The Meek Shall Inherit The Earth

Blessed are the meek, for they shall inherit the earth – Matthew 5:5

Growing up, I always had a problem with this verse. Your typical pre-teen and teenaged boy always wants to be considered tough and aloof, and is always on guard so as not to do anything that could be considered “wimpish”. You always felt the need to prove yourself so that the other guys didn’t think that you were a pushover, and could be someone who would be fodder for them to prove their manliness.

But then this verse comes along.

When you read it for the first time, you may think that it means to be a wimp. God is basically saying being a pushover, and let others take advantage of you. That the way to heaven is to get your butt kicked constantly. At least, that is what I thought.

But I was wrong.

Being the father of two autistic boys is overwhelming. The constant demands for your time to help them with their struggles is sometimes more than a person can bear. Add to that the medical forms, school requirements and meetings, and other things that need to be done for their care, and you start feeling as though you don’t have the strength to even live the life God has set before you.

You start to cry out “Lord, please help. I can’t handle this!”

And that is what that verse means.

What he is saying is that you can’t rely on your own strength to get through life, let alone be a good Christian. It is by asking for his help that we are able to not only live life, but live it to the fullest. When we stop trying to be the “tough guy” that society says we are supposed to be, and instead ask for help, we are able to bear more things and do more with our lives than we expect that we could with our circumstances.

The willingness to take things off your own shoulders is something we all need to be ready to do. With everything that has happened in raising my boys, from the violent temper tantrums to the trying to figure out what to do about school, if I didn’t have the ability to get on my knees and to ask for God’s help, I would not be able to handle the strain of things. But knowing that I have put everything in front of him, and that he will be there allows me to focus on what needs to happen to care for my family, and make my life the best it can be.

May God bless you all!

What’s my inventory worth?

Unless you sell services in your business, you probably have a product you need to keep track of. Whether it is kept in a warehouse, or in your basement, you probably have more pieces around than you care to admit. That is a drawback of having your own product based business.

No matter how much you, or your significant other, like or dislike having a lot of inventory around, you still need to keep track of it, and be able to report on its value at year end when you do your taxes. So what are some ways you can keep track of the value of your inventory.

When to Take Inventory

The first thing to consider is how often you update your inventory records. Do you update them when you make a sale, or wait until the end of the year?

If you wait until the end of the year (or quarter or even month) to count and value your inventory, you are using a periodic system. When you do this, you are taking a count of your inventory at the end of whatever period you choose, and assigning a value to it at that time. You do need to be consistent when you choose at what time interval to count it, and not change it from year to year. This advantage of this method is that you don’t tie up resources keeping up with inventory. The disadvantage is that you run the risk of running out of material because you didn’t know to re-order more stock.

The perpetual system requires you to update inventory after every purchase or sale. The benefit is that you always know how much inventory you have on hand, so being out of stock is no longer a consideration. The disadvantages are that you will have to spend money on a system to keep up with the inventory, and you have to make adjustments in your system for theft and items that are broken or spoiled.

How to Value Inventory

There are a few methods to determine the value of the inventory you have on hand. The first way is called specific identification. As the name implies, each piece of your inventory is specifically identified in your records, and its cost is the amount you paid for it. This is a good method if you have a small number of products that you sell, such as sailboats, but can be a bit cumbersome if you mass produce screws.

The second method to calculate inventory is the First-In-First-Out, or FIFO, method. With this process, it is assumed that the first items you purchased are the first ones sold. If prices are rising, this will give you a lower cost of goods sold and higher profit, as it is assumed that your cheaper items are sold first. Additionally, you will have a higher inventory total since the higher priced goods are what remains in your stock.

The third method is the Last-In-First-Out method. It is assumed that the last items ordered are the ones that are sold first. If your prices are going up, this will lead to a higher cost of goods sold and a lower profit, since you will have sold the more expensive goods first. Your inventory will also be lower, since the cheaper goods will remain in your inventory.

Lastly, you have the Weighted Average method. With this method, you are taking the average of the items you have purchased, plus the value of your beginning inventory, and dividing this sum by the number of items in your inventory. You would then take this number and multiply it by the number of items in your ending inventory. This gives you the value of your ending inventory.

If you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them. If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

Circular 230 Disclosure:  To ensure compliance with requirements imposed by the United States Treasury Department, you are hereby informed that the tax advice contained in this blog post is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local law provisions, or (ii) promoting, marketing, or recommending to another person any transaction or matter addressed in this communication.

 

Why Keep Financial Records?

You are really busy! You spend so much time working on your business that you don’t really have time to keep track of your finances. Why do you even need to bother with this every month? Can’t you just wait until the end of the year and throw a shoe box full of receipts and paper at your accountant and let them just put together the tax return?

There are some advantages to keeping records and using those records to keep track of your finances. Let’s take a look at a few of them.

The first reason is to track revenue. You want to know where your money is coming from. Who are your best clients? What is your best selling product or service? By keeping track of your revenue, you can determine which clients are bringing in the most money, and what offerings are the most popular. With this information, you can determine if a client is worth keeping (by comparing what they pay you to the headaches they may cause you), or if you want to focus on a certain product or service that is bringing in more money.

Second, as you track the money coming in, you also want to be aware of the money going out. By knowing where the money is going, you can analyze your spending and see if what you are spending the money on is bringing in the business you had hoped. Is that new ad campaign bringing in the customers? Is that new transcription service really saving you that much time? Once you look at it in this light, you can determine where your spending habits need to change.

An additional benefit to tracking your expenses is that it will show you if there is someone in your organization who is spending too much, or for things they should have spent money on. Is that new sales rep spending too much money taking potential clients out to expensive dinners? Is your assistant stockpiling office supplies for the zombie revolution? Keeping an eye on what gets spent will make sure you keep more of the money you have earned.

Third, record keeping will allow you to prepare financial statements and tax returns. Preparing financial statements give you an accurate view of your business and how it is doing. Additionally, you may need to have a set of financial statements available to give to your bank, creditors, or even potential customers. Customers may want to look at your financials to make sure you will be in business to fulfill a long-term contract. In addition, by having financial statements, you can readily see if things are getting better or worse for your business, and what changes need to be made.

Keeping good records helps in preparing tax returns in that you will be able to prepare an accurate return to send to the government. In addition, you will have support for the amounts you claimed on the return in case your return is selected for an audit. It makes things much easier if you are able to provide support for an amount on your return.

If you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them. If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

Circular 230 Disclosure:  To ensure compliance with requirements imposed by the United States Treasury Department, you are hereby informed that the tax advice contained in this blog post is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local law provisions, or (ii) promoting, marketing, or recommending to another person any transaction or matter addressed in this communication.

Keeping Your Tax Records: When can you get rid of them?

Did you make a New Year’s resolution to get organized this year? Maybe it was all that paperwork sitting around, or those boxes of old files that made you (or your significant other) say “I’ve had enough! We have got to stop living like pack rats.”

You probably have a lot of old paperwork related to old tax returns and your business. Why not give all that old stuff the heave-ho and start fresh? Let’s get those garbage bags we got from the mega discount store and get to work!

That sounds like a good idea, but let’s not start pitching just yet. The IRS has certain rules for how long you have to hold on to certain types of paperwork. So before we start clearing out the old junk, let’s take a look at what the rules are.

To start off with, the IRS has certain rules related to what to do if you do not file a return, file a fraudulent return, or do not report some income. I am certain you wouldn’t do that, but if it happens that you don’t file or filed a fraudulent return, you need to keep records related to the income and expenses for that year indefinitely. This is so that if you ever get caught, you will need to produce a good tax return. So it behooves you to file a correct return every year.

So if you do file a return, and either owe taxes or get a refund, keep these record for three years from the time the return was due, or two years after the tax you owed was paid, whichever is later. So for the return due April 15, 2015, you will need to keep these records until April 15, 2018. But if you owed taxes and didn’t pay them until December 15, 2016, maybe due to having an installment plan with the IRS, keep these records until December 15, 2018.

If you had a claim on your tax return for worthless securities, or took the bad debt deduction, you will need to keep the records related to this return for seven years.

Do you have employees in your business? You will need to keep all tax records related to those employees for at least 4 years after the later of the date that the tax becomes due or is paid.

How about record related to any property you have purchased. You will need to keep these records for as long as you own the property. In addition, once you sell the property, you will keep those records until the tax return is filed, and the period you need to keep the records for that tax return. The records for the property is needed to calculate the deduction for depreciation, amortization, or depletion, as well as to calculate the gain or loss when you sell or dispose of the property.

Do you have any stories about keeping records for a long period of time? I’d love to hear about it. Also, if you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them. If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

Circular 230 Disclosure:  To ensure compliance with requirements imposed by the United States Treasury Department, you are hereby informed that the tax advice contained in this blog post is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local law provisions, or (ii) promoting, marketing, or recommending to another person any transaction or matter addressed in this communication.

Choosing The Form of Business For Your New Company

Have you had enough?  Are you done working for someone else, and making someone else rich?  Do you have the skills to do the work and spend the time required to run your own business?

It may be time to get started.

So you sit down at your computer and get ready to register with the IRS.  You start to register your business, and they ask you to choose the type of business entity.

And the option for “one that makes me a lot of cash” isn’t on the list.

So you stop and ask yourself, “Seriously, which one of these do I choose?”

Let’s run through the different types you could choose.  Keep in mind that this is just a primer, and more posts about each of the forms will be coming.

Sole Proprietor

The first one you could choose is a sole proprietorship.  This basically means that you are working by yourself.  You can have some employees, but you are the only owner.  You have complete control over everything, and get all of the income.

It the easiest to form, but it does come with some disadvantages.  If you get into trouble with a client, and they sue you, they could take all your personal assets.  That includes your house, your car, and everything else you own.  Additionally, when you die, so does your business, so it can’t be passed on to your kids (or anyone else for that matter).

In addition, you will owe self-employment taxes.  When you worked for someone else, your employer paid employment taxes on what they paid you.  As the owner of your own business, you will have to pay not only your own payroll taxes, but what would be considered your employer’s portion as well.

You would consider this form of business if you are just starting out, want something simple, and aren’t very concerned with liability protection.

Limited Liability Corporation

So you want to keep it simple, but want a little more protection. A limited liability corporation would give you some limited liability protection, meaning that if you get sued, you won’t lose your personal assets.  You also don’t have as much paperwork as other forms.  And like a sole proprietorship, you also get all the profits.

You face the same disadvantages you would if you had selected to be a sole proprietor.  However, you do get some liability protection, as choosing this form gives you some liability protection by separating you from your business.

This form is great because it is simple and provides some liability protection.  You would still want some insurance all the same since you never know when a customer may decide you did them harm, or an employee does something that hurts a customer.

Partnership

Let’s say you found someone who compliments your talents, and you decide to go into business together.  A partnership is easy to form, as well as inexpensive.  You also get to share the financial burden with someone else.

However, the downside is that you are personally liable for not only the debts you incur for the business, but any that your partner incurs.  So if you go into business with someone not so trustworthy, they could rack up a large amount of debt, and leave you with the responsibility to pay it off.  Be sure that you not only find someone trustworthy to go into business with, but talk with a lawyer to draw up a partnership agreement that protects you and your interests.

Corporation

A corporation is what a lot of people think of when they decide to go into business.  While the other business forms need to be looked at when setting up your new venture, there are several advantages to setting up a corporation.  The biggest is that you have limited liability, with your personal assets protected from any lawsuits filed against the business.  It is also easier to obtain operating cash, since you can sell stock to bring in funds.  There are some tax advantages, such as lower tax rates than the other forms.

The disadvantages to the corporate form is that it is very expensive to form, and the paperwork can be overwhelming.  The record keeping to stay in compliance with the regulations can be quite a burden.  Additionally, the earnings are taxed twice.  This means that taxes are paid on the earnings of the corporation, and then the dividends paid to the shareholders will be taxed.

You would choose this form of business if you were expecting that you would want to grow your company with outside funding, and have the maximum amount of liability protection provided by a form of business.  In addition, you aren’t fazed by the amount of paperwork you need to do.

S-Corporation

Lastly, there is the S-Corporation.  This is a special kind of corporation, but instead of the taxes being levied on the corporation, the items of income and loss are reported on the tax return of the shareholders.  It does have the advantage of being exempt from federal taxes, with the earnings of the corporation being taxed on the shareholder’s return.  However, like the corporate form, there are regulatory requirements, as well as shareholder compensation requirements that might make this form unattractive to someone starting a company.

You would choose S-Corporation status if you had less than 100 shareholders and wanted the advantages of being a corporation.

Choosing the right form for your business can be confusing and stressful.  Drop me a line at chrispedencpa@yahoo.com so we can discuss the right one for your business.

The 1099-Misc: What’s it all about?

So you finally got going on that side gig. You have picked up a few clients and the money has started coming in. Keep in mind, however, along with this additional cash comes some additional forms. As you go through your mail in late January, you may find a new tax form, the 1099-MISC. You look at it and wonder what this is and what you are supposed to do with it. This is just a form that a client will send you if they paid you at least $600 for the services you provided.

Usually, when you started working, or perhaps a bit closer towards the end of the year, your client sent you a form W-9, which asks you for either a Social Security Number or a Taxpayer Identification Number (TIN). They will use these numbers to report to the IRS the amount they paid you over the course of the year. While you can use your Social Security Number, I got a TIN to prevent my personal information from getting in the hands of someone who could use it for evil purposes.

If you did receive the 1099-MISC, there are several boxes you will want to look over before you use the information on your tax return.

The first thing you will notice when you look at the form is a box with the name of the person who sent it to you. You probably know all of your clients, but check your records to be sure you did work for the person who sent you this form. You will also see a box labeled RECIPIENT’S identification number.  You will want to make sure that number is either your social security number or the employer identification number you were assigned when you registered your company with the IRS.  You would have received this number when you registered your company online with the IRS, and you will see it on any letters from the IRS.

Let’s say your business involves you renting space to someone during the year.  Box 1 of the 1099-MISC will show how much you received in rent payments. Normally, you would include this amount on Schedule E of your tax return. However, if you sold real estate as a business or you rent equipment or other items as a business, you would report these payments as sales on Schedule C of your tax return.

Did you receive any royalty payments during the year?  These would come from any copyrights or patents you have, or the properties you own that contain oil, gas or mineral deposits. If so, Box 2 would show any amounts you received from owning these types of items. You would report these payments on Schedule E of your return.

Did you win any prizes and awards, like if you won money on a game show or playing bingo? Box 3 is where this type of income is reported. There should be a description included of what the payment is for, as well as the amount. You will use the description of the purpose of the payment to determine where this should be reported on your taxes. You probably wouldn’t have anything in this box for your business, but if there is something in there and don’t know what it is for, contact the person who sent it to you and ask them about it.

If your customer withheld any taxes (which they should not have if you gave them a correct Taxpayer Identification Number), box 4 will show this amount, which would go on the line for taxes withheld on your 1040. However, your client may have withheld taxes since you did not give a taxpayer identification number to them. Make sure you give a W-9 to your customer if they ask for it. You may even want to have one prepared to give to your customer when you send your first invoice. This will prevent them from withholding any funds shouldn’t have.

Box 7 is where you will most likely see a number most of the time if you did work for clients.  This box will show how much was paid to you for the work you did for your client. Check your records to make sure this number jives with what they have paid you.  You will report this amount on your tax return on the sales line on Schedule C.

If you sold products supplied to you, box 9 will be checked, but only if you were paid $5,000 or more.  You will not only need to report your sales on the sales line of the Schedule C, but you will have some cost of goods sold to report on the same schedule.  You will probably receive another notice from the company about the value of what you sold, but you should have this amount in your records.

You may have gone international and sold things overseas. Way to go!  If this happens, and you had to pay foreign taxes, Box 11 will show the amount of foreign tax you paid, which you may be able to claim as a deduction or a credit on your tax return. In addition, Box 12 will show to which country the tax was paid.

When looking over your 1099-MISC, there are a few questions you want to ask:

  1. Did I actually do work for them? There have been instances where someone is trying to defraud the IRS by over reporting the amount in expenses they had, and sending a false 1099-MISC is one way they would do this. If you check your records and haven’t done work for them, contact them for an explanation.
  2. If you see that you had backup withholding on the form, check your records to see if you sent them a W-9 with your information. Call your client who sent you the form if you did send them a W-9 so they can adjust their records and send you a new form.  Be ready to send them a copy of your W-9 so they have proof of what your number is.

 

Now that you are doing some freelance work, you should expect to be getting a form 1099-MISC. Make sure you understand what is on the form so you can properly report the information on your taxes. If you run into something you don’t understand, get in contact with your accountant, who is always happy to answer questions and help out people who need assistance with tax matters.

In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code. If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.

 

Schedule C-EZ – Can You Use It?

One of the reasons that people don’t start a business is they are intimidated by the tax forms they think they need to fill out.  They take one look at the Schedule C and are blown away by the complexity of the form and all the things of which they need to keep track.  It looks like a very involved form.  Isn’t there an easier way?

Well, there is.  The IRS put out Schedule C-EZ to make it easier for smaller businesses to report the activity in their company.  You may be able to use this form if your business has certain attributes.  Let’s take a look to see if your business would qualify to use this form.

When you first start out, you may not have a lot of expenses, or a lot of income.  Hopefully, that will change quickly, especially the amount of income being brought in.  If you only had expenses of $5,000 or less, you can use Schedule C-EZ.  Just make sure that all of your expenses are included when you make the determination.  It is better to be upfront and not use Schedule C-EZ than to lie and face penalties.

Most small businesses use the cash method of accounting.  That means that you record your revenue when you get paid by your customers and expenses when you pay them by cash, check or credit card.  If your business operates this way, you can use Schedule C-EZ.

If you have started a business that does not have any inventory at any time during the year, you can use Schedule C-EZ.  It is unfortunate that the small businesses that make crafts to sell are basically force out of the ability to use the easier form.  However, the Schedule C does provide a step by step process to calculate cost of goods sold, which also gives you an idea of the cost of providing your wares.

Hopefully you made money during the year.  If your expenses were more than your revenue from your customers, you would have a net loss.   If you had a net loss from your business, you cannot use Schedule C-EZ.

If you were the sole owner of your business, and this was the only business you had, you can use Schedule C-EZ.  If you had a partner or incorporated, or more than one business, a different form must be used.

Most small businesses operate as one person operations.   Some do hire employees to help with the work.  Unfortunately, if you have employees, you will have to use Schedule C, as you cannot have employees and use Schedule C-EZ.

To operate your business, you may buy equipment to help with making products or providing services, even if it is just a laptop computer.  If you do use equipment, you will take depreciation on this equipment.  If you do take depreciation to spread the cost of the equipment over its period of use, thereby using form 4562Depreciation and Amortization, you cannot use Schedule C-EZ.

Did you have a home office?  If so, you can probably deduct expenses for the business use of your home.  If that is the case, and you are eligible and do deduct the cost of a home office, you cannot use Schedule C-EZ.

Most of the time, a small business owner is very involved in running their business.  If not, you will be involved in what is termed passive activity, meaning that you not materially participate in the business.  This type of activity usually occurs for companies that are involved in real estate rentals and limited partnerships.  If you did have this type of business, and you had a loss in a prior year that was unallowable according to IRS instructions or rulings, you cannot use Schedule C-EZ.  Check with a CPA to see if your business was a passive activity.

Have you ever tried to use Schedule C-EZ, but found that you could not use the form for various reasons?    I’d love to hear about it.  Leave me a comment below.  Also, if you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them.  If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

In accordance with Circular 230 Treasury Department Regulations, I am required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code.  If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.

Personal Exemption Phaseout

Yesterday, I wrote a post about how your itemized deductions would be reduced if you had income greater than a certain amount.  But itemized deductions are not the only items that are reduced when you meet certain income levels.  Your personal exemptions are also reduced by a certain amount when you reach a certain income level.

As part of the same legislation that gave us the itemized deduction reduction, the Personal Exemption Phaseout (PEP) , the personal exemption will be reduced by two percent for every $2,500 that your adjusted gross income is greater than the threshold for a given filing status.

For 2013, the phaseout of the personal exemption of $3,900 (for 2013) will be over the following income ranges:

Filing Status

Phaseout Starting Point

Phaseout End Point

Single

$250,000

$372,500

Head of Household

$275,000

$397,500

Married Filing Jointly or Qualifying Widow(er)

$300,000

$422,500

Married Filing Separately

$150,000

$211,250

 

So, how does this work?  Let’s take a look at an example with a married couple with three children, who have adjusted gross income of $300,000.  In this example, the personal exemptions would total $19,500.  However, because their income is $50,000 over the phaseout start point, the exemptions would need to be reduced.  $50,000 divided by the aforementioned $2,500 is 20.  Therefore, the exemptions need to be reduced by 40% or $7,800 ($19,500 in total deductions times 40%).  The amount of personal exemptions that the family can claim will be $11,700.

Have you ever run into a situation where your personal exemptions deductions were reduced on your tax return due to income limits?    I’d love to hear about it.  Also, if you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them.  If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

In accordance with Circular 230 Treasury Department Regulations, I am required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code.  If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.

Itemized Deduction Reductions

I’ve been writing about the items you can deduct on your taxes, as well as a few expenses that are not deductible.  You probably have started organizing your receipts to take advantage of the deductions you can claim.  However, there is a caveat that I need to make you aware of.

Did you work another job to make ends meet?  Did your income go up?  Did your spouse go back to work?  I ask these questions to make you think if you income went up last year.  If so, you may face a reduction in the amount you can claim in itemized deductions.  For 2013 and the foreseeable future, if your income is greater than $300,000 if you are filing as married filing joint, $150,000 if filing married filing separately, or $250,000 if filing single, you will see a deduction limitation that is the lesser of either (1) 3% of the adjusted gross income above the aforementioned amounts or (2) 80% of the allowable itemized deductions.

So what does this mean?  Let’s say you and your spouse are filing jointly, and have an adjusted gross income of $500,000.  You have $21,000 in itemized deductions, with the following itemized deductions:

  • Mortgage interest – $5,000
  • Property Tax – $6,000
  • Charitable Deductions – $10,000

Looking at the two methods of reductions, let’s see how much the reduction would be.

  1. 3% x $200,000 ($500,000 – $300,000) would reduce your itemized deductions by $6,000
  2. 80% x $21,000 would reduce the itemized deductions by $16,800

Based on these calculations, the $6,000 in reductions would the lesser reduction.  Therefore, the $21,000 in itemized deductions would be reduced by the $6,000, leaving you $15,000 in itemized deductions.

Keep in mind that these limitations do not apply to deductions for medical expenses, investment interest, or casualty, theft, or gambling losses.  However, since the deduction for medical expenses requires that you can only take a deduction for expenses greater than 10% of your adjusted gross income in 2013.

So how do you avoid running into this situation.  First, try to reduce your adjusted gross income by making contributions to retirement plans.  Second, talk to your accountant about planning out your deductions over a couple of years so you can lessen the impact in one particular year.

Have you ever run into a situation where your itemized deductions were reduced on your tax return due to income limits?    I’d love to hear about it.  Also, if you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them.  If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

You Can’t Deduct That!

I’ve been writing about the items you can deduct on your taxes.  Be it medical expenses, charitable contributions, or gambling losses, there are a few options available to reduce your tax bill.  However, there are a few items that are definitely not deductible.  Let’s take a look at a few of them.

The first item is funeral or burial expenses.  Having a loved one pass away can be traumatic, and costly.  However, the tax code does not allow for you to deduct for the costs of paying the last respects to a loved one.

Speaking of traumatic events, my flower girl is getting married.  The little baby I held in my arms and brought great joy to my life is all grown up and is ready to start her life as a married woman.  While I am overjoyed for her, it does break my heart that her expenses of her wedding will not be deductible.  But she is a strong woman, as are her parents.  They can handle it.

In addition, the amount she pays for her and her fiancé’s wedding license is not deductible.  This is also true for car license fees and amounts paid for dog licenses.

If you get a parking ticket, or another type of fine or penalty, you cannot deduct the amount you paid on your taxes.  Of course, if you don’t want to deal with the financial pain of having to pay these fines, don’t commit the infraction.  Additionally, you cannot deduct bribes and kickbacks.  If something is against the law, you cannot deduct it.

We enjoy watching those home improvement shows, and dream of improvements to our modest bungalow.  However, we will not be able to deduct the costs of home improvements.  Something to keep in mind when looking at tile.

Everyone needs to have insurance.  Be it for your home, car or life.  As much of a necessity as insurance is, you cannot deduct its cost, save for medical insurance premiums.  However, don’t let the non-deductibility be the reason you don’t get insurance.

Did you sell your home?  I know in this economy that a large number of homeowners are underwater on their mortgage.  If they sell their home and have a loss, they cannot take a deduction for the loss on the sale of your home.   That may be a reason some of them do not sell, as they hope the housing market will improve enough to get them out of the hole.

Do have a will?  It is a good idea to have one.  Unfortunately, the cost to have an attorney draw up the will is not deductible.  Additionally, any other legal expenses you incur are not deductible.

A few days ago, I wrote about the deductibility of costs of traveling for your job.  As was mentioned in the post, the cost of commuting is not deductible.  This is one I really could use to up my refund, as I am sure it would help you as well.

Have you ever had something you thought you could deduct, but find out you couldn’t deduct it on your tax return?    I’d love to hear about it.  Also, if you have any questions, shoot them to me at chrispedencpa@yahoo.com, and I would be happy to answer them.  If you need help with other tax questions, or with preparing a return, drop me a line, and we can discuss your situation.

In accordance with Circular 230 Treasury Department Regulations, I am required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code.  If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.