The Importance of Good Recordkeeping

Posted by Bruce Mc on Jan 20, 2012 in Bookeeping, Information, Tips and Dates | 0 comments

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In the event that a natural disaster strikes your home or office, being well organized and redundant in your record keeping can save you or your loved ones a considerable amount time and effort getting life back to “normal” when the dust settles. Here are a few tips any taxpayer can use to help minimize potential damage:

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Mileage Tracking with BizMile Tracker

Posted by Bruce Mc on Dec 9, 2011 in Audits, Bookeeping, Information, Tips and Dates | 0 comments

If you use your car in your job or business and whether you use it regularly or irregularly for that purpose, you may deduct part or the entire cost of its operation (subject to limits – of course).

However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use, along with your mileage for charity and medical purposes.

Generally speaking, you can figure the amount of your deductible car expense using one of two methods: the standard mileage rate or actual expense. (see Car and Truck Expense Deduction Reminders and IRS Publication 463, Travel, Entertainment, Gift and Car Expenses).

If you use the standard mileage rate, you can also add to your deduction any parking fees and tolls incurred for business purposes, You may also be allowed to use other deductions like meals or lodging.

Please keep in mind that these deductions are reported on various forms, please visit with a tax professional.

As a preparer I find it is exceedingly difficult for the average “road warrior” to keep track of all their mileage/vehicle expenses. It is even more difficult for the average small business owner or family to keep track of their mileage.  In fact, most don’t or they don’t know how. Sure like any good preparer I provide logs books for those who say they will, write down their mileage.

Internal Revenue Code Section 274(d) (4) requires that you keep detailed records to document the business use of “listed property”. For automobiles you would keep a mileage log.

Honestly I have not seen one completed 100%. When it comes to tax time these/those books are always incomplete or are missing months of information, or they did it for a few months and decided it required to much effort.

    If this describes you, don’t feel bad or insulted, you are part of a great group of really good people, and your 1040’s come out.

Okay, all said and good but now you are being audited for your mileage on Sch A, Sch C, or Form 2106. Or even maybe worse, all three. . . What are you supposed to do? Are you just going to take the hit? Or are you going to do what you can to provide yourself, your tax professional and your Auditor with a validated mileage log?

For your sake, your tax professionals sake and the auditors too, I hope the latter is your choice.

“Validated mileage log?” Yes, validated. If you receive an audit notice from the IRS, you will need to produce the relevant documentary proof to validate the deductions being audited.

BizMile Tracker is your answer. This online program is the best mileage log assist I have seen. It is so good I have made it a part of my companies (L & R Tax Preparation) Audit Information gathering. I am also working on encouraging clients, to use this service during the year not just for audit situations.

What is it? BizMile Tracker is an award winning online mileage tracking service that gives you the first real solution to the question asked by tax professionals and auditors alike, “Where are your vehicle mileage logs?”

Let us say you received a letter from the IRS, in the IDR Form 4564, they want to see your mileage log. You contact your Tax Professional and you agree there currently is no log of your mileage and s/he sends you to BizMile Tracker so you can recreate your information.

If they don’t please ask them about it. If they aren’t aware what it is, direct them to the BizMile Tracker site, then please use it on your own behalf.

So you have landed there you signed up, and logged in. What are you supposed to do next?  Please note BizMile Tracker has a great array of help and guides. What I am about to present here is just a general look so that you can see it. Your Audit year is say 2009 (busy year for Audits, and as the IRS gains momentum with the RTRP program they will be getting more diligent with audits) they need your logs for the cars you are using for Business (or wherever you used you vehicle).

You reported:

• 9,568 miles for business
• 599 miles for charity
• 57 medical miles
• no personal mileage

Okay lets validate this because, and be honest, when you told all your total mileage totals to your Preparer, you used the “guesstimate method” .

So lets document them;

You have the dates where we went and noted in your day planer why you were there. When you first open BizMile Tracker you have a blank slate. You will need to create your trips. I started this by creating a database of addresses where I go to and from.

Go to the “address book” from its button at the top.; then click the  “add new address” button, you end up here:

Enter your address and click verify, Using Google your address is verified which means a corresponding map coordinate (or lat, lon.) was found using the street address.

Click Done

If you don’t have an address, you can use intersections or search for business by name.

As you can see there are several addresses in this address book.

Now let’s record a trip.  From your Summary page you’ll click “add trip” or you can click the “trip builder” button at the top.

My preference is Trip builder. With all the addresses entered it is the easiest, but you can do the same thing using the “add trip” button using a three step guide provided within the software.

Here is the window you”ll get:

Simply adjust your trip date, click and hold the address/location from your address list and drag it down to your trip log box. You’ll do this for a from and a to.

Click save and close.

That easy.

You are taken back to your year to date summary page.

Lets say you notice a trip and in the “Type” area of this trip shows it being a Business trip (this is a default setting that you can adjust to suit your needs) when in fact it was for Charity.

You also had to pay for parking when you got to your destination. Just highlight your trip by clicking on it, Click where it says “Type” and you are presented with a window that allows you to simply edit the type of trip you made.

Same with a list of other expenses while on the trip, Click the dollar amount next to the type. You are presented with a widow looking like this:

Simply click what type of expense you had, enter the amount. If you had more than one expense associated with this trip, keep going. Click done when finished and you’ll find the total was added to this trip on your summary page.

There is even a place to leave notes or descriptions of each trip.

It is that simple. Really

So you have entered all your information, hey guess what you have – a trip log.

But, you aren’t done. You still need to get this to your Tax Professional so that your audit can be completed.

Back on your YTD screen there is a little printer icon on the right, click it.

Here is what the window that comes up looks like:

Something I need to point out real quick here, when you get to this point you’ll notice on the left your Tax Professionals information is there with a question asking you if you want to share this with the above listed contact. This is there because your Tax Professional sent you here to provide this service for you. He gave you his discount code. In doing so, you got a 25% discount (Your Tax Pro saving you money)

From this window you can open your report or download it.

Okay lets look at your report, there are over 150 trips.

The above picture is from a sample company, please click on the picture to give it a look. Remember our totals above, the ones you gave your preparer, the ones you “guesstimated”, notice something?

You miss guesstimated the mileage. The new information is in your favor. This is what is important.

The rest of the .pdf document that is created looks like this:

A chronological list of your trips where you went, where you went from, on what day, descriptions if you entered them. The miles of each trip and the amount of the deduction calculated for the year using that year’s mileage rates as provided by the IRS.

To me, this is the best thing you could have for the Auditor; this is explaining each mile you went, where and why. They can’t dispute the miles because they are calculated using GPS technology. Your miles are verified, you mileage expenses are logged. So not only did you prove your deduction, you showed that you under calculated your original deductions.

A few more facts you need to know as to why I think this is the best.

• BizMile Tracker was modeled (as near as I can tell) around audits. They advertise on their website that you can go back to any year “We have all the audit years and rates you need: 2009, 2008, 2007, 2006, 2005 and more.” Through a phone call in early November with a representative I heard her mention 1998 and farther.

But there is no reason to go that far back.

• They have all the rates figured in accordingly, even those years where we had/have to deal with a split year mileage rates.
• They are a secure site, BizMile Tracker according to its faq, is hosted in the AWS cloud – so that is as secure as Amazon uses for its own businesses. That means SAS70 Type II audit security and ISO 27001 Level 1 service provider status certification,  professional standards
• Although this is a great tool for those being audited, you can get it a for the year we are in, keeping track through the year is even easier. Also this option is less expensive than using the audit years program.The records are kept and are available should you need them for 7 years on BizMile servers.
• BizMile Tracker is the only company that goes back in time for you.
• Let’s say you made 25 trips that are identical, you can create the trip once, the software has a repeat feature allowing you to tell it what days you made those trips and it logs them all, accordingly.
• Your busy, don’t have time to do this on your PC regularly? There is a mobile version being developed and estimated to be out some time next year (2012).
• Don’t have that many miles to track? There is a free version – Up to $750 in deductions (or about 1400 business miles, more if you are just tracking medical and or charity mileage as these mileage rates are lower than business mileage rate.).
• Has your Tax Professional ever told you to write down your mileage at the beginning of the year and at the end? There is a place for that too in BizMile Tracker.
• Concerned that you may forget or not know how to use this? I encourage you to go visit their sites help videos. You can do this before you pay for any packages. AS I understand it there are several videos over at YouTube to be watched at
• http://www.bizmiletracker.com/Demo1.php
• Many people believe that the IRS will use your mileage as a “tell”. Meaning if they investigate your mileage and it proves to be less than it could/should be, then so might the rest of the information you provided, leading to a much larger investigation of your return. This practice isn’t an IRS rule that is admitted by any IRS official but I know mileage has been used like this.

As a Tax Professional, I highly recommend this product. (to me they are just better)I use this product for my personal use, and I use this in my practice. If a client comes to me that has received a request for information from the IRS (Form 4564 IDR) requesting mileage documentation, BizMile is something that we now require or we will not take that Audit client.

An endnote:

This post is unsolicited and I will not or have not been compensated in any way for any information I have shared here. I use this product and I believe in this product. If you aren’t using it yearly, you could be asking for future problems.

Visit BizMile Tracker and sign up today.

Tax Professionals – there is a version of this just for us, it allows us to receive our clients records. BizMile Tracker also provides you with a discount code so your clients can save 25% off their purchase.

Related articles

• Taking Business Tax Deductions (turbotax.intuit.com)
• IRS hikes mileage tax deduction amounts (dontmesswithtaxes.typepad.com)
• IRS Announces Higher Standard Mileage Rate 2nd Half of 2011 (cpajohn.com)

Tax Record Keeping Advice for Small-Business-Owning Technophobes

Posted by Bruce Mc on Oct 20, 2011 in Bookeeping, Information, Tax Planning | 0 comments

This is a guest post from Erinn Stam, the Managing Editor for nursing student scholarships. She attends Wake Technical Community College and is learning about nursing scholarships for working moms. She lives in Durham, NC with her lovely 4-year-old daughter and exuberant husband

Are you afraid of Quicken? Do you hate working on your computer? Is record keeping one of your least favorite things to do? If you feel this way but still want to get every tax deduction you possibly can qualify for, you’re not alone.

The following are tips for getting the most out of your small business tax returns without stressing yourself over software programs and techie stuff.

Invest in Good Old Fashioned Office Supplies

If you’re afraid of the computer and find record-keeping overwhelming, you’ll want to invest in a couple of crucial items that will save your sanity this year. Invest in:

• One expandable file folder (the ones that have about 12-15 files in them and close with a nice latch, looking like a little cardboard file cabinet you can carry by the handle)
• A box of business-sized envelopes
• A box of pens of your favorite kind
• A little notebook for mileage records

Once you have this file folder, devote it to your business and nothing but your business. Stick the pens inside so you’ll always have something handy to label new files with, and keep the envelopes by the file folder. Stick the mileage notebook in your car, purse, or laptop bag.

Use the Envelopes For…

I carry an envelope labeled “receipts for week of xx/xx/xxxx” in my laptop bag. I stuff all receipts from the week inside this envelope and jot down notes on the envelope for any expenses or payments that I might not be able to record with a physical receipt at the time. I also use the envelope to jot down mileage info if I’ve misplaced my mileage notebook.

Learn to Use an Excel Sheet and Forget About the Rest

You’ll only need to learn how to use one software program (and it’s easy-peasy) to keep all the records you need for your business, and that’s Microsoft Word’s Excel program (which is good on Macs, too – just use Open Office). Watch a YouTube tutorial on how to use Excel if you don’t already know the basics, or ask a friend to show you some basics.

Once you know how to perform the basics on Excel, set up several pages (tabs) for your business records. I like to use separate pages (tabs) for:

• Expenses
• Payments received from clients
• Payments made to clients
• Mileage records
• Questionable deduction expenses

You’ll find Excel is super easy to use and will allow you to enter dates and numbers, add numbers easily (learn how to use the “auto sum” feature – it’s the best!) and record progress on projects.

Devote One Hour a Week to Bookkeeping

You’re going to need to keep on top of this record-keeping task if you want to see results and save yourself a headache, so designate a weekly time to work on your business records. I devote every Friday night (around 5:00) to this and reward myself with a glass (or two, or three) of red wine and a bar of dark chocolate. During this time, I go through all my business transactions and make sure I have:

• Invoiced all clients and recorded the invoices on my client invoice page
• Paid all business-related bills and recorded the payments on my payment page
• Recorded (on my expenses page) and filed all physical receipts related to expenses (that were collected in that envelope I carried around all week)
• Calculated and recorded (on my excel mileage sheet) all mileage
• Stuck the receipts from the week (a purchase at Office Max, receipt from lunch with client at Panera Bread, etc.) into the “receipts” file in my expandable file folder box
• Printed out and stuck in my “receipts for payment” file all my payment records for the week
• Printed out and stuck in my “expenses for the week” file any electronic receipts for expenses (credit card record of an amazon.com purchase, paypal receipt of a paypal purchase, etc.)
• Recorded on my “Questionable Tax Deductions” page any expenses I think might qualify for a tax deduction but really don’t know about (and stuck my receipts into my file folder labeled the same)

How This Will Make Your Life Easier Come Tax Time

If you keep up with this simple system, you’ll find you end the year with a record of expenses, a record of your income, a record of your mileage, and a record of all things possibly deductible. With this handy dandy information, you can get advice from a tax accountant who will know exactly what you can and can’t deduct and who will handle the difficult filing stuff for you. For me, that’s the best I can hope for when it comes to the record-keeping and tax-filing end of running a small business.

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Hobby or Business? It matters to the IRS

Posted by Bruce Mc on Oct 11, 2011 in Bookeeping, Information, Tax Planning | 0 comments

Hobbies such as sewing, woodworking, fishing, gardening, stamp and coin collecting (I build radio controlled model boats/ships) can make you money. Recently a client contacted me about taking her Photography to a new level. So lets look at this subject again.

When that hobby starts to turn a profit, it might just be considered a business by the IRS.

The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity that is carried out with the reasonable expectation of earning a profit.

The tax considerations are different for each activity so it’s important for taxpayers to determine whether an activity is engaged in for profit as a business or is just a hobby for personal enjoyment.

Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to deductions such as expenses and losses, the two activities differ in their tax implications.

If you’re not sure whether you’re running a business or simply enjoying a hobby, here are some of the factors you should consider:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Do you depend on income from the activity?
• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
• Have you changed methods of operation to improve profitability?
• Do you have the knowledge needed to carry on the activity as a successful business?
• Have you made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business, but the profit test is the primary one. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

Hobby or Business

Hobby: If an activity is a hobby, not for profit, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses, with other miscellaneous expenses, are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C or C-EZ on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Note: Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

• Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
• Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
• Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

If your hobby is regularly generating income, it could make tax sense for you to consider it a business because you might be able to lower your taxes and take certain deductions.

Give me a call if you’re not sure whether your hobby is actually a business and we’ll help you figure it out.

Related articles

• The Most-Overlooked Tax Deductions 
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• When should a hobby become a business?

Bill Tracking in QuickBooks

Posted by Bruce Mc on Sep 7, 2011 in Accounting, Bookeeping, Information, QuickBooks | 1 comment

QuickBooks Pro New Features Saves You 50% Time Spent on Finances. Save 20% + Free Shipping.

Next to payroll, paying bills is probably your least favorite task in QuickBooks. You don’t have to use this feature — you can keep stacking bills on your desk, scrawling the due dates on a paper calendar, and writing checks.

If you’re still operating this way, okay although, you’re missing out on the numerous tools that QuickBooks offers to track your accounts payable, including the ability to:

• Enter bills as they come in
• Set reminders for bills due
• Pay bills easily
• Locate a bill or payment quickly
• Enter bills as (or after) you receive items
• Link bills to purchase orders
• Have instant access to a bill’s status

 Bill Tracking

Figure 1: Window for Entering a bill

Receiving the goods

Note: Dealing with incoming inventory is complex. Consult with us if you plan to use this feature. 

Figure 2: Open order exist warning box

Click Yes. The Open Purchase Orders box opens, containing a list of open POs. Select the one(s) you want and click OK. The bill form opens, containing the details of that purchase order. Change quantities if they don’t match the shipment, and edit other fields as necessary. Save the bill.

Settling your debts

It’s good to set reminders for bills. Go to Edit | Preferences and click Reminders. Make sure that theShow Reminders List…box is checked, then click Company Preferences. Find the Bills to Pay row and enter the advance notice you’d like. Indicate whether you want to see a list or a summary, then click OK.

When bills are due, click the Pay Bills icon or select Vendors | Pay Bills. A window opens displaying all outstanding bills. You can pare this down by selecting a date in the Due on or before field and filtering by vendors. The screen will look something like this:

Figure 3: You can select the bills you want to pay.

Enter a check mark next to the bills you’re paying, and change the amount in the Amt. To Pay field at the end of the row if necessary. At the bottom of the screen, you can set the payment date and type, use any discounts or credits, and make sure the correct payment account is selected. When you’re done, click Pay Selected Bills.

Tip: You can have credits and discounts automatically applied by going to Edit | Preferences | Bills.

After You’ve Paid Up

There are a number of places where your bills appear in QuickBooks, including:

• The Unpaid Bills Detail report
• The A/P Aging Detail report
• The Vendor Center
• QuickReports
• In the Recent Transactions pane of some forms
• On the bills themselves

Figure 4: displaying the Paid status of bills.

QuickBooks also lets you void and delete bills, and copy and memorize them. Check with us before voiding and deleting, as this can make some complicated changes in your accounts.

You can just pay bills by using Banking | Write Checks or Enter Credit Card Charges. But the payoff for tracking bills is instant access to your accounts payable status, better relations with vendors, and a more insightful accounting of your company’s cash flow.

Related articles

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Mileage Rates Changed beginning July 1 2011

Posted by Bruce Mc on Jul 10, 2011 in Bookeeping, News Flash, Tax Planning | 0 comments

The IRS standard mileage rate for the final six months of 2011 was increased as a result of the recent increase in gasoline prices. The IRS usually only adjusts this rate annually in the fall.

This is the second time in the past 3 years however that they have done this.

The standard mileage rate was increased by 4.5 cents for business, medical and moving travel for the last six months of 2011. Charitable travel remained unchanged at 14 cents per mile as this rate is set by statue, not the IRS.

The standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Mileage Rates for July 1, 2011 to December 31, 2011 are:

• Business: 55.5 cents per mile (Compared to first six months at 51 cents per mile).
• Medical: 23.5 cents per mile (Compared to first six months of 2011 at 19 cents per mile).
• Moving: 23.5 cents per mile (Compared to first six months of 2011 at 19 cents per mile).
• Charitable: Unchanged at 14 cents per mile.

Financial Tool for Business Owners

Posted by Bruce Mc on Jun 17, 2011 in Bookeeping, Information | 0 comments

If there were a tool that helped you create crystal-clear plans . . . that provided you with continual feedback on how well your plan was working . . . that told you exactly what’s working and what isn’t, allowing you to consistently make smart business decisions to keep your business on track for success – wouldn’t you want to take advantage of it?

Well, there is such a tool. It’s called the Budget vs. Actual report.

Clarifying Your Plan

Clarity is power. The clearer you are with your business goals, the more likely you are to achieve them.

Creating a budget forces you to drill down in to the details of your goals. It prods you to think about how one business decision affects all other aspects of the company’s operations.

Example: Say you want to grow your sales by 15% this year. Does that mean you need to hire another salesperson? When will the business start to see new sales from this person? Do you need to set up an office for them? New phone line? Buy them a computer? Do you need to do more advertising? How much more will you spend? When will you see the return on your advertising expenditure?

You see, a budget is really a planning tool that makes you clarify your dreams. And planning is the first step in making your dreams real.

Navigating the Ship

Once you’ve clarified your goals, you start making business decisions to help you reach your desired outcome. Some of those decisions will be great and give you better than expected results. And some decisions will give you poor results.

This is where the Budget vs Actual shines.

When you compare your budgeted sales and expenses to your actual results, you see exactly how far you are off your plan. Sometimes you need to adjust your plan (budget) and sometimes you need to focus more attention to the areas of your business that are not performing as well as you planned.

Either way, you are gleaning valuable insights into your business.

It’s like sailing a boat. You are off-course most of the time – but having a clear goal and making many adjustments helps you reach your destination.

Just Do It

Nike knows the power of the phrase “Just Do It.” We often know what we need to do but don’t take the necessary action.

It may seem like a huge hassle to create a budget and then create a Budget vs. Actual report every month. But as with any new skill, although it’s hard at first, it does get easier.

Let us help you. We can guide you through the budgeting process. We can ask you questions that help you gain clarity.

You’ll feel energized after it’s done. You may even have fun.