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Simple Tips to Save on Tax

Sometimes it's the simple tips that make the biggest difference. Here is a list of simple things that you should do, or not do to stay financially healthy:

Accurately Complete Your Organizer

Your Organizer is basically a filing template that ensures that we have the information that we need. It is tailor made to each of our clients and often shows data from the last period's return for reference. 

By taking the time to confirm you have all of your source documents—or at least discover what you need to attain—you ensure the accuracy of your return, and minimize your expense.

Avoid Improper Usage Of Schedule Cs or Sole Proprietorships

Having a Sole Proprietorship and filing a Schedule C has its place, but you need to tread carefully. Schedule C filers are among the highest risk groups for audit, and thus it is vital to keep accurate records to support your positions in case the IRS desires to confirm them. Here is a quote from the Wall Street Journal<:

Change your business status. IRS Statistics< show that you are 10 times as likely to be audited as a Schedule C filer than if you incorporate your business and elect S corporation status. While it costs a bit of money to incorporate, the move affords you greater personal liability protection and reduces your chances of being audited. In deciding whether to change your business status, include both tax and non-tax factors.

Generally it is better to start a company, often a LLC with the proper tax status elected. 

Beware of Internet Scams from the "IRS"

If you receive anything about a financial topic that is unsolicited, be extremely cautious. This includes email and written notices

Over the past few years, scam artists have become more creative and nefarious. There are many that claim to be from a government organization, and are telling you that you absolutely need to click on a link, or open a "PDF", to solve your problem.

At best, the link tries to sell you something, at worst your computer is compromised with a virus.

Here is the quote direct from the IRS:

"The IRS doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information"<

https://www.irs.gov/uac/Report-Phishing<

Additionally, it is *extremely rare* that the IRS would initate contact via phone, and in fact, agents are strongly discouraged from doing so. A phone call where someone claims to represent the IRS and states that you will be arrested unless you make an immediate payment is almost certainly fraudulent. 

If You Think You Should Talk to a CPA, You Need To

It is almost always better to get advice before an event happens, so that potential problems can be avoided. Fixing tax issues generally is more difficult after the fact.

If there is a problem, do not let it compound, work towards getting it solved.

Keep Business Accounts & Personal Accounts Separate

Commingling Funds is more than messy accounting—it is dangerous. 

Paying personal bills, cashing checks to yourself when they were written to your business, or having shared bank accounts is an abuse of your corporate entity and may remove the protection of limited liability.

Keep Clean & Accurate QuickBooks Files

The IRS has begun to request QuickBooks or Peachtree files from taxpayers who are being audited—and they want them unaltered.

The IRS Stated< in response to a letter from the AICPA<:

Similar to paper records, it is important an exact copy of the original electronic data file be provided to the examiner and not an altered version. Only an exact copy of the original file includes the unaltered metadata which allows examiners to properly consider the integrity and veracity of the electronic files through use of such means as reports generated by the software program that may help to identify deleted or altered entries. For example, the original data file may provide the date a transaction was originally created, dates of subsequent changes, what changes were made, and the username of the person who entered or changed that transaction. This type of information is directly relevant to the evaluation of the taxpayer's internal controls.

Allow us to help<. There are many reasons to keep simple and accurate files, here is another.

Know The Benefits of Being Your Own Boss

There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed. See our special list of tax tips< for the self employed or those who wish to be<.

Know Your State & Federal Green Tax Incentives

When looking for new appliances or planning changes to your home or business, it pays to know the available tax incentives before you finalize your purchase. 

Salesmen or contractors may know of rebates, and can point you in the right direction, but often zealously push a credit you may not qualify for or one that may no longer exist. 

A good resource for federal tax credits is the government's Energystar website: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index<

Do not forget to research your state, county, and city credits as well: http://www.dsireusa.org/<

Additionally, make sure that you have the full documentation to prove that you are qualified for the credit.

If you are not sure if you qualify for a credit, let us know<.

Make Sure You Use Your Business Tax ID Number with Clients & PayPal

If you received a 1099, or 1099-K, with your social security number on it, but it is income that came from your trade or business, you should contact the company and make sure they correct it so that it uses your business tax id, or EIN, in the future.

If you started a PayPal or other type of merchant account in the past and it migrated over to your business, its generally best to start a new one and transition to it.

Move Your Cursor Over Green Terms for Their Definition

While many of you are comfortable with legalese, we are firm believers that misunderstood communication is not communication at all. On Famiglio.com when we use tax terminology the term will be highlighted green, if you move your cursor over it there will be a small definition shown. If you then click, we show gathered information on the same topic.

For example: CPA, OIC<, & IRA.

We hope that the functionality is useful. For a full listing of the terms see: Term Glossary<

Plan For Next Years Tax Changes This Year

Tax law changes can be complex and numerous from year to year. Often though, tax advantages are only stumbled upon instead of planned for. 

Stay up-to-date by following our suggestions, and let us plan together now, not next year.

Properly Document Your Charitable Donations

Over the years, the IRS has seen numerous taxpayers attempt to claim deductions for non-cash donations which are essentially worthless. As a result, the level scrutiny these deductions are being given has greatly increased.

We have prepared a worksheet to help you document your non-cash deductions. Take photos of your items, fill out the form, and then have a representative sign your sheet when they are dropped off.

Download the worksheet here: http://www.famiglio.com/CPA-Firm-Tax-Downloads/non-cash-donation-contribution-worksheet<

Note that past a certain dollar amount you will need an independent appraisial, as well as a completed Form 8283 - Noncash Charitable Contributions<.

Reduce The Amount of Junk Mail, Telemarketer Calls, & Spam You Receive

Perhaps less of a Tax Tip, and more a suggestion for your personal sanity, but here are a listing of ways to limit the "noise" so you can focus on what is important:

Do Not Call List<

Stop telemarketers from calling you at home: www.donotcall.gov<

Direct Marketing Association<

Reduce physical junk mail & email spam: www.dmachoice.org<

www.OptOutPrescreen.com<

Reduce credit card and insurance offers by opting out online: www.OptOutPrescreen.com< or by calling (888) 567-8688.

Remember To Disclose Non-Domestic Accounts (FBAR)

See from IRS.gov: Who Must File an FBAR?<

United States persons are required to file an FBAR if:

  1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Additionally after reviewing the extreme penalties, it is clear that you absolutely need to file this form if required.

 Violation

Civil Penalties 

Criminal Penalties 

Non-Willful Violation Up to $10,000 for each negligent violation N/A
Pattern of Negligent Activity In addition to penalty under § 5321(a)(6)(A)
with respect to any such violation, not more than $50,000
N/A
Willful - Failure to File FBAR or retain records of account Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. Up to $250,000 or 5 years or both
Willful - Failure to File FBAR or retain records of account while violating certain other laws Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. Up to $500,000 or 10 years or both
Knowingly and Willfully Filing False FBAR Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. $10,000 or 5 years or both

Separate Credit Cards for Separate Things

Credit cards are much easier to track than cash, but never mix your personal with your business cards. 

Simplify Your Accounting By Avoiding the End of the Month

One of the simplest, but effective accounting tips: avoid writing checks during the last few business days of the month.It will cut down on transactions that straddle two periods, and quicken bank reconciliations. 

Ten Things Businesses Mistakenly Forget To Discuss with Their CPA

  • A Change in Amount of Business
  • A Change in Nature of Business
  • Large Purchases or Sales
  • A Change in Ownership
  • Desire to Move or Open New Location
  • Seeking Financing
  • Communication from IRS or State Department of Revenue
  • Theft
  • Lawsuit
  • New Legislation

Understand How Dependents Save You Tax

The IRS has issued important facts about dependents and exemptions, and reminds parents of the tax benefits for children.

Reviewing this information< can help ensure that you only pay the taxes that you should.

W2 Wages For S Corporation Officers

See: Wage Compensation for S Corporation Officers<

When corporate officers perform services for the corporation, and receive or are entitled to receive payments, their compensation is generally considered wages.  Subchapter S corporations should treat payments for services to officers as wages and not as distributions of cash and property or loans to shareholders… 

"Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation."

As your accounting and tax consultants, we advise our S Corporations to pay a Reasonable Salary to its officers who work for the company.

What are reasonable wages or reasonable compensation? That depends on, the locality, the industry, and the roles that the officers play in the company.

It is a tailor-made figure, that we will discuss with you.

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