We know how much many of you enjoyed working with David Doyle. He was certainly a valued employee on our side. However, we have all decided that right now is a good time for him to focus on recovering from his injury and finishing his major in Finance. We’ll see how the situation is next year when we have to compete with all the other opportunities he’ll have.
Intuit has announced release dates for QuickBooks 2009. They anticipate shipping as early as the end of September, which means it is time to think about upgrading. I haven’t seen notes as to when QuickBooks Online users will see new features.
Should you upgrade?
The good news is that QuickBooks 2009 promises the fix many of the bugs introduced in QuickBooks 2008. The bad news is that those bugs never were fixed in the 2008 software. I don’t want to be too negative about the way Intuit operates, but I think we can all agree that that’s just wrong.
Normally, I recommend not upgrading to the latest QuickBooks version unless you have a specific need for it. This year, the needs are:
1) You want to use the Accountant Copy feature. New for 2009: fixes to imports and reconciliations so that they work the way they should have worked from the start. If we’ve been using the Accountant Copy functions with you, there are some options other than upgrading, but we’re not going to use AC with any prior versions.
2) You are still using QB 2006 or earlier. While you can technically get by with these older versions (we still have them), Intuit does not update or support the older versions. 2005 won’t run on Vista, for example. I recommend staying with a current version.
3) There are any other features you want. For example, you may need the new multiple currency support. There’s a new dashboard reporting view. Or maybe you need to enter transactions for $99 billion; (yeah, that’s been a real stumbling block for most of us).
Overall, you may get the impression that I’m not overwhelmed with Intuit’s support of their products. As a Certified ProAdvisor, I certainly recognize that QuickBooks is the best solution for many small businesses, and we’ll keep using it until we find a better option, but it would sure be nice to see a company fix errors and provide upgrade pricing.
In Revenue Procedure 2008-48, the IRS has announced some new rules that apply to parents who support children that they cannot (or do not) claim as dependents, but still provide medical care or insurance to them.
Traditionally, the IRS position has been that if you cannot claim the dependency exemption for a child (because they don’t live with you, often), you cannot claim deductions for medical expenses that you pay for the child. Many colleges and businesses used this rule when considering how their benefits apply.
The new rule changes this. A noncustodial parent can now claim payment for medical expenses. Furthermore, they can also include the dependent on company health plans and use funds from an MSA or HSA to pay for medical expenses for the noncustodial child. Furthermore, this ruling is retroactive.
What does that mean for you?
1. If you pay child support, consider making some of the payments specifically for medical services
2. If you have a company or college health plan that prevented you from covering a child in the past, talk to your HR department about this change.
3. Review your taxes for 2005, 2006 and 2007. If you paid any medical expenses for noncustodial children in those years, you can still amend them and get a refund.
Just to make sure we can never rest on our laurels too much, the IRS has released a new Form 990, the tax/information used to report non-profit activities to the IRS and (for many non-profits) to the public as well. From the IRS press release:
The Internal Revenue Service released the revised instructions that tax-exempt organizations will need to fill out the redesigned Form 990, which must be filed starting with tax year 2008 (filed in 2009).
Most charities and other tax-exempt organizations must file an annual informational return with the IRS to maintain their tax-exempt status. Information reported on Form 990 is made available to the public.
“These instructions are the final step in a tremendous effort to bring the Form 990 up to date and to reflect the diversity and complexity of the tax-exempt community,” said IRS Commissioner Doug Shulman. “The revised form will give the IRS and the public a much better view of how exempt organizations operate. The improved transparency provided by these changes will also benefit the tax-exempt community.”
Form 990 had previously not seen major revisions since 1979.
The revised instructions feature several new tools that make it easier to answer questions line-by-line and that facilitate uniform reporting. Input from the tax-exempt community played a major role in how the new instructions were designed.
“We were gratified by the amount of help the IRS received from the tax-exempt community through public comments to redesign the Form 990 and revise its instructions,” said Steven T. Miller, Commissioner of the Tax Exempt and Government Entities Division. “This input helped us achieve our goal of improving compliance while minimizing burden. We will now begin working with the tax-exempt sector to help organizations complete the form and prepare for the 2009 filing season.”
The IRS expects to release instructions to the 2008 Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, in the next few weeks.
So many people associate the issue of taxes with April that they often miss out on the chance to make changes and update plans in the middle of the year. Even though it’s August, you should be thinking about taxes even if you didn’t file an extension. Here are some ideas to ponder:
Business Restructuring: Do you have the best business entity type for your needs? As an example, if your business will have a net income of $100,000 this year, an S Corporation might save you about $7,000 in taxes. You can’t form a corporation retroactively, so if you want those savings for next year, you’d better start the process no later than December.
Qualified Benefits Plans: Benefits plans include health, retirement, child care, life insurance and other employee benefits. Some of these can provide huge tax savings even to sole proprietors. While you can sometimes put money into the plans after January 1st, you must have established the plan before the end of the year. (Example: tax-deductible HSA contributions can be made for the 2008 tax year until April 15th, 2009, but only for plans with coverage that started before December 31st, 2008.) It can take time to analyze benefit options, set up accounts and choose providers.
Capital Gains: 2008 is an unusual year. There’s the possibility that capital gains might be taxed at 0%! While you should turn to your investment advisor regarding whether to sell anything now, you could save on taxes. Again, the sales must be made before the end of the year.
And More: Should you prepay property tax? What about prepaying rent? Should you have an elective surgery this year or next year? Do you have enough saved to pay your taxes in April? Could you benefit by converting a traditional IRA to a Roth IRA? Don’t ask in April. It’ll be too late.
This tax tip comes from the IRS and provides an excellent summary of the types of records every taxpayer should keep. Business owners, in particular, need to understand the value of their records. That shoebox full of receipts probably has $10,000 in tax savings inside.
From the IRS Tax Tips 2008-05: Keeping Good Tax Records
One additional tip: consider digitizing your records. I have met several clients who had their receipts destroyed by flood, fire and loss while moving across country. The IRS will accept scanned images of receipts provided that they are stored in a non-editable format. A 200 dpi grayscale GIF or JPG image stored on CD-R or DVD-R is acceptable for this purpose. You can easily fit an entire decade’s worth of records on a single DVD-R. Make three copies: keep one at home, one at the office, and one in a safe deposit box at the bank.
Apparently, this is what passes for humor among accountants. You might appreciate this 1040 DOG Canine Tax Return as well.
The IRS web site has a section of their Examiner’s Guide specific to the direct seller industry, such as commissioned salespeople and multi-level marketers of all types.
While the article does include tax information (some of it fairly technical), you’ll also find statistics and demographic information including the number of direct sellers, total income, growth in the industry, methods of selling and much more. For example, did you know that a typical direct seller spends 20% of their time on administrative and paperwork tasks?
Normally I try to avoid shameless plugs for our services in our blog, but think about that number. For a full-time seller, that’s 8 hours per week – one whole day per week – on administration and paperwork. What could you do differently if you had a whole extra day each week?
The IRS periodically adjusts the standard mileage rate for deducting business use of vehicles. These rates reflect cost of vehicles, insurance, repairs, maintenance and – most importantly – gas.
To adjust for the higher gas prices, the rate has been raised from 50.5 cents/mile to 58.5 cents/mile, effective July 1, 2008. It is also worth noting that the deduction for medical miles is now 27 cents/mile. For the full article, see: IRS Increases Mileage Rates through Dec 1, 2008.
While this is good news for those who count on the standard mileage rate deduction to reduce their taxes, it further emphasizes the importance of proper record-keeping. You will have to know how many miles (business and personal) were driven between January 1 and June 30th and how many between July 1 and Dec 31st.
OK, tracking mileage is probably not something you would do for fun, but it is an important aspect of reducing your tax liabilities.
What mileage counts
Mileage may be deducted if driven between one place of work and another, or when driving to a temporary work location if you have a permanent work location. For example, driving from your office to the store to pick up supplies is a deductible expense. For those with home offices, your home is also a place of work, but for most people driving from home to a place of work is considered nondeductible commuting mileage.
Did you know that you can also claim a deduction for medical and charitable miles? Medical miles include driving required to doctor’s appointments or to pick up prescriptions. Charitable miles only count when done for the benefit of the charity, so you can deduct driving while volunteering, but should not claim mileage to church services every week.
What’s the deduction?
The standard deduction established by the IRS is 50.5 cents per mile in 2008 (up from 48.5 cents last year) for business miles. Medical and charitable miles are only worth 19 and 14 cents respectively.
How do you take it?
The answer is “It depends.” (That’s the answer to almost all tax questions). In this case, it depends on whether you are a(n):
What are accountable reimbursement plans?
For corporate officers, an accountable reimbursement plan permits the company to deduct the expense of the reimbursement, but the reimbursement is not income to the officer/employee. Accountable means that you must provide documentation to the company proving your mileage. The reimbursement can be made up to the IRS standard rate, but can be less.
How do you track mileage?
Both the IRS and accountable reimbursement plans require documentation of mileage. While many people try to use percentages or estimates for mileage, the IRS is going to require proof or the deduction can be reduced or denied altogether under audit. In some cases, well-kept appointment books or calendars have sufficed, but the best evidence is a mileage log maintained on a daily basis. I recommend keeping a written log in your car; once you get into the habit of writing everything down, you’ll find that it doesn’t take much time at all. You can download a good mileage log template for Microsoft Excel from Microsoft Office Online. The same log can be used to track charitable, medical and business miles.
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