ALEXANDRIA TAX & BOOKKEEPING

*** Timely Tax Tips

  * Max out retirement contributions and make charitable donations before year end to reduce tax liability.

  * Prevent identity theft by using strong passwords, performing daily backups, and installing good security software on your phone, computer, and internet

  * Unreimbursed business expenses no longer deductible on your personal tax return. For W2 folks, that means no home office expense. Investigate expense reimbursement (like for travel) from your employer.

   * Separate your personal from your business expenses using a separate bank checking and credit card accounts.  Review personal account statements monthly to identify any business related expenses

   * Develop a budget for your business annually, and compare actual vs. budget numbers monthly.  Another good comparison is to look at prior year-to-date numbers, especially for seasonal businesses.

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*** Home Office Deduction

Many Americans have been working from home due to the pandemic, but only certain people will qualify to claim the home office deduction. This deduction allows qualifying folks to deduct certain home expenses on their tax return when they file their tax return next year.

Here are some things to help you understand the home office deduction and whether you can claim it:

* W2 Employees are not eligible to claim the home office deduction. 
* The home office deduction, reported on Form 8829, is available to both homeowners and renters.  
* There are certain expenses you can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.  
* You must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.  
* The term "home" for purposes of this deduction:  
        - Includes a house, apartment, condominium, mobile home, boat or similar property which provide basic living accommodations.
        - A separate structure on the property such as an unattached garage, studio, barn or greenhouse.
* Generally, there are two basic requirements for the your home to qualify as a deduction:  
        - There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, if you use an extra room to run your business, you can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
        - The home must be your principal place of business. You can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.
                ~ A portion of a home that is used exclusively for conducting business on a regular basis but not used as the principal place of business, will qualify for a home office deduction if either patients, clients or customers are met in the home or there is a separate structure that is used exclusively for conducting business on a regular basis.  
* If you qualify, you may choose one of two methods to calculate your home office expense deduction:  
        - Using the simplified method consisting of a rate of $5 per square foot for business use of the home which is limited to a maximum size of 300 square feet and a maximum deduction $1,500.
        - Using the regular method whereby deductions for a home office are based on the percentage of the home devoted to business use. Any use a whole room or part of a room for conducting your business will involve figuring out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.

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*** Seven year end tax tips for 2021 and 2022: 

 1.    Business meals at a restaurant are now deductible at 100% for 2021 and 2022 (was only %50). 

2.    For self-employed (1099 income) with no physical office space and working from a dedicated home office space, take the home office expense deduction (square feet percentage of home) – includes mortgage interest, real estate tax, homeowners insurance, utilities, and repairs/maintenance (see tax tip above for more detailed info on this) 

 3.    Also, for self-employed, allocate more business-intensive used items such as phone and internet by percentage of use.  For your vehicle, use a mileage log, or allocate percentage of use for expenses (gas, car payment, repairs, insurance)

 4.    If you have self-employed income, review and make your estimated IRS and State estimated tax payments quarterly (use irs.gov/payments)  - estimate roughly 10% to IRS, 5% to the State - due Apr 15, Jun 15, Sep 15, Jan 18

 5.    Prepay expenses and defer income to reduce your self-employed taxable income at year end

 6.    Prevent identity theft by using strong passwords, performing daily backups, and installing good security software on your phone, computer, and internet

 7.    2021 tax law allows up to $600 deduction for cash donations to qualified charities even if taking the standard deduction (not itemizing)

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*** Here are seven steps to follow to help protect your accounts, information and money:

   1. Avoid unprotected Wi-Fi. Wi-Fi that is not secure may allow thieves to view transactions.
   2. Shop at familiar online retailers. Generally, sites that use the “s” designation in “https” at the start of the URL are secure. You can also look for the “lock” icon in the browser’s URL bar. Sometime, thieves can get a security certificate, so the “s” may not always vouch for the site’s legitimacy. Beware of purchases at unfamiliar sites, and don’t clicks on links from pop-up ads.
   3. Learn to recognize and avoid phishing emails. Thieves send emails posing as a trusted source, such a financial institution, or even the IRS. Their goal is to entice you to open a link or attachment. The link may take you to a fake website that will steal usernames and passwords from your computer. An attachment may download malware that tracks keystrokes.
   4. Keep a clean machine. This applies to computers, phones and tablets. You should use security software to protect against malware or viruses that could steal data or damage files.
   5. Use passwords that are strong, long and unique. Experts suggest a minimum of 10 characters but longer is better. You should also use a combination of letters, numbers and special characters.
   6. Use multi-factor authentication when available. You may need a security code, usually sent as a text from a financial institution or email provider to a mobile phone. You’ll use this code in addition to usernames and passwords. This extra step makes it harder for criminals to access your account.
   7. Encrypt and password-protect sensitive data. If storing or transmitting financial records, tax returns or any personally identifiable information, the  data should be encrypted and protected by a strong password.

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*** IRS Online Account

An IRS online account is an safe an easy way for you to view specific details about your individual federal tax account. Washington Post Columnist Michelle Singletary recommends setting up an online IRS account, says it is a "good idea" and "worth your while"!  Here are some of the benefits and features of this online system.

You can view:

     * Your payoff amount, which is updated for the current day.
     * The balance for each tax year for which you owe taxes.
     * Your payment history.
     * Key information from your most current tax return as originally filed.
     * Payment plan details if you have one.
     * Digital copies of select IRS notices.
     * Economic Impact Payments if you received any.
     * Your address on file.

After viewing your information, you can:

     * Select an electronic payment option.
     * Set up an online payment agreement.
     * Go directly to Get Transcript.

New authorization feature

The new the “authorization” option in Online Account allows you to control who can represent them before the IRS or view their tax records. (that could be me!) You can also approve and electronically sign Power of Attorney and Tax Information Authorization requests from your tax professional. (that’s me too!)

Your balance will update no more than once every 24 hours, usually overnight. You should also allow 1 to 3 weeks for payments to show up in the payment history.

To access your information online, you must register through Secure Access. This is the agency’s two-factor authentication process that protects personal info. You can review the Secure Access page process prior to starting registration.

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***Plan ahead for vacation home rentals

During the summer, many folks often rent out their property. They usually think about things such as cleanup and maintenance, but owners also need to be aware of the tax implications of residential and vacation home rentals.

If your receive money for the use of a house that's also used as your personal residence, it generally requires reporting the rental income on a tax return.

    * Vacation Home.  This may be a house, an apartment, condominium, mobile home, boat, vacation home or similar property. It's possible to use more than one unit as a residence during the year.

    * Used as a Home.  When the property is used as a home, the rental expense deduction is limited. This means the rental expenses cannot be more than the rent received.

    * Personal Use.  Personal use means use by the owner, owner's family, friends, other property owners and their families. Personal use includes anyone paying less than a fair rental price.

    * Divide Expenses. Generally, special rules apply to the rental expenses of a property that's used by you as your residence during the taxable year. Usually, rental income must be reported in full, and any expenses need to be divided between personal and business purposes.

    * How to Report. Taxpayers use Schedule E to report rental income and rental expenses. Rental income may also be subject to Net Investment Income Tax.

    * Special Rules.  If the home unit is rented out fewer than 15 days during the year, none of the rental income is reportable and none of the rental expenses are deductible.

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 *** Contributing to a 529 qualified education plan for your children (or grandchildren) planning to go to college is a smart move. While contributions to 529 plans are not tax deductible, you don't pay tax on accumulated earnings and, as long as any funds withdrawn go toward qualified college expenses, they are not taxable either.  Learn more at this IRS' 529 plan info page.

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***  Need a Tax Payment Plan? Consider Using the IRS Online Payment Agreement

Learn what to do if you can?t pay your tax bill in full within 120 days. Watch this IRS YouTube video to see if you?re eligible for an online payment agreement.

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***  Choosing e-file and direct deposit for refunds emains the fastest and safest way to file a complete and accurate income tax return and receive a refund. The IRS expects 90 percent of individual taxpayers to file electronically. I always try to file your return electronically  ~  here are some reasons why:

    * It is secure. E-file meets strict security guidelines. It uses modern encryption technology to protect tax returns.

    * Most e-filers get their refunds faster. When you file electronically, there is nothing to mail and the return is virtually mistake-free. This means the fastest way for your to get a refund is to combine e-file with direct deposit. 

    * It's free. There is no fee to e-file.  

    * There are several options for making payments. If you owe taxes, you  can e-file early and set up an automatic payment on any day until the tax deadline. You can pay electronically from your bank account with IRS Direct Pay. You can visit IRS.gov/payments for information on the other payment options.

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 *** What is the definition of a charitable contribution ?  Visit this IRS Charitable Deductions Site  to learn more.  

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*** If you get an unexpected or unsolicited phone call from the IRS you should be wary ? It's probably a scam. The real IRS will not call to demand immediate payment, nor if you owe taxes, without first sending a bill in the mail.

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*** It is important when filing your tax return that your legal name be correct - to make the process easier next year report any name changes.  If you are recently married or divorced and have changed your name, you should notify the Social Security Administration.

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*** Here are four options for folks who need to pay their taxes.  You can:

· Pay when you e-file using your bank account, at no charge from the IRS, using electronic funds withdrawal.

· Use IRS Direct Pay to pay your taxes, including estimated taxes. Direct Pay allows you to pay electronically directly from your checking or savings account for free. You can choose to receive email notifications about your payments. The IRS reminds you to watch out for email schemes. IRS Direct Pay sends emails only to users who requested the service.

· Pay by credit or debit card through a card processor for a fee. You can make these payments online, by phone, or using your mobile device with the IRS2Go app.

· Make a cash payment at a participating 7-Eleven store.  You can do this at more than 7,000 locations nationwide. To pay with cash, visit IRS.gov/paywithcash and follow the instructions.

. Pay over time by applying for an online installment payment agreement. Once the IRS accepts an agreement, you can make your payment in monthly installments.

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*** Small business owners often have a running list of things to do. These include deadlines, sales calls, employee issues, banking, advertising,  and taxes.

Here are four resources to help small businesses owners:

· Looking at the Big Picture: The Small Business and Self-Employed Tax Center brings information on IRS.gov to one common place.

· Organizing Tasks: The IRS Tax Calendar for Businesses and Self-Employed helps  owners stay organized. It includes tax due dates and actions for each month. Users can subscribe to calendar reminders or import the calendar to their desktop or calendar on their mobile device.

· Finding Forms: The Small Business Forms and Publications page helps business owners find the documents they need for the type of business they own. It lists tax forms, instructions, desk guides and more.

· Meeting in Person or Online: Small business workshops, seminars and meetings are held throughout the country. They're sponsored by IRS partners that specialize in federal tax topics. Topics vary from overviews to more specific topics such as retirement plans and recordkeeping.