Author Archives: Administrator

How I Left Corporate – Part I

So…admittedly I haven’t been posting my personal exploits to our blog that much this year.  It hasn’t been for lack of wanting to, it’s just been because I’ve been trying to manage a company that seems to have a mind/life of it’s own at times.

Needless to say, this month I had some time to ponder some things.  Like the fact that my 4 year anniversary from departing Corporate America will be here in a matter of weeks!  So with that said, I figured I would end 2015 with a 3 day blitzkrieg of blog post related to the subject.  If you’ve ever thought about leaving the friendly confines of a gig to strike out on your own, but didn’t know “how” to do it, these post will share how I went about it.

What sparked the desire to leave?
Over the course of my 13 year corporate career, I believe that I had a nice run. I worked at four well respected employers, held several positions, made decent career progression and money to boot. I wasn’t a “superstar” when it came to politics, but I could hold my own and I understood most of the intricacies of the game.

Downtown! Where is Macklemore?

Downtown! Where is Macklemore?

So why was I considering leaving?  Probably for many of the same reasons that you may have contemplated it.  But when it came down to pinning a “single” reason, I’d have to say it centered around progression.  I don’t believe in “glass ceilings” as I think that you can get around that to a certain extent (e.g. switch employers).  But I do believe that those in the Ivory Tower will only let you hold the roles that they think you are fit for.

How many times have you seen a senior level manager or even a C Suite executive be mentioned in an announcement where it states they are “leaving to pursue other interest” or something to that effect?  Really?  This person makes like $500K+ and they are leaving?  Or did you really mean 1) you’re firing them, 2) they don’t want to go along with the plan or 3) their vision for themselves doesn’t line up with yours so they are out of here?

Needless to say, if I stayed around I think I had the credentials and smarts to make it to upper management.  But what if I wanted to run things?  Would they let me?  What if I wanted to make a million dollars?  Would they pay me that?  While the answers to those questions could have all been yes, there was one way that I could give myself a better probability of those things occurring…striking out on my own.

How I stumbled upon my roadmap
Once I made the decision to leave, I had to come up with a way to make it all happen.  I mean, I like to take risks in life, but I like for them to be calculated.  You know, the ones with sizable upside and minimal downside?  So walking into the bosses office, kicking my feet up on their desk and telling them I quit without having a backup plan was not in my game plan.

The book that gave me my entrepreneurial keys.

The book that gave me my entrepreneurial keys.

One day I was checking out at my neighborhood grocery store.  While standing in line I came across the book shown above.  Now, I was not necessarily interested in working less and earning more, but the title caught my attention.  Needless to say the book’s author, Jeff Cohen, outlined a plan for transitioning from the working a gig life to working for ones self.  So with that, I studied what the book had to offer and then moved towards building the plan.

Creating the backup plan
My plan to leave was actually broken down into the following three phases:

  • Building the business part time
  • Creating a fallback position within corporate
  • Preparing to leave once when all of the pieces were aligned

The plan began in late 2005 and culminated with my resignation in January of 2012.  So as you can see, it took almost 7 years for it to “fall into place” so to speak.  In the next post I will elaborate on each of those phases and exactly how I prepared to leave (e.g. financial, health care, etc).

The Ultimate Black Friday Tax Prep Deal

What, a tax preparation Black Friday deal?  How is that even possible?  Isn’t tax season in like April?  Yes, tax preparation may be the farthest thing from your mind given that yesterday most of us stuffed our tummies to the max.  However, tax season IS just around the corner.  But what’s even better is that we are going to give you several was to save some dinero IF you take advantage of our deal.  So what’s included?

As if all of the above wasn’t good enough, how would you like to get some extra money during the 2016 tax filing season?  Well, if you send us your friends, family and co-workers and they become a client, we’ll give you $40 for EACH person you send us.  While the details for tax year 2015 aren’t final just yet, it will operate very similar to our 2014 Referral Program.  And the best part is that you DON’T have to be a client to earn referral commissions (you just have to tell your friends to mention that YOU sent them when they meet with us and we’ll do the rest).

How To Get This Deal

  • Go back to the home page
  • Enter in your email above the green “Get Guide” button
  • Check your email account for a message with next steps and further instructions (it will be sent with 6-12 hours)

Instead of offering separate deals for Black Friday, Small Business Saturday and Cyber Monday, this deal will cover them all.  As such, you must submit your email before it expires at 11:59PM on Tuesday December 1, 2015.

Uber, Lyft and Filing Your Income Taxes

We’ve all been there.  The thought of being  your own boss and leaving the 9-to-5, Monday-through-Friday grind to someone else.  Some of us take that jump and for others, the confines of a nice cubicle and a predictable  deposit into their bank account are more than enough.  But what if you are thinking of striking out on your own and joining one of those ride share companies?  Well, we strongly urge you to read this post as it has a LOT of information in it for you to consider before you take the plunge.

Worker Status
The first thing to know is that when you work for Uber or Lyft, you are not doing so as an “employee.”  Instead, you will be classified as an independent contractor.  As presented on Uber’s website:

“All Uber partners are independent contractors, so we do not withhold any taxes and partners are entirely responsible for their own tax obligations.  If you’re a partner based in the United States, you will receive a 1099-K and/or 1099-MISC form to report income you earned with Uber. You’ll receive one or both depending on the type of payment you earned in the calendar year.”

In this post we discuss the implications of being paid as an independent contractor versus an employee.  The big difference comes down to the fact that as an independent contractor 1) no taxes are taken out of the pay received and 2) the fact that the individual has to pay self-employment taxes in addition to income taxes.

Tax Considerations
In this post we talk about how those who are “self-employed” typically file their taxes and some of the issues they face.  What we’ll now discuss are those items specific to “drivers for hire” like taxi, livery and ride share operators.

Income  This one is pretty straightforward.  You report all of the money that you received while operating, including tip income.  Where we see people get into trouble is when they under report.  What do we mean?  Well, the IRS is going to get a copy of that 1099-K or 1099-MISC that you received.  If you report at least the amount that is shown on the document then you probably won’t hear anything from the IRS.  But if you report an amount that is LESS than what is shown, expect the IRS to come a knocking.  Why?  Well the IRS is going to ask you ” why did you only report $4,000 of income but Uber says you made $8,000?  We think you made at least that much but your return doesn’t reflect that.”

Now what if you say “I didn’t get a form so the IRS doesn’t know what I made!”  Can we say tax evasion?  So make sure you report every red cent that you made to stay out of trouble okay?

Operating Expenses  This one is the complicated one.  A taxpayer who uses an automobile for business purposes can figure their deduction by comparing the standard mileage rate with actual expenses and choosing the larger amount.  One would perform this analysis in every year and take the larger amount.  However, if the actual expense method is chosen in the first year, it must be used in all subsequent years until the vehicle is no longer used for business.

If the standard mileage rate method is used, the deduction is calculated by multiplying the number of business miles driven by the applicable standard mileage rate. The standard mileage rate eliminates the need to keep track of actual costs.   It is used to replace the “actual” cost of depreciation, lease payments, maintenance and repairs, gasoline, oil, insurance, and vehicle registration fees.   It does not include:

  1. Interest expense for a self-employed individual
  2. Personal property taxes
  3. Parking fees and tolls

The expense above would (depending on the circumstances) be claimed in addition to the amount calculated via the standard mileage rate.  Now, sometimes people (and tax practitioners) wonder if a “driver for hire” can use the standard mileage rate. Well back in 2010, the IRS issued Rev Proc 2010-51 and within it you can find that Rev Proc 2009-54 was modified as follows:

“Section 4.05(1) is modified to allow taxpayers to use the business standard mileage rate to calculate the amount of deductions for automobiles used for hire, such as taxicabs.”

You can also find language under the standard mileage discussion of Publication 463 that reads that “you can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above.”

Now, If you decide to base your deduction on your actual expenses, note that you should keep track of the following:

  • Business Percentage: The taxpayer must calculate the business percentage of vehicle expenses. Keep track of business miles driven for the year and divide that amount by the total miles driven for the year.
  • Cost of depreciation (leave this to your tax software or gal/guy)
  • Lease payments
  • Registration fees
  • Licenses
  • Gas
  • Oil
  • Insurance
  • Repairs
  • Tires
  • Garage rent
  • Tolls
  • Parking fees
  • Sales tax paid on the purchase of a car is added to the basis of the car and deducted through depreciation.
  • Fines for traffic violations are never deductible, even if incurred while driving for business.

Business Expenses  This is for all of the items that aren’t directly related to the cost of vehicle operations, but are allowed.  Buy bottles of water for your riders?  Have to pay a monthly cell phone bill so that riders can hail you?  Both are deductible expenses.  We suggest that you consult Publication 535 to see what is allowed.  The one thing to keep in mind is that if an item is used for both business and personal use, you should keep track of your business use as that is the percentage of the expense that you may deduct.

Comprehensive Example & Sample Tax Return
If you click this link, you will be able to download the sample tax return that is used in this example.  Having it handy will help you quickly follow along with what we’re about to discuss. Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.  Okay, the lawyers are happy now.  Shall we begin?

Need a Lyft?

Need a Lyft?

So, our good friend Memphis Raines has decided to earn some extra cash with one of the ride share companies.  He’s pretty good at what he does, get’s passengers to their place really fast and makes sure that he keeps and IRS Compliant Mileage Log (he doesn’t want the tax court disallowing his deduction).  During the year he raked in close to $63,000 in income for all that driving.  So what does Memphis’ tax return look like?  Let’s examine it.

Page 3 shows Mr. Raines’ Schedule C or Profit or Loss From Business.  He completes the top section listing all the pertinent information for his business.  If you look at the form, you will see that it contains very little information.  Looks like he spent close to $16,000 on car expense, another $143 on meals (drinks for his passengers) and another $2,000 for his business cell phone.  But let’s look a little closer at the car expense.

As indicated above, Memphis is allowed to take the larger of his actual expenses OR the amount calculated by using the standard mileage rate.  If you look at page 6, you can see all of the expense that Memphis spent to make that $63,000 in revenue.  But the thing to note is that he used his car 80.4% for business. The rest of those miles?  Well, let’s just say they were spent with his kid brother Kip and some girl named Sway!  Anyway, looks like he spent $13,000 (ignoring the fact depreciation isn’t a cash expense) to make all that money.  It also looks like he drove about 27,000 miles in a year – ouch!  So if you take the standard mileage deduction ($0.56 in 2014) and multiply in by the business mileage, you get a deduction of around $15,000.  Since that is larger than the actual expense deduction of $13,000, which do you think he will take?

Was it worth it?
So Memphis had fun driving around all year.  But was it worth it?  Only he knows the answer to that, but what we can analyze is the financial impact.  Page 1 shows that Memphis had a net profit from business of around $45,000 (i.e. $63,000 in revenue less $18,000 in expenses).  As Mr. Raines is single, he has very little other deductions.  He takes the standard deduction and receives one exemption.  This leaves him with taxable income of around $32,000.  On this income, he has to pay $4,335 in income taxes.  But wait, Memphis is his own boss right?  Well, that means that he has to pick up the share of Social Security and Medicare taxes that an employer usually has to pay for each employee it has.  The bill?  Another $6,400 in taxes!  So Memphis winds up with a whopping tax bill of around $11,000.  As he did not make estimated tax payments he’ll need to come up with a way to pay the IRS.

So in looking at this from another angle, Memphis took in $63,000.  He spent another $11,000 in real cash to make all that money.  He also has to pay the IRS around $11,000 in taxes.  So net, he took home around $41,000 when it’s all said and done.  Not bad for being your own boss.  But he did put about 27,000 miles on that sweet car of his, which will make selling it harder once it’s days as a ride share vehicle are done and it’s just hanging out in videos by The Cult.

Well, if all of this sounds like way too much to handle on your own and you’d rather let a professional deal with it, why not give us a call or shoot us an email?  We’d be happy to help make sure that you stay on Uncle Sam’s good side!

Our 10th Year Anniversary!

 

Thanks for the past 10 years!

Thanks for the past 10 years!

So this tax season was a little more challenging than anticipated; thus the reason this post is coming out in October.  Needless to say, back on September 14, 2005 Wilson Rogers & Company came into existence.  That means that 2015 marks 10 years of us being in business!  A lot has happened in that time frame.  So with this post, we thought we would not only recap our history, but just how we were able to make it that long.

2005
So after years of Jared getting “hey, your’re an accountant, I have a tax question for you.” he and Aaronita Wilson decided to start a tax company.  “What are we going to call it?” was the question for a while.  “How about we call it Rogers Wilson” Aaronita would say.  “Nah, how about Wilson Rogers?” Jared replied.  “Kind of sounds like a person.  Some estately dude on a horse playing polo.  It also sounds like another tax company we know…”  And with that, Wilson Rogers & Company took form.

2006
This was the first year that we actually started doing returns for pay.  Some of the key highlights:

  • Mr. Asberry becomes “client number one” by sending us his information.
  • Mr. Simpson becomes the first transmitted return as he was quicker to process than Mr. Asberry!
  • Jared and Aaronita get married on September 22, 2006, thus effectively removing a person named “Wilson” from the company.  Don’t worry, people still ask to speak to Wilson Rogers when they come to the office!

2007-2010
These were the “slow years” for the most part as there really wasn’t much that changed.  Client levels stayed pretty consistent and revenues were largely flat.  This was primarily due to the fact that both Aaronita and Jared maintained full time jobs within Corporate America.  This would start to change in the following year.

2011
Sometime towards the end of 2011, the decision was made that Jared would leave Corporate America to head up our first “retail” office.  Up until this point, all the tax returns were done “in house” by making appointments to pick up documents, preparing the returns at night and then providing the completed return to the client at a later date.  2011 was filled with decisions about health insurance, resignation dates and how to outfit the new office.  Somehow, someway, it all managed to come together.

2012
Tax Season? Ready, Set, Go!

Tax Season? Ready, Set, Go!

So this was the first tax season with the new office.  If you want to read the recap on how it went, you can check that out here.  Some of the things that you won’t see in this post:

  • Mr. Campbell had the honor of becoming “retail client number one” on a cold day in January.  He had all his paperwork…we didn’t have the nice frilly folders to give him his tax return in. Oh man…the early days!
  • At the same time we were opening the office, Jared was moonlighting with the fine folks of Intuit with their Turbotax Ask A Tax Expert (ATE) team.  It was also the year that he broke the wrist on his dominant hand and had to finish out tax season using his left hand.  Talk about bad handwriting!
  • We also took many steps into the marketing world to help get the word out.  One of these included developing relationships with sites like Teaspiller (which was later acquired by Intuit)

2013
So we survived another retail office tax season.  That recap can be found here.  The one standout item for this year was that Teaspiller was purchased by Intuit and folded into the TurboTax brand.  What that did was drive additional tax preparation business to us that was above and beyond what we had projected.  It also continued Jared’s relationship with Intuit, which further broadened in late April when he became certified as a Quickbooks Proadvisor.

2014
This was the year that we hired “employee number one” so that Jared could have a little help.  You can read all about Stephanie in a little interview that we did here.  If you want to read about the season, that is located in this post.  That post will also talk about how we began using bus benches to advertise to local traffic in our area!

2015
This was our fourth tax season with the office, and man did things really pick up.  They picked up so much that we hired Patricia as “employee number two” to keep up with things.  This was also the year that we launched www.fileoldtaxreturns.com to offer those needing to file older tax returns an option to do so.

How Did We Survive 10 Years?
Everyone knows the statistic that most businesses fail to make it to the 5 year mark.  While we have been lucky enough to avoid the top 5 reasons businesses fail, we must admit that it takes a little more than that to last for 10 years.  So what are the keys to the castle?  In summary we think:

  • Provide good service.  If you don’t do that, you’ll be lucky if you last beyond a year.
  • Value your customers. We have wonderful customers and we try to let them know that as frequently as possible.  Without them, there would be no Wilson Rogers & Company.
  • Stand out from your competitors.  We’ve all heard that insanity is defined as doing the same thing over and over and expecting a different result.  If you look, sound and act just like your competitors, expect to get their results – average!  So be bold. Do things differently. Give the public what they want, not what YOU think they want.
  • Make adjustments when necessary.  Getting to 10 years has not been a straight line drive.  We’ve had to adjust and pivot along the way.  Have we made mistakes? You bet! Have we learned from them? Continuously.  The key is to make adjustments when needed, forget the past and try to do better in the future.  If you can do that (combined with the above points), then maybe one day we’ll be reading about how you survived your first ten years.

Here’s to a bright future!

What Is Depreciation Recapture?

House

The term “depreciation recapture” refers to the amount of gain that is treated as ordinary income upon the sale or other disposition of property.  Gain that is treated as capital gain is not depreciation recapture.  If you do your own taxes and you never heard of “depreciation recapture” – it’s time to get an accountant. If you already have an accountant and they never discussed “depreciation recapture” with you – you need a new accountant!  Either way, this post will walk you through some of the basics.

A Simple Example
Let’s begin with an example. You bought a rental property in 2007 for $200K. True, this was right before the “great financial crisis” and your property is worth less, but that is besides the point (for the moment).  In 2014, you manage to sell it for $175K. If life was simple, you could get away with the following calculation: your loss is the $175K sales prices less the $200K purchase price, or $25K. You held the property more than a year, therefore it’s “long-term.” Done right?  Not so fast my friend.

Unfortunately, it is not so simple, and instead of having a loss, you actually have a gain. How come? Because of depreciation. Every year since 2007 you were depreciating the property, correct?  Well, that depreciation lowered your tax bill and you received a benefit because of it.  But if you think you got a free ride from the government, think again.  What you were saving on depreciation comes back to haunt you now when you sell the property. So (for simplicity) let’s assume that each year you received $7,272 in depreciation. This is approximately $51K of depreciation over the 7 years.  Thus, the building wasn’t really wrth $200K for tax purposes, but only $149K.  SInce you sold the building for $175K, you really had a $26K gain!

It gets worse. Under “normal” circumstances, the tax rate on most net capital gain is no higher than 15%. Some may be taxed at 0% if you are in the 10% or 15% ordinary income tax brackets. However, a 20% rate on net capital gain applies in tax years 2013 and later to the extent that a taxpayer’s taxable income exceeds the thresholds.  Furthermore, there are a few other exceptions where capital gains may be taxed at rates greater than 15%:

  1. The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.
  2. Net capital gains from selling collectibles (like coins or art) are taxed at a maximum 28% rate.
  3. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.

In case you missed it, it’s that last bullet that refers to depreciation recapture.  And yes, it’s taxed at 25% versus 15%!

The actual calculations can get quite involved depending on the amount of the gain, the amount of depreciation taken and the tax bracket you fall into.  But once again for simplicity (and illustration), since you took $51K of depreciation, the entire $26K gain would be considered depreciation recapture and you could pay $9K in taxes related to it.

If you’re tired at this point, we don’t blame you. Albert Einstein is quoted as saying that the hardest thing in the world to understand is the income tax.  As seen above, the IRS does a pretty good job proving his point!

Tax Planning Tips for Depreciation Recapture
So just how can you get out of depreciation recapture?  The short answers is you can’t, but there are things that can help or delay it’s payment.  For example, when a rental property is sold, any passive activity losses that were not deductible in previous years become deductible in full. This can help offset the tax bite of the depreciation recapture tax.

By the way, you’ve heard of 1031 exchanges, haven’t you?  Next time, you may want to think about using one before you sell your property.  When a rental property is sold as part of a like-kind exchange, both capital gains and depreciation recapture taxes can be deferred until the “new” property is disposed of.

There’s one tax strategy, however, that will not help. Since depreciation is recaptured when the asset is sold, it is reasonable that some people would think that by avoiding claiming depreciation they can also avoid the recapture tax. This strategy does not work, because the tax law requires depreciation recapture to be calculated on depreciation that was “allowed or allowable” (Internal Revenue Code section 1250(b)(3)).

Deducting Business Start Up Cost

Business organizational costs are amounts paid, or incurred, to create a corporation or partnership business entity.  Start-up costs are those paid or incurred for investigating or creating an “active” trade or business. Start-up and organizational cost include:

  • Analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
  • Expenses incurred while investigating the purchase of a business.
  • Training wages for employees who will work in the business.
  • Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
  • Cost of professional services, such as executives and consultants.
  • Legal fees incident to the organization
  • Accounting fees incident to the organization
  • Filing fees.

If you need a template to track your startup or organizational cost prior to deducting them, use this one from the fine folks over at Entrepreneur.com.

Deductibility.
Unlike expenses incurred as part of the normal ongoing operations of a business, one must “elect” to amortize (i.e. deducted over a period of time) organizational and start up cost  in order for them to be deducted.  The current rules allow for the following:

  • You are able to deduct up to $5,000 of your qualifying start-up costs in the first year.
  • The first-year deduction starts to phase-out $1 for $1 when your expenses reach $50,000.  Once your expeneses reach or exceed $55,000, the first year deduction is fully phased out.
  • Up to $55,000 of start-up expenditures can be deducted ratably over a 180-month period beginning with the month in which the active trade or business begins.

To aid in understanding how the above works, here is how you would make your first year deduction:

If start-up costs are $52,000, $3,000 can be deducted in the first year.  You can amortize the remaining start-up costs over 180 months starting with the month business begins.

Making the Election Electing the deduction.
The election to currently deduct up to $5,000 of start-up or organizational costs (or both) is made by claiming the deduction on the tax return for the tax year in which the trade or business begins.  Note that the tax return must be timely-filed, including extensions.  Furthermore, no separate statement is required for making this election.

Electing to amortize.
The election to amortize start-up or organizational costs (or both) is made by filing Form 4562, Depreciation and Amortization, and completing Part VI. Make sure that you:

  • Attach a statement listing a description and amount of each cost, date incurred (for organizational costs), month the business began or was acquired, and the amortization period (generally 180 months).
  • Use separate statements for start-up costs and organizational costs.

Correcting an omitted election.
An election to deduct or amortize costs that was omitted on a timely-filed return (including extensions) can still be made by filing an Amended Return within six months of the original due date of the return (excluding extensions).

Chicago Minimum Wage Increase

MW

In December 2014, the City of Chicago City Council passed an ordinance to raise the minimum wage for all Chicago workers to $13 per hour by 2019.  The ordinance raises the minimum wage in steps, beginning with an increase to $10 per hour July 1, 2015.  The minimum wage then increases to $10.50 in 2016, $11 in 2017, $12 in 2018, and $13 in 2019. Over the five year phase in, the increase is projected to raise the earnings for approximately 410,000 Chicago workers and lift 70,000 workers out of poverty.

Key Highlights

  • The ordinance requires all employers to pay the new minimum wage of $10 per hour for all employees beginning July 1st 2015, subject to certain limitations.  You can read more about the covered and non-covered employers/employees via this post.
  • All businesses operating within Chicago and/or employing persons working within Chicago are required to comply.
  • All employers are required to post this Notice to Employers and Employees in each place of business beginning July 1st and include the Notice in each employee’s first paycheck following the July 1st implementation date.
  • The full text of the Chicago Minimum Wage Ordinance can be found here.
  • The Chicago wage increase follows several other recently passed increases. For a list of the wage in effect in other states, check out this link.
  • This increase is for the City of Chicago ONLY.  The proposed wage increase for the State of Illinois appears to be on hold as of the time of this posting.

Marketing Your Service Business

Whether you are a seasonal tax preparer, a neighborhood car wash, a painter or a realtor, consumers can’t go a week without the services of a local entrepreneur.  One the hardest parts of being in a service business lies in how you go about creating your market. As such, a sizable roadblock often encountered is how hard it is to promote a product that technically does not exist until the customer has made their purchase.

Listed below are 5 ways that you can promote your service business.

Make sure customers can find  you.  The vast majority of both male and female shoppers do research on the web before making a purchase.  Furthermore, women shoppers in particular look for “deeper” information when deciding on which company or service to choose.  For these reasons, having a company website is a smart and affordable way to ensure that your business and the services you offer can be found.

Let customers know you.  Good relationships are built on trust. So it’s natural that customers want to learn as much as they can about your company and the people that stand behind it.  Once you’ve created your website, why not consider integrating your blog into it?  Studies (like this one) indicate that business blogging can lead to as much as 55% more site visits when compare to sites that don’t.  But the real point of the blog should be to let customers know more about just who you are!

If you look at the category Who’s The Boss on our site, you can get some insight into our CEO Jared Rogers.  Under this category, he showcases things about the company and his story, photos, family and hobbies.  Why?  So that you get to know more about him and see if his personality matches with yours.  The reality is that most service businesses are differentiated not by their services, but by the people who provide and stand behind them.

Tout your USP or value proposition.  What will make customers or clients select your company vs. your competitor’s? Many people choose the service provider that offers the greatest value for their money, as there’s often price parity among the principal players.  Thus, one should craft their  Unique Selling Proposition (USP) and communicate it to each and every prospect you interact with.  So the best way to win business is not to cut your prices or rates, but instead add products or services that elevate your USP – making it too good to resist!

Offer your customers incentives.  Customers who’ve had positive experiences with your company in the past will happily return.  But tempting new customers requires making a special offer.  Businesses that provide home services (e.g. rug cleaning, painting, home heating or air conditioning) can benefit by sending consumers coupons through a service such as Valpak. Your coupon offer will be mailed in an envelope with others, thus your cost of mailing is less than if you did it stand alone (thus allowing you to send to a greater number of people).  Although you won’t have the undivided attention of your consumer, mail from a known marriage-mail provider is often well-received.  For long-term results, create a offer that will motivate new customers to make more than a single purchase.

Communicate with your prospects frequently.  It costs considerably less to keep a customer than to win a new one.  Thus, it’s smart to maintain campaigns that upsell or resell to existing ones.  To do this, you should communicate with your customer database at least every four to six weeks.  If you don’t, you’re missing opportunities to grow your business.  Now, every communication doesn’t have to be a sales pitch.  What you are trying to do is create Top Of Mind Awareness.

In this post we talk about how you can get new clients via a referral program that emphasizes TOMA.  Essentially, you want to use a combination of alternating sales calls with e-mail and postal mail.  By interspersing e-newsletters containing case histories, postcards with promotional offers and calls offering relevant and valuable information, you will ensure that YOU are the one they think of when it’s time for them to make a purchase.

Home Office Tax Deduction Requirements

Home Office

If you use part of your home for business, the IRS will generally allow you to deduct certain expenses come tax time. The home office deduction is available for homeowners AND renters, and applies to all types of homes.   In order to take the deduction, there are two basic requirements that you must satisfy:

Regular and Exclusive Use
You must “regularly” use part of your home “exclusively” for conducting business.  For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.  The exclusive portion of the equation usually means that you can’t use that room for other things.  Meaning, if the room is your den and you also use it for entertainment or other social activities, then the deduction will not be allowed.  Also, if the room or space isn’t used on a regular basis (i.e. you only have business meetings in that room once a quarter), the deduction will also not be allowed.

Principal Place of Your Business
In addition to the above, you must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business.

How to claim the deduction
Generally, deductions for a home office are based on the percentage of your home devoted to business use.   Thus, if you use whole or part of a room for conducting your business, you will generally need to figure out the percentage of your home devoted to your business activities.  However, note that there are TWO methods for you to determine the deduction:

Simplified Method
For taxable years that started on or after, January 1, 2013 (filed beginning in 2014), taxpayers have the option of using the simple method per IRS Revenue Procedure 2013-13.  The standard method (discussed next) has some calculation, allocation, and substantiation requirements that some consider complex and burdensome for small business owners. The simplified option can significantly reduce the recordkeeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office.   In most cases, the deduction is calculated by multiplying $5, the prescribed rate, by the area of your home used for a qualified business use. However, note that the area you use to figure your deduction is limited to 300 square feet.  So if your office is larger than this number, you may want to take the time to use the next method.

Regular Method
Taxpayers who use the regular method (required for tax years 2012 and prior), must determine the actual expenses associated with their home office.  These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.  Once the amount spent on each category is determined, one must then allocate them between the space used in connection with their business and the rest of the dwelling.  To do this, one will use IRS Form 8829.

Where to deduct
Where you take the deduction on your tax return depends on how you conduct your business:

  1. If you are self-employed: report the entire deduction on line 30 of Schedule C (Form 1040). Whether you need to complete and attach Form 8829 to your return depends on which method you used above to perform your calculation.
  2. If you are an employee: you must itemize deductions on Schedule A (Form 1040) to claim the deduction, generally on line 21 (unreimbursed employee business expenses).
  3. If you are a member of a partnership, multimemeber LLC or S-Corp: take a look at this post for more information on how to claim the deduction.

To learn more about the following, we suggest that you take a look at IRS Publication 587:

  • Types of expenses you can deduct.
  • How to figure the deduction (including depreciation of your home).
  • Special rules for daycare providers.
  • Tax implications of selling a home that was used partly for business.
  • Records you should keep

What moving expenses can you deduct?

Over the past year or so we’ve had a few of our clients move to another state.  In addition to knowing if their new city imposes an income tax the next question usually is “What moving expenses can I deduct?”   The answer is really a two part matter of can I deduct my moving expenses AND what expenses can be deducted.

Who can deduct moving expenses?  In order to deduct your moving expenses, you must meet the following three requirements:

  1. Your move must be closely related, both in time and in place, to the start of work at your new job location.
    • Time:  Moving expenses incurred within 1 year from the date you first reported to work at the new location can “generally” be considered closely related in time to the start of work.
    • Place:  If the distance from your new home to the new job location is not more than the distance from your former home to the new job location, you can “generally” consider yourself as satisfying this test.
  2. You must meet the distance test.  Your move will meet the distance test if your new main job location is at least 50 miles farther from your former home than your old main job location was from your former home.  See the illustration below for an example.
  3. You must meet the time test. If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location (39-week test). If you are self-employed, you must meet the above AND work a total of at least 78 weeks during the first 24 months after you arrive in the general area of your new job location (78-week test).

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What moving expenses can be deducted?  Once you determine that you qualify to deduct your expenses, you should keep track of the cost related to the following (which are deducted on IRS Form 3903):

  • Moving your household goods and personal effects (including in-transit or foreign-move storage expenses), and
  • Traveling (including lodging but not meals) to your new home.

Moving household goods and personal effects. You can deduct the cost of packing, crating, and transporting your household goods and personal effects and those of the members of your household from your former home to your new home. For purposes of moving expenses, the term “personal effects” includes, but is not limited to, movable personal property that the taxpayer owns and frequently uses.

Travel expenses. You can deduct the cost of transportation and lodging for yourself and members of your household while traveling from your former home to your new home. This includes expenses for the day you arrive.

If you use your car to take yourself, members of your household, or your personal effects to your new home, you can figure your expenses by deducting either:

  • Your actual expenses, such as the amount you pay for gas and oil for your car, if you keep an accurate record of each expense, or
  • The standard mileage rate per the IRS for the tax year of the move (as it is indexed annually)

Nondeductible expenses.  The following expenses are not deductible:

  • Pre-move househunting expenses
  • Return trips to your former residence
  • Any part of the purchase price of your new home
  • Expenses of buying or selling a home (including closing costs, mortgage fees, and points)
  • Expenses of entering into or breaking a lease
  • Home improvements to help sell your home
  • Loss on the sale of your home
  • Mortgage penalties
  • Real estate taxes
  • Security deposits (including any given up due to the move)
  • Storage charges (except those incurred in transit and for foreign moves)
  • Car tags
  • Driver’s license

If you need more information feel free to give our office a call, shoot us an email via the address in the footer or check out IRS Publication 521.