Tax Regulations

New change in IRS’ policy

The Internal Revenue Service (IRS) made public a major change on 24 July, 2023. According to the new release “IR-2023-133, July 24, 2023”, the IRS will no longer conduct unexpected visits to taxpayers’ homes or businesses. If you are selected for an audit, the IRS will send you a letter, informing you of the audit reason and requesting a meeting at a convenient time and place.

The IRS also assures taxpayers that the selection criteria for audits will remain the same, based on factors such as income, deductions, credits, and previous audit history.

What does IRS intend?

By adopting this major change, IRS intends to improve the efficiency and transparency of the audit process, as well as to reduce the stress and inconvenience for taxpayers and the hazards and uncertainty faced by the revenue agents.

Why IRS adopted this change?

There are several reasons that contributed to this change adopted by the IRS:

• the IRS hopes that by giving taxpayers more notice and flexibility, it will encourage more cooperation and compliance,
• the fact that scammers sometimes appeared at the door posting as IRS agents was very confusing for the taxpayers and law enforcement,
• this decision also comes after a series of complaints and lawsuits from taxpayers who felt harassed and intimidated by the IRS agents.

Unannounced visits

The IRS stated that it will only use unannounced visits in exceptional circumstances, such as when there is an imminent threat of destruction of evidence or harm to the public. The IRS also emphasized that it will continue to use other methods of contacting and auditing taxpayers, such as phone calls, letters, and scheduled appointments.

Conclusions

The IRS advises that taxpayers who receive a letter should respond promptly and provide the requested documents or records. Per the IRS most audits can be resolved quickly and easily, as long as the taxpayer cooperates and communicates with the IRS.

In the meantime, if you have any questions, we are here to help you with your business accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

 

What Are Tags?

Tags represent labels that can be customized and that can help you track your transactions in QuickBooks. For now, you can use tags for your invoices, expenses, and bills.

Grouping tags together allows you to run reports and see how specific areas of your business are doing. For example, you are a wedding planner and you want to see the net result for each wedding that you planned.

Tags do not influence your books and they track things at the transaction level. QuickBooks offers some other grouping options, like categories or classes. Categories are used usually by accountants and they are reflected in the chart of accounts. Classes are used to group income and expenses for job costing, budgeting or fund accounting.

Creating Tag Groups

First of all, you should create groups to put tags into. You should follow the steps below:

• Go to Settings and choose Tags
  • Click on the New button and then Tag group
    • Choose a name for the group
    • Choose a color from the dropdown menu
    • When you’re done, click Save

For example, let’s say that you run a beauty products company and you want to see which product has the best sales. You can do this by creating a group called “products”. Then create tags for specific beauty products and add them to your products group.

Create New Tags and Tag Transactions

You can create tags while you’re working on a form, like an invoice or expense:

• In the Tags field, enter the name of the tag you want to create, then select + Add
• Select one of your groups to add the tag to it

This creates the tag and tags the form. You can also add existing tags to forms, by simply entering the name in the Tag field and selecting it. You can add as many tags as you’d like to one specific form, but you can only choose one tag per tag group.

Get Insights from Tags

In order to see the Profit and Loss report for each tag or tag group:

• Go to Banking, then select Tags
• Find a group or a tag on the list
• Under the Action column, select Run report

Since tags and the tag groups have both money in and money out transactions, you’ll see how everything in the tag or in the group affects your bottom line.

Edit Tags, Tag Groups

• Go to Settings and select Tags
• Find the tag or tag group you want to edit
• Under the Action column, select the Run report dropdown, then select Edit tag or Edit group

Turn Off Tags

• Choose Settings
• Select Account and Settings
• Click on the Sales tab
• In the Sales form content section, turn off Tags, next select Save
• Select the Expenses tab
• In the Bills and Expenses section, turn off the Show Tags field on expense and purchase forms, and select Save
• Click Done

Tags are an easy and useful method to have more efficient financial reports.

In the meantime, if you have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

We advise that you link your bank and credit cards accounts to your QuickBooks for a fast way to easily record transactions and avoid manual data entry. Keep in mind that you can connect as many accounts as you want or have.

How Can You Link Your Bank And Credit Cards Accounts To Your QuickBooks?

• To connect your bank and credit cards accounts to your QuickBooks, you need to do the following steps:
  • Go to Bookkeeping -> Transactions -> select Banking
  • If this is the first bank account you’ve set up, select Connect account; if it is not the first account, select Link account

• In the search field -> enter the name for your bank or credit card institution
  • If you can’t find your bank, but you still want to avoid manual data entry, you can import your bank transactions (we will see how in a future blog)
• Select Continue -> sign in to your bank with your user ID and password -> follow the steps shown
• Choose the accounts you want to connect -> select the account type dropdown -> choose the account type that matches your chart of accounts in QuickBooks
• Select how far back you want to download transactions
  •  Some banks let you download the last 90 days of transactions
  •  Others can go back as far as 24 months
• Select Connect

How To Download Recent Transactions?

• You do not have to enter the transactions manually because QuickBooks allows you to download the transactions
• You will have to refresh the bank feed so you can download your latest transactions
• To download the recent transactions, do the following steps:
  • Go to Bookkeeping -> Transactions -> select Banking
  • Select Update

Categorize The Transactions

• Once you are done with the previous step, you will need to review and categorize the transactions to make sure they’re categorized right:
  • Go to Bookkeeping -> select Transactions -> select Bank transactions
  • Select the tile for the account you want to review
  • Select the For review tab to start your review

• QuickBooks sends downloaded transactions to the “For review” tab
• We advise that you review them one by one
• To streamline the review process, you can create a bank rule that automatically categorizes transactions for you
• For each transaction, you have the following options:
  • Match with an existing transaction
  • Confirm paired bank transfers
  • Add a new transaction
  • View and review multiple matches
  • Work with partially matched transactions

We will talk about how to create a bank rule and these options on how to match, add, or view multiple matches in a future blog.

In the meantime, if you have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Causes Of The Bank Reconciliation Issues

• While working on your business accounting in QuickBooks you could have problems with reconciling the bank or credit card account
•  The main causes of the bank reconciliation issues are:
  • Missing checks or transactions
  • Some incorrect adjustments
  • Mistakes when entering the transactions’ data
  • Changes made to past transactions

What Should You Verify When Doing Your Bank Reconciliation?

• In the QuickBooks reconciliation screen, check that you entered the correct ending balance and statement ending date so that they match the information on the bank or credit card statement
• Verify each transaction’s information (vendor name, amount, date, description) you see in the QuickBooks reconciliation module with the information on the bank or credit card statement
• The reconciliation difference should be zero, otherwise look after new, changed or deleted transactions
• After you arrived to zero reconciliation difference, if there are any transactions in the reconciliation module left unmarked, check that these are true outstanding transactions, meaning checks that you have written, but did not clear the bank or amounts that you deposited, but did not clear the bank
• After you finish the reconciliation, check that your register balance on the reconciliation report matches the bank balance shown on the balance sheet report for the respective date

What Can You Do If You Have Issues?

Print Reconciliation Discrepancy Reports

• If you have problems with the beginning balance when trying to reconcile, you can print some reports to help you fix the reconciliation:
  • If you use QuickBooks desktop, you should be able to print a “Reconciliation Discrepancy” report to see what changes were made since your last reconciliation
  • For QuickBooks online you should be able to see the amount or amounts that changed:
    • From the “Accounting” tab:
      • choose Reconciliation
      • then choose the account you want to reconcile
      • go to History by account on the right top corner of the page

Undo Previous Reconciliations

• If you’re unable to find any issues in your accounts, you may need to undo the previous reconciliation until the opening balance is correct
• If someone edited or deleted a transaction from years ago, you may need to undo your reconciliations for the past few years to get to where the opening balance is correct
• To undo the reconciliation:
  • Go to the Accounting menu
  • Select History by account on the top right corner
  • Select the account you want to undo the reconciliation for
  • On the right part of the page, under “Action”, click on the “View Report” arrow and select “Undo”

Change The Transactions’ Status

• Instead of undoing so many reconciliations and create so much work, you can:
  • try to find the problem transactions in your bank register; to do that:
    • go to the Accounting menu
    • select Chart of Accounts
    • find the account you want and select View register
  • once you identified the problem transactions, verify that their status is correct (R = reconciled, C = cleared, Blank = outstanding/uncleared); if it is not, you can change their status by double clicking on the status box until you obtain the desired status, so that you can fix your beginning bank balance in the reconciliation module

In some cases, users make journal entries to force their QuickBooks balance to match the bank statement ending balance, but we recommend you ask an accountant for guidance in this case, because an adjustment may create other problems.

We are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Automobiles

• If you use your vehicle for business purposes, you may generally use one of the two following methods to compute deductible expenses:
  • Standard mileage rate
  • Actual car expenses
• In this blog we are going to talk about the standard mileage rate

Multiple automobiles

• If you have more than one automobile, you should pay 100% of the costs for the primary business vehicle that is titled to your Corporation/LLC directly from your business bank account or using business funds and use the actual car expense method
• On the other hand, for the second automobile, if it is titled to you personally and not to your Corporation/LLC:
  • probably you will need to have in place an employer reimbursement accountable plan for your Corporation or LLC (see Publication 463 for requirements)
  • track miles and submit mileage reimbursement to the Corporation/LLC by December 31st
  • you should pay the expenses from your personal bank account

Standard mileage rate method

• Instead of deducting the actual vehicle expenses, a taxpayer can use the standard mileage rate method
• You can use this method as a substitute for the following actual expenses:
  • Depreciation
  • Lease payments
  • Maintenance and repairs
  • Gas and oil
  • Insurance
  • Vehicle registration fees
• You must have records showing the below information, and actually these records must be kept regardless if you use the standard mileage rate method or the actual car expense method:
  • total miles driven throughout the year, regardless if the miles were for business purposes or not
  • the number of miles driven for business purposes
  • the business purpose of each business trip
• The mere existence of a mileage log is not sufficient if the entries are too generalized or not supported by other corroborating evidence
• In addition to the mileage records, you should keep substantiation for other deductible expenses, such as auto loan interest, personal property taxes, parking fees, and tolls, which are deductible based on the business use percentage along with the standard mileage rate
• You can see here the rates for 2023: IRS issues standard mileage rates for 2023; business use increases 3 cents per mile | Internal Revenue Service

Standard mileage rate not allowed

• You can not use the standard mileage rate method if you:
  • Use five or more automobiles at the same time for business, such as in a fleet operation
  • Claimed:
    • a depreciation deduction for the automobile using any method other than straight-line depreciation over its estimated useful life
    • a Section 179 deduction on the vehicle
    • a special depreciation allowance on the vehicle
    • actual expenses for an automobile that is leased
  • Have an employer-provided business auto and unreimbursed auto expenses

If you want to use the standard mileage rate, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.

If you need help with your federal or state taxes, give us a call or schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Before filing your taxes, consider whether you should itemize your deductions or take the standard deduction.

The standard deduction reduces your income by a certain amount, while itemized deductions consist of a list of permissible charges. You can claim whichever is the most advantageous.

Standard Deduction

If you make the standard deduction claim, the IRS bases the standard deduction on your filing status and assigns a fixed amount to it. The standard deduction amounts for 2022 tax returns (filed in 2023) are:

• $12,950 for single taxpayers and married individuals filing separate returns
• $19,400 for heads of household
• $25,900 for married couples filing jointly or qualifying surviving spouse

Itemized Deductions

If you itemize your deductions, you can claim amounts you actually spend on certain deductible expenses such as:

• unreimbursed medical and dental expenses that exceed 7.5% of Adjusted Gross Income
• allowable taxes up to $10,000, for example:
  • property and some personal taxes
  • state and local income taxes
  • foreign income tax
• mortgage interest (reported by bank to you on form 1098):
  • has to be for main or second home
  • the taxpayer main or second home must secure the debt generating the interest
  • the debt proceeds must be used to buy, build, or substantially improve main home or second home
  • the accumulated debt is limited to $750,000
• personal casualty and theft losses from a federally declared disaster area
• donations to a qualified charity (up to 60% of Adjusted Gross Income)

 If you choose to itemize, you must include Schedule A with your tax return and list all of these expenses on it.

Advantages on choosing the standard deduction

• IRS does not require to keep records of your expenses or keep track of supporting documents such as bank statements, medical bills, tax forms, etc.
• The standard deduction has increased significantly compared to a few years ago and the IRS updates this amount for inflation every year
• Taxpayers aged 65 or older or blind can claim higher standard deductions:
  • the deduction is increased by $1,750 for single taxpayer or head of household
  • $1,400 for married filing jointly
  • if you are both 65 and blind, the additional deduction is doubled

Disadvantages on choosing the standard deduction

• The IRS does not allow you to use the standard deduction if you are married filing separately and your spouse uses the itemized deductions because you and your spouse must be on the same page when choosing the deductions
• In addition, if someone can claim you as a dependent, your standard deduction will be lower
• You could pay more in taxes when you choose to take the standard deduction instead of the itemized deductions, if your itemized deductions amount exceeds the standard deduction amount

Advantages on choosing the itemized deductions

• You could save some money: if your itemized deductions are higher than the standard deduction, your tax bill will be lower
• Your tax bill will change if you itemize even slightly more deductions than the standard deduction:
  • let’s suppose you are filling single, and you have $14,450 in itemized deductions
  • although it is $1,500 more than the standard deduction, which is $12,950 for single taxpayers, you won’t actually pay $1,500 les in taxes
  • always keep in mind that the deductions are deducted from your taxable income
  • and, in this case, itemizing deductions resulted in a $1,500 reduction in your taxable income, not in your tax due

Disadvantages on choosing the itemized deductions

• You have to keep receipts, bank statements and other documentation
  • for example, for cash charitable contributions IRS requires you to have:
  • if the contribution is less than $250:
    • bank records such as:
      • canceled check
      • bank statement
      • credit card statement
    • a document showing: date, amount of the contribution, and the organization name
    • receipt with date, contribution amount, and organization name
    • payroll record, if made by payroll deduction
  • if the contribution is $250 or more:
    • same as above, plus either payroll record or a written acknowledgement from the organization showing:
      • date and amount of contribution
      • if any goods or services, other than intangible religious benefits were provided by the organization and a good faith estimate of their value
      • a statement that the only benefit the taxpayer received was an intangible religious benefit (if applicable)
• The filing is more challenging because you will have to file a Schedule A and possibly other tax form

The tax filing deadline of April 18, 2023, is quickly coming during tax season 2023. The sooner you begin to prepare for the tax season, the better.

We recommend you keep your documents, such as interest statements, bank statements, receipts, 1099 forms, W-2 forms, and other documents in a secure location and properly organized, preferably in electronic format. For example, if you scan a receipt you can save the pdf file with a name such as
year/month/date/, vendor name and the amount. And you can create separate folders for each year.

If you need help with your federal or state taxes, give us a call or schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.