Action Tax Service

THE TAX ATTIC with Jerry Coon

March 17, 2011 // 0 Comments

Penalized for starting a business? One of the trickier decisions that must be made by those who are in business is deciding how much to spend on marketing. Once the dollar amount is calculated, then comes the even more difficult decision of where exactly to spend those dollars. Print media, such as advertisements in newspapers like The Rockford Squire and The Cedar Springs Post, must get an allotment of dollars. Internet-based marketing, such as maintaining a website, is certainly worthy of a fair amount of the dollars. In today’s marketing environment, yellow pages advertising, including both print and Internet-based search engines, deserve coverage. In addition, there are other opportunities that come up from time to time that demand participation and the outlay of some of those budgeted dollars. One of those opportunities happens this Saturday. The seventh annual Rockford Community Expo will take place at the Rockford High School from 9 a.m. to 3 p.m. The Expo is a great example of the spirit of cooperation that exists between the Rockford schools, the Chamber of Commerce, and at least 180 area businesses and organizations willing to spend some of their marketing money. No selling takes place on Saturday, just marketing. If everything works out weather-wise, up to 10,000 people will attend the Expo. How much is it worth to have 10,000 people walk past your booth and match up a face with your business name? To me and Action Tax Service, that’s worth every cent of my entry fee. See you on Saturday. Stop in and say hi to us at booth 64. Action Tax Service has been in business for over 20 years. In each of those years, I have talked to many people who are contemplating starting a business. Some of the things we talk about are how much money it will take to get the business started and running; what are the options to raise that start-up money; how to put a budget together; and determining what type of entity the business should take. One of the most important items is the last one: the entity options that are available to the start-up business. If there is just one person starting the business, there are four options available. The entity can be […]

THE TAX ATTIC with Jerry Coon

March 10, 2011 // 0 Comments

Good information is worth paying for I don’t have a tremendous amount of free time during the tax season, but sometimes I just can’t help taking the time to read some of the “top ten” lists that come through my e-mail. I believe it was David Letterman who started the Top Ten List thing that is now such a staple of the Internet. Charlie Sheen is such a winner that he will probably be claiming that next. “Top Ten Wackiest Deductions Ever” and “Top Ten Ways to Cut Your Tax Bill by $1,000” are examples of ones I have read lately. Since I’m a tax professional, my favorite is “Top Ten Reasons to Pay a Professional to Prepare Your Tax Return.” These lists all have good information and may provide us insight into how the Internal Revenue Service and the courts look at certain situations. For example, among the top ten wackiest deductions, a taxpayer deducted the costs of raising, feeding and maintaining two emus as a business. They never did claim any income associated with the two emus. They just claimed expenses. Eventually they were audited and the IRS disputed the fact that the taxpayers had a business. The IRS claimed that since they didn’t have a business, they couldn’t very well have business deductions. The court agreed with the IRS and all of the deductions were disallowed. What can we learn from this situation? There aren’t many emu farms in the Rockford area, but there might be a sheep, goat, horse, buffalo or alpaca farm out there. We can infer that two sheep, goats, horses, buffalo or alpacas might not be enough to be called a business. We don’t know how many animals it does take to be called a business, but two might not be the answer. Now that’s valuable information. Another item we could infer from this case is that a taxpayer that is generating no income but claiming deductions might want to be ready to prove they have a business. There are several factors that come into play when proving the business claim. The opportunity of making a profit is an important factor. In this case, how much income could be generated by two emus or two sheep or two […]

THE TAX ATTIC with Jerry Coon

January 6, 2011 // 0 Comments

Congress passes late tax law Welcome to the 2011 tax season. It’s going to be a season with some challenges. First, our Congress passed a very late tax law. They waited until December 16 to pass the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Predominantly, the law extends the Bush Tax Cuts and various other provisions to the 2011 and 2012 tax years. Everyone likes stability; especially tax professionals who are diligently doing tax planning with their clients. They have to be pleased to know, with a great amount of certainty, that at least the laws in effect right now will still be in effect for the next two years. Granted, Congress may pass new laws along the way, but the ones passed on December 16 will most likely stand as they are printed. Congress has provided stability by keeping the 2010 tax rates the same for the next two years. Those rates will be 10%, 15%, 25%, 28%, 33% and 35%. In addition, the capital gains rates and rules will be the same for the next two years. Long-term capital gains will be taxed at a maximum of 15%. For taxpayers in the 10% and 15% tax brackets, a special tax rate of 0% will continue to apply for the next two years. The Alternative Minimum Tax has been fixed through December 31, 2012. The favorable education tax credits and deductions that were modified by the American Opportunity Tax Credit are now available through 2012. The increased Child Tax Credit and Additional Child Tax Credits were extended. In total, there are over two pages of provisions that were extended through 2012. It’s not the 2011 and 2012 provisions that will cause problems for this tax season. The problem arises because Congress did a very unusual thing. They retroactively brought back several provisions that had expired on December 31, 2009. Before the advent of electronic filing, Congress could make changes with very little repercussion right up until December 31. Since returns were completed by hand, the Internal Revenue Service just adjusted the form and issued new written instructions telling taxpayers, tax professionals, and their own employees how to implement the changes. It’s quite a bit more difficult to deal with late […]

THE TAX ATTIC with Jerry Coon

December 23, 2010 // 0 Comments

Bush Tax Cuts extended two years   One of the reasons I enjoy writing this article for The Rockford Squire is they graciously allow me to write about areas other than income tax. I have taken advantage of that graciousness to write about a variety of subjects such as fishing in Canada, hunting in Marion, attending sprint car races in Iowa, and traveling with my family to various places around the United States. I do try to use those other topics to segue into the tax world. Sometimes that is a bit of a challenge. As many of you know, I got involved in a different type of challenge this fall. I ran for election to the Rockford City Council. The campaign had its fun moments, but it was hard work also. However, I was successful. I was elected on November 9, and have now attended two council meetings. It has been interesting. I have found that there are many activities going on in the City, including large projects such as Wolverine’s Tannery project and the 10 Mile Corridor project; smaller ones such as the extending of the Nature Trail Boardwalk and working with the Chamber of Commerce on the Santa Parade; and day-to-day activities such as keeping the snow cleared and maintaining the wells for the city water. I am quite impressed with how Michael Young, our city manager, manages all of those projects. After discussing various topics with him and seeing him in action, it is easy to see that we are fortunate to have him as our city manager. I realize his middle name is not Solomon, the wisest man who ever lived, but Michael seems to have made and does make many correct decisions. He runs an efficient ship and has put together a great staff that works well together. Longevity is one of the keys to being efficient and, as I found out at the staff’s Christmas party, there is much longevity at Rockford. Michael is celebrating his 15th year as our city manager. Derek Haan, Michael Miller and Chris Bedford are celebrating their 20th years. Jamie Davies, David Robinson and Jeff Dood are in their 10th years, and Greg Young is in his fifth year of working on the […]

THE TAX ATTIC with Jerry Coon — December 9, 2010

December 9, 2010 // 0 Comments

Ensure end-of-year deductions will be allowable   As we approach the end of this year, December 31 is the magic date. In order to include most items on this year’s tax return, payment must occur on or before December 31. The definition of “payment,” however, takes on a special meaning on December 31. The general definition today is that when a check is written, the item is paid. If I write a check on December 31, 2010, and can prove that I mailed it on December 31, 2010, in most instances—but not always—that item is going to be counted as being paid in 2010. We can look to April 15 for some guidance in this matter. If taxpayers have a balance due on their tax return, that amount is due and payable no later than April 15. The taxpayers can write a check on April 15, mail it on April 15, and it will be considered as paid on April 15 even though the check doesn’t arrive at the Internal Revenue Service until a few days later. However, the burden of proving the check was in the mail on April 15 lies squarely on the backs of the taxpayers. Since the check won’t arrive at the IRS until sometime after April 15, the IRS might question if it indeed was mailed on April 15. Anything short of certified mail with proof of mailing and proof of delivery could be questioned. Private carriers such as UPS and FedEx also provide proof of mailing and proof of delivery. A copy of an envelope with a stamp or even a meter showing April 15 can still be questioned because the stamp or meter normally doesn’t have a post office cancellation showing the envelope was mailed on April 15. Taking these same rules back to December 31 tells us that we must be able to prove the check was written and mailed on December 31 and not in January. Anything short of this proof could put the deduction in danger. In other words, if a check is written on December 31, 2010, but not mailed until January 2011, that deduction is questionable. To be safe, just write the check before December 31 so it gets to its destination before […]

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