Tag

taxes

Taxes and Investing

Meet Mister Cohan: The Client Who Never Keeps Tax Records

George M. Cohan

Today I have a very special guest I would like you to meet: George M. Cohan. George has been a regular fixture of my practice from nearly the first day. But he has one serious problem; he hates keeping business records.

There is a very good reason why Cohan doesn’t keep good records of his business expenses. He is a very famous Broadway actor. He also likes to enjoy his fame.

Well, the IRS came knocking and since most of his receipts were missing the expenses were disallowed. Cohan might be lax when it comes to keeping business records, but he can fight like a pit bull in the hot sun after a pair of double espressos. Our good friend was headed to court.

The IRS felt they had it in the bag. Unfortunately, the IRS had an education coming. The 2nd Circuit US Court of Appeals settled the case in our good friend’s favor. The court said when receipts are absent it would be impossible to get a perfectly accurate number. However, the court continued, allowing nothing is inconsistent when it is obvious there were expenses.

This court ruling happened March 3, 1930 and my office has never been the same.




Continue reading

Related posts
Inflection Point
August 18, 2017
Forensic Accounting: The High Paying Part-Time Business
August 16, 2017
The Mistake Obama and Trump Both Made
August 2, 2017
Taxes and Investing

How Long Should You Keep Your Records and Tax Return

A common question around the office involves records retention. Many people think they need to keep their tax returns for seven years, others think it is three; both are wrong.

Tax returns are not the only records you need to consider when building a record retention policy in your business and personal life. Some items can safely be disposed after one year; some items need to be kept forever—your estate can handle disposal.

Record retention in the past required filing cabinets filled with papers. The filing cabinets can be—and should be—replaced by digital storage. A fire, theft or weather damage put irreplaceable documents at risk when stored in a filing cabinet. A better solution is to scan all documents into a digital filing cabinet and store a backup copy offsite.

Most banks already provide digital copies of statements and your tax preparer should have no problem providing a digital copy of your return. Your tax preparer is required to provide you with a copy of your tax return and it can be a digital copy. Have your accountant email you a copy or bring a flash drive to their office. Also, many accountants have secure drop boxes built into their website now. For security reasons you may wish to use this method over less secure email. Plus, emails are easier to subpoena for court proceeding.

Security is the biggest concern when storing records. The amount of documentation held by a business is huge. Even a modest household can accumulate a serious amount of paperwork they must retain. Digitizing data is fast and simple. Security of this “fast and simple” data is important because it is just as “fast” and “easy” to steal it. Storing data at home or business should be secure behind adequate firewalls, encrypted and password protected. Offsite storage must be with a reputable firm safeguarding your data. The cost of storing data is cheaper than ever so there is no reason not to keep all required documentation and store these records safely.

Below is a handy guide for determining how long you need to keep records. I have added a few notes after some items to clarify certain requirements. It would be a good idea to bookmark this page for future reference. I list personal requirements separately from business requirements. To simplify your search I have listed items by 1 year, 3 years, 6 years, forever, and special circumstances.

It should be noted state requirements can differ from federal requirements. I follow the records retention list with special rules affecting certain states. People filing a tax return, conducting business or own property in these states will need to consider additional records retention issues.




Continue reading

Related posts
Inflection Point
August 18, 2017
Forensic Accounting: The High Paying Part-Time Business
August 16, 2017
The Hidden Tax: Transaction Costs
August 14, 2017
Early Retirement, Taxes and Investing

New Tax Law Changes Dangerous to Your Wealth

On a recent ChooseFI podcast where I was the guest speaker I mentioned the possibility the backdoor Roth and her sister tax strategy, the laddered Roth, could be going away. Many people heard me say it WAS going away. That is false. It is only a proposal at this time.

Because so many potential tax law changes now whispered in the halls of Congress have the potential to cause great damage to those in retirement or working an accelerated program toward financial independence (FI), now is the perfect time to review those with the highest possibility of happening. A word of caution before we begin. These are only ideas floating around Congress. They are NOT current tax law! Not all ideas whispered in the halls of Congress become law, but all laws start as a whisper in the halls of Congress. There is a difference.

Most ideas for tax law changes never see the light of day or are significantly modified before becoming a law. Some ideas become law in a few years, other may take a decade or longer before working through both houses of Congress and signed into law by the President. As we review the ideas now floating around Congress I will give my opinion on the likelihood the change will take place and how soon.

Remember, this is one guy’s opinion. My opinion carries weight because I have decades of experience. I also rely upon sources outside my own viewpoint, such as continuing education courses I’ve attended, The Kiplinger Tax Letter, and calls to several Congressmen. (It should be noted I rarely get to speak with an actual lawmaker. Usually I speak with a staff member. They can still be very helpful with potential tax law changes working through the system.)




Continue reading

Related posts
How to Save Money with a Do-It-Yourself Home Energy Audit
August 21, 2017
The Hidden Tax: Transaction Costs
August 14, 2017
Meet Mister Cohan: The Client Who Never Keeps Tax Records
August 11, 2017
Taxes and Investing

The Sweet Spot of Non-Cash Deductions

There is an old Looney Tunes cartoon where Daffy Duck is portraying Sherlock Holmes. Daffy is seated at a desk stacked with papers vigorously working the calculator. Porky Pig, portraying Watson, walks in and asks, “Whatever are you doing, Holmes.” “Deducting, my dear Watson. Deducting,” came the frantic reply.

Deductions come in a variety of flavors. We are all familiar with deductions matched with an expense. Donations to charity are deductible on Schedule A. Business owners deduct marketing expenses dollar for dollar.

There is another elusive deduction taxpayers only dream about: the non-cash deduction. The appeal of the non-cash deduction is the large write-off without a matching real world expense. Capitalizing on non-cash deductions can supercharge your retirement or debt reduction plans. The list of non-cash deductions is long. We will explore several ways you can reduce your taxes without spending a penny or taking a deduction significantly higher than the actual expense and stay out of jail in the process.




Continue reading

Related posts
How to Save Money with a Do-It-Yourself Home Energy Audit
August 21, 2017
Inflection Point
August 18, 2017
Forensic Accounting: The High Paying Part-Time Business
August 16, 2017
Credit Cards, Taxes and Investing

The Ultimate Credit Card Rewards Hack

Living your dream vacation is easier than ever with credit card rewards. A litany of cards offer massive miles, hotel rooms or cash for spending a certain amount within a short period of time. And there’s the rub. How can the average person spend $3,000 and more to get bonuses of 50,000 points and up within a few months?

Enter manufactured spending. Reaching a level of required spending either requires owning a business with significant purchases, over spending your budget to get the rewards (why bother, it’s cheaper to buy the darn airline tickets) or manufactured spending. Manufactured spending takes time and requires jumping through hoops. There are also additional fees using many manufactured spending methods. And the time! Oh my god, the time to get it done. There has to be a better way.

Meeting spending requirements always required some fancy footwork. But for you, my friend, those days are over. Today I will show you how to reach nearly any spending goal you need for the vacation of your dreams at virtually no cost to you. In fact, you will probably get paid to engage my way of manufacture spending. The time requirements are nil and the whole process is easily handled from the easy chair in your living room.

If you want free vacations from now on, keep reading. The travel hack/credit card hack I am about to reveal is something I have not seen anywhere else. Even if you don’t care to travel, this strategy can drop $10,000 or more a year in your lap tax free.




Continue reading

Related posts
How to Save Money with a Do-It-Yourself Home Energy Audit
August 21, 2017
Meet Mister Cohan: The Client Who Never Keeps Tax Records
August 11, 2017
You Still Get Paid
August 9, 2017
Small Business, Taxes and Investing

Stop Paying Your Quarterly Estimated Taxes!

 

When life is good the revenuers have a way of raining on the parade. A large year-end bonus, mutual fund distribution, or large year-end sale at your business can crimp your tax situation in more than one way. A quick call to your accountant gives you the answer: Make an estimated tax payment.

But making an estimated tax payment can hurt you! A quick payment at the end of the year to eliminate a tax liability still subjects you to an interest penalty in many cases. What you need is a quick and dirty guide on estimated tax payments to avoid nasty surprises, and even better, a way to game the system. (Who doesn’t like gaming the tax system? It’s this accountant’s favorite pastime.)

Our goal today is to pay as little as possible for as long as possible. There are two reasons for this: 1.) The longer you keep your money the longer it keeps working for you earning interest, and 2.) When you know you owe money you start thinking of ways to reduce the liability you have to eventually pay. I understand interest rates are very low as I write this. Still, keeping you money invested longer in your account is better than paying the government. If you are in the “digging out of debt” phase of your wealth building, keeping your money longer means less debt for longer. Since debt interest is significant, the later you pay the better for you.Continue reading

Related posts
Inflection Point
August 18, 2017
Forensic Accounting: The High Paying Part-Time Business
August 16, 2017
The Hidden Tax: Transaction Costs
August 14, 2017
Taxes and Investing

Finding a Good Accountant

The topic of finding a qualified tax professional is common in my mailbox. There is no pat answer for each request so I generally ignore them. Another common request is for a referral if I am too busy. It is true I only accept a small fraction of the requests for service, but the good news is I have more staff this tax season and have been accepting more new clients than last year. The bad news is that I don’t have someone to refer you to in your area.

Yesterday I received an email that touched me. Long emails usually die before I read more than three sentences due to time constraints. This email was different. The sender asked to remain anonymous and I will honor that request. He asked: How do I go about finding a good local accountant? He wants someone local he could shake hands and sit down with to discuss his tax and financial matters. I get it. He continued: I am hoping for an idiot-proof, step-by-step guide. I don’t know where to start searching, never mind narrowing the choices.

Finding qualified professionals is a difficult task. I wish it were as easy as an idiot-proof guide, but there is no such thing. My goal today is to share ways to increase the odds you have a good tax professional on your side.

Good tax professionals are a busy group, especially this time of year. The industry has consolidated over the last few decades and many top notch accountants have retired. Making matters worse is fewer people entering the field. CPAs frequently seek employment in government and large corporations or large accounting firms. The small and mid-sized accounting practice is a dying breed. These are the same firms serving the average American family’s tax preparation and planning needs. Finding an awesome tax professional to work with you is getting harder by the day. I have a few ideas to help you land a good one, but you might not like what you here.

Continue reading

Related posts
The Hidden Tax: Transaction Costs
August 14, 2017
Meet Mister Cohan: The Client Who Never Keeps Tax Records
August 11, 2017
You Can Do Anything . . . Just Not Everything
August 4, 2017
Taxes and Investing

Prepare Your Own Taxes the Right Way

It’s that time of year again where we need to reconcile the previous year’s income for the government. The task can be daunting, but with armies of tax professionals and online software, many people can tackle their tax return with few issues.

The trick is finding the right tax software when you plan on preparing your own tax return. The most popular online packages are dummied down versions of better tax software programs. The Q&A required by most online programs can become daunting (and time consuming) if you have any tax knowledge at all. The biggest problem is finding tax software that is professional grade that offers just enough help to not be invasive.

I want to introduce you to an online tax program I think is superior to other online software: Drake Software. The banner below is a direct link to the software for individual users. It was featured last year on Mr. Money Mustache. It also happens to be the same tax software I use in my office.

Over 50,000 tax professionals use Drake software to file over 26 million tax returns.  My office was one of the earliest adopters of the Drake interface (one of the first 200 if my ID number is any indication).

Back in the late 1980s I sought out a professional software package that was not only robust, but offered economical e-filing. Back in those days it was common for software to charge $35 or more just to e-file. Drake was an industry leader, charging only $1 per e-filed return. My office could offer free e-filing before anyone else due to Drake and their powerful software platform.

Time has only made this software better. Of course, my office still e-files for free, but it is so much more. Drake branched out into other areas of the accounting office. They also offered accounting firms like mine an opportunity to provide an alternative in the DIY tax preparation segment.

What I liked from the start was that Drake incorporated the entire professional grade platform in their online version for people preparing their own return. No other online software offers such a robust program to the general public, in my opinion. They market the program under the 1040.com name.Continue reading

Related posts
How to Save Money with a Do-It-Yourself Home Energy Audit
August 21, 2017
The Hidden Tax: Transaction Costs
August 14, 2017
Meet Mister Cohan: The Client Who Never Keeps Tax Records
August 11, 2017