The IRS has recently updated its audit technique guide for exams of independent consultants. With the explosive growth of the consulting industry over the past decade, especially here in Silicon Valley among tech companies, the IRS is now focusing its efforts more closely on these types of audits. Read more
Many people often assume that a bank statement or credit card statement is sufficient proof of substantiation when your tax return is examined. Unfortunately, this is not the case. At a minimum, proof of payment is typically required as is an invoice or receipt. In a recent Tax Court case (Mark Stroff, TC Memo 2011-80) the taxpayer was allowed a portion of claimed expenses for casual labor when he presented a list of 13 individuals’ first names that corresponded to names on his weekly planner, though there was no record of actual payment. However, the taxpayer was denied deductions for meals and entertainment, vehicles, telephone, and legal fees due to lack of documentation. While he lucked out on the casual labor, he lost on many of the other expenses.
The importance of good books and records cannot be understated, especially when it comes to expenses related to travel, meals and entertainment. Meals and Entertainment expenses fall under Section 274 of the Internal Revenue Code which requires at a minimum:
In other words, Who, What, Where, When, and Why is required for all meals and entertainment expenses. The best recommended strategy is to write on the back of the receipt as soon as possible after the event is over the names of the people that were in attendance and a brief description of the purpose of the meeting and what was discussed. This, in combination with the information on the receipt and a good calendar or planner that you can refer back to goes a long ways towards providing adequate substantiation during an examination.
As always, if you have questions feel free to give us a call.
For those of you with small businesses out there, opportunity exists for an up to 95% tax savings for providing child care for your employees. The tax savings involves the following items: federal employer child care credit, California employer child care credit, federal income tax deduction, California income tax deduction, FICA savings.
The maximum credit can be obtained by paying up to $100 per month, per child in qualifying child care payments. Payments must be made directly by the employer to the qualifying child care provider. Care must be provided under the authority of a license when required by California law. Read more
As of January 1, 2011 business taxpayers will no longer be allowed to use a paper coupon (IRS Form 8109 – Federal Tax Deposit Coupon) to deposit federal taxes directly to an authorized bank. You will now be required to make deposits by telephone or online using the Electronic Federal Tax Payment System (EFTPS). Because the process for enrolling in EFTPS can take several weeks and involves multiple steps, we highly suggest you enroll right away if you have not already done so. Enrollment can be done via the web at www.eftps.gov or by completing Form 9779 EFTPS Business Enrollment Form.
Enrollment can take about 10-15 business days for online enrollment and up to 10 weeks for paper enrollment, so sign up today!
If you have any questions or would like any assistance with the enrollment process, please contact us.