Tag Archives: tax

Business Deductions Not Allowed Due To Lack of Substantiation

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In a recent tax court case, the taxpayer who is a self-employed nutritional supplement salesperson, deducted expenses for travel, vehicle, meals and entertainment allegedly related to his sales business.  Even though the taxpayer kept a mileage record on his calendar, the record lacked specific and necessary information on how and why the mileage was related to business.  The taxpayer supplied a spreadsheet to the court in support of his deducted meals.  However, he admitted that many of his meals were eaten alone.  The tax court concluded that the records and substantiation supplied were not reliable and could not be considered “adequate records” as required by the tax code.

The morale of the story…Document, document, document!  Each claimed meal and mile must be directly related to or associated with an active trade or business or for the production of income.  And specific documentation must be kept to substantiate the deduction.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Employer Health Insurance Tactic May Backfire

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The IRS has warned of costly consequences to an employer that doesn’t establish a health insurance plan for its employees, but reimburses them for premiums they pay for health insurance. It’s an attractive option on the surface – avoiding establishing a costly group health plan while providing your employees the means to buy their own insurance.  But it has hit a major snag.

According to the IRS, these arrangements are considered to be group health plans subject to the market reforms of the Affordable Care Act. These reforms include the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Simply giving your employees the money to buy their own individual policies doesn’t mean you’ve cleared this hurdle.

Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee. That money adds up quickly.  The best thing to do is to reach out to a well qualified insurance professional to determine what, if any, coverage you are required to provide and whether what you’re currently doing will meet those obligations.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Independence Day – From Taxes?

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If you look at the founding of America, lots of things were at play, but one of the main sticking points was “taxation without representation”. King George III of England had been imposing taxes on all manner of things in “The Colonies” without allowing the colonists to be represented before his government. Anyone recall the Boston Tea Party from high school social studies?  It was a tax thing. Since our founding, taxes and freedom have been closely linked.

Each year, The Tax Foundation, an independent tax policy research firm, calculates what it calls “Tax Freedom Day”.  By Tax Freedom Day, the whole of America has earned enough to pay its tax bill for the year, including federal, state, property and sales taxes. Basically, all the money earned prior to Tax Freedom Day pays taxes, and what comes after is what we get to keep.

In 2014, that date was April 21 on average.  Each state has its own based on its tax rates; Minnesotans worked until April 29th to cover their taxes, while our neighbors in South Dakota cleared their tax burden on just April 4th.

This way of looking at the information puts both taxes and government spending into sharp focus.  You can find the article here to see how your state ranks.

From all of us, have a safe and enjoyable Independence Day!

 

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Minnesota Property Tax Refund

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During the last few weeks of the legislative session, the legislature passed, and Governor Dayton signed, a bill that will provide additional property tax refunds for those that qualify.

For renters, the amount of the refund they will receive will increase by 6%, while homeowners will see a 3% increase.  There is no change in who is eligible for the refunds, just more money for those that already do.

For those who have already completed their property tax returns, nothing more needs to be done.  The Department of Revenue will recalculate the additional refund and send the correct amount along with a letter explaining the calculation. Property tax returns filed going forward will be correct from the outset.

The Department will also be sending letters to those taxpayers that appear to qualify for the refund but haven’t filed a 2011 or 2012 property tax return. We make a habit of checking to see which of our clients will qualify, but if you do get a notice from them, please let us know.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Best Practices for Organizing Your Tax Documents

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As we approach the middle of January, many people have already begun to receive documents used to prepare their taxes.  We see people employ all kinds of different way of organizing documents to bring to us, some are great, while others could use a little nudge in the right direction.

Below are some best practices to use when you’re getting ready to see your tax preparer, or to prepare your taxes yourself.

  • Group documents by type, such as W2s, 1099’s, Mortgage Interest Statements (1098), etc.
  • Remember in some cases that your forms 1099 from investment companies may be included with your year end statement.
  • If your tax preparer provides an organizer, take the few minutes to fill out at least the question and answer section, as well as to check the demographic information to be sure it’s still up to date.
  • Take a few moments and summarize your charitable contributions into two totals, one for cash contributions and one for non-cash items, like clothing and household goods.  Be sure that you have receipts for the donations, but in most cases your tax preparer won’t need to see them.  The same can be done with medical expenses.
  • If you’ve gotten any tax notices during the year that you’ve not provided to your tax preparer, be sure to include a copy with your information.
  • You won’t need the statements from your employer-provided retirement plans, like 401(k) and 403(b) accounts.

By following the few simple tips above, you’ll make the preparation of your taxes, whether by a professional or yourself, a much smoother and more efficient process.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.