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IRS Sales Tax Calculator

By Benecia Beyer

The IRS is providing a new online tool to help individual taxpayers determine whether they might benefit by electing to deduct their state and local sales taxes. It's an interactive tool on the IRS government website that is designed to help make it easier for taxpayers to figure their taxes. (Did you know that the IRS is trying hard to reduce the taxpayer burden - that's an official quote from the IRS website !)

Taxpayers who itemize their deductions on Schedule A of the Form 1040 have the option of deducting the amount of state and local sales tax paid instead of deducting their state and local income taxes paid. Taxpayers can not take a deduction for both sales and income tax.

A new tax law enacted in late December reinstated the optional deduction for state and local sales taxes. Because of this late enactment date, the IRS previously announced that it would not begin processing returns claiming the sales tax deduction until Feb. 3.

To use the Sales Tax Calculator, taxpayers input their adjusted gross income, number of exemptions and zip code. The IRS estimates most taxpayers will get an answer in less than five minutes using the new tool.

The calculator is annonymous. Taxpayers do not need to enter their name or any other identifying information. To calculate what your sales tax deduction would be, you can use either the actual amounts paid or use sales tax tables that allow you to factor in the exact sales paid on certain specified items, such as a car, boat or material to build a house.

Here's the link to try it out !

How Much is YOUR Time Worth?

By Chloe DiVita

As a small business owner it’s important to have a price. Whether that price is for a product or a service, there has to be a price. A lot of time can go into coming up with a price. We have to be sure to cover costs, even indirect ones like rent and insurance, and hopefully earn a profit. Strike that. We MUST earn a profit. After all, that is the whole reason for being in business, right?

So, why do so many small business owners feel like they have to justify their price to the point of being worth it? It’s the business owner’s responsibility to be competitive, and justify the cost of services or products to that extent, but to have to prove worth on a continuous basis seems a bit ridiculous.

We are all in business, and our time has value. Let’s not forget that, and respect each others products, services, and prices. If it’s not worth it, we’ll quickly know.

Next time you get a $50 bill from your CPA for a 15 minute phone call, remember that you called him or her for a reason. Being an IRS interpreter should have some worth, and your 15 minute phone call probably isn’t the only one received that day. If he/she did not charge for those minutes the knowledge no longer has worth. And, if you don’t want to pay that $50 – whether it’s to your attorney, your CPA, your doctor, whoever – then see how long it takes you to answer your own question. All of a sudden $50 seems like a great value.

Business Tips on Holiday Gift Giving

By Benecia Beyer

Generally, business gifts to clients and customers can be deducted against taxable income. But the IRS sets a limit, $25 per client/customer. There is no limit on the number of gifts you can give, only the value. And that $25 limit is per year. It does not include incidental costs such as packaging, insurance, mailing, etc - the IRS says the cost is incidental as long as it doesn't add substantial value to the gift.

When it comes to employees, the IRS looks closely at any and every form of compensation. Some companies reward workers with year-end or holiday bonuses. While employees might view this as a gift, the extra income is taxable compensation. The employer must withhold payroll taxes and the company is entitled to a deduction for the employee pay.

If, to promote employee goodwill, you distribute turkeys, hams or other merchandise of nominal value to your workforce at the holidays, you can deduct the cost of these items as a non-wage business expense. And your workers do not have to report the value of the gift as income.

The key is that the gift meets the IRS' de minimus standard. This means that its value is so low, taking into account how frequently you provide similar benefits to other workers, that accounting for the gift would be unreasonable or administratively impractical.

Cash, however, regardless of how little, is never considered a de minimus benefit.

You can also treat your workers to a holiday buffet and receive a tax gift for your company. The IRS Says that meals you furnish your employees as part of a "recreational or social activity" such as a company picnic or holiday party, are fully deductible.

And unlike usual business situations that involve food and beverages, neither you nor your workers are required to talk about business before, during or after the event.

H A P P Y   H O L I D A Y S   T O   Y O U !

It's Newsletter Time Again!

By Chloe DiVita

As some of you know, our company puts out a free quarterly newsletter about things related to small businesses and small business owners. Our next distribution is set for Friday, November 17, 2006. Since the end of the year is approaching quickly, it will be the focus of this newsletter. If you are interested in receiving it please send a request with your mailing address to info@divitainc.com.

Here is a sneak peek at what is included:

• The IRS is giving telephone excise credits on 2006 tax returns for individuals - find out the details!
• Tips for being prepared for year end reporting to your State and the IRS.
• Why it might be imperative to upgrade your QuickBooks software.
• Why it is important to have a companywide procedure for if/when disaster strikes.
• And much, much more!

Being a small business, we know how hard it is to keep up on everything in the small business world. We hope our newsletter offers some advice, guidance, and knowledge to small business owners who may never know these things because there is simply not enough time in the day.

Congratulations, you are going to be audited….now what?

By Chloe DiVita

If there is one word that everyone fears hearing, it’s "audit." It seems to instill a certain type of fear in most people, and for those who routinely try to manipulate the system, it probably should. But, if you are of the mind set where you’d rather report correctly, and know you can support all your information should the time come, the word audit shouldn’t scare you at all.

So often you hear rumors about *how* the IRS picks the returns to be audited. Some may be accurate, but some are simply ridiculous. If you are curious as to the true methods the IRS uses to choose its audit candidates, click here. While there are probably other circumstances that lead to a tax return being audited, this covers the majority of situations. And, the probability of being chosen from some other method is so minuscule, it’s not worth fretting over.

The first thing to know if you are chosen by the IRS to be audited is that you can request the IRS turn over all information they have, and will be looking into, prior to the actual sit down. You can do this by filing a 4506-T, which is a Request for Tax Return Transcript. This should provide you with the detail behind the items being questioned in your tax return. And, if somehow you have misplaced your tax return, you file a 4506 to get a copy of it. There is a fee, but it’s worth it to be prepared. It’s much easier to prove yourself when you know the whys behind what they are going to be looking at.

Second, don’t panic. When that little white envelope arrives from the IRS read it carefully. Sometimes they are only seeking a forgotten signature. Not all audits involve a complete probe of your records. If panicking seems to come easily to you, seek professional assistance. And by that we mean a CPA. We all know IRS language can be hard to decipher, so seek a translator before jumping to conclusions.

Third, be familiar with the different types of audits, and which one you fall into. Among the three levels of audits the correspondence audit is the least intrusive. Correspondence audits are for minor mistakes. Simply send back to the IRS whatever they are asking for, and once they are satisfied with the paperwork, the matter will be closed. If you have been chosen for a field audit, be prepared to have an auditor come to your home, or place of business, to verify your return. This is usually done if the return is very complex, and involves business operations. Be organized and prepared. An auditor will take into account the state of your records, and your surroundings. It never hurts to show an auditor what an organized person you are! Last, but not least, and definitely the most dreaded, we come to the office audit. No one likes this type of audit because now the IRS has pulled you into their territory. You will be required to appear at an IRS office at a specific date and time, and if you need to reschedule, do so as soon as possible. If you have ordered a transcript of your tax return be sure and make the appointment far enough out to receive the information back prior to your appearance. When you show up, bring only the items in question. The point is to support the information that is being reviewed, not to open up more records for examination.

Finally, and most importantly, know your rights as a taxpayer. The very first publication offered by the IRS, Publication 1, details your rights. At least skim it over before you go face to face with them. Yes, you can bring in a professional, even if they didn't actually file your return. But, be sure to get the proper authorization paperwork. If you don't like the outcome, you can appeal, but know the process. Be aware of the collection process if they find you owe them money and you have no grounds for disagreeing. Also, know what happens if the IRS find they owe YOU money - and yes, that has happened!

People tend to fear the unknown. So educate yourself. Be prepared. Go in feeling confident, and show that confidence whether it's merited or not. There is definitely something to be said for your presence in any situation, and sitting face to face with an auditor is a good time to show confidence. Of course, if you are fully aware you've tried to put one over on the system and you're about to be caught, it may be easier to just run - although, that is definitely NOT our recommendation!

IRS Updates Per Diems - Again !

By Benecia Beyer

The IRS is changing per diem travel rates more frequently and updating Publication 1542. Download this  publication_1542.pdf electronically.  Or, click here to view the Domestic Per Diem Rates by state from the U.S. General Services Administration website.

The latest revisions are effective for travel beginning February 1, 2006.  The standard rate of $99 ($60 for lodging, and $39 for meals and incidental expenses) applies to all locations within the continental United States except those listed in Table 4 of the publication.

The changes are in the maximum per diems for certain locations in Arizona, California, Colorado, Florida, Illinois, Maine, Maryland, Michigan, Minnesota, Montana, Nevada, New Mexico, Tennessee, Texas and Virginia.