Donating to eligible charities can help lower your taxes, but how you donate can make a big difference, both for you and the charities you support. Check out the different ways to donate and get your donations in before year end so you can decrease the amount of taxes you will owe come April 15.
Remember the adage “It’s better to give than to receive”? If your financial goals include giving to causes that are important to you, you can strategize to make the greatest impact while potentially receiving tax savings, too.
The tax aspects of charitable giving can be pretty complicated. And it’s always a good idea to consult your trusted tax professionals at Adams Accounting Solutions about your giving strategy. Here are a few important reminders:
With the above complex stipulations regarding annual deduction limits, it’s advisable to speak with the experts at Adams Accounting Solutions before making your donation, just to be sure you’re maximizing your benefits. Our friendly staff will walk you through the considerations for your unique situation.
The tax advantages of a charitable contribution generally depend on three factors:
Different types of property donations—whether it be cash, business assets, or investments—offer different tax advantages and drawbacks.
Cash
Cash donations are very clear cut, but as mentioned earlier, keep your receipt from the charity or a bank record (such as a canceled check or bank statement) to substantiate your cash gift—no matter how small.
Volunteering
Transportation costs for volunteering can be deducted, but the value of the volunteer time is not deductible.
Tangible personal property
The IRS allows you to donate almost any item—including old clothing, household items, cars, trucks, boats–as long as they are in “good” used condition or better. If the property doesn’t relate to the charity’s mission, you may deduct the amount you paid for the property or the property’s current reasonable value—whichever is less. If the property is related to the charity’s mission—building supplies donated to Habitat for Humanity, for example—it’s usually fully deductible based on its current reasonable value. Some charities will provide guidance, but normally you are responsible for determining the property’s value for tax purposes.
Ordinary income property and short-term capital property
Ordinary income property normally includes assets like inventory held for sale by a business, artwork created by you, or manufactured items you produced. In addition, any short-term capital assets, such as stock, are considered to be ordinary income property if held for less than a year.
On average, if the donated assets would have generated ordinary income if sold on the day of contribution, then the IRS limits your deduction to the asset’s cost basis (the fair market value reduced by the amount of ordinary income or short-term capital gain that would have been realized). However, you may be able to take the full deduction if you include the appreciated value of the asset in your gross income on your tax return. If the property has decreased in value, your deduction could be further limited (see “Property or assets that have decreased in value”).
Appreciated long-term capital property
As for stocks, bonds, mutual funds, or other personal assets such as real estate that have increased in value, you can usually deduct the full fair market value of appreciated long-term assets as long as you’ve owned them for a year or more.
An additional benefit is you don’t have to recognize any gains on the donation, which means you pay no capital gains tax on that property.
Donating long-term assets—especially highly appreciated securities—instead of cash can be quite an effective and tax-efficient way to support a cause. If your assets have appreciated in value, you can generally increase the amount of your potential deduction as well as your gift by contributing the securities directly to the charity instead of the cash generated from selling them.
Each of these donation strategies and vehicles offer unique benefits, but in the end, what really matters is helping an organization for which you have passion—the tax benefits from a donation make a good situation better. So, research your options and talk with us at Adams Accounting Solutions to help you plan the best way to donate, and get those donations in before the close of the year!
References:
Charitable Donations: The Basics of Giving – Charles Schwab December 2024, https://www.schwab.com/learn/story/charitable-donations-basics
By Saabira Chaudhuri | Originally published here
It isn’t enough simply to sign a bunch of papers establishing an estate plan and other end-of-life instructions. You also have to make your heirs aware of them and leave the documents where they can find them.
Consider: At least 10 states have been investigating whether some of the country’s largest insurers are failing to pay out unclaimed life policies to beneficiaries. California and Florida have held public hearings on the issue in recent weeks.
Insurers say they are behaving lawfully. Under policy contracts, they aren’t required to take steps to determine if a policyholder is still alive, but instead pay a claim when beneficiaries come forward.
You can avoid such problems by securing important documents and telling your family where they are stored.
Jean Parr is grateful that her mother obsessed about the subject. “I really didn’t want to think about it,” says Ms. Parr, 54 years old, a manager at the American Chemical Society in Washington. But when her mom died in 2005, she knew exactly where to look for the will, the key to a safe-deposit box and documents indicating her mother had paid and arranged for her own funeral.
The financial consequences of failing to keep your documents in order can be significant. According to the National Association of Unclaimed Property Administrators, state treasurers currently hold $32.9 billion in unclaimed bank accounts and other assets. (You can search for unclaimed assets at MissingMoney.com.)
Most experts recommend creating a comprehensive folder of documents that family members can access in case of an emergency, so they aren’t left scrambling to find and organize a hodgepodge of disparate bank accounts, insurance policies and brokerage accounts.
You can store the documents with your attorney, lock them away in a safe-deposit box or keep them at home in a fireproof safe that someone else knows the combination to.
That isn’t to say you should keep everything. Sometimes people hold onto so many papers that loved ones can’t find the important ones easily.
In 2008, Jane Bissler, a counselor in Kent, Ohio, approached her then-87-year-old mother about organizing her documents. Because her mom was a widow with relatively simple finances and two homes, Ms. Bissler, 57, says she figured it would be a relatively simple task.
Instead, it took an entire year for Ms. Bissler and her mother to go through all of her papers, which included documents from eight bank accounts, utility bills from the 1950s and reams of canceled checks.
The two of them pared down the stash from four four-drawer filing cabinets to one two-drawer cabinet, shredding anything extraneous. Ms. Bissler and her mother visited banks and brokerages to ensure she was listed on all of her mother’s accounts. Her mother died in May 2009.
“It would have been a total nightmare if we hadn’t gone through it all with her,” Ms. Bissler says. “It was that Depression-era stuff where you keep everything and hide other things.” Ms. Bissler estimates that having the documents organized ahead of time spared them from ordering an additional 15 copies of the death certificate and “years” of time.
Here is a rundown of the most important documents you’ll need to have signed, sealed and delivered. You should start collecting these as soon as possible and update them every few years to reflect changes in assets and preferences. Some—such as copies of tax returns or recent child-support payments—need to be updated more often than others.
The Essentials
An original will is the most important document to keep on file.
A will allows you to dictate who inherits your assets and, if your children are underage, their guardians. Dying without a will means losing control of how your assets are distributed. Instead, state law will determine what happens.
Wills are subject to probate—legal proceedings that take inventory, make appraisals of property, settle outstanding debt and distribute remaining assets. Not having an original document means this already-onerous process could be much more of an ordeal, since family members can challenge a copy of a will in court.
Rick Law, founder of estate-planning firm Law ElderLaw LLP in Aurora, Ill., says estate planners increasingly recommend revocable trusts in addition to wills, since they are more private and harder to dispute. “Every will is like a compass that points toward the closest courthouse,” he says.
A revocable living trust can be changed anytime during your lifetime. After you transfer ownership of various assets to the trust, you can serve as the trustee on behalf of beneficiaries you designate. Provided you do so, there aren’t any ongoing fees.
If your family can’t find the original trust documents, you are “basically setting your estate up for litigation,” says Duncan Moseley, vice president of Sanders Financial Management in Atlanta.
A “letter of instruction” can be a useful supplement to a will, though it doesn’t hold legal weight. It is a good way to make sure your executor has the names and contact information of your attorneys, accountants and financial advisers. While the will should be stored with your attorney or in a courthouse, the letter of instruction should be more readily accessible, particularly if it contains instructions on funeral arrangements.
Also, make sure your heirs have access to a durable financial power-of-attorney form. Without it, no one can make financial decisions on your behalf in the event that you are incapacitated.
Proof of Ownership
You should keep documentation of housing and land ownership, cemetery plots, vehicles, stock certificates and savings bonds; any partnership or corporate operating agreements; and a list of brokerage and escrow mortgage accounts.
If you don’t tell your family that you own such assets, there is a chance they never will find out. Mr. Moseley says in such an event, clients must perform their own detective work, watching the mail for real-estate tax bills or combing bank accounts for interest payments, for example.
File any documents that list loans you have made to others, since they could be included as assets in an estate. Similarly, keep a list of any debts you owe to avoid surprising your family. Wills and living trusts generally are drafted to include provisions for how debts should be settled, and creditors have a stipulated period of time in which to file a claim against the estate.
Make the most recent three years of tax returns available, too. “Looking at last year’s returns offers a snapshot of what assets we should be looking for this year,” says Lesley Moss Mamdouhi, a principal at estate-law firm Oram & Moss in Chevy Chase, Md. This also will help your personal representative file a final income-tax and estate return and, if necessary, a revocable-trust return.
Bank Accounts
Mr. Law recommends sharing a list of all accounts and online log-in information with your family so they can notify the bank of your death. “If nobody ever takes any more out or puts money in, it becomes a dormant account and then becomes the property of the state,” he says.
Be sure to list any safe-deposit boxes you own, register your spouse or child’s name with the bank and ask them to sign the registration document so they can have access without securing a court order.
Health-Care Confidential
Possibly the most important health-care document to fill out in advance is a durable health-care power-of-attorney form. This allows your designee to make health-care decisions on your behalf if you are incapacitated. The document should be compliant with federal health-information privacy laws, so that doctors, hospitals and insurance companies can speak with your designee. You may also need to fill out an Authorization to Release Protected Healthcare Information form.
If you are incapacitated and your family can’t locate a health-care power of attorney, they will have to go to court to get a guardian appointed.
Porter Storey, executive vice president of the American Academy of Hospice and Palliative Medicine in Glenview, Ill., says it isn’t enough to establish a health-care power of attorney unless you have explained to your designee how you would like to be treated in case of incapacity. He also recommends writing a living will detailing your wishes.
After Diane Dimond’s mother had a series of strokes in 2006, Ms. Dimond knew there was a signed living will tucked away in a safe at home. Ms. Dimond, 58 and living in New York, recalls the Sunday she watched her mother in a coma and was able to fulfill her wishes never to be kept on external life support. “It was gut-wrenching,” she says, “but I took the physician aside and said, ‘I want to take her home.'” Having her mother’s living will enabled Ms. Dimond to do just that.
The living will and the power of attorney constitute what are called “advance directives”; some states consolidate these into a single form. (AARP offers a state-by-state listing of advance-directive forms on its website.) Terminally ill patients may wish to have their doctors sign a do-not-resuscitate order.
Certain companies, such as Advance Choice Inc.’s DocuBank, will keep copies of health-care documents for a fee. Subscribers get a wallet-sized card and, in case of an emergency, a hospital will call DocuBank, which will fax over the information.
Life Insurance and Retirement Accounts
Copies of life-insurance policies are among the most important documents for your family to have. Family members need to know the name of the carrier, the policy number and the agent associated with the policy.
Be especially careful with life-insurance policies granted by an employer upon your retirement, since those are the kind that financial planners most often miss, says David Peterson, CEO of Denver-based Peak Capital Investment Services. New York state alone is holding more than $400 million in life-insurance-related payments that have gone unclaimed since 2000, according to the state comptroller’s office.
Estate planners also recommend that you draw up a list of pensions, annuities, individual retirement accounts and 401(k)s for your spouse and children.
An IRA is considered dormant or unclaimed if no withdrawal has been made by age 70½. According to the National Association of Unclaimed Property Administrators, tens of millions of dollars languish in unclaimed IRAs every year.
If your heirs don’t know about these accounts, they won’t be able to lay claim to them, and the money could languish. The U.S. Department of Labor estimates that each year tens of thousands of workers fail to claim or roll over $850 million in 401(k) assets. You can track unclaimed pensions, 401(k)s and IRAs at Unclaimed.com.
Marriage and Divorce
Ensure your spouse knows where you have stored your marriage license. Mary Cay Corr, now 74 and living in Raleigh-Durham, N.C., couldn’t locate hers when her husband died. “I had to write to New York, where we got married, and pay for a new marriage license to prove that I had been married to my husband before I could claim anything,” she says.
For divorced people, it is important to leave behind the divorce judgment and decree or, if the case was settled without going to court, the stipulation agreement, says Linda Lea Viken, president of the American Academy of Matrimonial Lawyers in Chicago. These documents lay out child support, alimony and property settlements, and also may list the division of investment and retirement accounts.
Include the distribution sheet listing bank-account numbers that accompanied the settlement to avoid disputes about ownership or payments due. Also include a copy of the most recent child-support payment order. In the majority of states, the obligation to pay child support still exists after death.
Ms. Viken also recommends filing copies of any life-insurance papers. In many states if you have a policy that benefits your children, it can be set off against the ongoing child support.
You also should include a copy of the “qualified domestic-relations order,” which can prove your spouse received a share of your retirement accounts.
Mary Pilon contributed to this article.
It’s time to contribute to your 529 plan, and don’t wait until 12/31, do it NOW!
Contributing to a 529 plan before December 31 offers several benefits, primarily revolving around tax advantages, strategic financial planning, and supporting educational goals.
Tax Deductions/Credits
Kansans are eligible for state income tax deductions or credits for contributions made to a 529 plan. Be sure to maximize these deductions for the current tax year, effectively reducing your taxable income.
If you live in Kansas, and are single, you can deduct up to $3,000 per year from your adjusted gross income for contributions to a 529 plan. For those who are married, filing jointly, you can deduct up to $6,000. This deduction applies to contributions to any 529 plan, including Kansas’s own Learning Quest 529 plan, as well as plans sponsored by other states.
Kansas is a tax parity state, which means that you can deduct contributions to any state’s 529 plan from your Kansas state income taxes.
Give Your 529 Plan a Boost
It’s always a good idea to boost your contributions before the close of the year, so your investment in education will have more time to grow. Compounding will ensure that contributions made now can yield greater returns over time
Make Note of Annual Gift Tax Exclusion Limit
Contributions to a 529 plan count as gifts for tax purposes. You can gift up to the annual exclusion limit without incurring federal gift taxes. Contributing before December 31 ensures you can utilize this tax-free gift giving for the current year. Because gift tax exclusion limits are ever-changing, consult with us at Adams Accounting Solutions to find out what the annual limit is for your situation.
Significant Contribution this year?
If you’re planning on contributing a significant amount to a 529 plan, you may want to take advantage of 5-year gift tax averaging. This allows you to contribute up to 5 times the annual exclusion limit in one year without incurring gift tax, essentially spreading it over five years. Contributing by year-end allows you to start this process sooner, so get in touch with the professionals at Adams Accounting Solutions to strategically align your contribution without incurring gift tax.
Good For You
Pat yourself on the back for funding your 529 plan(s). By making timely contributions, you’re proactively preparing for future educational expenses for your children, grandchildren, or other beneficiaries. This can provide peace of mind knowing that you’re systematically working towards covering the costs of education, thus avoiding future financial stress.
Grandparent Loophole
If you’re contributing to a 529 plan for grandchildren, be aware of the FAFSA Simplification Act which greatly simplified the frustrating FAFSA form used when applying for student aid. This act represents a significant overhaul of the processes and systems used to award federal student aid beginning with the 2024-25 award year and notably lets grandparents with 529 accounts take advantage of the “grandparent loophole” to fund a child’s education without derailing their financial aid application.
Contributing to a 529 plan before December 31 is a smart financial strategy that not only provides immediate tax benefits but also strengthens your long-term educational savings plan. It’s a proactive measure that can yield extensive benefits, helping you support the educational aspirations of your children or grandchildren while securing financial advantages for yourself.
Contact Adams Accounting Solutions today to take advantage of this benefit!
If paying penalties to the IRS is something you’d like to avoid, by all means, read on.
Estimated tax payments are typically due in four installments over the year: April 15, June 15, September 15, and January 15 of the following year. Failing to pay by these dates can result in penalties and interest, increasing your overall tax bill. Consult with us at Adams Accounting Solutions to help you determine whether or not you need to file quarterly.
We will calculate the amount of estimated quarterly taxes owed for your unique situation by examining the right financial records and tailor a payment schedule for you. The IRS will impose fines on taxpayers who have not paid a sufficient sum of their tax liability throughout the year. Therefore, if it is logical for your situation, paying quarterly helps you stay ahead of these fines, and avoids you getting slapped with a huge tax bill. So, what are the considerations in deciding?
We’ve all heard that sticking to a budget and planning our expenditures through the year is a responsible move overall, and it only makes good sense for the management of cash flow. Paying quarterly taxes is no different. You are essentially dividing up the amount of tax you owe and paying it in four smaller chunks, so it is not so financially straining. By budgeting your tax liability with the help of Adams Accounting Solutions, you can plan more efficiently and avoid the stress of a huge tax bill.
With tax season looming, it’s common for individuals (especially small business owners) to feel stressed. Paying through the year with estimated quarterly taxes gives you financial peace of mind. By working with the professionals at Adams Accounting Solutions, we will assist you in determining the amount to pay quarterly by precisely examining your financial position, thus leading to more informed spending patterns, business decisions, and a clear picture of both your income and expenses.
Salaried employees, on the other hand, have their employer withholding taxes from their paychecks all year long, therefore quarterly tax payments are often unnecessary because their tax obligations have been met through the withholding from every check.
If you are expecting a refund or anticipate having low taxable income you might not need to pay quarterly estimated taxes. However, call us at Adams Accounting Solutions to ensure you fit into this category, don’t just wing it and hope for that refund and then be disappointed that you actually owe taxes.
Significant investment income may come into play, so if you have other forms of withholding such as investment dividends or significant tax credits that cover your tax liability, quarterly payments might not be necessary. Consult with us at Adams Accounting Solutions to see if your tax liability may have already been met.
In conclusion, whether or not you should pay estimated quarterly taxes is largely dependent on your source(s) of income. You may not want to fool with it because
time and administrative burden are certainly a factor in paying quarterly estimated taxes.
Don’t sweep this important consideration under the rug. Yes, quarterly taxes require keeping detailed financial records and frequent calculations which can be a real pain, especially for those unfamiliar with tax laws. So, trust the pros at Adams Accounting Solutions, and take the burden off your shoulders. We’re just a phone call away!
Don’t Fall Prey to Unscrupulous Marketers!
Do you have tax debt that’s weighing you down? If the answer is yes, you may be lured by fraudsters making promises to reduce your tax debt through the IRS Offer in Compromise (OIC) program. Beware and tread lightly when you think about contacting anyone on this topic.
We’ve all heard these aggressive commercials which are extremely misleading and trap taxpayers into paying steep fees, with none of the tax relief they promise. There’s no need to throw good money after bad. We’ve all heard, “If it sounds too good to be true, it probably is.”
OIC is Legit
Make no mistake, the OIC program is a very real program that the IRS has made available for qualifying taxpayers to settle a debt for less than the entire amount originally billed. It’s a viable option for people who simply cannot pay their full tax bill. To determine if a taxpayer is eligible, the IRS will consider the taxpayer’s specific set of circumstances, their income, and equity in their assets. This program is an agreement set up directly between the IRS and the taxpayer.
The IRS generally considers an OIC for taxpayers who meet the following criteria:
Posing As a Legitimate Solution
There actually are some companies who offer authentic services to help taxpayers file a request. However, there are several firms who engage in heavy marketing to make suspicious claims that they’ll settle the taxpayer’s debt at a steep discount. Their exorbitant fees leave taxpayers in no better situation, and taxpayers actually could have entered an OIC agreement directly with the IRS without any such “help.”
In fact, the IRS states that “OIC mills make a perennial appearance on the IRS’ annual Dirty Dozen list of scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more.”
Do I Qualify for an OIC?
Not sure if you’re eligible for an OIC agreement? Talk to the professionals at Adams Accounting Solutions. We can evaluate your situation and make recommendations on whether seeking an OIC with the IRS is a viable solution for you and your unique situation.
If we determine you’re not eligible, Adams Accounting Solutions can help you set up scheduled payments to the IRS over a period of time so you can ease your mind about tax debt and legally pay your bill over time.
We can recommend other options for payment if you do not qualify for an OIC. We can assist in arranging an installment agreement with the IRS which allows you to pay off a balance gradually. There are short-term plans available (for those owing less than $100,000) giving taxpayers 180 days. Long-term plans for taxpayers who owe less than $50,000 will give taxpayers up to 72 months to make gradual payments.
Even if tax debt is keeping you up at night, don’t fall for ads or mailers that can trick you into paying your hard-earned money for services that are fraudulent and yield you absolutely no relief. Take a deep breath, give us a call, and our friendly, reassuring staff can help you sort through this trying time and get you the legal and viable solutions you need.
Going back to school is an investment in your future, so congratulations on working towards your college degree, or helping a family member achieve this goal. Education expenses have grown to record highs and if you’re experiencing sticker shock, you’re not alone. Saving money by being aware of important tax implications will help you out financially as you embark on furthering your education. Whether you’re a full-time student or a working professional returning to campus, being aware of tax credits, deductions, and benefits can help you save money.
Tax Credits
There are two tax credits worth considering. An education tax credit will help you with the cost of your college expenses by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund.
Two education credits are available
1. American Opportunity Tax Credit (AOTC)
– Available to eligible students for the first four years of higher education.
– Covers up to $2,500 of the cost of tuition, fees, and course materials.
– The credit is 100% of the first $2,000 of qualified expenses and 25% of the next $2,000.
– 40% of the credit is refundable, meaning you can get up to $1,000 back even if you owe no tax.
2. Lifetime Learning Credit (LLC):
– Ideal for graduate students or those taking courses to improve job skills.
– Offers up to $2,000 per tax return for qualified education expenses.
– There is no limit on the number of years you can claim the credit.
There are several differences and some similarities between the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). You can claim these two benefits on the same return but not for the same student or the same qualified expenses. Be certain to speak with us at Adams Accounting Solutions to ensure you have the proper forms for these credits, and that you are meeting all the IRS requirements.
Deductions
1. Tuition and Fees Deduction:
This deduction allows you to reduce your taxable income by up to $4,000 for qualified education expenses. So, what are qualified education expenses?
IRS.gov states that tuition, fees, books, computers, software, supplies, and other related expenses required by the educational institution are deductible. However, room and board are not deductible.
2. Student Loan Interest Deduction
Happily, you can deduct your interest expenses on eligible student loans, with a $2,500 maximum. So, which loans are eligible?
According to IRS.gov, an eligible loan is a student loan you took out solely to pay qualified higher education expenses for you, your spouse, or your dependent.
The interest you can deduct includes both required and voluntarily prepaid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status. This limit changes from year to year, so be sure to consult with us at Adams Accounting Solutions to understand the current law.
Additional Considerations
1. Scholarships and Grants:
– Scholarships and grants are generally tax-free if used for qualified education expenses such as tuition and fees.
– Any portion used for non-qualified expenses, like room and board, is taxable.
2. Employer Assistance Programs:
– Up to $5,250 of employer-provided educational assistance can be excluded from your taxable income.
– This applies to both undergraduate and graduate courses.
3. Education Savings Accounts (ESA) and 529 Plans:
– Contributions to an ESA or 529 Plan are not deductible, but earnings grow tax-free.
– Distributions are tax-free if used for qualified education expenses.
– Qualified expenses include tuition, fees, books, and even room and board.
Record Keeping and Filing
Don’t forget to maintain accurate records of your education-related expenses and any financial aid received. Forms needed include:
Form 1098-T: This form is provided by your educational institution, and details tuition payments received and billed.
Form 1098-E: This form is provided by your loan company, and it details interest you paid on student loans.
If this seems mind-boggling—it is. But don’t fret! The professionals at Adams Accounting Solutions are here for you. We’re just a phone call away. To help you with complex tax laws and changing rules, just contact our friendly professionals in the office to assist you in maximizing your benefits when it comes to college expenses, and to help ensure you’re complying with IRS rules.
Conclusion
Understanding the tax implications of returning to school can provide significant financial benefits. By utilizing available tax credits, deductions, and benefits, students, parents, and working professionals can ease the financial burden of further education. Stay informed, keep meticulous records, and consult with us at Adams Accounting Solutions to make the most of your educational investment.
Reference: https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-llc
Deducting your vacation as a small business owner requires a careful balancing act between business and pleasure. The main stipulation to keep in mind is that any travel must be primarily for business and meticulously documented. Keep records, don’t take unnecessary risks with deductions, stay within IRS guidelines, and maintain a clear distinction between personal and business expenses to enjoy the benefits with peace of mind. Always consult with our professionals at Adams Accounting Solutions to ensure compliance with current IRS regulations and optimize your deductions with a clear conscience. We are here for you, and with due diligence, you can enjoy a break while responsibly leveraging tax benefits for your business.
Deduct Your Family Vacation? Yes, it is Possible!
You’re wondering, “is there a way I can deduct a business trip to Florida if I take my family along?” The answer is yes! If you’re a business owner and you travel to a desirable location for a conference or training, you absolutely can take the family or spouse/partner along and deduct part of your trip. The key is careful record-keeping and understanding IRS rules to be sure you’re on the up-and-up when it comes to tax laws. Following IRS rules isn’t that difficult, you just need to very carefully link your travel to legitimate business activities. The professionals at Adams Accounting Solutions have some helpful tips for staying within IRS guidelines:
Combine Business and Pleasure
Vacations can be deductible if they involve legitimate business purposes. For instance, attending a conference related to your business, meeting clients, or negotiating contracts may qualify. Document every business-related expense meticulously. Keep records of conference schedules, meeting agendas, and client meetings/communications.
The Number of Days Count
The IRS stipulates that the primary purpose of your trip should be business, not pleasure. The majority of the days should be business focused. Weekdays count as business days if they’re filled with business activities. Your travel day(s) in the car, train, bus, or airplane count as business travel day(s). Weekends, holidays, and other personal days are only considered business days if they fall between business activities with no substantial break in between.
Deductible Expenses
Certain expenses can be deducted for the business owner if they are directly related to business activities. If your spouse or family accompanies you; their expenses are, of course, NOT deductible. The only exception would be if the family members are employees of the business, and the trip is for a bona fide business purpose, such as continuing education, or client meetings. Again, documentation for each businessperson is key.
-Travel fare for business owner (or employees): airfare, trains, gasoline, and car rentals to get to the business destination. The good news is that while you cannot deduct your entire family’s airfare, if you drive, and everyone is traveling in the same car, the gasoline or rental car expense will cover everyone’s travel, whether there is one person in the car, or five.
-Lodging: Hotels or other accommodations – but only for the duration of business-related activities. If your conference ends Friday and you stay through the weekend, your hotel is obviously not deductible past the conference end date. If your entire family of five is staying in the same hotel room, the lodging is included as a deduction because the room rate is normally the same for one person or five people. If you want the kids in a separate hotel room and they’re not employees, you’re out of luck on deducting their lodging!
-Meals: Usually 50% of business-related meals can be deducted for the business traveler(s). Taking the entire family of five out for breakfast, won’t fly–only the business travelers get to deduct 50% of that meal, just use common sense!
-Transportation: Taxis, Uber, ride-shares, or other transportation linked to business purposes. If everyone fits in the same taxi, Uber, or ride share, you’re able to deduct the expense because it’s normally the same for one person as it is for five. An exception might be a bus fare where each person needs their own ticket. Just be sensible on this!
Document, Document, Document!
Everything must be documented. The IRS has been known to scrutinize deductions related to travel (especially to resorts or popular vacation spots), but if you ensure you’re keeping detailed records of your business trip, you’ll be fine. Save or digitize receipts, maintain a journal of your activities, and verify meetings with detailed emails, meeting agendas, business cards of those individuals involved, or any other record relating to your business purpose. This documentation can substantiate your business purpose and protect you in case of an audit. Many apps or accounting software solutions are available to help you track your professional expenses which will greatly simplify the process. No one wants to carry around a huge envelope of crinkled receipts. Take advantage of technology and use apps or software designed to track professional expenses to simplify your life! Seek guidance from the Adams Accounting Solutions staff when in doubt.
Avoid Red Flags
Not surprisingly, the IRS watches for red flags that may signal abuse, and trips to popular vacation destinations can seem suspicious unless clearly justified. Keep meticulous receipts when you’re traveling to Orlando, Vegas, New Orleans, or any destinations known for tourism. Offering clear evidence of your business engagements while on the trip greatly helps alleviate these concerns. Buying a princess crown for your 7-year-old daughter at Walt Disney World might raise a red flag, so you needn’t keep that receipt for tax purposes. No reason to push the limits!
Travel for Employees
If you’re covering travel expenses for employees, the same strict IRS rules apply. Only expenses directly linked to business activities can be deducted. The same requirements for documentation and primary business purpose hold. Remember, business travel for employees must be considered ordinary and necessary under IRS guidelines, not lavish or extravagant, so a pedicure or spa treatment at the hotel shouldn’t be something you consider deducting.
Education/Training Travel
Travel for continuing education that enhances your business skills or knowledge is definitely tax deductible. For example, if you travel to attend a workshop or earn a certification relevant to your field of business, those expenses are deductible, provided they meet IRS criteria for business relevance, just be sure to keep receipts, licenses or certificates earned, and dates spent in the workshop.
Careful Balancing Act
Deducting your vacation as a small business owner requires a careful balancing act between business and pleasure. The main stipulation to keep in mind is that any travel must be primarily for business and meticulously documented. Keep records, don’t take unnecessary risks with deductions, stay within IRS guidelines, and maintain a clear distinction between personal and business expenses to enjoy the benefits with peace of mind. Always consult with our professionals at Adams Accounting Solutions to ensure compliance with current IRS regulations and optimize your deductions with a clear conscience. We are here for you, and with due diligence, you can enjoy a break while responsibly leveraging tax benefits for your business.
You’re eagerly awaiting that refund from the IRS, and it seems like it’s taking too long. If your money hasn’t shown up within three to four weeks, here are some simple steps you can take to investigate what the holdup might be, whether it might be a scam, and if you should seek the help of a tax professional.
1. Use the “Where’s My Refund” feature on IRS.gov. It’s relatively painless, you just need your Social Security Number, filing status, and the dollar amount of the refund you’re due.
2. Review your tax return to be sure there are not any errors, such as a misspelling of your name, transposing numbers in your social security number, or mis-typing your bank account number or routing number. Errors such as this are easy to make, and they can wind up delaying your refund for months.
3. Check your mailbox. Any correspondence from the IRS should be opened immediately. You could have received a communication from the IRS alerting you of an issue with your return. The letter will state what you need to do to resolve it. If you don’t understand it, consult with us at Adams Accounting Solutions. We see these types of letters and notices constantly, and we can quickly identify what the communication means to you.
4. Get in touch with the IRS. If using the online “Where’s My Refund” feature isn’t helping you figure it out, you can call the IRS directly at 1 800 829 1040. Yes, you’ll have to wait on hold before you speak to someone, so be prepared to spend some time on the phone.
5. Better yet, turn it over to Adams Accounting Solutions. Sometimes you cannot unravel such a situation on your own, and the experts at Adams Accounting Solutions can help you decipher any IRS communications or notices, send in corrections in the event you have made an error, and provide overall advice on your specific situation
6. Could You Have Been Scammed?
With scams on the rise, it’s natural to think you might be the target of some sort of a rip off. Here’s what to watch for:
If you’re tired of waiting on your tax return, you don’t have to tackle it on your own. Give us a call at Adams Accounting Solutions. We can help you resolve a missing return by double checking the information that was submitted and get in touch with the IRS to quickly amend your return if necessary and ease your mind about where it is hiding.
Tax law changes….for 2020?
Just when you think you’ve got all your 2023 tax information all neatly buttoned up to pass off to your CPA, the House passed “The Tax Relief for American Families and Workers Act of 2024” by a 357 to 70 vote.
This occurred on January 31, 2024. Not exactly ideal timing since tax filing season for 2024 began on January 29. And as we all know, we’ve got until the April 15 deadline to submit our tax returns.
What Does This Wide-Ranging Change Mean for You & Your Business?
And guess what? These extensions can be applied to your former tax return(s) because the bill is retroactive in some cases all the way back to 2020!
Best Laid Plans
“Well, that’s what I get for planning ahead,” you say to yourself. Sometimes the best laid plans just don’t end up the way you intended. And, while Congress is of the mindset that this passage will provide relief and certainty to taxpaying individuals, the hassles associated with such a change which affects the 2023 tax year and earlier is noteworthy when it comes to the documentation and scrutiny of your records for 2023, and retroactive to 2020 potentially.
Yes, individuals, financial advisors and CPAs will be scrambling to dig into applicable records to take advantage of these changes for individuals and businesses alike.
Individual Taxpayers
For individuals, these retroactive tax extensions might require adjustments to tax liabilities, itemized deductions, and tax credits within the 2023 tax year and prior.
Small Businesses
For companies and LLCs, these recently passed retroactive tax extensions have far-reaching consequences for your financial reporting, cash flow management and strategic planning.
Whether you’re an individual taxpayer, or a small business, or both, get ready to roll up your sleeves, because as a taxpayer, you must carefully weed through these complexities because your tax obligations might be reduced (or elevated). If corrections are needed, planning for retirement, approaches to investments, and decisions regarding any charitable contributions can change drastically.
Is Procrastination in Your DNA?
Maybe your mind isn’t in the mood to absorb all this complex new info, or perhaps you’re too busy at work, or possibly you’re in the middle of a big project. There are all sorts of excuses we can make for putting this change on the back burner, but there’s no doubt this bill is extremely broad, and while waiting until the last minute to address how it affects you and/or your business is tempting, it’s really not in your best interest.
Adams Accounting Solutions are friendly experts who will team up with you to stay within the legal and ethical boundaries required by this last-minute decision passed by congress. As well, CPAs at Adams Accounting Solutions will watch out for what’s on the horizon as far as your tax strategies, and financial decisions. Ensure you’re compliant with applicable laws and regulations by giving us a call at 913-888-9100.
Did you complete your year with a sense that you need to begin the new one with a better routine and/or sense of organization? If so, you’re not alone, especially when it comes to organizing your home or office space. January is the perfect time to adopt new habits.
New Year/New Routine
The new year brings with it a fresh start, and many folks set goals in their personal life for everything from losing weight, keeping the house tidier, or traveling more. It’s also a good time to set goals for your business or personal office space and make it healthier, tidier, and more efficient.
Schedule Weekly Reviews
If you’re running a small business, or have a “side gig,” it’s important to review your books and income coming in and going out at least one time per week. If you only examine your books periodically, mishandling of your business earnings and expenses can easily be missed. With scheduled weekly reviews if something out of the ordinary surfaces, you can investigate the issue promptly and correct it in a timely manner.
Trust a Tax Professional
For most of us, it’s impossible to stay informed about ever-changing tax laws. First of all, it’s practically a full-time job. In addition, it can be pretty boring! Partnering with a reputable accounting firm such as Adams Accounting Solutions will help ensure you effectively leverage applicable tax deductions and credits for which you or your business might qualify, and their staff members stay abreast of all tax laws that can affect your personal life, or your company’s financial success.
Your Tax Professional Relies on You and Your Record Keeping
Make no mistake, your tax professional can only be as helpful as you allow them to be. Taking a big box full of receipts and documents to your CPA at tax time with no organization is a huge mistake. Who wants to pay an accountant’s hourly fee to simply sort your stuff before they can get to work on the real nitty gritty of income tax preparation? Stay organized, and label files to keep info easily retrievable.
Home Office Organization is Critical
When it comes to paperwork, whether it pertains to your personal life or your small business, your home office space is a vital landing spot for your paperwork. Yes, paperwork is greatly minimized now that many of us pay bills online, store files on our computer, or digitize receipts rather than keeping hard copies. Nonetheless, there are still stragglers that need to be organized and sifted through, and at year end there are lots of important tax-related documents that will surface. Even digital files can become cluttered on your laptop or desktop if not cleaned out. Why take up space on your computer with old and outdated files you no longer need?
Declutter in January
January is the perfect time to get rid of excess clutter, paper, digital files, and anything you no longer need. How big is your “I’ll get to It later” pile of paper that has mounted? How many unnecessary documents did you keep such as coupons, mailings, or printed documents you meant to read? Chances are lots of the papers in this pile are no longer even relevant to your life and can be pitched.
We’ve all saved that flyer about an event that sounds fun or interesting, and when the flyer surfaces again, the event has long since passed. Sort through and shred or pitch such items on a regular basis rather than letting the pile build up. Better yet, ask yourself whether you will REALLY go back and read it, buy tickets to it, or visit the restaurant or store to take advantage of it.
Seriously, don’t even save unnecessary papers, and your life will be easier and less cluttered. You can also think about snapping a photo with your phone, but beware, just like papers, photos can build up and clutter your phone, so be judicious when you decide to save something in the “I’ll get to it later” category.
Keep Frequently Used Files or Items Within Easy Reach
After minimizing the clutter, you can get to work giving your office space a fresh start. One of the most important rules of thumb is to place the items you use the most within easy reach. Consider file drawers in your desk or credenza, or separate bins organized by month, topic, or client (if you’re running a business). Whichever system works for you will help you categorize any needed paperwork all year long when you need to reference something, or when it’s time to file your federal and state income tax return.
Where to Store Tax Documents
When tax documents start surfacing, select a specific drawer, bin, shelf, or folder for them. Wherever you decide to keep these items, be sure you (and anyone in your home or office) know the “home location” for all such items. These are documents such as property tax receipts, W-2s, 1099 forms, year-end utility bills, the most recent investment dividend summaries, and large expenses such as medical bills or home/business improvements that might be tax deductible. Be sure these are all filed in whatever designated “home location” you choose. Pulling information for your tax professional will be immeasurably easier. Also consider, whether you make any cash or non-cash charitable contributions? Be sure to keep these in the same “home location” so you can easily tally them up for your CPA.
Adams Accounting Solutions can partner with you get your tax returns filed with ease. The staff are easy to work with and provide a useful “tax organizer questionnaire” that serves as a checklist as you gather all the necessary documentation, so nothing is missed.
If you hate accounting functions for your small business and it seems like you never have enough time to completes these types of tasks, consider outsourcing this work to Adams Accounting Solutions. Their employees are experts in tax law and can prepare 1099s or W-2s for any employees in your business. As well, Adams Accounting Solutions will maximize any applicable deductions. Maybe you never thought about keeping a mileage log for volunteer work you have done, or claiming sunscreen as a business expense if your job requires you to work outdoors. These are just a few ideas the professionals at Adams Accounting Services can help you address.
Call today or set up an appointment to explore your options.
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.