“The great thing about working with ADP is our firm’s ability to capitalize on one of the best payroll systems available while having the control needed to give our client the unparalleled services they have always enjoyed from our firm”. – Fred Daus

Lower Payroll Costs
Since Fredrick James has such a large client base in and around Clearwater, the firm was able to negotiate price and service levels from ADP that would not normally be available to individual business owners. In keeping with the Fredrick James philosophy of “saving you money”, these savings are passed through to clients.

More Payroll Service Options
Fredrick James clients will now be able to choose the Payroll Service Package that fits their business model. ADP has systems that will allow clients to add on their payroll packages as their businesses grow and expand. Services such as Secure Web Control Access, Health Care, Retirement Benefits, Human Resource Management and Pay As You Go Workers Comp can be added as-needed. In addition, clients who choose to use the ADP system will receive the same great service they are accustomed to in the Fredrick James family of Accounting, Tax, Payroll and Consulting services.

Human Resource Options
The Human Resource Feature offers another dimension for our clients that would not be available to small businesses. The Human Resource Feature includes background checks for prospective employees, State and Federal Compliance Database (summary of employment laws), and unlimited access to a team of HR professionals.

Fredrick James is excited to be able to offer clients this opportunity. Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

• Business Miles: 55.5 cents per business mile
• Charitable Miles: .14 cents per charitable mile
• Medical Miles: .23 cents per medical mile
• Moving Miles: .23 cents per medical mile

It is important that you document the following items for all mileage that you intend to deduct for tax purposes.  There are 6 pieces of information needed to document your mileage and tax deduction:

1. Who: The client’s name that you drove to for business purposes. The charity’s name that you drove to for charitable purposes. The company’s (new employer) name that you drove to for moving purposes.
2. What: What was the business purpose of the miles? What was the charitable purpose of the miles? What and who did you move for your new job?
3. Where: Where did you go for business purposes? Where did you go for charitable purposes? Where was your old job located. Where was your old home located? Where is the new job located?  Where is your new home located?
4. When: What date did you drive the business miles? What date did you drive for charity? What date or dates did you move?
5. Beginning and ending mileage
6. Receipts (if any, for additional documentation and deductions): Tolls (additional deduction to the miles), Charitable Letters (to prove you were a volunteer), Moving Receipts (fuel, meals, storage)

With the documentation listed above you will have everything you need to claim your tax deductable mileage and make your tax accountant smile.

You can visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

Fred Daus, CEO of Fredrick James Accounting, Tax and Consulting stated: “In essence, this law would have required that a business or landlord send a 1099  to Best Buy for the purchase of a $649 laptop used for their business”.  “Imagine Best Buy’s response to a small business owners request for a W-9 so it can mail a 1099 to them for their purchases in 2011!”.  “Most business’s, big and small, had no idea how to deal with the new 1099 filing requirements”. “This is a big win for all of the Small Business’s and Mom and Pop Landlord’s who would have had to pay the tremendous costs of preparing the 1099’s”.  “We made our opinion heard, fought hard and our lawmakers listened to us!

Personal Taxes:

Monday, April 18, 2011 at midnight is the official deadline for the taxes to be postmarked or e-filed since Friday, April 15, 2011 is Emancipation Day a national holiday.

Florida Business Taxes:

If you have not yet filed your Florida Tangible Tax return because you extended the return for 30 days, it will be due on May 1, 2011.  It is very important to file this return timely to make sure that you qualify for the $25,000 Tangible Property Florida Exemption.

Florida Annual Reports are due on May 1, 2011 for Corporations and LLC’s.  It is extremely important that the Florida Annual Report is filed timely to avoid the $400 penalty and the possibility of your corporation being administratively dissolved.

1st Quarter Payroll Taxes are due on April 30, 2011. Florida Business’s need to remit Form 941 to the IRS and Form UCT-6 to the Florida Department of Revenue.

As you can see there are a lot of deadlines over the upcoming days. I wish everybody a happy tax day!

In the last part of this series, we covered the consumer side of bad debt charge-offs and how the IRS handles that from a tax perspective. Today I want to delve into the business side of bad debt charge-offs. This side of things is usually quite complex and hard to generalize but I will attempt to keep my “tax guru” side in check and you on board.

Business Not What It Used To Be?

Let’s assume that we’re talking about a business (Corporation or LLC that is treated as an S-Corp for tax purposes) that has been hit hard by the recession and has run out of money to pay its creditors. Typically in cases like this the business will notify creditors who will then turn around and liquidate the business assets in order to attempt to recoup at least part of the debt owed. Once that happens the business is faced with a balance plus late fees and interest to cover.

Many times business owners will be able to negotiate a settlement far under the remaining balance owed and once that agreed upon price has been paid, the business owner will generally feel they have taken care of everything and their ordeal is over. Hooray!

But Wait! There’s More!

It’s not exactly time to celebrate yet. Come tax season the, now former, business owner receives a 1099-C for the canceled debt and interest. Now what to do? At this point the business owner would be wise to contact their accounting professional who will review the situation and offer advice on how much of that total will actually be taxable.

Their accounting professional will be able to determine this number by assessing the net worth of the business (a negative number at this point), the fair market value of any remaining business assets, and the amount of the canceled debt among other factors. Whatever the balance is, if any, is the amount of taxable income the business owner would be liable for paying taxes on.

The business owner may also be entitled to an ordinary business loss equal to the difference between the fair market value of business assets that were auctioned off (or the canceled debt, if less) and the cost of the assets to the owner.

Call Now And Save

As always there are a hundred different variables that will affect the outcome of a scenario like this; this example is a highly simplified version used to provide a general understanding of the concept and should not be taken as de facto for all situations.

My goal is to provide fair warning to business owners with a loss that they WILL have to deal with charged off debts when it comes time to handle their taxes. I also want to point out that it isn’t nearly as awful as it might first seem and, with the help of a professional, your tax liability may be significantly reduced or even eliminated. So don’t ignore those 1099-Cs, if you do it will create an even bigger and more expensive mess to straighten out.

There are two general categories for discharged debts: consumer loans (credit cards, automobile loans, mortgages) or business related loans (bonds, commercial mortgages, equipment loans). Each type is treated slightly differently when it comes to income tax recognition and/or exclusion. Today we’re going to cover the personal or consumer related loans.

Let’s go back to my $10,000 Italian vacation debt scenario. Suppose that I charged that entire amount on my personal credit card. Over time, my unpaid balance would be increasing due to interest charges. The bank decides to write-off the entire debt balance totaling $12,000 and issues me a Form 1099-C.

You can't ignore charged off debt as taxable income.

Quick Fact: Historically, credit card companies have not always issued 1099-Cs on charge-offs. Credit card companies are, however, required to submit to the IRS and taxpayer 1099’s for the debt it writes off, under most circumstances.  This means that if you do not include this canceled debt on your tax return and/or include a reason for income tax exclusion, the IRS will find out and send you a letter regarding the income that you did not claim on your tax return along with the additional taxes that are due.

So, my credit card debt has been charged off, I decide to be a good taxpayer and include the 1099-C of $12,000 in my tax return. Does this mean my taxable income increases by the same amount? Well…it depends.

There are two common tax law exceptions that may allow taxpayers to avoid recognizing some or all of their canceled debt income:

Bankruptcy Exclusion.

Declaring bankruptcy and having the court cancel all credit card debt, would mean the entire $12,000 from our example would be excluded from income. The bank may still send a 1099-C anyways, which would still need to be reported on your personal tax return along with your special bankruptcy exclusion.

Common Tax Law Exclusion.

This addresses debtor insolvency, or in other words you can’t pay back your debts and your liabilities exceed your assets. There are variables in this equation that could mean the entire debt is excluded, or a portion of the debt can be considered taxable income.

Generally, if assets-debts+charged off debt as income leaves you with a negative net worth, the entire amount will be excluded.

If, however, assets-debts+charged off debt as income leaves you with a positive net worth, the amount of canceled debt as income that creates a positive net worth is now considered taxable.

Of course these are very basic examples to provide an understanding of the concept, keep in mind though that there are multiple factors that go into determining taxable income and it’s important that you speak with a tax professional who can explain some of the more complex issues you may face.

Next week we’ll get into the business side of charged off debts as taxable income…

So far we’ve discussed the American Opportunity Tax Credit (modified Hope Credit), the Lifetime Learning Credit and even Tuition & Fee Deductions. Today though, we’re going to cover the last in our 4 part series on education tax incentives—Student Loan Interest Deduction. The great thing about this deduction is that you can take this deduction even if you qualify for the other tax credits or deductions!

The Goods – Part 4

Usually personal interest paid on loans (other than certain mortgage interest) is not deductible. However, there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. This gives taxpayers with an adjusted gross income (MAGI) that is less than $70,000 ($145,000 if filing a joint return) the option to deduct interest on student loans from gross income, up to $2,500.

Highlights:

• Student must attend school at least 1/2 time
• The loan must be used to pay qualified education expenses for you, your spouse, or a person who was your dependent when you took the loan
• Interest must have been paid or incurred within a reasonable period of time before or after you took the loan
• You can claim this deduction even if you do not itemize deductions on Form 1040′s Schedule A
• Interest deduction can be applied to loans for graduate school

Qualified Education Expenses:

• Tuition & fees
• Room & board  (no greater than the cost included of attendance for a particular academic period & living arrangement of the student (determined by education institution), or the actual amount charged for resident housing operated by the educational institution)
• Books, supplies & equipment
• Other necessary expenses (such as transportation)

One caveat, the taxpayer cannot deduct student loan interest of a dependent unless the loan is in the taxpayer’s name. Also, loans from a related person or through a qualified employer plan are not qualified student loans for this deduction.

Side Note: Loan interest is completely separate. In fact, you can report both interest and tuition while attending the same school. This happens with many grad students who are paying interest on a school loan but still attending classes at the same college.

If this series has helped you make the decision to go back to school, we’d love to hear about it!

Accrual Method or Cash Method Accounting?

It’s one of the first questions you’re usually asked when setting up your accounting software and it can be one of the most puzzling. This topic is complicated and often confuses a lot of people (you are not alone if you’re stumped). Whether it is for personal finances or business, this is an important decision that will have a big affect on your financial future.

So which is right for you? Well, that depends on your goals: are you interested in a quick fix and maintaining your financial status or would you like to get out of debt, grow your business and increase your personal financial status?

The Cash Method

The Cash Method of Accounting tracks income when it is received (money is collected) and expenses when they are actually paid (money is disbursed) in a given period.  This method does not match income to expenses in a given time period.  It is a strict cash in and cash out system.  The benefit of the Cash Method of Accounting is that it reports a better representation of cash flow than the accrual method.  The downside here is that it does not match income to the expenses that the income is associated to in the appropriate time period.

Basically, the cash method for either personal or business purposes is your absolute basic method of recording your finances to meet minimum government reporting requirements. It is a quick fix that will keep you apprised of how much you have in the bank at that moment in time. What it won’t do for you is alert you to any imminent issues like runaway debt or give you a full understanding of your financial situation. If unchecked, you could find your personal or business finances getting out of control leading you to bankruptcy and loss of your home and/or business.

The Accrual Method

The Accrual Method of Accounting reports income when earned (before the cash is received) and expenses as they occur (before the cash is paid out) in a given time period.  The Accrual Method of Accounting recognizes economic events at the time the transactions occurs thus matching revenues to expense which is often referred to as “The Matching Principle”.  This method’s strength is that it gives a more accurate picture of an entity’s current financial position. The downside is that it does not measure cash unless a Cash Flow Statement is included in the Financial Statement Presentation.

Accrual Method accounting takes more effort to use, and if you are self employed or own a small business you’ll definitely need a bookkeeper to help you stay on top of things, however the benefits far outweigh the expense and inconvenience. For self employed and business owners this method can alert you to growing trends of outstanding A/R that could sink you in a matter of months. It also helps you have a more accurate picture of the growth of your business. For personal purposes, this method will help you get off the treadmill of cash in/cash out and start you on a path to financial growth.

Fred’s Fast Track Tax Tip:

If you’re considering switching to the Accrual Method for your personal or business finances, be aware that there is a bit of a learning curve.  I generally steer my non-public business clients to a Modified Accrual Method which integrates the Cash Method and the Accrual Method because it adds a level of reporting on the Accrual side that should be taken into consideration.

I would suggest finding an accountant in your area and scheduling a one hour consultation. Your investment in professional advice will probably cost a few hundred dollars and several hours of your personal time to understand the Accrual Method, but you will be more likely to understand it, stick with it and get better reporting results (lower debt, more savings) if you do.

Yes, we are back, rested and ready to hit the road running after a little break over the Holiday season!  To start off the new 2010 tax year, I wanted to cover a topic that will affect most taxpayers in a positive way , the Making Work Pay Tax Credit.

This tax credit is worth up to $400 for each individual taxpayer or up to $800 for married couples who file Married Filing Joint so it’s definitely worth checking out.

How it works:

This credit is 6.2% of a taxpayer’s income which maxes out at $400.  If you are married it works the same way, the credit is 6.2% of the couples total earned income with the maximum credit of $800.

Higher income taxpayers will be subject to the credit phasing out.  A single taxpayer will have their credit reduced by 2% of the amount of Modified Adjusted Gross Income (MAGI) if they make over $74,999 and the credit is completely phased out at $95,000.  If the taxpayers are Married Filing Joint they will have their credit reduced by 2% of the amount of Modified Adjusted Gross Income (MAGI) if they make over $149,999 and the credit is completely phased out at $190,000.

Earned income from wages or self employment taxable income is required for this credit.  However military personal who receive combat pay which is excluded from income are eligible for this credit.

You must be a US Citizen or a resident alien with a valid Social Security number to be eligible for the credit.  Dependents of taxpayers are not eligible for the credit.

Taxpayers who are Social Security recipients, retired railroad workers and disabled veterans are eligible for a 1 time $250 tax credit.  If they also work and meet the thresholds they may qualify for an additional $150 totaling $400 in a tax credit.  Unfortunately, if you received a pension and no earned income (or those who do not receive Social Security, Veterans Affairs or Railroad Retirement Board income), you will not be eligible for the Making Work Pay Credit.

This credit is claimed on Schedule M.

With the recent changes to the federal income tax withholding tables, some tax payers may find that too little was taken out of their paychecks over the tax year.  If you’re not eligible for the Making Work Pay tax credit, this could mean a smaller than usual refund OR you may even end up owing tax. There is special relief that the IRS may grant if an estimated tax penalty applies. If you receive a estimated tax penalty from the IRS you can request a waiver by filing form 2210.

If you are in one of these categories, keep an eye on your withholdings:

• Pensioners
• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Some Social Security recipients who work
• Workers without valid Social Security numbers

If you’re still not sure about your qualification for the Making Work Pay tax Credit or if you’ve got questions regarding your estimated tax penalty, I would highly recommend contacting your accounting or tax professional to guide you through this. Tax issues like these can become very complex and may be affected one way or the other by other factors within your financial situation. Most accountants and tax professionals offer a free initial consultation; at that point they can advise you on your options and let you know if they may be able to help you reduce your tax bill.

Make sure you have your “parachute” packed when making the leap from employee to sole proprietor!

This may be your first foray into realms outside of employment with little to no understanding of the tax implications involved in such ventures. Did you know that for most Sole Proprietors as much as 50.3% of every dollar of profit that they make could be owed to the IRS, Social Security and Medicare?

We understand it can be difficult knowing where to turn for accurate advice or information to educate yourself about your new circumstances. Here at Fredrick James Accounting, we embrace the mantra “knowledge is power”. Our focus is the empowerment through education of independent contractors, the self employed and small business owners to be able to make educated decisions regarding their tax liabilities

“I guarantee anyone who takes advantage of this consultation will save $300.00 dollars in taxes at a minimum, if their income is at least $3,000.00 and they follow my instructions, or I will refund their consultation fee.” –Fred Daus, CEO Fredrick James Accounting, Tax & Consulting

Our firm is now offering a 1-hour personal consultation & informative course that can save you a minimum of $300* on your taxes, guaranteed!

New to Self Employment Business Orientation: How To Avoid Tax Problems & Pave The Way To Success.

Get answers to your questions:

Deductions: what is and is not deductible

How much should I set aside for taxes, Medicare & Social Security?

Do I have to pay State Taxes?

Do I need to charge Sales Tax?

Do I have to make quarterly payments?

Do I qualify for the mileage deduction?

What can I do to reduce my tax liability?

One hour of your time will result in big tax benefits as you make every day decisions regarding your side job, self employment or small business. In this personalized, private session with CEO Fred Daus, he will go over the main topics that could affect you, answer any questions that you have and provide you with a business tax reference guide that will help you make good business decisions that will have positive tax results.

Sign up now or call our office at 727-474-0922 for more information!
Click the button to sign up and save at least $300* on your taxes or your money back, guaranteed.

We prefer to provide this service in person, however if you are not in the Tampa Bay area we would be happy to provide your consultation via phone or web meeting. Once notice of payment has been received by our office, we will contact you to schedule your appointment, thank you!

*The New to Self Employment Business Orientation will save you at least $300.00 dollars in taxes, if your income is at least $3,000.00 and you follow the instructions provided, or we will refund your consultation fee.

_{Fred Daus is the Chief Executive Officer and founder of Fredrick James Accounting, Tax & Consulting. He is a member of National Society of Accountants and the National Society of Tax Professionals and has been helping clients save money since 2001. Fredrick James is an innovative, full service accounting firm in Clearwater, Florida. Visit our website www.FredrickJames.com or call 727-474-0922 for more information}