Job Search Expenses May Lower Your Taxes

Summer is often a time when people make major life decisions. Common events include buying a home, getting married or changing jobs. If you’re looking for a new job in your same line of work, you may be able to claim a tax deduction for some of your job hunting expenses.

Here are seven things the IRS wants you to know about deducting these costs:

1. Your expenses must be for a job search in your current occupation. You may not deduct expenses related to a search for a job in a new occupation. If your employer or another party reimburses you for an expense, you may not deduct it.

2. You can deduct employment and job placement agency fees you pay while looking for a job.

3. You can deduct the cost of preparing and mailing copies of your résumé to prospective employers.

4. If you travel to look for a new job, you may be able to deduct your travel expenses. However, you can only deduct them if the trip is primarily to look for a new job.

5. You can’t deduct job search expenses if there was a substantial break between the end of your last job and the time you began looking for a new one.

6. You can’t deduct job search expenses if you’re looking for a job for the first time.

7. You usually will claim job search expenses as a miscellaneous itemized deduction. You can deduct only the amount of your total miscellaneous deductions that exceed two percent of your adjusted gross income.

For more information, see Publication 529, Miscellaneous Deductions. This booklet is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Publication 529, Miscellaneous Deductions
• The “What Ifs” for Struggling Taxpayers
• Publication 4128, Tax Impact of Job Loss
• Schedule A, Itemized Deductions

Reminder: IRS to be Closed July 5 Due to Budget and Sequester; Filing and Payment Deadlines Unchanged

WASHINGTON — The Internal Revenue Service today reminded taxpayers that due to the current budget situation, including the sequester, the agency will be shut down on Friday, July 5.

As was the case on May 24 and June 14, the first two furlough days, all IRS operations will again be closed on July 5. This means that all IRS offices, including all toll-free hotlines, the Taxpayer Advocate Service and the agency’s nearly 400 taxpayer assistance centers nationwide, will be closed.

IRS employees will be furloughed without pay. No tax returns will be processed and no compliance-related activities will take place. The IRS noted that taxpayers should continue to file their returns and pay any taxes due as usual. This includes the special July 15 filing and payment deadline for those affected by the Boston Marathon explosions. Taxpayers needing to contact the IRS about this or other upcoming returns or payments should be sure to take this Friday’s closure into account.

Because none of the furlough days are considered federal holidays, the shutdown will have no impact on any tax-filing or tax-payment deadlines. The IRS will be unable to accept or acknowledge receipt of electronically-filed returns on any day the agency is shut down.

The only tax-payment deadlines coinciding with any of the furlough days relate to employment and excise tax deposits made by business taxpayers. These deposits must be made through the Treasury Department’s Electronic Federal Tax Payment System (EFTPS), which will operate as usual.

On the other hand, the agency will give taxpayers extra time to comply with a request to provide documents to the IRS. This includes administrative summonses, requests for records in connection with a return examination, review or compliance check, or document requests related to a collection matter. No additional time is given to respond to other agencies or the courts.

Where the last day for responding to an IRS request falls on July 5, the taxpayer will have until Monday, July 8--the next business day.

Some web-based online tools and phone-based automated services will continue to function this Friday, while others will be shut down. Available services include Withholding Calculator, Order A Transcript, EITC Assistant, Interactive Tax Assistant, Tele-Tax and the Online Look-up Tool for those needing to repay the first-time homebuyer credit. Services not available this Friday include Where’s My Refund?, the Online Payment Agreement and the online preparer tax identification number PTIN system for tax professionals. Visit online tools on IRS.gov to learn more about these tools.

The remaining scheduled furlough days are July 22 and Aug. 30, 2013. If necessary, the IRS may announce one or two additional furlough days.

The IRS will also be closed as scheduled on Thursday for the Fourth of July federal holiday.

Tax Tips if You’re Starting a Business

If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal tax responsibilities. Here are five basic tips from the IRS that can help you get started.

1. Type of Business. Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.

2. Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Employer Identification Number. A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online.

4. Recordkeeping. Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.

5. Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.

For more information, check out the “Business Taxes” page on IRS.gov. From there, review the special section on Starting a Business. Publication 583, Starting a Business and Keeping Records, may also help new business owners with the tax aspects of running a business. The booklet is also available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Business Taxes
• Starting a Business
• Employer ID Numbers (EINs)
• Small Business and Self-Employed Tax Center
• Publication 583, Starting a Business and Keeping Records
• Publication 538, Accounting Periods and Methods

Tax Tips for Newlyweds

Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes. Here are several tips from the IRS for newlyweds.

• It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at SSA.gov, by calling 800-772-1213 or by visiting your local SSA office.
• If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
• If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
• If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4, Employee's Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information.
• If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return. You’ll need to use Form 1040 with Schedule A, Itemized Deductions. You can’t use Form 1040A or 1040EZ when you itemize.
• If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

For more information about these topics, visit IRS.gov. You can also get IRS forms and publications at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Form 8822, Change of Address
• IRS Withholding Calculator tool
• Form W-4, Employee's Withholding Allowance Certificate
• Publication 505, Tax Withholding and Estimated Tax
• Schedule A, Itemized Deductions
• Social Security Administration
• U.S. Postal Service

General Defalcation

When was the last time you considered your exposure to employee embezzlement and theft? Embezzlement deals with the misappropriation of a company's funds by bookkeeping and accounting personnel, and theft deals with the broadest area of inventory shrinkage due to employee theft.

There are usually two major factors that can cause an employee who has otherwise been an honest and trusted employee to suddenly become involved in an embezzlement or theft. The first is addiction, including gambling or involvement with drugs by either the employee or one of the employee's loved ones; the second is pressure created by an economic downturn.

Experience has shown that when a significant embezzlement or theft is discovered, it is usually a situation where the employee is a trusted person who has been with the company for an extended period of time. The employee has an exemplary record, is dedicated, and is considered to be a "company person." Additionally, if an employee did not have the implicit trust of the employer, the embezzlement or theft might not occur. The breakdown in internal control creates a situation where the dishonest employee can manipulate the system.

Typically, the employer is extremely busy and does not have time to get involved in the accounting department. Also, smaller companies may not have the staffing and/or financial expertise in place to ensure a strong system of internal control procedures. When you combine the previous factors with the employer's feeling of total trust in the employee, the situation can prove to be very dangerous.

Many businesspeople are not aware that the scope of a typical accounting engagement does not include specific services relating to the disclosure of employee fraud. It is of critical importance that every employer focus on his/her exposure to potential employee fraud. It is unfortunate that few businesspeople consider this potential for loss in their own operations. It is not until after such a theft is discovered that most employers become sensitive to their own exposure. It is imperative that every businessperson understand why employees commit fraud and what can be done to prevent employee embezzlement and theft.

Our firm can assist you in developing and implementing important internal controls that will help your company safeguard the integrity of your financial records while at the same time revealing discrepancies. Please email me or call me if you have any questions. I will be happy to assist you.

NOTE: This is NOT a free service.

General Internal Control Warning

How are you managing your business finances? Many business owners are discovering that their assets are not as well protected as they thought. This is especially true in small business environments where a single employee manages all the finances. Often there are no checks and balances to verify that transactions are accurate.

When proper, consistent procedures are not in place, employees can learn to manipulate the accounting system to their benefit. Whether they take money from the company or their mistakes are undiscovered, the end result can greatly impact your company's management discussions, financial reports, and tax filings.

Unfortunately, once your financial records have been altered, discovering problems is extremely difficult. Most standard accounting practices are not designed to uncover internal problems such as embezzlement.

Therefore, the best way to safeguard your company's assets is to recognize and improve weaknesses in your internal procedures. The following business practices can help you minimize potential internal control problems:

* Related duties should be assigned to different people.

Certain accounting functions are designed to cross-reference each other for accuracy, writing/signing checks, ordering/paying/receiving materials, handling cash/recording cash, etc. These procedures can reveal inconsistencies in your records in a timely manner.

* Reconcile and scrutinize your bank statements every month.

A bank statement can tell you a lot about your business if you review the information in a timely manner. You should examine checks and endorsements, track transactions between accounts, compare payroll checks with employee records, and ask questions.

* Always ask for proof before you sign a check or authorize a transaction.

When you insist on reviewing original documentation, your employees become more accurate and communicate their needs more clearly. You should also verify the names of your vendors and your employees occasionally. And remember to cancel supporting materials after signing a check.

* Lock and protect your valuables.

Keep blank checks and signature stamps secured, and deposit cash and checks daily. It's also important to secure fidelity bonds and insurance for all accounting and key personnel.

* Know your employees and examine behavioral changes.

Always verify employee references before hiring. Also, you should consider the need for conducting other background checks as appropriate, including but not limited to  the need for credit information, motor vehicle reports, and criminal searches. Many white-collar crimes go unreported and continue to be repeated. Watch for trouble signs: possible substance abuse, changes in lifestyle, living beyond means, possessiveness of work.

These internal controls can help you reveal many discrepancies as well as  recognize the excellent efforts of your staff. Our firm can help you develop and  implement any of these important internal controls. Please email or call me if you have any questions. I will be happy to assist you any way I can. (NOTE: This is NOT a free service.)