Using a Car for Business? Grab These Deductions -

Whether you're self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.

There are two choices for claiming deductions:

1. Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers' salaries, and depreciation.
   
2. Use the standard mileage deduction in 2014 and simply multiply 56 cents by the number of business miles traveled during the year. Your actual parking fees and tolls are deducted separately under this method. (In 2013 the standard rate for business miles driven was 56.5 cents.)
   

Which Method Is Better?

For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.

Tip: The actual cost method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here.

The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to bypass certain limits and restrictions and is simpler-- but it's often less advantageous in dollar terms.

Caution: The standard rate may understate your costs, especially if you use the car 100 percent for business, or close to that percentage.

Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.

How to Make Tax Time Easier

Keep careful records of your travel expenses and record your mileage in a logbook. If you don't know the number of miles driven and the total amount you spent on the car, we won't be able to determine which of the two options is more advantageous for you.

Furthermore, the tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. If you use the actual cost method for your auto deductions, you must keep receipts.

Tip: Consider using a separate credit card for business, to simplify your recordkeeping.

Tip: You can also deduct the interest you pay to finance a business-use car if you're self-employed.

Note: Self-employed individuals and employees who use their cars for business can deduct auto expenses if they either (1) don't get reimbursed, or (2) are reimbursed under an employer's "non-accountable" reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other "miscellaneous itemized deductions") exceed 2 percent of adjusted gross income.

We will help you determine the best deduction method for your business-use car. Let us know if you have any questions about which records you need to keep.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

The Facts: Medical & Dental Expenses and Your Taxes -

If you, your spouse or dependents had significant medical or dental costs in 2013, you may be able to deduct those expenses when you file your tax return. Here are eight things you should know about medical and dental expenses and other benefits.

1. You must itemize. You deduct qualifying medical and dental expenses if you itemize on Schedule A on Form 1040.

2. Deduction is limited. You can deduct total medical care expenses that exceed 10 percent of your adjusted gross income for the year. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through December 31, 2016.

3. Expenses must have been paid in 2013. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to save your receipts and keep good records to substantiate your expenses.

4. You can't deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. And, starting with tax year 2011, you can also include lactation supplies.

7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 24 cents per mile for 2013. (This rate decreases to 23.5 cents in 2014.)

8. No double benefit. You can't claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.

Please give us a call if you need help figuring out what qualifies as a medical expense.

Security Tax Services LLC


North Sound                                       South Sound
2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102
Everett, WA 98201                             Federal Way, WA 98003
425.339.2400                                     253.237.0751
fax 425.259.1099                               fax 253.237.0701

6 Overlooked Tax Breaks for Individuals

Confused about which credits and deductions you can claim on your 2013 tax return? You're not alone. Here are six tax breaks that you won't want to overlook.

1. State Sales and Income Taxes

Thanks to the fiscal cliff deal last January, the sales tax deduction, which originally expired at the end of 2011, was reinstated in 2013 (retroactive to 2012). As such, taxpayers filing their 2013 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.

If you bought a big ticket item like a car or boat in 2013, it might be more advantageous to deduct the sales tax, but don't forget to figure any state income taxes withheld from your paycheck just in case. If you're self-employed you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2012 tax return in 2013, you can include the amount when you itemize your state taxes this year on your 2013 return.

2. Child and Dependent Care Tax Credit

Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent--such as an elderly parent--who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35 percent of $3,000 of eligible expenses per dependent.

3. Job Search Expenses

Job search expenses are 100 percent deductible, whether you are gainfully employed or not currently working--as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2 percent of your adjusted gross income (AGI).

4. Student Loan Interest Paid by Parents

Typically, a taxpayer is only able to deduct interest on mortgages and student loans if he or she is liable for the debt; however, if a parent pays back their child's student loans the money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.

5. Medical Expenses

Most people know that medical expenses are deductible as long as they are more than 10 percent of AGI for tax year 2013. What they often don't realize is what medical expenses can be deducted, such as medical miles (24 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.

Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.

If you're self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct them as well.

6. Bad Debt

If you've ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.

Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.

Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are...but maybe you're not. Why take a chance? Make an appointment with us today and we'll make sure you get all of the tax breaks you deserve.

Security Tax Services LLC


North Sound                                       South Sound
2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102
Everett, WA 98201                             Federal Way, WA 98003
425.339.2400                                     253.237.0751
fax 425.259.1099                               fax 253.237.0701

7 Common Small Business Tax Misperceptions -

One of the biggest hurdles you'll face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies. Tax codes seem to be in a constant state of flux making the Internal Revenue Code barely understandable to most people.

The old legal saying that "ignorance of the law is no excuse" is perhaps most often applied in tax settings and it is safe to assume that a tax auditor presenting an assessment of additional taxes, penalties, and interest will not look kindly on an "I didn't know I was required to do that" claim. On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they're legally entitled to that can help them lower their tax bill.

Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration, money, and an auditor knocking on your door, is to have a professional accountant handle your taxes.

Tax professionals have years of experience with tax preparation, religiously attend tax seminars, read scores of journals, magazines, and monthly tax tips, among other things, to correctly interpret the changing tax code.

When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes. With that in mind, here is a look at some of the more common small business tax misperceptions.

1. All Start-Up Costs Are Immediately Deductible

Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start up and organizational costs are generally called capital expenditures.

Costs for a particular asset (such as machinery or office equipment) are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced (but not below zero) by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.

2. Overpaying The IRS Makes You "Audit Proof"

The IRS doesn't care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can't substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another. It is never a good idea to knowingly or unknowingly overpay the IRS. The best way to "Audit Proof" yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.

3. Being incorporated enables you to take more deductions.

Self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do, and for many small businesses, being incorporated is an unnecessary expense and burden. Start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or move the company in a different direction. In addition, plenty of small business owners who incorporate don't make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.

4. The home office deduction is a red flag for an audit.

While it used to be a red flag, this is no longer true--as long as you keep excellent records that satisfy IRS requirements. In fact, so many people now have home-based businesses that in 2013, the IRS rolled out the new simplified home office deduction, which makes it even easier to claim the home office deduction (as long as it can be substantiated).

Because of the proliferation of home offices, tax officials cannot possibly audit all tax returns containing the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction. A high deduction-to-income ratio however, may raise a red flag and lead to an audit.

5. If you don't take the home office deduction, business expenses are not deductible.

You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.

6. Requesting an extension on your taxes is an extension to pay taxes.

Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.

7. Part-time business owners cannot set up self-employed pensions.

If you start up a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.

A tax headache is only one mistake away, be it a missed payment or filing deadline, an improperly claimed deduction, or incomplete records and understanding how the tax system works is beneficial to any business owner, whether you run a small to medium sized business or are a sole proprietor.

And, even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don't hesitate to give us a call today. We're here to assist you.

Security Tax Services LLC


North Sound                                       South Sound
2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102
Everett, WA 98201                             Federal Way, WA 98003
425.339.2400                                     253.237.0751
fax 425.259.1099                               fax 253.237.0701

STS QuickBooks Tips - Start Planning Now for 2014 Income Taxes -

We know that you're in some stage of preparation for your 2013 income taxes. It may seem odd to start thinking about 2014 taxes just now, but actually, this is the ideal time to start planning and making business decisions with their tax implications always in the back of your mind.

As you look at the data that will be entered in your 2013 tax forms, you're likely to come across some expenses that you might have handled differently, or some income that should have been deferred. If you begin your planning process for 2014 while 2013 is still in the works, you can start making smarter, more tax-advantageous business decisions now, instead of late in the year when everyone is rushing to take actions necessary to lower their tax obligation.

Here's how QuickBooks can help you with this new approach.

Overhaul your Chart of Accounts. The mechanics of doing this in QuickBooks are fairly uncomplicated, but changing this critical list--the backbone of your company file--requires solid knowledge of which accounts should be added, deleted or changed. You also need to know which accounts and subaccounts will have impact on your income taxes. They must be structured accordingly.

Figure 1: QuickBooks' default Chart of Accounts can be easily modified to meet your company's unique needs. But let us help you with this task. 

For these reasons, we ask that you consult with us if you think your Chart of Accounts could use an overhaul. Our early involvement will be much more economical for you than if we have to come in down the road when your accounts have become dangerously tangled.

Devise an effective system for estimated taxes. As you well know, there's no magical formula for estimating how much income tax you'll owe when all of your income and expenses have been tallied. We can make this an ongoing task by creating monthly or quarterly financial reports for your business and working from those.

If you're self-employed, you might want to open a low-fee checking account that will serve solely as your tax fund. Because you have no employer to pay a portion of your Social Security and Medicare obligations, it's critical that you're putting enough away. Consider putting one-third of your taxable income into that account and see how it goes. You may get a pleasant surprise at tax prep time, or you may have to dip into other savings to be compliant.

Figure 2: You may want to set up a separate bank account to park estimated tax funds, so you know they're committed. Ask us about numbering new accounts. 

You can submit federal payments online on the Electronic Federal Tax Payment System site. Check with us to see if your state has an electronic system. Of course, the IRS will accept a check.

Run reports on everything. And keep running them. We've already mentioned that we're happy to create and analyze your most critical financial reports on a regular basis. You may have tried to understand the Trial Balance, Statement of Cash Flows, etc. in QuickBooks and been puzzled. Don't feel incompetent because of that: It often takes an accountant-level individual to understand what they mean for your business.

You can define and build your own reports using QuickBooks' customization tools. If you have employees who travel, consider bringing in an automated expense report application (we can help you find one and implement it). Stress the importance of adhering to IRS rules about travel. Same goes for your local sales force, off-site technicians and other service providers, etc.

Figure 3: Help your staff help you by involving them in budgeting and expense management. 

For employees who come into the office every day or are telecommuting, you can give them some ownership of their contribution to expenses by bringing them into the budget process and/or requesting that they submit their own monthly mini-reports on any company funds they spend. The more employees are aware of and accountable for expenses, the easier it will be for you to work toward minimizing your tax obligation. And having some information about the considerable sum you pay in taxes may help staff understand your tightening of the purse strings.

Consider retraining accounting staff if necessary. You may be paying a portion of your taxes unnecessarily, simply because your company's bookkeeping is less than precise. Nip that in the bud.

The more you micro-manage your reporting, stay aware of the consequences of every expenditure and bring employees into the process, the more prepared you'll be for 2014 taxes.

Security Tax Services LLC


North Sound                                       South Sound
2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102
Everett, WA 98201                             Federal Way, WA 98003
425.339.2400                                     253.237.0751
fax 425.259.1099                               fax 253.237.0701

It's Not Too Late to Make a 2013 IRA Contribution

If you haven't contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2013, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date for filing your tax return for 2013, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2013. Otherwise, the trustee may report the contribution as being for 2014 when they get your funds.

Generally, you can contribute up to $5,500 of your earnings for 2013 (up to $6,500 if you are age 50 or older in 2013). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Note: IRA contribution limits remain at $5,500 ($6,500 if age 50 or older) in 2013.

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan.

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans.

Saving for retirement should be part of everyone's financial plan and it's important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give us a call. We're happy to help.

Security Tax Services LLC


North Sound                                       South Sound
2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102
Everett, WA 98201                             Federal Way, WA 98003
425.339.2400                                     253.237.0751
fax 425.259.1099                               fax 253.237.0701