

It includes a measure creating a new, temporary property tax deduction for non-itemizers (i.e., for taxpayers who claim the standard deduction rather than itemizing their deductions):

• The provision creates a new standard deduction for state and local real property taxes paid by non-itemizers. Since most homeowners who are paying on a mortgage have enough deductions (e.g., mortgage interest and property taxes) to justify itemizing them on their return, this new provision chiefly benefits homeowners who have paid off their homes.
• The deduction is available only for one year–for tax years beginning in 2008.
• The amount of deduction is as much as $500 for single filers and $1,000 for joint filers. Since this is a deduction and not a credit (i.e., a dollar-for-dollar reduction in tax liability), the actual tax benefit will not be substantial, for example, a maximum of $100 to a couple in the 10 percent tax bracket and $150 to a couple in the 15 percent bracket (and only $50 and $75, respectively, to singles in these brackets).

Also included in the Housing Act:

• For returns for calendar years beginning after 2010, the new law requires banks and online payment networks to file an information return with IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant’s name, address, and taxpayer identification number (TIN). Reporting is also required for third party network transactions. Information reporting for third party network transactions will be required only for merchants that have (1) annual credit and debit card transactions exceeding $20,000 in the aggregate, and (2) an aggregate number of such transactions during the year that exceeds 200.

There are also “First Home” buyer deductions included in the Housing Act:

• The home must be located in the U.S. and must be the taxpayer’s principal residence (main home). The taxpayer (and the taxpayer’s spouse if married) must not have owned another principal residence in the U.S. in the three-year period before purchasing the new home. Thus, the home doesn’t literally have to be the taxpayer’s first home.
• The home must have been purchased from April 9, 2008 through June 30, 2009, inclusive. Purchases from certain related persons and acquisitions by gift or inheritance don’t qualify. A home constructed by the taxpayer does qualify if the taxpayer moves in from April 9, 2008 through June 30, 2009.
• A special rule allows taxpayers who purchase a principal residence in the first six months of 2009 to treat the purchase as if made on Dec. 31, 2008. This allows the taxpayer to claim the credit for 2008 rather than 2009. The credit is equal to 10% of the price paid for the
  home, up to a maximum of $7,500. The $7,500 maximum credit applies both to individuals and married couples filing a joint return. A married individual filing separately can claim a maximum credit of $3,750.
• The credit is phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. Taxpayers with modified AGI over $95,000 ($170,000 for joint filers) can’t claim the credit.
• The credit is refundable, meaning that households with incomes too low to owe income tax can benefit from it.
• In the second year after purchase, taxpayers who took the credit must start paying back the credit in equal installments over 15 years, with no interest charge. This works as follows. Suppose a first-time homebuyer purchases a home for $100,000 this coming December and claims the maximum credit of $7,500 on his 2008 tax return. He would then be required to pay back $500 (one-fifteenth of the credit) on his tax return for 2010 and for each of the following 14 years, through 2024.
• If the taxpayer sells the home (or the home ceases to be the principal residence of the taxpayer or the taxpayer’s spouse) before complete repayment of the credit, any remaining credit is due on the tax return for the year in which the home is sold (or ceases to be the principal residence). If the home was sold at a loss to an unrelated person, repayment of the remaining credit is forgiven to the extent of the loss.
• No credit is allowed if: the taxpayer was ever entitled to a D.C. homebuyer credit; the home purchase was financed through tax-exempt mortgage revenue bonds; the taxpayer is a nonresident alien; or the taxpayer disposes of the residence (or it ceases to be a principal residence) in the year of purchase.

There is much more to the “Housing Act” and if you have any questions/concerns please call us.

This from the Tax Policy Blog over at the Tax Foundation website:

Once again, the United States Congress is making the tax code worse. Not that it should surprise any of the readers of this blog. Members of Congress, however stupid their policies may be, just want to appear as if they are doing something right now as it relates to housing. And if that means making the tax code more complicated and more distortionary and more discriminatory, then so be it.

The housing bill that Congress is set to pass and the President is now willing to sign is set to add a number of lines to the standard 1040, including a deduction for property taxes paid that will likely be in the adjustments section (above-the-line deduction). And then there is the new credit for homeowners that must be repaid in future years. It’s essentially an interest-free loan administered through the tax code, as if the federal government doesn’t have any entities that subsidize and administer borrowing for housing already.

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Congress is on the verge of requiring payment card processors to tell the Internal Revenue Service how much money merchants receive through credit card and debit card transactions.

…

“This proposal does not raise taxes on anyone,” said Baucus, who chairs the Senate Finance Committee. “These information reports would just cause people to file more accurate returns.”

…

The legislation, however, would require credit card processors to withhold taxes on payments to a merchant whose taxpayer identification number (TIN) couldn’t be verified. But there are bound to be errors in the TIN verification process, Darien said, meaning some small businesses could have 28 percent of their credit card reimbursements withheld until the errors are corrected.

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In an unprecedented move……

IR-2008-82, June 23, 2008

WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

Here is an interesting take on this event from the Seeking Alpha investment web site about what this says about inflation:

But its more than a bunch of whiny consumers, vicious, lying short sellers, pajamed bloggers — and PIMCO’s Bill Gross — that have recognized the absurdity of our inflation rate. Even the IRS has finally thrown in the towel….

…..As the table below shows, deduction of gasoline expenses was 44.5 cents in 2006; this deduction increases to 58.5 cents by year’s end. As measured by the IRS, we have a 32% rise in energy costs over two years.

Does this mean the IRS is sympathetic to the business community?

Click Here to see the IRS Announcement in it’s natural habitat

Click Here to see the “the IRS is Hip to Inflation” article from the “Seeking Alpha” website in it’s natural habitat

“Under the Obama plan for 2009,” explains Hodge, “more than $131 billion would be shifted from the tax burden of all low-, middle- and high-income taxpayers to the burden of the highest-earning 1 percent.”

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The short answer is NO. No amount of accounting is going to make the prices lower at the pump. (Surprised you, huh? I bet you thought I was going to wax poetic about some underused tax deduction.) But Good Accounting can help you save money on expenses (and taxes) including your fuel expenses.

I always ask Small Business Owners if they know how much money they made last month. Usually, 90% will raise their hands. Then I ask if they know how much they spent last month. Only 10% will leave their hands raised. Lastly I will ask if they know how much they spent on Utilities, Payroll, Supplies, etc…..and I am usually left with no hands.

I have yet to meet a successful Business Owner who doesn’t count his/her money every month.

(An elemental part of accounting is actually assigning expenses to …well….accounts. The rest of the world would consider these categories, but accounting is based on the allocating of monies to specific categories: Expense accounts, Sales accounts, Equity accounts, etc….)

So when a Business Owner looks over their accounts, they can see exactly what they are spending on each category. And if it turns out that 40% of expenses are going to Supplies, perhaps some changes can be made. The same is true of other expense categories like Rents, Licenses, Dues and Subscriptions, Repairs, Advertising, and yes, Fuel.

If a Small Business Owner feels the need to tighten up their spending, it would be difficult to make any strategic decisions without a good accounting. (That’s one reason why I like my job — it’s recession proof!)

So if rising fuel costs are hurting your bottom line, do some accounting and see if any funds can be reallocated from other expenses. A process like this is the epitome of Small Business Ownership. Isn’t it great?

Here is a really informative and easy to follow IRS fact sheet on Business Structures. I will be recommending this to my Small Business Clients when they ask about incorporating.

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Although business is business, and pleasure is pleasure, the world rarely adheres to absolutes. So, as the summer vacation season begins to unfold, you may want to consider mixing some leisure time in with your business travel. With a little planning, you can get Uncle Sam to subsidize your downtime.

Business or Pleasure. The IRS doesn’t specify the determination of whether a trip is for business or pleasure on domestic trips. However, looking to the rules on international travel for guidance, the number of days spent on each type of activity is the key. An important factor in determining if the trip is primarily business or pleasure is the amount of time spent on each, although this isn’t the sole factor. In general, the trip is “primarily for business” if more than half of the days is spent on business activities.

The following days count toward your total business days:

• Travel days;
• Weekends and holidays, if they fall between days devoted to business and it would be impractical to return home;
• “Standby days,” when your physical presence is required, also count as business days – even if you’re not called upon to work on those days;
• Any other day principally devoted to business activities during normal business hours; and
• Days you intended to work but couldn’t due to reasons beyond your control (local transportation difficulties, power failures, etc.)

If the trip doesn’t involve the actual conduct of business but is for the purpose of attending a convention, seminar, etc., IRS checks the nature of the meetings carefully to make sure they are not vacations in disguise. Be careful to save all material helpful in establishing the business nature of this travel. Meticulous recordkeeping and thorough planning are necessary.

Transportation costs. The cost of traveling within the United States is 100% deductible as long as the primary purpose for the trip is business rather than pleasure. In contrast, no travel deductions are allowed if the main reason for a trip is personal.

It’s important to keep your receipts and to be able to prove the number of days spent on business. What can you claim as transportation expenses when you pass the primarily-for-business test? Deductible expenses include the following:

• Traveling to and from your departure airport
• Airfare
• Baggage tips
• Cabs to and from the destination airport
• Rail travel
• Vehicle expenses

Meals and Lodging. Once at your destination, expenses for such items as lodging, hotel tips, local cab fares, and 50% of meals are deductible when related to business days. However, these same types of expenses aren’t deductible for non-business days. Additionally, no deduction will be allowed for meals or lodging to the extent the expense is “lavish or extravagant.” Although this term isn’t defined in the tax rules, it has been interpreted to mean “unreasonable.”

Personal entertainment costs on the trip aren’t deductible (such as a sightseeing tour), regardless of the day on which they fall. But business-related costs such as for dry-cleaning, phone calls, and computer rentals are.

Taking Your Spouse. The rules on deducting the costs for a spouse accompanying you on a business trip are very restrictive. No deduction is allowed unless your spouse is an employee of yours or your company and his or her travel is also for a business purpose. This means you can’t deduct the travel costs of a spouse, even if his or her presence has a bona fide business purpose, unless your spouse is a bona fide employee of your business.

If your spouse is your employee, and if his or her presence on the trip serves a bona fide business purpose, then you can deduct his or her travel costs. Merely having your spouse perform some incidental business service – such as typing up notes from a meeting – isn’t enough to establish a business purpose. In general, it isn’t sufficient for your spouse’s presence to be “helpful” to your business pursuits— it must be “necessary.”

If your spouse’s travel is not deductible, you can still deduct your own travel and meals; however, a shared cost – as with lodging – is deductible only at the single rate.

Not sure whether your travel expenses will be deductible? Take a few minutes to give our office a call.