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If you are self-employed, you likely use your personal car or truck for business as well as pleasure. If so, the business portion of your vehicle expense is deductible.

 

If you work for The Man and use your vehicle on the job and are not reimbursed for your mileage, you have a write off as well.

 

Did you know that you can write off mileage every time you run to the pharmacy to pick up a prescription or visit your eye doctor or embark other trip for medical purposes? And if you do volunteer work for a qualified nonprofit, your unreimbursed volunteer mileage may be deductible.

 

It gets better. If you work two jobs and drive between job #1 and job #2 (without going home first), you can deduct those miles. I have a client who saves about a grand a year in taxes because he writes off the mileage between his two jobs.

 

You’re thinking, “Yeah! This is great!” Sure, it’s great, but it’s not necessarily easy. Naturally, there are rules to follow, forms to complete, data to track. In fact, the IRS regulations state that you should basically attach a clipboard to your steering wheel and keep a mileage log. You need to track every deductible mile you drive. You must report the exact number of total miles you drive every year breaking out commuting mileage, which, by the way is not deductible, personal miles driven, and business miles; like you’re really going to jump on that one. Even if you make it a New Year’s resolution, it’s hard work to keep a complete and accurate mileage log.

 

I’ve been representing taxpayers in audits for more than 20 years and here’s the deal when it comes to that mileage log: The auditor asks for it and I say “Come on, you know nobody, absolutely nobody, keeps one.” (Well I did have a client once who kept one but was he ever audited? No!) So the auditor will argue for a bit saying he can disallow the deduction because no contemporaneous records were kept. I carry on about how it’s unreasonable to expect folks to really do this, and finally the auditor consents to a reconstruction.

 

So if you have an appointment book (always retain your appointment books in your tax file) you can go through it and using Mapquest if necessary, compile the numbers the IRS is looking for.

 

You should keep some basic records that are easy to manage:

 

  1. On January 1 log in your beginning mileage from your odometer into your appointment book.  If you use a PDA, record the mileage on a sheet of paper and place it in your current year tax file.
  2. Put a note on your December 31 calendar to list your ending odometer reading.
    1. Note: If you’re going through an audit and don’t have odometer readings, look for repair receipts near the beginning and end of the year. The odometer reading will be listed there and it’s possible to extrapolate the numbers.
  3. By subtracting your beginning from your ending odometer reading you will have your total mileage figure for the year. The IRS asks for this number on your tax return.
  4. Mark as many business destinations as you can throughout the year in your appointment book. At year end do a rough calculation to determine what your deductible business usage is.
  5. If your business usage is greater than 50% you may qualify to deduct that percentage of your total actual expenses including: gas and oil, tires, repairs, maintenance (car washes, etc.), insurance, loan interest, vehicle registration, and depreciation. Or you may elect to take the standard mileage rate times the total business miles driven. Your tax pro can help you decide which method is best for your particular situation. If you use your vehicle less than 50% for business, you can only take the standard mileage rate.

Due to the advent of PDAs, appointment books are becoming obsolete. If you use an electronic calendar and printout capability is not available, than you will want to log reminders to mark the odometer readings and store that information in your tax files. Quarterly, you should manually track business versus personal usage to establish and substantiate your percent of business usage.

 

It’s unfortunate that we have to spend so much time keeping these sorts of records, but you will be happy you did if the IRS knocks at your door.

Tommy Chong of Cheech and Chong fame, the standup/movie/music icon, has added entrepreneur to his list of achievements. But the businessman is staying in character with the Tommy Chong we have all grown to know and love. It’s all about weed. His new business venture in Colorado is manufacturing two products for distribution: Chong Star, a form of weed high in CBD and THC named after Dancing with the Stars (DWTS) in which Chong was a contestant last season, and “Tommy Chong’s Smoke Swipes” which instantly rid clothes and hair of smoky smells from cigars, cigarettes and cannabis. Chong tells me that Len Goodman, a judge on DWTS and a heavy cigar smoker, swears by the swipes product.

According to Chong, growing, distributing, and selling marijuana for both medicinal and recreational purposes is legal in Colorado as long as the product stays within the state borders. The product is also subject to sales tax which is levied at the dispensary level. Chong believes that levying a sales tax is tax overload on citizens. He says, “We are already taxed to death on everything.”

However, these activities are still illegal at the federal level. Even so, Chong does not fear reprisal from the Feds. He feels that pending court cases on the side of legalizing marijuana and, finally, recognition of its medicinal qualities will soon result in federal legalization of the drug.

Chong credits his remission from prostate cancer to the use of a hemp product under the direction of his naturopath in Canada. He strongly believes in its medicinal qualities. You certainly don’t have the litany of “side effects include…” when it comes to marijuana. “After all,” Chong adds, “The worst thing that can happen if you smoke too much marijuana is that you will regurgitate. This demonstrates that the body is equipped to handle it. When it comes to marijuana, the medical benefits far outweigh these issues.”

Chong adds that government resistance to legalization can also be attributed to their inability to regulate. He states, “You cannot regulate marijuana in the same way you can regulate alcohol because there is no one manufacturing point. It’s a cottage industry.”

The trend toward legalization is also evident with the leniency the IRS has demonstrated the last few years towards the marijuana industry. Previously, business owners were required to report their illegal income without the benefit of taking deductions against it. Things have changed. Beginning in 2011, deductions for cost of goods sold, which are the costs involved in production are allowed on tax returns. Most marijuana farmers are using the “full absorption costing rules” and “unified capitalization rules” to include administrative, overhead and direct costs normally not associated with cost of goods sold. In other words, they are basically writing off every expense. And the IRS is allowing it.

Chong is excited about his new enterprise. Although, he says, “Owning a small business is like doing time in jail. You are dedicated to that business. You don’t have a life. It absorbs all of your time. When I was in jail I had more time to myself than I had on the outside.”

Chong was jailed in 2003 for 9 months for selling marijuana paraphernalia.

Chong is joined by his son Paris and John Paul Cohen, a former Sanwa Bank executive, in his new business. “These guys handle the business end of things. I am not a businessman; I am an artist,” Chong states. It’s his wife Shelby, who he says has the business brains in the family. She has an accounting background. He always heeds her advice.

Chong says the best business advice he’s ever received is to prepay his taxes. “If you pay too much, you get a refund. And you’re not on the red flag list. Because you paid in advance, they’ll likely leave you alone.”

The best advice he has to offer to other entrepreneurs, however, is what he tells his son, “Research, research, research. You need to know habits and trends. There’s no excuse to not know everything you need to know. The knowledge is at your fingertips.”

Tonight will be our first date. Luke is taking me to dinner. Just two more hours before I get to see him! I feel a tingle as I move the queen of hearts below the king of spades. I’m like a teenage girl with the rush and crush of it all. You’d never know I was a 34 year old professional woman. I feel like snapping my gum and calling my girlfriends flat out on my stomach on the bed with legs raised behind me kicking off shoes and yammering into the phone, “and he’s all, and I’m like, and he’s like…” Christ. But I can’t help the delicious burst of joy that’s running from my tummy into my chest.

My life is about to change. I smile and move the four of clubs across to the five of hearts. Yes, my life is about to change. I can just feel it. A new man. A new adventure.

I look up. Andie is shouting, “You can’t go in there! You can’t go in there without an appointment!” And from the hallway, the thundering of heavy footsteps advancing across the oak plank floor. “Wait!”

Then a man rushing through my open office door. His handsome face is puffy, red and vaguely familiar. It blurs as he speeds to the front of my desk. He upends a black satchel and my eyes grow large as they move from his face down to stacks of bound hundred dollar bills tumbling onto the desktop, off the desk onto the floor. Mounds and mounds of them. I can’t even guess how much.

“Pay the IRS for me.” The words tumble just as rapidly from his mouth as the packets tumble onto the desktop. A waft of stagnant scotch hits my nose. Is he drunk?

I finally recognize the new client with the horrendous tax problem who paid me a small advance a couple of months ago, signed the IRS’ Power of Attorney form, but never returned with the paperwork I needed in order to proceed. “Simon? What’s going on?” He is so intent on his task that he doesn’t answer. “Simon?” I prompt again this time a little more insistently.

Simon scoops the last banded pack from the satchel, finally looks at me and says, “I trust you Kim. Pay the IRS for me. I’ll be in touch.”

By then Andie is in the doorway but rears back quickly when he barrels back through it. We watch him leave then stare at each other slack jawed for a beat. Then I’m up and running after him. “Simon! Wait!” He’s gone through the front door. I whip the door open, step out to the landing, and pause. I look to the right, nothing. I look to the left and see him running down the sidewalk. Shielding the late afternoon sun from my eyes with one hand, I call out to him again, “Wait, Simon. You have to come back!”

A squeal of brakes causes me to look across the street. A bronze vintage Oldsmobile, something out of the 1960’s, pulls to a stop. A woman in big round sunglasses, sun hat, and gloved hands, lowers the window, brings up a revolver and shoots Simon. I watch as he crumbles to the ground and the satchel flies out of his hands.

The car door swings open and the woman starts to get out but looks over at me as I scream. She turns toward me, raises the gun and before I can react, she fires. I hear a hiss and smell gunpowder as the bullet whizzes by my ear and lodges into the door frame behind me. Throwing myself to the ground, I crawl back inside and slam the door with my foot. I hear the crack of one more bullet then hear the sound of peeling rubber.

I stay on the floor. Tears erupt from my eyes as I hyperventilate. Alarmed, Andie is leaning over me. “What happened? What’s going on?” Her voice is anxious.

I put my hand over my heart and breathe deeply, exhaling loudly, trying to slow my breathing. Finally, I can speak. “Call the police, Andie. Call the police. And get an ambulance. She shot Simon.”

“What? Who? Who shot Simon? What?”

I glower at her. “Andie. Just. Call. Now.”

The door bursts open. I scream and pull myself into a fetal position, covering my face with my hands. Andie jumps back. After a terrifying moment, I hear her say, “Damn! I was just about to call you.”

Slowly, I pull my hands down from my face to see a police officer, hand poised over his weapon. It’s Mac, Officer McCarthy, who interviewed me several months ago when Dominic Rodriguez disappeared. Outside I hear another officer speaking into a two-way, asking for an ambulance.

I sit up feeling a tad embarrassed. Andie lowers a hand to help me up. I brush off my skirt. Mac sighs and drops his hand to his side. “It’s Kim, right? Kim Stillwell?” I nod as he pulls a small notebook from a chest pocket. “Well, you want to tell me what happened this time?”

Harley the Dawg says: You may be able to write off a service animal, security dog (they scare me), and herding farm dog. Talk to your tax pro to see if you qualifyPicture of a dog  in a party hat

Join Bonnie Lee, E.A., author of Taxpertise, for tax tips for foodies at the epicurean connection.

For details, contact:
sheana@vom.com | 707.935.7960 | 122 West Napa Street, Sonoma, CA 95476

Redwood Writers Meeting 2:30-5 PM at the Flamingo Conference Resort & Spa, 2777 Fourth Street, Santa Rosa, CA 95405 • Phone: (707) 545-8530  Click here for map.
We ask for a small fee of $5 from members and $8 from non-members to cover costs.

Bonnie Lee

Bonnie Lee

Sunday, November 11th, 2012, 3-5 pm

“It’s All About the Benjamins: Taxes 101 for Writers”

Join Bonnie Lee as she brings comedy to the topic of taxes for writers. Taxes can be boring, yes…especially for artistic types who prefer to deal with word play rather than dollar signs. Do you want to keep more money in your pocket? Lee will teach you legitimate ways to do so. You will be informed and delighted by this entertaining presentation.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service.

Lee founded Taxpertise (formerly Symmetry Business Services) in 1982 to represent taxpayers in audits, offers in compromise, tax problem resolution, tax preparation, tax planning, and to help non-filers safely re-enter the tax system. For more than two decades, she has specialized in tax issues relating to entrepreneurs. Learn more at her website.

Click Here for Flyer

The economy is swimming madly back to the surface. Yet many folks, especially business owners, are still suffering. A lot of you have delinquent income tax liabilities. And if the amount owed is unmanageable, staggering, you might feel overwhelmed. Perhaps you believe that you will never be able to repay the debt. You fear liens and levies and knocks on the door.

Then one day you hear a radio commercial: Step right up! Pay pennies on the dollar to get rid of your tax liabilities! Sounds good, a miracle answer. A solution is at hand. But if you’re smart, you’re skeptical. Does the IRS really compromise with taxpayers? Will they really let you off the hook that easily? And can these firms who make this claim really help or are they scamming taxpayers out of their money?

The answer is: it depends. In the next several segments, I will educate you on this topic so that you will know whether your offer will fly before paying good money to a professional.

Five years ago, the IRS issued a warning (IR-2004-17) to taxpayers to check carefully before applying for Offers in Compromise. The IRS commissioner at the time, Mark W. Everson said, “This program serves an important purpose for a select group of taxpayers. But we are increasingly concerned about unscrupulous promoters charging excessive fees to taxpayers who have no chance of meeting the program’s requirements. We urge taxpayers to not be duped by high-priced promises.”

As of this writing, the IRS accepts only 24% of all presented offers. Here’s how to determine whether or not you meet the program’s requirements.

First of all, if you are looking to compromise payroll tax liabilities, forget about it! The payroll taxes you failed to pay are considered a “trust” fund. They are made up of the employee’s withholding taxes, which was never your money to begin with. For that reason, the IRS will not compromise. If you have a choice, always pay your payroll tax liabilities before you pay your income tax liabilities. And if you can only pay part of a payroll tax liability, add up the trust fund portion (the withholdings) and pay for those. Be sure to indicate “trust fund-employee withholdings” on the memo line of your check.

Secondly, you need to determine the reason for the compromise request. There are two categories the IRS looks at: 1) Doubt as to collectibility and 2) Doubt as to liability. The first category is obvious – you don’t have the money now nor will you have it by the time the statue of limitations runs. The second category regards innocent spouse issues (my flaky ex owes this, not me!). Or involves changes to your tax return creating a new liability that are the result of an audit or other adjustments. You disagree with the changes but the statute period to prove your case has run out. Most offers in compromise fall under the heading of doubt as to collectibility.

The IRS expects you to pursue other routes before trying for an offer in compromise. If you have room on a credit card, they expect you to use it up to pay them. They want you to tap into family members and friends for loans, or refinance the house (which is probably still swimming madly toward the surface as well). They want you to try for an installment agreement with the IRS. This involves completing IRS form 9465, Request for Installment Agreement, and form 433-A, Collection Information Statement for Wage Earner’s and Self-Employed Individuals. From the data collected here, the IRS will determine if you can comfortably make monthly payments toward your tax liability.

If they decide you cannot afford an installment agreement, they may deem you uncollectible. When that official designation comes down, you will be left alone for an entire year. No collection efforts, no garnishments, no liens, no levies; you enjoy a reprieve. Penalties and interest will continue to accrue, of course. But you won’t have to worry about Roscoe and Vinnie showing up at your door. Once the year is up, they will send you a threatening letter, designed to make you shudder and cry. But don’t be alarmed. It’s spit out from a computer and it’s just their way of getting your attention, of making you respond. Do so. Reevaluate your financial status and go for the installment agreement if you’re able, or get deemed uncollectible again or if it looks like your dire straits will continue unchecked forevermore, consider an offer in compromise.

Stay tuned. In the next segment I will discuss how to complete form 433-A. You might be surprised to find that the IRS has a different take on your finances than you do. If you’re hell bent on getting this information immediately, purchase my book Taxpertise, The Complete Book of Dirty Little Secrets and Tax Deductions for Small Business the IRS Doesn’t Want You to Know, available at www.entrepreneurpress.com.

Dear Bonnie or Harley the Dawg,

When will the IRS send out the rebate checks and how do I find out how much I will get?

Cindy

Dear Harley the Dawg,

I just got a divorce and my ex-husband is giving me $50,000 from a CD we had together. Do I have to pay taxes on that? If I do, I’m gonna be hella mad.

Judy

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©2013 Taxpertise | Bonnie Lee, E.A. | Ph: 707.935.1755 Fax: 707.938.1891 | 453 2nd Street West, Sonoma, CA 95476