Finance Shminance Presents: The Benefits Of Good Bookkeeping

Finance Shminance Presents: Another Misinterpreted Tax Deduction

Finance Shminance Presents: A Commonly Misinterpreted Tax Deduction

A Commonly Misinterpreted Tax Deduction

Who doesn’t love tax season!? Oh that’s right, no one does! Except the government maybe, or a few quirky accountants like ourselves. None the less, we all have to deal with taxes, and getting the most out of qualified expenses and deductions can be one of the best ways to lower that tax bill. After all, I don’t think anyone loves giving their hard earned money to the government. So capitalizing on deductions is of upmost importance. However there are many deductions that have been misinterpreted over the years that the IRS clearly says are a no no. Here is one.

Travel expenses for work

There is no doubt that travel for work can be a qualified expense. But in order for it to be qualified, the right circumstances must be in place. Travel expenses are ordinary and necessary expenses incurred when a taxpayer is temporarily traveling away from his or her “tax home” for business purposes. Some examples are:

  1. Flights, bus, train, or car travel between the “taxpayer’s home” and the business destination.
  2. Use of a car for business while at the business destination.
  3. Transportation between airports and hotel, and between hotel to business destinations (including tips.)
  4. Meals, lodging, laundry.
  5. Along with other ordinary and necessary expenses related to the business travel.

Key word being “tax home.”

What does the IRS consider to be the tax home? According to “The Tax Book, Deluxe Edition 2019,” the taxpayer’s tax home is generally his or her regular place of business or duty post, regardless of the location of the family residence. The taxpayer’s home includes the entire city or general area in which the taxpayer’s business is located.

Notice that the tax home can be different than the personal residence. If the taxpayer’s regular place to live is different than where the tax home is considered, then the travel between the tax home and personal residence is NOT a deductible travel expense.

To quote Emmet from the “Lego Movie”: Okay wait, I think I got it, but just in case… Tell me the whole thing again. I wasn’t listening,

Here is an example of a Court Case to help clear it up: A taxpayer took a job as a barge mate in New York but maintained residence in Jacksonville, Florida. The employer paid the travel expenses from New York to other business locations. But the taxpayer took deductions on their own tax return for the travel expenses from Jacksonville to New York. The IRS contended and the court ruled that the taxpayer’s residence in Florida was a personal choice and the travel expenses were not qualified deductions from Jacksonville to New York, and they were disallowed.

There are many others that fall into this category. For example, some have decided to go work a few states away, such as North Dakota, to work in the Oil Fields. But say the worker lives in Washington, and goes back to work in North Dakota. They stay on three weeks then come “home” for two weeks. The tax home then becomes North Dakota, and their primary residence is Washington. The travel to get back and forth to North Dakota is therefore NOT a deductible expense, as it is there choice to stay living in Washington.

Don’t push your luck

While we all want to get as many deductions as possible, imagine if someone took $4,000 a year for 10 years as a tax deduction that was not allowed and they were audited. The IRS can go back as far as they want and make them pay back the tax owed on the disallowed deductions along with penalties and interest. They could potentially owe tax on that $40,000 after the audit. In my opinion, just do it right the first time. There are other ways to capitalize on savings. If someone is not sure of the tax rule, we suggest to do the research, or better yet, hire a professional. To save a couple hundred dollars now, could cost you thousands in the future.

To make a tax appointment email us at the address below.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.

Start Paying Off Debt Now

There seems to be a major trend in the U.S. where Americans are racking up more and more debt. According to the Federal Reserve for the last year and a half the total consumer debt has been hovering just over $4 trillion from January 2019 to present. According to Experian last year at this time, Americans had $830 billion in credit card debt alone. That was a 6% increase year over year giving each person an average of over $4,000 in credit card debt. In addition to credit card debt, personal loans, car loans and student loans are on the rise.

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Almost everyone would like to be debt free, yet few are. How can one start the process to pay off debt? More importantly, how do you stay out of debt? Here are a few tips to use to help escape the trap of owing someone else money.

Make a budget

In order to start the process of paying down debt, monitoring cash flow is key. Figure out how much income comes in reliably every month, then make a list of all payments going out each month. Making cuts is almost surely possible.

A few minor adjustments can go a long way. Start making coffee at home instead of going through the coffee stand every day. Maybe try sticking to just one streaming platform for TV watching. Make meals at home for a month without eating out. Making a budget and reviewing spending may also reveal some surprises you weren’t aware your money was going towards. At first this exercise may be hard, but the sacrifice will be well worth it in the long run.

Make a plan

There are two common ways to pay down debt: 1. Debt avalanche, and 2. debt snowball. We’re not going to debate which is better for they both work. The important thing is to pick a plan and stick to it.

Debt avalanche is paying down the debt with the highest interest rate first, then moving on to the next highest, and so on. The debt snowball method is paying off the smallest balance of debt first, then moving up to the next smallest on the list.

While a debt snowball doesn’t save a borrower on extra interest payments like the avalanche method does, the snowball effect can have a good psychological impact. One quick and small victory at a time can compound quickly to the next small victory until there is only one big payment left, providing motivation along the way to keep going. But again, the point is to pick a plan and then stick to it.

Avoid new debt

After determining a monthly budget, put all the credit cards away. Start using cash. With a new budget in place and an allotment of cash dedicated for certain things, it will be easier to not give in to non essential purchases. As your cash balance gets lower, making wise decisions with money will be easier than just throwing it on a card and figuring it out later. Once the cash runs out, that’s it. Don’t spend more than you make and do NOT use the credit card on a non-essential item that can wait.

Stay the course

Taking these steps can be very challenging and daunting, but taking back control of your hard-earned money brings a feeling of peace-of-mind. You are in control, not the bank. The strapped-down and trapped feeling of not having enough money will slowly go away.

And once out of debt, take some time to remember how it was before when you owed someone money. That can provide the self-control and discipline needed to stay out of debt. When all liabilities are paid off, don’t slip back into old habits. The money used to pay down all the debt can now be the money you use pay your future self. Take that amount each month and put it in savings. Build up an emergency fund and a retirement fund. Don’t buy something you can’t afford, and stick to your plan!

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.

A Few Things To Keep In Mind When Investing

Whether someone has been a long-time investor or is just getting started, there are a number of rules to reflect on that can help create the right mindset and keep one focused. Many investors let emotions lead them down the wrong path with their investments. It can be hard to let go of feelings of fear and greed. Here are a few tips to consider that may help get the right perspective.

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Think long-term

  • Investing is like a marathon, not a sprint. Don’t have unrealistic expectations for short-term returns.
  • Don’t invest money that you can’t afford to lose. All investing has risk.
  • Keep at least a three to six month emergency fund, so when “life happens” you are not forced to sell your investments. Not having an emergency fund can be detrimental if the market is in a downtrend when you make a withdrawal, and give cause to even more anxiety.
  • Buy quality positions and hold them for a long time. Focus on companies that have proven they adapt to varying economic conditions.
  • Don’t buy investments you don’t understand. Do the research and make an informed decision.
  • Stock market volatility is normal. Don’t panic sell! If you own quality positions with a good outlook, it’s time to do the opposite and buy more shares.

Be prepared

As mentioned above, having an emergency fund is key. The last thing an investor would want to do is have to pull there money out just a few months or even a couple years down the road. In addition, if invested money is in a retirement account, there is usually a 10% penalty plus tax on the withdrawal as well. It is easier to stomach a down market knowing you have a reserve fund.

Investing in the stock market (which represents business ownership) remains one of the best ways to get a return on invested money. Many want to get started but feel they don’t have enough knowledge. Having a professional manage your account can give you the confidence to get started and give you the time to focus on doing the things in life you’d rather be doing. Feel free to contact us to discuss this more for you personally.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.