Month: August 2017

Tax-related identity theft typically occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Anyone can fall victim to identity theft. Here is an important reminder of how to protect yourself from identity theft, what to watch out for, and what do if your identity has been compromised:

1. Protect your Records. Do not carry your Social Security card with you, or any other documents with your Social Security Number (SSN) on them. Only provide your SSN if it is completely necessary and you know the person requesting it. Routinely change passwords for all of your Internet accounts and protect your personal information at home and protect your computers with anti-spam and anti-virus software.

2. Don’t Fall for Scams. Criminals often try to impersonate your bank, credit card company, and even the IRS in order to steal your personal data. Learn to recognize and avoid those fake emails and texts.

3. Beware of Threatening Phone Calls. The IRS will never call you threatening a lawsuit or arrest, or to demand an immediate tax payment using a prepaid debit card, gift card, or wire transfer. Generally, if you owe taxes, the IRS will first mail a bill to the taxpayer. Furthermore, The IRS initiates most contacts through regular mail delivered by the United States Postal Service. While there are certain circumstances when the IRS will visit your home or business, taxpayers will generally first receive several letters (called “notices “) from the IRS in the mail beforehand. The IRS will also not:

• Demand that you pay taxes without the opportunity to question or appeal the amount they say you owe. You should also be advised of your rights as a taxpayer.
• Threaten to bring in local police, immigration officers or other law-enforcement to have you arrested for not paying. The IRS also cannot revoke your driver’s license, business licenses, or immigration status. Threats like these are common tactics scam artists use to trick victims into buying into their schemes.

4. Report ID Theft to Law Enforcement. If you discover that you cannot e-file your return because a tax return already was filed using your SSN, please call the office immediately for assistance. Next, you will generally need to take the following steps:

• File your taxes by paper and pay any taxes owed.
• File an IRS Form 14039, Identity Theft Affidavit.
• Contact one of the three credit bureaus (Equifax, TransUnion, or Experian), to place a fraud alert or credit freeze on your account.

5. Complete an IRS Form 14039 Identity Theft Affidavit. File IRS Form 14039, Identity Theft Affidavit. Print out the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by filing on paper.

6. IRS Notices and Letters. If the IRS identifies a suspicious tax return with your social security number on it, they may send you a letter asking you to verify your identity and will provide instructions on how to do so. You may need to call a special phone number or visit a Taxpayer Assistance Center. This is to protect you from tax-related identity theft.

7. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, he or she will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. Each year, you will receive an IRS letter with a new IP PIN.

8. Data Breaches. If you learn about a data breach that may have compromised your personal information, keep in mind that not every data breach results in identity theft. Furthermore, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.

9. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can report it on the IRS.gov website.

10. IRS Website. Information about identity theft is available on the IRS website. There is also a special section devoted to identity theft with a phone number available for victims to obtain assistance.

If you have any questions about identity theft or have any reason to believe that you’ve been a victim of identity theft, please contact the office as soon as possible.

• By Leon Clinton
• August 15, 2017

Whether you’re starting a new company, seeking additional financing for an existing one, or analyzing a new market, a business plan is a valuable tool. Think of it as your blueprint for success. Not only will it clarify your business vision and goals, but it will also force you to gain a thorough understanding of how resources (financial and human) will be used to carry out that vision and goals.

Before you begin preparing your business plan, take the time to carefully evaluate your business and personal goals as this may give you valuable insight into your specific goals and what you want to accomplish. Think about the reasons why you are starting a new business; maybe you’re ready to be your own boss, or you want financial independence. Whatever the reason it is important to determine the “why.”

Next, you need to figure out what business is “right for you.” Chances are you already have a specific business in mind but if not you might want to think about your business in terms of what technical skills and experience you have, whether you have any marketable hobbies or interests, what competition you might have, how you might market your products or services, and how much time you have to run a successful business (it may take more time than you think).

Finally, you’ll need to figure out how you want to get started. Most people choose one of three options: starting a business from scratch, purchasing an existing business, or operating a franchise. Each has pros and cons, and only you can decide which business fits.

Pre-Business Checklist

The final step before developing your plan is developing a pre-business checklist which might include:

• Business legal structure
• Accounting or bookkeeping system
• Insurance coverage
• Equipment or supplies
• Compensation
• Financing (if any)
• Business location
• Business name

Based on your initial answers to the items listed above, your next step is to formulate a focused, well-researched business plan that outlines your business mission and goals, how you intend to achieve your mission and goals, products or services to be provided, and a detailed analysis of your market. Last, but not least, it should include a formal financial plan.

Preparing an Effective Business Plan

Now, let’s take a look at the components of an effective business plan. Keep in mind that this is a general guideline, and any plan you prepare should be adapted to your specific business with the help of a financial professional.

Introduction and Mission Statement

In the introductory section of your business plan, you should make sure you write a detailed description of your business and its goals, as well as ownership. You can also list skills and experience that you or your business partners bring to the business. And finally, include a discussion of what advantages you and your business have over your competition.

Products, Services, and Markets

In this section, you will need to describe the location and size of your business, as well as your products and/or services. You should identify your target market and customer demand for your product or service and develop a marketing plan is. You should also discuss why your product or service is unique and what type of pricing strategy you will be using.

Financial Management

This section is where you should discuss the financial aspects of your business–and where the advice of a financial professional is vital. The following financial aspects of your business should be discussed in detail:

• Source and amount of initial equity capital.
• Monthly operating budget for the first year.
• Expected return on investment (ROI) and a monthly cash flow for the first year.
• Projected income statements and balance sheets for a two-year period.
• A discussion of your break-even point.
• Explanation of your personal balance sheet and method of compensation.
• Who will maintain your accounting records and how they will be kept.
• Provide “what if” statements that address alternative approaches to any problem that may develop.

Business Operations

The Business Operations section generally includes an explanation of how the business will be managed on a day-to-day basis and discusses hiring and personnel procedures (HR), insurance and lease or rent agreements, and any other pertinent issues that could affect your business operations. In this section, you should also specify any equipment necessary to produce your product or services as well as how the product or service will be produced and delivered.

Concluding Statement

The concluding statement should summarize your business goals and objectives and express your commitment to the success of your business.

Questions?

If you have any questions about business plans or need assistance creating one, please contact the office.

• By Leon Clinton
• August 13, 2017

As a business owner, you are entitled to deduct certain expenses on your tax return such as those relating to entertaining clients. Entertainment is considered any activity that provides entertainment, amusement, or recreation. It may also include meeting the personal, living, or family needs of individuals including providing meals, a hotel suite, or a car to customers or their families.

A meal that you provide to a customer or client may also be considered a form of entertainment. The meal may be part of other entertainment or stand alone. Meal expenses are defined as the cost of food, beverages, taxes, and tips for the meal. To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided, and you cannot deduct a meal as both a travel and entertainment expense.

Limits and Restrictions

Entertainment expenses are generally deductible at 50 percent. Entertainment costs, taxes, tips, cover charges, room rentals, maids, and waiters are all subject to the 50 percent limit on entertainment deductions.

Entertainment expenses are also subject to certain limits and restrictions such as whether they qualify as “ordinary and necessary” and not “lavish or extravagant.” They must also be directly related to or associated with, your business and you must keep detailed records substantiating your expenses (more on this below). Furthermore, the person you entertained must be a business associate; that is, someone who could reasonably be expected to be a customer or conduct business with you such as an employee, client, or professional advisor.

If it is customary to entertain a business associate with his or her spouse and your spouse also attends, entertainment expenses for both spouses are deductible, thanks to something called the “closely connected rule.” For more information about this topic, please contact the office.

Note: If you are an employee who is reimbursed in full by your employer different tax rules apply (e.g. you are not subject to the deduction limits).

Location must be Conducive to Business

Your Home

Entertainment expenses are only deductible when they take place in a location conducive to business. A nightclub or theater is not considered a place conducive to business, but your home is. For example, if you hold a small (less than 12 people) party for clients and business associates at your home during the summer it may be deductible as long as you discussed business with your guests. The amount of time that business was discussed is not significant.

Year-end parties for employees, as well as sales seminars and presentations held at your home, are generally 100 percent deductible provided costs for food and refreshments are reasonable and not lavish.

Entertainment Facilities

Out-of-pocket expenses for food and beverages, catering, gas, and fishing bait provided at facilities you own or are a member of such as a yacht, hunting lodge, fishing camp, swimming pool, and tennis court are deductible subject to entertainment expense limitation of 50 percent. However, you may not deduct expenses related to the depreciation and upkeep of the facility or for rent and utilities.

Note: Dues paid to country clubs, social, or golf and athletic clubs are not deductible.

Skybox

If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally can’t deduct more than the price of a nonluxury box seat ticket. You can, however, count each game as one event. Deduction for those seats is then subject to the 50 percent entertainment expense limit. If the cost of food and beverages are on a separate receipt, you are allowed to deduct those expenses (as long as they are reasonable) in addition to the amounts allowable for the skybox, subject of course, to the requirements and limits that apply.

Expenses must be “Directly Related” or “Associated With”

Expenses are directly related if you can show that there was more than a general expectation of gaining some business benefit, rather than simply goodwill. In addition, you must show that you conducted business during the entertainment and that the active conduct of business was your main purpose.

Even if you cannot show that the entertainment was “directly related” you may still be able to deduct the expenses as long as you can prove the entertainment was “associated with” your business. To meet this test, you must have had a clear business purpose when you took on the expense, and the entertainment must directly precede or come after a substantial business discussion.

Substantiating your Expenses

Tax law requires you to keep records that will prove the business purpose and amounts of your business entertainment as well as other business expenses. The most frequent reason that the IRS disallows entertainment expenses is the failure to show the place and business purpose of an item. Therefore it is paramount that you keep excellent records.

To substantiate entertainment expenses you must show the following:

• The amount of each separate expense.
• The date, time, place, and type of entertainment (e.g. dinner).
• The business purpose and nature of any business discussion that took place.
• The business relationship and the name, title, and occupation of the person or people you entertained.

Don’t Miss Out

Tax law is complicated, and this article only touches on a few of the deductions for entertainment expenses you might be entitled to. If you have any questions about entertainment expenses or need assistance setting up a recordkeeping system to document your business-related activities, don’t hesitate to call.

• By Leon Clinton
• August 11, 2017