Colorado Springs: Natural Disasters and Tax Scams -- How Ready Are You?

 

We want to also remind you that if you want to learn more about the tax planning services, tax resolution services available in Colorado Springs, or if you have trouble with the IRS, behind on filing tax returns, or owe the IRS back taxes, I can certainly help you resolve those issues as well. As well as any other year-round services that's offered by Cash Tracks Financial because that's what makes this podcast possible is Cash Tracks Financial Inc. And the way you can contact me is by email success@cashtracksfinancial.com. Or give me a call which is 844-394-4287 or visiting of course cashtracksfinancial.com online. I'm also on Facebook, Cash Tracks Financial, and also the YouTube page which is also Cash TracksFinancial, because by learning about our various services, we make tax time less taxing as well as work to have you whether individually or at the business level pay as little tax as possible. So, we're gonna go and get into it this time is the topic that is going to be discussed today, which is Natural Disasters and Tax Scams. How ready are you for these? We're going to touch first let's begin with the scams because taxpayers have so much information that can get used abused by those who are seeking out to get your information. There's been so many creative scams over the last few years.

Not long ago, there were those calling up on the telephone, and saying if you don't pay me right now or send this payment right now the IRS is going to send the sheriff or police or whoever to your door and arrest you. Now it was a scam to get you to try to make payments through debit cards or other means. There's also been many scams for fishing emails, they send you an email asking for perhaps information threatening from the IRS. See, I've gotten similar emails myself as a tax professional, except in my case, what I get sometimes are emails from individuals who claim they want to be clients or they need help with their taxes. But because we have such stringent security policies here within Cash Tracks Financial, I don't click on stuff because one area is especially here, which is really good. And you need to ask your tax professional this, do they accept tax documents through email? See what happens with many tax professionals is that these emails will sometimes go out trying to get into your system, which I've had several of these over the last couple years.

Ones will send me here's my tax documents, click on this link to go to my secure Dropbox or other online system to be able to get my documents and review my documents. Well, I immediately respond back to these ones and say, Sir, or Madam. These are the policies of Cash Tracks Financial, and thus, I will not click on your link. If you want to use my services, you need to follow our procedures which includes responding to the invitation we send you for our online portal and you upload your documents to the portal and see by doing so, I make sure I keep people out of my systems and I keep them the system secure as possible, which is just absolutely vital to do in these times. And so that's just something as a tax professional that I've had to fix, really watch out for in regards to scams.

And there's just various things out there another area that I personally avoid, because I get a lot of different emails as well as any mean emails for someone offering services of some sort. And all they have is like a free like Gmail account or a free Hotmail account, but they're offering me some type of services. And usually, I just click those away as well. Because I don't know the person. And I don't, I'm not sure if they're legit or not. And it's hard to track them down where whoever their business is. So anyway, just some little tips to watch out for scams and scams that I've had to watch out for. But as we look at these, how these continue to evolve with the IRS, we got to keep in mind whenever certain methods of communication are used. And these are methods such as like early mentioned, email, aggressive telephone calling and one of the newest methods, it's being used as text messaging, ones try to imitate the IRS. And with this, they're doing what's known as now called a smishing campaign. And that's targeting you through text messages.

And each of us and we've seen these text messages come through or these messages come through various social media platforms, saying that, well, we need to maybe take care of a matter or the IRS is trying to contact us to do take care of certain overdue tax bills. Well, keep in mind, the IRS does not communicate with you directly through email. They do not communicate through telephone aggressive telephone calls. And they do not right now communicate through text messages. So, any of these methods that you get, you receive some type of message or communication where they're trying to imitate the IRS trying to look like the IRS website or IRS graphics or whatever they look like you got to be very, very careful and just kind of look and hover and not tap on anything that is going on there.

Now, we consider there's many different levels that they to do to try to just get you to come in and try to get you to perhaps provide some of your personal information because one area is you got to keep in mind is that the IRS already has usually things like your social security number, they already have your birthday. So, if there's a somebody's asking you for this information, you can definitely probably guarantee they are not from the IRS because the IRS is not likely to ask you for your social security number, they do ask you for it, when you call them and talk to a live person, they want to confirm your identity. But if their call, if someone's calling you and it's not an original, not something that you've started previously with the IRS, then you got to be very, very cautious and just throw up the red flag and move on definitely.

Now keep in mind there, there's a lot of different levels that are used such as COVID relief, these some of these have been used in the past, they still may be trying to do some of this now, there's various tax credits that they want to make sure claim they want to help you to qualify for and get the maximum credits. Well, watch out for those. And some of these are probably going to pick up more as we get a little closer to tax season. But it's good now to think about this and to be on the watch. That way you don't get caught up in this. Or perhaps they're looking to try to help you set up an IRS account through the ID that the IRS is trying to encourage ones to use to set up their personal accounts with the IRS which it's a little difficult to use. But ironically, this year after I helped a few clients that needed to set up to verify their identities because you get these occasional letters from the IRS saying please verify your identity before we can send off your refund.

It actually went pretty smooth on the individuals that I did. So just keep in mind that if you're going to try to set up your IRS account, don't go through one of these people that are trying to solicit you via one of these methods that I've mentioned. Go to a true tax professional like myself to help you to do that if you feel like you really need some help. Another area which to me is a scam is and I've received a lot of these emails. And actually, I have a lot of these showing up in my spam email now. And these are people who are pushing the Employee Retention Credit. Now this to me is an absolute biggie because it can affect a lot of areas and a lot of tax returns. If people after the fact go in and apply for this credit. I'm going to come back to that more in just a little bit. But keep in mind, watch out for those who are trying to get you to you to take out or to apply for the employee attention credit.

So, this area, once again is very, very huge with the IRS, you need to just keep your eyes open. Watch out for this fishing, they're looking out for personal information to do some identity theft to try to grab your information and basically go make some money. So, keep it in mind that the IRS only communicates generally through letters. And if you ignore those letters, it's not a good thing to do, which could put you into some tax trouble, but you want to make sure that you do respond to letters from the IRS and genuine letters from the IRS. Now, some of these areas that are sending out in the new area, like se as earlier, a newer method, or maybe just going on in the last few months is through text messages. And at some point, everybody's going to receive one, I've received emails, I've received a few of those threatening phone calls. I haven't received one of the IRS themed text messages yet.

But like everything else, I'm sure it's going to come at some point we got to be had our eyes open, be on the watch for such potential scams and to protect our personal information. Now, what happens with these text messages now what they're doing is that they're sending this text message out to you, claiming to be from the IRS with a link in it and just like a link in an email that you want to avoid clicking on in the text message, you want to make sure you avoid tapping on that link that is in that text message. Especially if it's from someone you don't know and especially if it's from someone that is imitating the IRS. Keep in mind, IRS does not communicate through text messaging. Now what happens with these links, if you happen to tap on these links, it takes you to some type of fishing website is one potential result of that, which asks you to fill out whatever information it's probably some type of fishing website that has IRS themed material and really made up to be like a copy of the IRS or tried to make it look like it's really legitimate like an IRS website. Just don't click on.

If you happen to tap on that on your device, just don't go any farther, you just don't want to mess with it. Another reason why you don't even want to tap on that link is that perhaps they're going to add some type of malicious code to your phone, perhaps try to take over your phone. I mean, we've seen how individuals have taken over various laptops and desktops. But this code, this bad code really can be used to take over your phone and perhaps get in and get your information off of there. So just once again, be very, very suspicious, be vigilant about any email, any type of message that could be used to imitate the IRS, you just got to be very, very careful on it. Once again, I can't help but stress that enough.

Now, the IRS actually does have an email you can use. It's phishing@irs.gov. I also got that in the description for this particular podcast as well. And when you do this, you and to send this information you're going to send it from caller ID, whatever number comes on the caller ID if you're called, send a copy of the text message or the email and possible, of course, and the phone number associated with that, or even the email address. And then the date if you can the time, and all the information that you can to try to really, really help ones to be able to get this information out. Now earlier, as I mentioned, I call a lot of these approaches we're getting in regards to the Employee Retention Credit to me, some of them are very shady and very scam. Because many times I've to actually talk to one of these just to kind of get information gather a little bit.

And they make it sound also Gray, the oh, this is like a grant. They make it also sound like oh, well the IRS is taking time to process these. So, we have a way for you to get some of them to get the money a little bit quicker than the IRS is perhaps doing. And so that just sounds fishy to me. So, we're gonna help you to prepare and file for this credit. Well, my question is, and I didn't really go much further with them. But there's other areas that fall in with this credit such as what are the rules in regards to the credit to employee owners of a corporation or a shareholder of a corporation? That is also an employee of the corporation? Was there qualification for it, also is the corporations file his tax return which many of them for 2020 or 2021 have filed their tax returns and then if they go back and apply for the employee retention credit for one of those yours, guess what they have to go and do, they have to go back and amend their tax returns in for the time that they're taking the Employee Retention Credit. And so that just creates a whole new mess of worms.

Now, I don't know if these people mentioned anything to individuals or businesses about that. But that is something that could possibly happen. If you go back to 20, or 21. Yes, you can still apply for these credits, this Employee Retention Credit, but is it really going to be is it really worth it, I don't know, each individual case could be different for some businesses, it could very well be worth it to go back and apply for this credit, and to get it but I wouldn't do it through any of these services that are constantly sending out emails, or maybe given you a phone call, I wouldn't do it. Once again, I would go in and I would talk and just maybe have your tax professional who the person in person or service.

Now you use the firm, maybe look at this, and see if you actually do qualify for this credit, and really look at it with all of the rules for the credit, because a lot of the people like I work with are individual owners. And that it's real, it's real difficult in some of those areas to look at that credit and see as well as the qualifications that are required for those sales that need to be done. And for loss of sales in 2020 and 2021 in regards to the employee retention credit. So just be very cautious. Make sure if you're going to go and apply for this is make sure that whoever you're using to do it is a very good, very thorough and asking questions or mentioning things about the potential of having to amend tax returns. So just some excellent reminders for everyone in regards to watching out for scams that are out there.

In fact, there are some scams that are so bad and so persistent. And I've done a show on this prior about the IRS Dirty Dozen. And yes, there's a lot of other things out there that one's tried to use to avoid paying taxes just because they don't like paying taxes. But, hey, taxes are just a reality of life. And there's excuses that's trying to be done. And at some point, maybe we'll cover the most recent time IRS Dirty Dozen for you. But yet, we want to keep in mind that we just keep up with our taxes, we pay them and we'll be good with the IRS. Now, as we're looking to toward other areas here. Are we ready for a disaster, we have hurricane and just recently crossed through Florida and affecting the Carolinas there. Now, that's very sad for those individuals that are having to deal with, having to recover. And we all we all just hope for the best with them now. One of the provisions the IRS has done in those areas is that they are providing relief. Because we have coming up just shortly after this, this podcast is released, we have October 17 coming up, which is which is the deadline for filing taxes if you filed an extension. Now for those who have not filed, they're gonna get up until February 15 of 2023 to file.

Now, some payments, though are still gonna are still going to be due. Because when relief is given, it excludes payments that were due on April 18 of this year. So hopefully, if ones have made whatever payments they need to make, hopefully they've made them applicable for the 2021 tax year. Now, though, for those who may have some employer related payments that need to be made and employer related forms that need to be paid. You have a little bit you have more time you have up until February 15 to get those payments made, and to also be able to file the payroll tax returns in this case can be the 941s. Now we keep in mind that this relief applies to areas that are declared to be disaster areas by the Federal Emergency Management Agency or FEMA. And there's an IRS disaster page to look exactly to see if your locality is among those that fall within this area of relief.

Now also, if you are in one of these areas where this relief has been granted, you don't have to apply for it anything that relief is just automatic. So, you just go about getting stuff done, get organized, and just get yourself filed by February 15. What is the stress for us here? This stresses for us that the importance of having some type of emergency preparedness plan. So how are we going to do that? I mean, because we got various types of disasters you have like in the hurricanes that hit some areas, you can have earthquakes, other areas, you can have tornadoes, torrential rains, you can have floods. So how do we prepare, in a sense for, for this financially for tax wise? Well, some suggestions I'm gonna go through here are just our items that we all can look at possibly doing. And such a start by securing and duplicating essential tax and financial documents. How do we secure those? Well, one way is to perhaps set them up in a, have copies in waterproof containers in some type of secure space, this could be a safe, this can be something or an area that that's a new deck can be very strong. You can also look at having such documentation with a trusted person, someone who you feel you're comfortable with, keep a copy outside of the local area. Because disasters like you know like in or if a tornado hits a certain area, if you're out outside of that area, have someone outside of that area where you are you can be and keep your documents safe in the event of a disaster.

Now, a good, a good area to look at now, especially these days is to perhaps consider as you're making copies, if you only what you have is on paper. Can you look at perhaps scanning of getting him into a digital format, having some type of once again, secure digital location because one area he talks about a lot in our business is having offsite Backups? Are we, are we, am I as a tax professional just backing up my system to another disk drive here? Or do I use some type of offsite backup system. And it's so easy nowadays to be able to do this backup with many qualities online services that provide the necessary security that is needed, and be able to provide you with access to those should you be able to need. Now most individuals can use services, perhaps like maybe you can use like a Dropbox or OneDrive or some type of cloud-based storage application to store these documents in or copy electronic copies of these documents. That way, after a disaster, you have access to them to be able to once again get back on track and get going there. So, it's really good to look at making copies.

Now as you're also as you're considering this, looking at your disaster preparation, being prepared, just in case, taking this to the next step, not just your tax documents, your receipts, things I talked about scanning them in, how about your just regular valuables in your home, you want to make sure you document out those valuables. And that's important for tax purposes as well to have a good documentation of your valuables and have this as part of your cloud storage or other area that you're using to keep track of your tax documents. This detailed inventory of both personal and business contents will be very helpful for insurance purposes. But yet, once again, as I mentioned, it will be very helpful for tax purposes as well. Now, because in some circumstances, you're going to encounter times where you have insurance, but for some reason or some oddity, insurance may not cover everything in related to the disaster, which is why these descriptions because you want to make sure that with these descriptions that you make, that you get as broad and as big as you can and getting them covered.

Now, for some reason, maybe insurance doesn't pick up the total cost well, you may qualify to get some casualty losses on your tax return depending on the amounts there are and so on. So just keep that in mind, it's not just thinking for insurance purposes is for tax purposes, why you do these, photos, videos with descriptions would be very good. Because especially when we're dealing with insurance, and once again, with taxes, we can forget things, we can forget how much clothing we actually have, we can forget about pots and pans and so on in the kitchen, we can forget about certain electronic devices, we didn't forget about certain things maybe that we don't use every single day or once or twice a week. But if maybe only once every six months or every couple months, we may forget some of these things. So, but if we get good documents and videos of these, we're going to be able to remember about what needs to be done then. So that we can make sure you get either the proper amount of insurance claim put in or be able to file it for the correct amount for our tax return purposes as well. Now, as part of this as well, if you're a business the same holds true with your records.

Try to keep as much of them in a digital format and stored not only on site of your business, but also off site of your business using some type of cloud storage but depending on the type of business you're in, and business in general, you may want to look like if you're gonna use some type of cloud storage, you may want to use something that will really secure your documents. Very good, secure company that can store especially if you're dealing with the information like we deal with the cashtracksfinancial deal with a lot of person person's private personal information. And with that information, we got to use a higher level of security, Central is what we have to do. And because of that, we pay certain amounts for that level of security, not just locally, but as well as for our protection for backups, and so on. So that's something as a business you need to consider looking at perhaps doing and just general business documents while having a good level of security there for your backup as well as your life.

Also, if you are an employer, you're encouraged to make sure and use EFTPS, The Electronic Funds Tax Payment System directly from the IRS. That is excellent. I've had great success with that in recording, keeping track of payments I've had, in the 20 years, I've basically been using the system, I've had it happen only once or twice where I've actually had to send in a copy of the confirmation notice to the IRS and say, yes, we did make this payment, as well as what's good about EFTPS is that you can go in, you can take a look and see what payments you actually made. And for what quarter you actually made them. If you're talking employer payroll taxes, please see exactly what you did and keep track of it. Also, perhaps if you use some type of payroll provider, like I use a service here as part of my payroll.

And what we do is we pre fund all of the payments, we don't wait to the quarter or we don't wait to the end of the month, we process and we get those amounts from the employer with each payroll. And with those amounts, the IRS amounts are paid on a monthly basis, or by weekly basis, whatever, whatever the employer happens to be with their scheduling with the IRS for making the payments, so we get all of that done. And so those are areas once again, keep in mind and use if you're in one of these disaster areas or a victim of a disaster, make sure you're using these electronic tools from the IRS to help you to keep track of the payments. Farmers and Ranchers when I have several in my area here, where due to extreme drought conditions, you can be of course, able to take deferral on the sale of cattle. Yes areas, these are areas that are determined by the National Drought Mitigation Center, that where farmers are able to take certain deferrals on the sale of cattle, because every year as ranchers go through and update their cattle every so many years, due to a drought, they may be required or they may have to sell have a forced sale of livestock because of drought conditions, some of their breeding livestock and so because of this.

 If it's due to drought, they can defer the gains on those, which is really great benefit. I've done this before for some clients and it's worked out very well. It's getting the correct documentation to the IRS; you get those deferred now usually there's only four years to replace them. And usually not that hard to do. But in some areas the drought has been persistent and it hasn't been as easy to replace the cattle. So right now, for example, this year, the IRS has actually extended that deferral period. For those that sold cattle in 2018, their replacement period was actually ending on December 31 2022. Well, that has now been extended for those who have who filed for that until the end of 2023 to replace those cattle. So, a fine extension that the IRS has given for, for ranchers to be able to continue to defer that capital gain otherwise they'd have to pay the tax on that gain from that unexpected sale of the capital, which for some can be a very large gain, or actually could be double or triple of what they normally have done in prior years. So that deferral is a real good benefit.

And I've done that, once again, it's for ranchers can turn out to be just a wonderful, wonderful benefit for them. One other area I'm going to touch on here is that PPP, the Payroll Protection Plan loan forgiveness, want to remind those who took advantage of these loans, which they were great, they provided good relief at a particular time, but the IRS is going to be ramping up. And it's going to be important that documentation is kept for five years on this, especially if you had employees if you're a sole proprietor, you may not really have anything to worry about when it comes to audits, but the IRS could come looking for ones or the SBA maybe. So, some loans, perhaps were forgiven on misrepresentations. And if you are anyone who anyone who has done this, just be where the that if you misrepresented, you could be on the IRS radar, you could be on the radar there to have that changed or have something reclassified because we keep in mind one's got us PPP loans for them to be properly forgiven.

You had to use the proceeds for eligible expenses and these included items such as payroll, rent, interest on the mortgage, and utilities, which a vast majority of employers I'm sure, follow the rules and follow the walk and basically had to be a small business. To qualify as well as he had to apply for forgiveness, although in some of the lower loans it was like given automatic. But if you were up to certain amounts that you had to apply for forgiveness, as well as you had to sign a disclosure that you use it for eligible expenses. Now, as I go through and check which there's going to be some follow through on this if you had a loan, and it was inappropriately forgiven, because you didn't use it for the qualified expenses, well, you need to be compliant.

And what does that mean? Well, what that means is that you the individual or business, who used funds for PPP, loan funds for items other than what was legal or what was eligible and eligible expense, you will, if the IRS goes in and catches and reclassifies this, which can happen over the next few years, as they go through and look at this. You need to amend your return and include that PPP loan amount in income. And so, and what happens with that, if it gets reclassified as income, guess what, you got failure to report income penalties, you got late payment penalties, plus you got interest, and thus, an amended return. And all the penalties that go right along with it. It's something very important to keep in mind and to consider. So please keep that documentation for your PPP loan, and be ready, just in case have all your documentation ready to support the fact that you did use the funds for proper use. So yes, as we've gone through today, and we looked at a lot of misinformation, reminders on watching out for scams, with the higher IRS ones that are imitating the IRS for some reason, they just never get tired of it, they get more and more creative.

They're looking for new ways to get on to your information. And that's why as a tax professional, I take client security extremely seriously, we have a no click policy here, which basically means if we don't know who's sending it, we don't click on it. We delete the email. And that is something even if you don't use cashtracksfinancial to do your taxes. You should be asking questions to your tax professional, what kind of measures do you take to protect my information? And it can be both physical measures. And also, software measures. What are you taking for online measurements because even here in this office, we take physical means to protect client information, such as locking file cabinets, locking desk drawers, wherever client information is located alarm System in the building these kinds of areas are what we think about and what we use on a regular basis. Because we don't want our clients to be scammed.

We don't want our client’s information to be out there floating around for someone to use and exploit. And so that's what a tax professional can do. But yet you as an individual need to take the lead as well, your personally and just watch out for these scams watch out for any phone calls, haven't heard the phone calls so much lately, but they could return especially if they're talking about things like Student Loan Relief, or that the President put through or approved. So that's something to think about as well, be watching out for those. Keep in mind the IRS only communicates through regular mail to you. And sometimes they get a little aggressive when sending you a certified letter if you have ignored them. So just don't ignore the IRS. Watch out for anyone who demands payment, immediate payment from you via email, text message or telephone. The IRS does not do that. They send you many notices.

Because I've had once again many people contact me and say well, I had so and so from the IRS call me and I'm like well, I look at the record they say no you don't have any issues and they don't have any issues. There's nothing there. So that's they don't do it. They don't have to worry about it. So don't click on any of these deals in emails. Don't tap on anything that shows up in your, in your text messages as well be very, very careful about that. Also, if you're getting solicitations for the Employee Retention Credit for your business, I recommend you really check out any company who claims to be offering help with this. In fact, I would even go to the point of talking to your tax professional, whoever does a tax return regularly or works with your payroll taxes. Talk to them, get your tax professional involved, find out if you even qualify depending on your situation so that you can make sure you're ready.

Make sure disaster wise, that you have proper backup set up, you can use both physical backups, and you can use electronic backups, use some type of online service to help store some of the documents if you have a relative or someone that you trust, to keep copies of your documents and somewhere outside of the local area. Do that as well. That's another valuable way to do and keep in mind how important it is to have documentation of your valuables and what you have in the home.

Things that are valuable to you and will need to be replaced or even stuff that cannot be replaced. Just keep a good list of those items, it's very, very valid to have so for both insurance purposes, and for tax purposes, if you're an employer, make sure you keep in mind to use like EFTPS to help track any payments you have made. And then of course, make sure if you had a PPP loan, you keep your documentation for five years. And if you have any misrepresentations on there, be aware, you could cap to come back and report income on your tax return and pay penalties for not properly having a PPP loan forgiven. And so, all of these are just excellent reminders that we provide on a regular basis for all because planning for the lowest income taxes, paid clients security, all of these are just a big part of the pie that cashtracksfinancial offers for you. Because as a tax professional, I really strive to make tax time less taxing. And by working with us, we can help you to minimize tax liability, help you to plan throughout the year, help you to establish goals, have regular meetings, which I have regular meetings with some clients, either monthly or quarterly, depending on the client needs.

Through that we look at the goal. What kind of goals have established for this year? Where are we wanting to go? Are we getting there? Are we on target? How's our withholding doing? Or if you're starting a new business, this is also vital. If you're even thinking about starting a business, you need to talk to a tax professional. I don't know how many times I've spoken to individuals who come in after the fact and say, well, I just didn't know what I was doing as well. Who did you talk to? Well, so and so over here well, whether you're a client of Cash Tracks Financial or not, and you're looking to start a new business, you need to highly recommendation here you need to talk to a tax person, if it's the person currently doing your taxes, and you don't feel confident in what they're talking about. You can definitely give us a call; we can set up a meeting. And we can do it virtually that's the great part about being an enrolled agent, I can serve you no matter where you live in the United States.

We do video interviews, we do calls, we have a secure portal. So, you can easily upload documents, secure communication systems within that portal as well. Electronic signatures which a system working very nicely within that and even secure electronic signatures with the knowledge-based authorization so when there's a tax form or something that needs to be signed, you have to answer some specific questions to be able to even see the form so just keep these points in mind. This is Marcelino Dodge Enrolled Agent here to help you to make tax time less taxing. When you work through Cash Tracks Financial, we want to certainly again express our appreciation for your listening to this vital information today about both scams and preparing for natural disasters, you can always look on the FEMA website for more information on how to properly prepare for a disaster.

So, to schedule an appointment here to talk about any of our tax planning, tax resolution or any of the year-round services offered by Cash Tracks Financial, you can email me it's success@cashtracksfinancial.com. Give me a call. It's 844-394-4287. Learn all about me and my wonderful new tax and accounting assistant Jordyn Olsen at cashtracksfinancial.com and schedule an in person or virtual appointment today.  Whatever way you'd like to go. We're very flexible and we're ready here to serve you. So once again, I thank you so much today for listening to The Tax Answers Advisor with Marcelino Dodge, Enrolled Agent.

Cash Tracks Financial Inc.

Marcelino Dodge, EA

525 N Cascade Ave., Ste 200

Colorado Springs, CO 80903

O: (719) 359-8789

Colorado Springs: Is Your Home Office a Tax Deduction? Effect on Sale of Home?

 

Welcome to show 58 of The Tax Answers Advisor with Marcelino Dodge Enrolled Agent certainly appreciate all the wonderful listeners around the world who download this podcast throughout the United States, Europe and Asia. Such a joy to have such a diverse audience, really appreciate that. Also, keep in mind that this video that is talking about home office, the deductibility of a home office today, will be posted later on to the Cash Tracks Financial YouTube page. And please subscribe to that page all are invited to schedule a mutual exploration session with me Marcelino Dodge, I work with taxpayers all over the country to help them whether they're an individual or they're a business to pay as little tax as possible within the tax law and maybe even try to help you to increase wealth right along the way, we have a lot of good tax planning services available. And we'll work with you year-around, you can always contact me through email, which is success@cashtracksfinancial.com Or give a call directly to the office here, which is 844-394-4287. Visit us at www.cashtracksfinancial.com.

And you can actually schedule a virtual online appointment right through the website.  And as I mentioned a moment ago, our topic today is going to be the home office, is the home office deduction? And if you sell your home later on, what effect does this have on the sale of the home, we're going to take a look at some of those circumstances today. Because these are important to consider for if you're a remote worker, on ally, or if you're with virtual five o'clock, one of those kinds of areas or one another group that perhaps does a lot of work from home, you need to understand exactly what kind of deductions can I take? Is your tax professional helping you to know about what deductions are available? And even if you can take any of these deductions. So, I'm gonna go in, and I'm gonna discuss these today with you to help you to be able to really understand these as well. And so, what makes it possible for one to be able to take deductions on the home? Well, it depends on all the facts and circumstances involved, just like many, many areas with the IRS, everything depends on facts and circumstances.

And this is very important to consider because many companies we see have gone virtual over the last two years with the pandemic. And some, some are having their employees work from home. Other people have been starting businesses, a lot of different home-based businesses, and doing a lot of just entrepreneurs happening. So, we got to really understand what can we deduct? Or can we reject deductions in our home. As I mentioned, there's a lot of home-based businesses there you got daycare providers, which are in some areas are opening up, they have deductions that they can take, which are a little bit different than other home office deductions. That can be a whole discussion on its own. If you're a contractor of some sort, and you've got a home office, how much can you take, you have consultants, you have direct sellers, all of these areas are affected by a home office and can have deductions there that they may not be aware of.

Also, if you have an office in your home, what travel from your home is deductible, is travel from your home deductible? you're going to have different opinions on this depending on the tax professional, I have encountered this area where some have just not allowed certain travel from the home others have. Well, we're going to take a look and see exactly what the IRS says because there are certain exceptions for certain circumstances in there. Now what vehicle expenses can I deduct? Once again, it comes into our we're looking at mileage or we're looking at actual expenses. When can we take those what is required to do so we're going to take a brief look at? that I have a whole another podcast. It just talks about what kind of expenses you can deduct on a business vehicle. And that gets rather extensive on there. We'll probably have another one coming up here again, in the near future as well.

We got to keep in mind that the tax cut and Jobs Act of 2017 also made some adjustments to the rules that had been in place for several years. This has been since the 2018 tax years that unreimbursed employee business deductions have been greatly reduced on to the tax cut and Jobs Act of 2017, just a few different areas that we're going to cover today. So, what we're going to first of all start off with is, are you, where's your tax, when we step back here, where is your tax home, or what is a tax home? That's a very important consideration when we look at home office because we need to really understand what a tax will miss. And it's looked at as the regular place of business, or where you're posted, where your duty is. And this is actually regardless of where you live. So, you could live like for example, in I'll just use in Colorado areas here. And you could actually live in Colorado Springs.

And this is actually happens, a lot of people live like in Colorado Springs, but actually work in Denver, and that's where their regular place of business is, is in Denver. So that could be their tax home, their general area. Now, if you're working from your home, and your offices in your home, and your main businesses in your home, and you do all your business in one bigger general area, like Colorado Springs, for example, then that could very well be your tax home because that's where your business or your work is located. And so, as we take a look here at this, we got to consider a big question, which is, are you self-employed? Or are you a contractor? Do you basically work for yourself? The reason this question is so important, because when it comes to taking an office in the home, under current law, it makes a humongous, just a huge difference as to whether you can actually take it or not.

And so, because, as I mentioned earlier, the tax cuts and Jobs Act made a huge adjustment to the rules regarding office in the home and particular for employees. So, if you're getting a W-2, then there are no unreimbursed employee business expenses at this time. Now if the loss is scheduled to in a few years, those may come back, but we're gonna kind of see what happens over the next few years in the climate and see, we see if Congress makes any adjustments to the tax cuts and Jobs Act. So, we're going to take a look, though, mainly today as we go into this on a taxpayer using the home for business. And this will be actually looking closely at the self-employed taxpayer who they are, are they actually conducting business, is the taxpayer having a spot in the home that they are using for business purposes.

Now as we look at the home for business, this can actually include a sole proprietor, which when you're talking about a sole proprietor that can also include someone who is operating a business as a single person, LLC, because those are taxed as sole proprietors unless they make a different tax election. Now, this could also perhaps be a statutory employee, one who essentially gets a W-2 but has that little box checked on their W-2 that hasn't as a statutory employee, I've done a few of these individuals over the years. And with the tax cut and Jobs Act, some employers actually made that adjustment. So that there because there are definitions for statutory employee that have to be met. But once those are met, then a statutory employee can actually take an office in the home, then you look up farmer, if you're a farmer, there's a way that can be done as well taken off this in the home deduction. And then if you're a partner in a partnership, there's a certain way that can be done as well.

So, we're gonna kind of take a broad look at this today. Because really, to sit through this information I'm going to provide is going to be good, but you really need to get with a tax professional and help you to really sort through this information. But hopefully, I can give you some good basic understanding of that today. Many entrepreneurs as I talked about, they're starting businesses, they're operating businesses from their home, sadly, though, they're doing so but they're not always talking to a tax professional before they do it. And so many people go and do this, which is what I've highly recommended through the podcast on numerous occasions is, if you're even have an inkling of starting a business, it's vital to talk to a tax professional about that. That way you don't get hit with those taxes later on down the road or talking to a tax professional as soon as you possibly can after you do it.

Or even really, it's best before you start that way, you know what kind of entity, you're going to have whether you're going to be a sole proprietor and know what the tax consequences are. And if you're going to be an LLC or a corporation, all of those are important to consider. So, if you're not looking to starting a business or if you have started the business, it's vital that you get with your tax professional to understand what is, what the tax rate applications are going to be, and now is an excellent time to be doing that here in the middle of the year. So, if you're operating from your home with an office, and that's your sole place of business, that's one requirement, you got to have it as your sole place of business basically operating there you could be, if you're operating as a contractor, setting up various jobs doing from your home, then you go out and you perform the building, or remodeling.

But your sole place of business is in your home, that certainly counts. Also, an important consideration when you're looking for business or an office in the home deduction is it cannot be added to a loss. So basically, if you make, after you take all of your other expenses, including depreciation, if your net profit after all of your expenses is zero, for example, and say you have $1,000 office in the home deduction, you can't take that deduction, it cannot put you into a loss or if your business is already in like a negative $2000. Because all the other expenses, you cannot take the office in the home deduction. So, this comes in handy when you're calculating and you have a profit gone. But it cannot be taken if you have a loss, or you cannot take it all if there's not enough profit, to be able to odd to use up all the office in the home deduction.

But if you're doing the office in the home through the calculations on the form, you could have a carryover into the next year that can actually help you in the next year. So, there are some benefits there. Now, as I mentioned it, there's actual expenses, which I just touched on a little bit through the proper form, the actual expenses where you calculate actual expenses for a home office deduction, or an option is to take the Safe Harbor, we're going to talk a little bit more about the safe harbor in a little bit. But that's the two ways you have you have actual expenses, and you have a safe harbor. So then, what though, can qualify us to be able to even take a home office deduction, while we got to meet the test, it's like everything else with the IRS, there's certain tests, certain requirements, certain areas that have to be met in order to meet the qualification or, as I like to put in my deal here, boxes to check. And once we check all those boxes, then you can take the deduction.

Now, there is an exclusive use test, which what this means is the fact that you have a 10 by 10 area in your home, that has a desk that has an area and all, the only use for that area is for business purposes. That's not an area where you go in and you go play games later on the computer, or you go in and take care of other personal matters there. But that is an exclusive business area. And that is one area that some people get caught on when they get audited when it comes to office in the home is that they, they don't pass the exclusive use tests because they do so many other personal tasks. They're in addition to business, but it has to be exclusive for business use to be able to take that deduction. Now, there are some if there is an exception of an area that you perhaps use to store inventory, and product samples. Some people who are like direct sellers will order in some various products; they'll have them there. They're on shelves that they store them on for purposes of selling at a later date.

So, they have a little bit of an inventory. Now that storage area that's used there, whatever that square footage of that storage area that can be used for a home office deduction. So that's a good little area to know. So, if you're in one of those areas, doing some direct selling, and have some products on your shelves, whether it be like some type of supplements or whatever the case may be which supplements are one of the common ones I see is that you can take that office deduction there. Now the one exception, other exception to the exclusive use test is if you are using your home for a daycare, there's a whole set of rules that goes in with daycare and use of the home. Once again you do some square footage calculations and you do some other calculations all in there. But you do not have to meet the use as exclusive use for a daycare because there's going to be parts of the home when you use a daycare.

That's going to have a non-exclusive use. But that's a whole another discussion just on daycare but be aware if you are running a daycare, you do not need to meet the exclusive use test. Another test that is the regular use test. So, this must be an area that you use regularly for certain type of activities regarding to visit and you regularly use, it's not necessarily a set number of hours, but it is in regular use, it's not something that you just kind of use a couple times a year, but it's something that has some type of regular use probably a few times during the week where you're regularly there taking care of paperwork, maybe sending out invoices, adding a payment, so on. So, you got to have that regular news, as well as you have to be in a legitimate trade or business use. So, we're talking here, trade or business use vitally important to be able to do that. So that yes, being in a trade or business of some sort allows you to take this office in the home deduction. But what is principal place of business, let's look at that just a little bit more here. Because in order to be able to, once again, take this office in the home deduction, got to have a principal place of business.

Now, some people because of the way they're doing business, we got online businesses and so on, their principal place of business isn't the normal like brick-and-mortar store, where a retail store where people will come in and purchase items, because of so many people, so many of us are selling items online through various marketplaces. So, your principal place of business, once again, could very well, be your home, could be your home office. And so, there's an exclusive, there's an exclusivity and admin test that needs to be met. So, are you doing regular activities to manage your business in this location? that would certainly qualify it as a principal place of business. And, once again, if you're like a contractor, you're going outside of there, but you're at your place in your home, your home office, and you're writing out estimates, you're making out statements, invoices, sending those out to people, that's exclusive regular admin use. And there's a lot of other activities that fit into that.

And certainly, if we need to have that discussion, and you can have that with me, in one of our exploration sessions, we can certainly have that, and there's no other activity. So basically, it comes down to, you may have a, you can have maybe another place where you store materials, which isn't necessarily at your home, but you don't do any administrative activities there. But you do all of your management activities at your home. Now, an interesting part about this is that some people, some entrepreneurs even have more than one type of business. But you can use, as long as you're using that home office only for business. It still counts. So even if it's one more than one business, once again, keep in mind that this home office, as long as it's used for business purposes can be used only for just business and but more than one business. Now also keep in mind, as you have this particular setup here.

This is not required to meet people, some people, some people do choose to meet clients or individuals in their homes, in their home office. Well, it's certainly not a requirement. So, if you have, if you're like some type of consultant, or you're in the medical field, or you're even in the tax field like I am, and you decide to have an office in your home, you don't have to meet your patients or clients or your customers in your home. To qualify as a home office. As long as it's your regular pace of business. If you're there at the home office. And you regularly schedule appointments, and you radially do administrative tasks, then you make the appointment and then you go out to the individual's home or their place or you meet him in a business meeting that doesn't pull away from your office in the home. Because you're going out and meeting him. But you're taking care of administrative tasks, you're taking care of a lot of tasks, though, that are really, really important.

So, you just keep on working at that and keep doing what you can. And keep in mind that once again, you do not need to be meeting patients, clients or customers. Now can it be a separate structure? Yeah, you can have a separate structure at your home as well. And doesn't necessarily have to be attached to your home. But it can be a separate structure that is perhaps detached and I haven't encountered this as well where some people have like their big home but then they have a nice little building off to the side. Where what they do is they have like their beauty shop and there I've seen that one Wherever they have storage for their business, or I've had one client who actually had their like, did their little tattoo business, in a separate structure? Yes. Now it still can be considered a home office, because over all the property and all of those areas, so then, what can we do then? How do we take how do we calculate the deduction? What do we do? Well, we can take actual expenses.

Or, as I mentioned earlier, we can do a safe harbor, what is the safe harbor? Well, this is, once you calculate the square footage that you're going to use, you're going to then, so if you have like a 300 square feet area that you're using, you get $5 per square feet, that's the maximum amount of square footage you can take on the safe harbor is 300 square feet. So basically, the maximum deduction under the Safe Harbor is $1,500. So then, what we go in and do is we just put that in there a good part about that is, is that it's not auditable, you're not going to be checked on that. But once again, you still have the limitation on the Safe Harbor, that cannot be greater than whatever business income is. Now, also, if you use the safe harbor, and you've been using it, there's no carryover.

So yes, if you do have a loss, but you have the home office, but you use the Safe Harbor, you're not going to carry that over into the next year. So that's where the actual expense does have an advantage is that it does carry over in the years that you're not able to fully utilize it. So then actual expenses come in on the office in the home, what are these actual expenses, while there's two types, there's direct expenses, which those are expenses that only apply directly to the office in the home. That's, that can be repairs to the area, that can be certain changes to the area, that is a number of different areas that all fall in there. So, we just got to keep in mind that direct, I haven't encountered a lot direct, but I do see some direct expenses on occasion, or ones make specific changes or specific adjustments to the area where they have their office in the home. Now another area that I mentioned, that is very common that I deal with quite a bit is indirect expenses.

Wow, indirect, what exactly is an indirect expense, this is an expense that is basically used on the entire home. And is then categorized or actually then calculated. What percentage of that use then is for the home office? And that's where the square footage comes in. Sometimes people come in and says, why spent this much this much and this much on it. And they're talking about the utilities, you're talking about their insurance, general repairs, mortgage interest, all of those areas. But yet, sometimes, in many times, at least I've encountered with many people I work with, is that I have to go back and ask, okay, what is the square footage of the home? And the kind of give me that look like, Huh? I don't know, why says why we need the square footage of the home.

And then we also need the square footage of the place that you are using as your home office that you are exclusively using as your home office, we have to have that in order to make a calculation. So, we'll take up, we'll get the utilities, we'll get the insurance, general repairs, mortgage insurance, property taxes, all of those areas. And then we take a percentage of that based on how what percentage of the house is used for business purposes. So that's where we have to have the total square footage of the home, we have to have the square footage of the area being exclusively used. And then based on that a percentage is developed as to how much of all the indirect expenses that we can take as a deduction. Now what makes this really nice for self-employed individuals that have their business in their home, is that allows you to take items such as your mortgage insurance, and your property taxes as a deduction, which for most people today, they're not able to take those as deductions because of the way the standard deduction was raised in the tax cuts and Jobs Act.

But now you can take some of those, part of those as a deduction for your office in your home. And that's a very good very good piece of knowledge to know that you can do. But as you got to meet all of those tests that I mentioned earlier, you have to have exclusive use and exclusive use, you have to have regular use, you have to have trade or business use test, you have to meet all of those to be able to use the office in the home to use whether the direct expenses or the indirect expenses. Now, if you do happen to meet other qualifications to do itemized deductions with your tax return, then whatever you did not take as a deduction for your office in the home, for your property taxes or for your mortgage interest, you can then possibly take as part of an itemized deduction.

So that's also good to keep in mind and good to know if you qualify for those areas. Another expense that is sometimes often overlooked when it comes to office in the home is depreciation, yes, when you take an office in the home, you got to take depreciation and the poor that portion of your home. So, if you got a 1500 square foot home, for example, and you're using 300 square feet, exclusively for business, that 300 square feet, is treated as a 39-year nonresidential property which basically means you got to we got to take the value of the home, when you start using it, another percentage we got to calculate. And then we take that calculation that comes in depreciation, so you get a depreciation deduction as well included with your office in the home deduction.

I mentioned a little bit ago as well, that when I started this, that we take an office in the home deduction, it can also affect what happens when you sell your home and you're like, Okay, I'm selling my home. And I've taken this office in the home deduction for whatever few years and I've had the depreciation. But wait a minute. Now, I got to think about this when I'm selling my home. Well, according to IRS regulations, yes, you do need to do that. So, what does it mean? I'm selling my home? I've used it for business purposes. Am I going to pay taxes now on the sale of my home? Well, I can't really answer the question yes or no, because it all varies based on facts and circumstances, as I mentioned earlier, so much in dealing with the IRS is all about facts and circumstances.

So, let's take a look. Now we've covered about Office in your home, what does it take to qualify? What kind of expenses can I take? But now, you've been working in your home, and you're deciding, oh, it's time to move on. So, I'm gonna go ahead and sell my home. You may be asking or thinking about well, isn't there some type of exclusion I get? Well, yes, there is some type of exclusion on game that you receive. But since I've used it in, I've used an office in the home deduction. It does adjust that. So then, many times I get this question, people selling my home, I'm selling my home, how much tax am I going to pay? Well, my question then, is always well, we need more information.

That's all what I'm going to always tell people, I need more information. I can't tell you if you're going to pay tax if you're not going to pay tax on the selling of your home, because there are a lot of facts and circumstances that play into it. That's always my reasoning is facts and circumstances, we have to know what is happening with that? Well, let's take a look. Take a few steps back here. And I'm gonna come back and talk and address this part that I mentioned earlier, about how does using the office in the home come back and affect the sale of the of the personal residence. When you go and sell your home, depending on the title company, you could either receive the date you sell it, or at the end of the year, you could receive a form 1099-S and it really depends on the title company.

 I've seen different circumstances; different title companies do different things. They only issue amount of if the amounts are certain or a certain amount. So, they really depend, but if you do get a form 1099-S So be aware that you do need to include that on your tax return. Otherwise, once again, you get six months a year later, you'll get this nice letter from the IRS saying guess what, you didn't claim this or you didn't report this so Oh, by the way, you sold this home; you were given $300,000. So, you need to pay US tax on this $300,000 that you received on the sale of this home and you're like, whoa, wait a minute. I didn't get that whole $3,000, $250,000 of that went to go pay the bank off. So why am I going to do this, and then you come and see me a tax professional and we fix it. So, it's just be aware, if you see that form, you've got to get it included with your taxes.

 Although sometimes in the taxpayers’ defense, I will say that sometimes you don't get the form, but when it's still filed, because that has happened as well, but either way you still got something that has to be fixed and can be fixed. Now if you do happen to be foreclosed on, or if your home has been repossessed, you still may get a 1099-S because it's treated as a sale of your home. So, keep that in mind, just don't brush it off. But make sure you that has to be filed. And which is which in those circumstances is not always a pretty thing. But still, you can have tax ramifications if you do not file the tax return. Or you make sure you include the 1099-S on the tax return, because there's still a possibility you may get one even on a foreclosure or repossession. Let's now take a look at when we look at selling your home, you got to first of all calculate the basis in your home, basis, and we're back to this word basis again. Yep, we got to have a basis in your home.

So, which comes in to purchase price, what did you purchase for? So, if you purchased versus afford $250,000? How much did you pay in closing costs? That's why I need to know when that's happening, it's always good. As a tax professional, I always ask for the closing documents. When you purchase the home, they're good. So, any more what I'm going to work on doing myself personally is if I have a client buy a home, I'm going to invite them or ask them Okay, can you please bring me a copy of those closing documents. So, we can put that in the file, keep that in the file so that if you do sell the home in the future, we have a, we have a basis determination for you. Some people perhaps build their home where they personally contract at home out? Well, that you have land labor materials, legal fees, permit, utility connections, all of these then add into the basis of the home in helping to establish that.

And once again, what are we establishing basis for what we're establishing bases? The purpose is to help us to be able to know if we have any profit on the home at a later date. So, what is the purchase price while we got back the purchase price, so then we've covered purchase price, we've covered self-build. Now what if you inherited the home? What's your basis there? Here it is the fair market value at the date of death. So, but once again, we're looking at personal residence here, we're not talking about just inherited, so you inherited the home and you actually moved into the home, as well. It's what we're talking about here. So, inherited. So that's fair market value data that was given to me, well, the home could have been given to you. And that happens like homes are gifted to children.

So, as I mentioned, it's the lore of the basis that the grantor had or the person that gave the gift, it's the lore of what their basis is or the market or the fair market value at the date of death. So, on a gift, it can be very, very hard to determine in some cases what the basis is. But if someone just gifted you a home and say they paid $25,000, for it 20 years ago, essentially, they gifted to you, that's what your basis is going to be in that home is $25,000. Now, once again, we're talking about some areas here, we're gonna get into the exceptions with this. But what I'm mentioning is that it's important to know this information. So, if you ever do it, if you've got a gift, and we're talking about selling a home and you move into the home, and it is your primary residence once again, that's when I want to mention we're talking about your primary residence where you're living, these are all still important numbers to know.

So how about additional rules in a community property state? I'm not going to get into those. But those there are some additional rules that fall in on those calculations if you're in a community property state. So those probably need to be looked at a little bit closer. So, then what do we calculate when we're going to look in to a gain or loss? Well, first step is when we sell the home, we have to look at how much did I sell it for? And I sell it for $500,000 Okay, how much did it cost me to sell it? Well, I got Commission's perhaps paid to a realtor, I got other expenses. Once again, closing documents are needed to really see what those selling expenses are. So, then you can know really know well, how much and I actually realized, now selling one thing keep in mind, the amount paid to the bank, for a mortgage is not a selling expense. It's just paying off the mortgage.

So just please keep that in mind. Now after you get what the amount realized is and you got your basis, then you can determine Okay, do I have a gain on this? Or do I have a loss? Well, let's hit this right off right up front. If there's a loss, the loss is not a deductible expense. But if you have a gain, you may have a taxable event, which is why we're talking about this because if you have a gain is any of the gain excludable why while if it's your primary residence, possibly some of it could be excludable how much, wow $250,000 per taxpayer of profit, or $500,000, for a joint return, those are the amounts that could possibly be excluded. But what is needed, what is required for those to be excluded? Wow, there's three tests that you need to meet to be able to qualify for this.

First is ownership, you need to own the home for two out of the last five years. And what's nice about this is that this test is met if either spouse meets the ownership test of this, which basically helps us to see that if there's a marriage that occurs in there, and one of them, one of those individuals in the new marriage meets the test, you their use test. Two out of the last five years did you live in the home at least two out of the last five years. Now in this case, both of the individuals must meet this use test if you have a jointly filed tax return. Here's an interesting part exclusion test. So, in the exclusion test, you must not have excluded any other gain in the prior two years. So yes, you can only do this like every two years, but you got to live in I mean, this two-year rule is pretty, pretty straightforward. So yes, remember, you got to own it for at least two to two out of the last five, use it for at least two out of the last five and not have excluded any other than any other exclusion in the last two years. That's both most spouses in the case of a jointly filed tax return.

Now here's a warning to keep in mind. If you've had a spouse pass away, in the last two years, while a spouse passed away, we refresh that you can you can get the exclusion. Still, if you sell the if you sell the place sell the home no later than two years after the death. And the surviving spouse does not remarry before the sale. So basically, this is a planning thing. If your spouse dies, and you're getting down the road, you're trying to remarry, and you still have the home, but you're gonna sell that, make sure you have it sold before you remarry. That way you get the exclusion and not have to pay the tax on it. Now, I also really liked this part here, the two-year rule. And I mentioned for ownership use test exclusion test, that does not have to be two years, or 24 months, continuously.

As long as within the five years you meet the two-year rule. So basically, what that helps us to see is that you can live in the property, have the owner have the ownership test and the use test, you can live in the property, I would mainly mean say this with us test on myself is that you can use the property as your personal residence for like one year, then skip a year, then go back and use it another year as your primary residence a year and a half. And then still get this exclusion, very interesting how that works. But yeah, you definitely can do that. So basically, what this comes down to is that you can exclude as an individual up to $250,000 of gain or capital gain on the sale of a home and not pay any tax on a $250,000 or $500,000 on a jointly filed return. Now if you're selling a home at the time, this is being broadcast and being recorded. This could be very handy to know.

And very handy to do, especially with where home prices are. So, keep just keep these points in mind there. If you're thinking about that and make sure once again, you're looking for that 1099-S. But I did mention a little bit earlier, what if the home was used for business purposes, or even a rental before the sale. So once again, at least back to our home office discussion we had a little bit earlier about why would I need to be concerned with this when I sell my home? Well, if you use this home as a rental home prior to using it as your personal residence or using it as your personal residence and having a home office in the home. What you did on your tax return is that you were to have taken depreciation on this. Now you still get the exclusion you can still get the exclusion $250,000 or the $500,000 exclusion.

But you took depreciation on the home. Well, what does that mean? Well, when you go to sell the home and this is true on items, when you sell it with depreciation in general, is that what you need to do is and you must then recapture that depreciation at the time of the sale. So there, so you may have the exclusion, but then that depreciation that you took is going to come back at the time of sale. So, you may pay tax on the appreciation. Now, the good part as far as when you're looking at office in the home, for example, the amount of depreciation usually is not that much. Maybe a few hundred dollars a year or maybe even not $100, you're just really depending on facts and circumstances. So, I wouldn't be too concerned about that. But just be aware that, yes, that depreciation would need to be recaptured.

So, it could possibly add a little bit of tax at the time when you sell a home that has been used for business purposes. So yes, we see here as we've gone through today, on this, that yes, an office in the home can be a very good thing, can be very convenient. You just got to meet the various tests. The exclusivity test, the regular use test, the trader business use tests, those tests have to be met. The biggest one, the biggest challenge taxpayers have is the exclusive use test. So yes, as a sole proprietor, single person, LLC, a farmer, a partner statutory employee, keep in mind, yes, you can have an office in the home, have that designated spot, only use it for business purposes. And then keep an accurate track of all of your expenses related to the home, your insurance, your repairs, your mortgage, interest, your utilities, insurance, everything, property taxes, make sure you have all of those and you have to have minimized out if you're going to do an actual expense, for the home office deduction so that all of that can be calculated, make sure you have an accurate measurement of the square footage of your home and the square footage that you are using for business purposes. That way, once again, all that can be accurately calculated.

And then keep in mind as you sell your home, or you're selling your primary residence, that you may need to recapture depreciation that was taken while using the home perhaps as a rental, or using the home, the office in the home deduction, you still get the $250,000 exclusion per taxpayer of $500,000 on a joint return. But just keep thinking about the basis and making sure that tracking helping your tax professional to do that, having closing documents, all those items are very much important which is why, when I work with individuals to try to help them always to do tax planning to have the lowest tax possible. Now tax can be a good thing we just got we don't want to pay any more than we're legally need to pay.

So, let's keep in mind that we want to review and plan throughout the year. Right now, at the time of this recording. We're in the month of July, July August. Good time. Let's take a look see where we are, it is essential. Good plan for the year takes a year-round approach. Let's set some goals work together. Let's look at your estimated payments. Let's look at your withholding, do you need to make estimated payment or update your estimated payments for the year.

We have virtual tax preparation that we do video interviews works very well electronic signatures, secure web portal all of that is available to you through cashtracksfinancial as I work with clients throughout the country in different states and that's the great part about being an enrolled agent is that I can offer though that level of service to you, the taxpayer to help you to indeed pay as little tax as possible. Keep in mind that you can reach me at 844-394-4287, also email me at success@cashtracksfinancial.com. And of course, visit my website which is cashtracksfinancial.com.   Cash Tracks Financial and Marcelino Dodge,Enrolled Agent work to keep tax time less taxing for you. I do indeed thank you for your time today. It's been a real pleasure communicating this wonderful information regarding home office deductions and the exclusion of primary residence again on a primary residence. I look forward to talking to you again soon.  This is Marcelino Dodge, EnrolledAgent for The Tax Answers Advisor.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA

525 N Cascade Ave., Ste 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

 

Colorado Springs: What Did I Learn from the 2022 Tax Season?

 

In fact, what did I learn from the 2022 tax season? As well as what do you need to know for 2022? Well, I've been in this business for 20 plus years doing a lot of different tax returns, individual business tax returns, and 2022 certainly hit some firsts, as we were doing tax returns for the 2021 tax year, as well as much slow service from the Internal Revenue Service. All of us know you get on the phone; it takes what takes forever. And sometimes you don't even get through a very, very low percentage of IRS calls are actually even answered. I do know that if I have clients, which I had a few get the little ID verification letters, IRS Call this number or do it online? Well, I'll tell you what calling the number used to work great. But this year, you just cannot get through, it says there's just too many calls going on. I've tried it personally myself a few times, just trying to see how long it's taking to get through for a client. And guess what, it just takes a while.

So then now we're going to try to do the id.me, which I haven't personally done that yet. But I'm gonna try to walk some clients through to try to help them to make sure they get their refunds because they're still waiting for it. And that's just plain crazy. Now, last year, going into the 2021 tax season, the IRS had opened up the system to out for everyone to get what's known as an Identity Protection ID number or an IP pin which was only previously available to those who had had ID theft problems. Now at the beginning of each tax season, right in January, you can go on to irs.gov, verify yourself, get a six-digit number that's assigned to you. And what the purpose of this is to present misuse of your social security number on someone filing a fraudulent tax return. So, keep that in mind. That's something you can definitely do and something I encourage you to do as well. But it's something you got to go in and do each and every year. That way you can prevent yourself from basically having a fraudulent tax return. So now a few of the items that we covered in 2021 tax year are gone.

And that's what I want to kind of touch on now just so you don't want to think about or be thinking about, well, I got all this great tax credits. I got these great refunds when I filed my tax return in 2022. But is it going to happen in 2021? Well, let's see. Well in 2021, keep in mind the Child Tax Credits, this is perhaps the one that most people really observed that is gone, is that you got a $3,000 tax credit for those children that you have from ages six through 17 and $3,600. For those under age six, plus you got half of that up in advance some individuals, some parent to opt out of that advance, others did not. And as a result, what happened in many cases, and I actually had this happen, many actually had reduced refunds at tax time, and I had to sit down and explain to them. This is why your refund is less, now it didn't happen with everybody. But it did happen with some daycare, this was also a huge difference in 2021. With a daycare amount jumping from $3000 per child and $6000 for two or more up to $8000, and $16000, into for 2021. But that was only for the tax year 2021.

That's gone. So then if you're planning and looking ahead to 2022, on your daycare, well be keep in mind that the credits $3000 for one child, and up to $6000 for two children, there's other limits in there. And it's not fully refundable. That was a difference 2021 credit was fully refundable, for the tax year 2022 that we're planning for. Now, you're not dealing with a refundable credit for daycare, if you're having daycare and we do know that someone, having less daycare just simply because of the pandemic and there's your daycare providers. Now, one thing to keep in mind with the daycare credit that you're getting is that it doesn't necessarily have to be a licensed daycare, but you do have to have a tax ID number for the individual to whom you're paying for daycare, because they got to turn around and claim it as income on their tax returns. So, there's a difference there that to keep in mind as well.

Now, Earned Income Credit was very challenging this year. And there's some things that are gone with that. So, I encourage you if you're really depending on the Earned Income Tax Credit, go get a job, go find employment, because a lot of the past things that happened for 2021 are gone. One of the common, one of the other deals was is that if you were 19, and not in school, or part of the foster care system or a homeless youth, if you're 19, you qualify this year for 2021. You were age 24. If you're a student, you've qualified for the Earned Income Tax Credit or 18. If you are in foster care or home with you and you had earned income you qualified for the Earned Income Tax Credit, that is gone for 2022. It reverts back to what existed before, for 2020 and earlier and for 2020. To keep in mind that need to be between the ages of 25 and 65 to qualify for the Earned Income Tax Credit, which that was actually kind of nice for those over 65, because it was over 65 for 2021 also qualified for the Earned Income Tax Credit.

We're previous years they did not but that was once again exclusive to this tax year that we just did 2021. Now another unique feature that was on the 2021 taxes is that if you didn't have that much earned income in 2021, you could have elected to use your 2019 income for calculation purposes of the Earned Income Tax Credit if it gave you a higher credit amount. And I did have several clients that took advantage of this and were able to get them a little bit better refund because of this provision. But that once again, is gone. And so, for 2022 It is vital if you're using this credit that you go find qualifying income, wages to help you to be able to get this credit for 2022. And keep in mind things like retirement income, Social Security, also unemployment, those are not considered Earned Income for the purposes of the Earned Income Tax Credit. So, you need to have self-employment income, Legitimate self-employment income, so keep records, keep good records, especially if you didn't pay in cash, you need to keep records.

Now that cash can be considered but you got to have record keeping receipts, write out receipts, keep records of expenses, all of those can certainly help you to get that credit. If you're self-employed, if you're working at a, at a job, go work, get a job. There's a lot of them out there. So go find work, get have the wages, so you can qualify for the Earned Income Tax Credit. One of the headaches that I had as a tax professional was the Recovery Rebate Credit or what that $1,400 stimulus payment that was sent out in March April May of 2021. If you didn't get it for whatever reason, you were able to claim it on your 21-tax return is recovering rebate credit that is gone as well. So, we're not going to be working to claim that but if you still had not received it, you're gonna have a couple more you years to be able to claim that credit because of just the statute of limitations on tax return filing, so but you don't want to miss out if you didn't qualify for. Also, through 2021, there are a lot of the payroll Protection Program loans or PPP loans that many employers qualified for.

I'm not going to go into too much detail on these, but what I am going to say is that there was first draw, second draw loans, these redirect incentives for businesses to keep their workers some businesses did very well took advantage of these programs, if you're a sole proprietor or a farmer, but you really made out well with these because you took in your tax return. And basically, it was free money, and several clients that were able to take advantage of this through their bank. And their bankers were very good about helping them through these SBA programs, other businesses, if you had employees that you were providing for and getting the loan for on the first draw, or the second draw, or maybe you got just the first draw just depends. But you still needed to use it primarily for wages, but then the rules kind of adjusted as time went on, but you still needed to go in and apply for forgiveness of along, basically certifying that you used it for the appropriate purposes.

And as long as you've gotten that certification done, once again, essentially free money with of course, the provision that was provided through law changes is that even though the it was essentially tax-free income, you're able to deduct the expenses that you paid with the PPP loan. And because many have done this, it's kinds of tax-free income. Now, if you were a partner, in a partnership, an LLC, or a shareholder, in an S corp, this is basically considered tax free income to you or other tax-free income. So, it could actually kind of help with your basis as well. But you'd have to talk to your tax professional or come in and talk to us to be able to help you see exactly what we can do to help you there. If you're still needing to file that, we're definitely available to help you with that. And deducting expenses, as usual through the PPP loans very, very productive for you.

Now also in 2021, and 2022, this is a unique deduction. In all prior years, in the longest time, I've been doing tax returns, meals have always been 50% deduction. But if you're eating in a restaurant, this is the interesting part of that restaurant meals are 100% deductible for 2021 and 2022. So, if you're on the road, a lot and having meals as a result of business travel, and you're eating in restaurants, hey, keep those good receipts, keep good records, you can get 100% of those meals. Now, of course truck drivers, they got the special provision to get 80% on their meals because of the Department of Transportation regulations, which is a very nice provision. I work for several truck drivers on that the over the road truck drivers, there's even a provision for local truck drivers when it comes to meals and per diem, which we really do take good advantage of. So, keep these few points in mind of what is not around for 2021, for I mean for 2022 tax returns. So, you need to make sure you're using a good tax professional to help you walk through all of these particular items. Now some important points that I always this talk about here is good books and records.

I constantly, constantly mentioned to you and mentioned to the clients to whom I personally work with about a mileage log if you're going to claim mileage use a vehicle. You need to keep a mileage log in order to be able to take mileage and automotive expenses because that is what is going to help you in the event of an audit. And once again, another tax court case came through. In this case it was a taxpayer who was a heavy equipment operator. This is for tax year 2014 that this case referred back to this operator work in several locations. He claimed 32,640 miles on his tax return. He just claimed the miles. He did not have a log. He did not keep a calendar. He did not keep a record of work location, even couldn't even provide testimony in the Tax Court regarding the work locations. What does this happen to him? Well, the court Tax Court said Nope. You cannot take this deduction for mileage because you do not have the verification, you do not have the log, you do not have what is needed to be able to properly claim the deduction, which is why I stress so hard, you need to make sure you keep a mileage log when you're having vehicle expenses or wanting to claim vehicle expenses.

And that's even if you're taking actual expenses and depreciation on your business vehicle, it is a absolute must to do that. And some way Well, I'm not gonna keep a record, I'm not good at writing it down. You know, you just got to figure out how to do it. There's apps out there and one app that I tend to mention to individuals to use to help them Track business mileage is called Mile IQ is free, you can use it to track business miles, personal miles, easily an easy app to use from what I understand. So, I would suggest doing that or keep a paper now, what also can help you in doing so is that you take your vehicle for new tires, you take your vehicle for various service work, you get annual maintenance work, you get quarterly oil changes, or maybe oil changes more often. You need to have those records, because what happens is that when you take it into the repair shop, they will record the mileage. And that's actual further verification of your mileage for the year when you claim it.

So yes, keep those excellent records. So that you can have that should once again, just you get that unexpected letter from the IRS because they're, they're trending toward enforcement through Congress right now, or at least that's what they're trying to push. So, we want to make sure you as a taxpayer, are ready for that. So, keep your mileage log and keep it going strong. Now, we want to think about another area, which is your electric vehicles, I'm bringing this up because many are concerned about the cost of a fuel, gasoline and diesel and so on. So maybe some of you are looking at alternatives, such as the electric vehicles, there is a Federal Electric Vehicle Credit that is still available. Yes, some models like Tesla, and GM, if you go and buy a new one of those models, you cannot get the Federal Electric Vehicle Credit and you can't even get the state credit. You might or you might be able to get the credit in some states, it just has to be a new vehicle. But you cannot get the federal credit because the Federal Credit for Electric Vehicles phases out when a manufacturer sells at least 200,000 qualifying vehicles, and GM and Tesla have already sold more than 200,000 of the qualifying vehicles. Now, once again, this vehicle has to have a gross vehicle weight under 14,000 pounds. And the credit is really nice because it's raised anywhere from $2500 to $7500 credit that you get for purchasing of a vehicle. Now there is a very long list.

It's amazing you only hear about a few electric vehicles. But there is an essentially very comprehensive list that you can get from the IRS and talks about all the makes and models of electric cars that you can buy that you can get a new Electric Federal Vehicle Credit on. And certainly, if that's what you're thinking about doing, you need to take a little bit closer look at that. Maybe look at one of these vehicles, I mean, there are, there are models and makes vehicles on there that I had never even heard of before. And then, of course some of the more common names like there's like some you see advertised, like the Nissan, a Nissan still qualifies for there's some BMW and some other makes that are out there that you that you can get a vehicle credit on. Now, of course, as we always talked about the cost can be the issue for many people on these new vehicles. So, but you got to examine and see what's worked. But I just wanted to go ahead and mention that to you. That way, you know that that credit is out there, and is available if you're considering purchasing an electric vehicle.

And another area I'm going to touch on is in the planning session as we look at where we're heading, going into 2022. That's exactly it is, where are we heading? What am I what are we doing? What am I doing? Many people are still getting used to the new W-4s that have been out the last couple years. And they're like, oh my goodness, I mark this and my withholding just isn't right. While there is a calculator you can use on the IRS website, wage withholding calculator estimator that can help you to do that. If you have more than one place where you're working. You may want to use this but I always recommend and I always think it's best not just to use what the IRS provides, but use a tax professional. That's why I keep myself available year-around because I know your situation better than the IRS estimator does to help you perhaps to realize, you fill out that W-4 form.

And what happens when you fill it out is that it just goes off of a base calculation. And it may not necessarily be right for you, it's in essence, it's just kind of guessing. So, if you haven't thought about it, you need to have an, I call it a mid-year meeting with your tax professional, get your pay stubs that show your year to date on withholding federal and state and sit down, have a meeting, whether in person or video conference, have that conversation so that you're not there. In January, in this case of 2023 going, what's up with my withholding have that conversation, let's look at it ahead of time. Now, if you're a self-employed person, or you're operating some type of entity business, like an S corp, or C Corp, you better get your books on par, you better not just be relying upon a type of online software to make sure your books are right. Don't go cheap assets when I say don't go cheap, go with someone who can really help you, look at your books and don't just depend upon individuals who you think are getting the job done. Now I know I say this, because I've encountered over the years, I've encountered people who have come to me right near the end of tax season in some cases, and say, can you help me? And I'm like, well, what kind of help do you need? Well, again, I dig a little deeper and find out that perhaps they have not had some tax returns filed or maybe their W-2s for the for the year that we're processing haven't been filed yet.

And so, we work through those little problems to help them at least get a few tax compliance issues addressed. But then, which is where I've really working into now is trying to help people to solve tax issues. Because the IRS, they'll send out a notice to you, for example. And the notice doesn't always get to you sometimes, or it gets to you years later, or as we see here, they put off notices going to you, as a taxpayer for maybe a path new tax, some all the way back, say to 2015 that they're collecting tax on right now are trying to collect tax on and their whole paperwork and have a whole miscalculation. Well, then how do we come to know that? Well, what I go in and do with individuals, as they come see me is I say, first of all, sign this as a 21-form, or 2448, 2848, whichever I need according to this person's circumstance, so that I can go in and I can take a look and say, here's what's going on on your tax account. Here's the wages that have been reported. Here's the income that's been reported. Here's what the IRS says you owe. Not we agree with this.

Well, that's what we got to go back and see or if we go in and take a look at that transcript and see that maybe you haven't filed. That's what can happen particularly with some business owners who put their trust in, in some type of individual who they send off information to that individual each month thinking everything is getting done, but they don't really get the information back or they really don't get the reports back. But they just think everything is getting done. Well. I'm here to caution you particularly, when it comes to your payroll taxes with a C corporation, S-corporation, partnership, or LLC, any of those entity tax that you're talking about. It's vitally important that whoever you're working with, and these are the services that I provide, that they have to you copies of what has been done, what is being accomplished. That's what I do for all of my clients, all of them. We all have the web portal set up, where all of them have access 24 hours a day, seven days a week to their records, all they got to do is log in with their email, and they have their payroll records all sitting right there.

 They have their payroll, compliance tax forms all sitting right there. Everything shown that they have been paid and they're caught up so nobody is behind. So how do you get caught up? If you're a business? And maybe you discover or I go in and I discover Well, you know, your federal income taxes for your business haven't been filed in a few years. It's just kind of good in the sense that the IRS hasn't caught up with you yet because of the pandemic and other issues going on. So, then what do we go in and do? Well, first we pulled transcripts, which is what I go in and do. And then I take a look and see, okay, this is what has not been filed. But if we discover some years have not been filed, what do we got to go and do? Well, first, we got to go in and look at your books, what have you been doing? How have you been keeping it? Well, sometimes I'm coming to learn sometimes individuals and businesses are doing an okay job on their books, they're getting expenses put in through whatever type of accounting software that they're using. But I come to find out, well, maybe their bank statements aren't being reconciled, maybe their other information isn't being done. So how do we know what to do? Well, we don't, sometimes we're starting from just a whole new set of books.

And but we do have to get documentation of course, which what does that entail, that entails getting bank, bank statements. And sometimes it means if they don't have them, sometimes they got to go to their bank, and get those records for two or three years back. And some banks do have those available without much research, and sometimes they do sometimes they don't just depend on the individual banks. So that's what we need to go in and take a look and do. So that's what I'm saying is that if you're working with an individual, you need to make sure whoever that individual is, which is why I take a lot of pride in making sure that all my clients know that their stuff, their financial information, their financial statements, profit and loss balance sheets, those are there, we get them done. Now, we're not perfect, of course, but we get them done in the sense that there's a good record there. And if we make a mistake, we go back and we fix it. Because taking care of the client is number one, for this business. and for me, as a tax professional, that's the difference between a tax professional and one who's just a tax preparer, or one who's just kind of around a little bit, or seasonal. Those are the really individuals that I'm just not personally too big on because they're they come in for the first three and a half, four months, jump in, have an office open, then they close in or maybe open only one day a week or who knows when they're open actually, then they're gone.

But the How's that, how does that help you if you're an individual looking to get something accomplished, because one of the issues I always talk about people is the fact that you need to talk to your tax professional on so many occasions, if you're considering taking money out of your retirement plan, you should talk to your tax professional. If you're considering starting any type of business. If your banker suggests something or an attorney, suggest something before you do anything, I'm serious before you do anything, go find a tax person and talk to them. Find out what kind of tax situation are you going to be in? Because from a tax standpoint, other professionals don't always understand it. They know their area, which is great, they're fantastic at it, they do a good job. But sometimes recommendations are made of a certain type of entity or how you should conduct business. And it's not necessarily good for you tax wise. So yes, make sure that you talk to your tax person before you go in, just go to the state and because it's easy, anybody can go to their state and register as an LLC or register as a corporation or do all these registrations, like Colorado I mean, go and do it for like 50 bucks.

But yet, is that the right action for you to take from a tax standpoint? I don't know. Till I sit down and talk to you and see what your goals are. I see what you're wanting to accomplish. Maybe from a legal standpoint, a certain type of entity is good. But yet, is that still good for you tax wise or what are the tax ramifications of doing that? What's going to happen? So, you got to be willing to really study, really get that information, talk to a tax professional, talk to your tax professional, or talk to us, or talk to me, give me a call here 844-394-4287 to help you to figure that out. So that your tax situation is not so taxing, come the end of the year, because the last information or the last person to know you've done a business should not be your tax person. Because they can help you make good moves, a tax professional can help you make good moves, so that in that first year of your business, you're making good tax moves, and not only help you in the first year of your business, but can help you going forward in your business, make certain types of elections for your business.

And if your bank or your lawyer, whoever you're talking to, doesn't say talk to a tax person. I mean, because I always tell people, you should go talk to a bank about this, or you should go talk to an attorney, it's I'm not licensed to practice law. So, you need to go talk to them about this particular setup, this particular situation, and then work together with the bank or work together with the lead tax person, tax professional, and work together with the attorney so that you are having the best turnout for your business. Now also, I like to remind business people, are you signing any forms on a regular basis, there should be some signatures required. I know when I come in, and I talk to somebody or have a client come in, especially on taxes, there are certain forms, that they only sign that you only sign once in regards to payroll, and then we take care of it. But we always provide the documentation, which is something you should always have from a professional that's working with you, you should have the documentation showing that your sales tax is getting paid documentation showing that your unemployment tax is getting paid and file, I have all those reports available to clients showing that those items are pain.

When it comes to the income tax, yes, we file the entity, the corporation, the partnership, the LLC, all those income taxes are filed electronically. Yet, what I do personally, in my area is that whether it's if they're close by, of course, somebody that can come in and actually sign the authorization to transmit the tax return, I have them come in and do it. Now I have a few clients. And I have more clients developing in a virtual sense, we'll sit down, we'll discuss and have a video conference meeting with them, or at least a phone conversation. And then what I do is I send it to them to sign that form electronically, because we can accept the 8879 with an electronic signature now and still submit the tax return, you should always be signing something whether in person, or electronically. And if you're not always signing something of some sort, then you really need to find out if you don't have physical copies, which to me some, it really depends on the tax professional, myself, I'm one that I still like to provide physical copies to individuals. So, I actually mail out some to my clients that are not in Colorado or in other parts of the country.

I'll still mail out copies of a physical tax return to them. But I also provide electronic copies through a web portal. Do they have those available? I don't know. I do. And that's why I'm so up on this and so much and wanting to be forceful and just reminding you as the listener to think about these things. Are you getting these as a business person? Do you know what's going on with your information? Does your tax professional visit with you about these items? visit with you so that you know what is going on with your business? And so, you're not you may not fully understand it. That's why you have the tax professional. I mean, I don't know how to go and repair a diesel vehicle or do a lot of different other actions but I am here to help my clients to succeed on their tax and to make their tax time have a whole lot less taxing. So, make sure that you are signing forms on a regular basis. Now, many times during tax season, whether it's individual or business, I'll get one, I'll get someone calling in saying, he's, how much you charge to do a tax return.

Well anymore, it's going to happen, it's going to tell people with depends. And because when you call, make a phone call like that to a tax professional, you're just shopping around, as a tax professional I'm not really looking for people who are, who are looking for a low-cost tax preparation option. But I look for is individuals who want it done, right? Who want to do the tax return accurately, and who want a good long-term relationship with a tax professional, to help them to succeed in their taxes, and even help them to save up a little bit of money and understand their overall financial situation? And to have that you are going to pay a little bit more to have that available. Yes, I have some clients that I only do tax returns for. And that's, that's fine. And some of these I've had for many years, they're great people, I'll continue to help them out, continue to serve them. But yet I go beyond just doing those tax returns. If we need additional help, we offer that additional assistance to them.

They're separate fees. But we also have plans that offer monthly programs to individuals so that you can come in and talk, no additional fees, you're just paying a monthly fee that gets you all taken care of for the year. Now, what many people don't realize when they're trying to find a low-cost way to do a tax return, is security. How secure is their information? This is a huge deal for me. I believe in such stringent security measures. I mean, I got file cabinets locked in here, I have all of my computers are encrypted, the drives are encrypted. There's a password to get into the windows, of course. Plus, there's additional security software on each cuz each computer and of course, I actually help have a third-party service helped me to keep my computers secure. Yes, it is vital that you ask whoever you're going to use to do your tax return. How secure is my data? Do you have a security data plan, which mine is under constant development, but I do have one for software security, for in office procedures to make sure that people's data is safe?

Now, if you're getting a low-cost tax return, this is something to think about, how safe is your data, if you're just doing the lowest cost option, if you're having your neighbor or your individual over, you're saying you know, I can go on to whatever software and I can do your tax return. But when you do a tax return, think about it, are you have your tax return done? How much data do you have to give, you basically give your whole life story over to somebody, all kinds of private information? Now you don't know what that individual is going to do with that information. They could be family. I'm not knocking any family; I'm just saying these are things to consider. You want certain individuals to have access to all of this information. I mean, I mean, they may dispose of it. They may not I don't know. But security, these are things to think about. And so, it all comes down to the old adage, at least the way that I look at all of this, you get what you pay for, if you're going low cost, you're gonna have low cost, security, low cost, protection of your data. So low cost isn't always best for data security. Now, we all as tax professionals in my office, and in many of the well-respected ones that I know, take great precautions to protect computers to protect individual data. I mean, I got a security system in my business as well to help protect the hard drives how protecting computers and the physical, everything on a physical sense. So yes, how secure is the data.

So, keep that in mind too, about security. If you're thinking about your data, and you want to keep it safe. Don't be afraid to pay a little bit extra to a proper tax professional who is available year-round, who has proper securities procedures and who really genuinely cares for you, which is what we do we care for people here, we do what we can to help them to succeed as best as we can. Because as I've really been going through everything and talking about what I learned in this last tax year, I learned that there's a lot of different people Well, there's been a lot of different struggles individuals have had, in the last couple of years because of the pandemic, I've had to also look at helping ones to minimize taxes, try to talk to them a little bit more, try to encourage them, you know, come see me, give me a call. That's why I'm here. We let let's sit down, let's go over this information. If we need to discuss about some sales that you're potentially going to have, let's talk about the potential taxes that can be involved on the sale of some of your assets, like mutual funds, stocks, those kinds of deals, what's potential capital gains, let's discuss those ahead of time. That way to learn, do you want to make those moves are those good moves for you individually, once again, till we sit down and look at it from a tax standpoint, I can't tell you for sure.

But when we sit down and will be able to determine if that is a good move for you. Because sometimes when we make a lot of sales, we have to do certain attachments, things with a tax return, so that the IRS has all the information that they need to be able to get it done. And to do it right. And so that all information is properly done for you. Now, keep in mind that tax time is over, unless you're on an extension in which we're working on several extensions at this time. And as we work on those, we're helping ones or we're reminding was, you know, we don't want to just be thinking about 21, we want to be thinking about 2022 at this time, and thus, minimize tax liability going forward, and then help you to stay organized to get organized and stay organized with your accounting software. As we look to look at your overall profit for the year to be able to make good plans to help you keep moving forward and pay as little tax as possible and make media adjustments. Yes, let's make tax time less taxing, let's review. Let's make a plan. Let's adjust through the year.

And certainly, as your tax professional, I can help you to do that. And I really like helping people to do that. Because making tax time less taxing helping you to pay as little tax as possible, is indeed my goal and what I want to accomplish, we will need to make estimated payments, we may or may not. That's why when we're looking at potential sales of some appreciated assets, we may need to make estimated payments both at the federal and the state level for you. So just keep that in mind, adjust withholding, maybe we'd need to make and I got some clients we're looking at meeting with you're coming up in June and July to just see, okay, they need to make adjustments. So, they need to have a little bit more held out to make sure they're not paying in January at least trying to break even. So that's what I want to do want to help you at least break even that way you're not having a big tax liability, or we're not getting a big refund, let's find let's, let's find the happy medium. Also, I know there are so many people today that are just very concerned about their health.

And that's very understandable. With the virus happening and a lot of people being concerned a lot of different areas. We are total virtual as a business. Yes, you want to meet virtually, we'll do that. I'm happy to do that. I want to discuss that with you make you as comfortable as possible. Whether you live across the street or across town, here I am, or you're across the country doesn't matter. I want to visit with you, I want to help you video interviews always there to help you secure portal, a web portal to be able to help you to upload your documents very easily and securely. So, we can get it, so we can review it electronic signatures as I mentioned, so that you can sign the proper documents sign whatever contracts we need. So, we can move forward and indeed help you with electronic payment. being set up easily set up monthly electronic payments to help you to easily make your payments as well as invoice you so you can pay with your credit card or with a with an automatic check there. So, we certainly encourage you to think about all these items I mentioned today the importance of this, keep in mind the differences from 2021 tax, which we just completed to the 2022 tax year which is actually going back to the rules, essentially, of 2020.

Keep in mind the importance of planning ahead, tax wise and making adjustments, business owners keeping business mileage logs of your vehicle. It's just absolutely vitally important. Then of course keeping good books and records through the year helping to get organized, don't just rely on software, and that's where I see so many people that are using software that's advertised online or advertised whatever way you see it, they talked about all this offer is going to really be great things, but I'll tell you what it is, you can have issues and I've seen those issues. I got issues right now with clients I'm working on and then we're going to have to fix and perhaps even just start all over again, because of the issues within their software, because they're just plopping things in and they think the software is going to fix, put it in the right place, and all the software will not. So don't just rely upon the software, do it yourself software doesn't always make do it yourself easy, doesn't always make it simple, especially when it comes to tax time. And don't rely upon Do-It-Yourself tax software either.

Because that does, what's going to just popped it somewhere. And it's important to know where it goes and how something needs to be properly classified. So, a good tax professional in your corner, can save you 1000s and I mean, 1000s of dollars in taxes. So, keep in mind, about a few are considering an electric vehicle has to be a new vehicle. There's a lot of different makes and models out there that you can take advantage of. But you just got to do some research with the IRS. And you can always call me I'll be happy to share a couple more with you as we go through. And then of course know what your tax professional is doing. Yes, keep in touch with them. Ask them. How are you doing? What is up with this? Do you have this record? Then? Can you have this this completed yet? Can I see a copy of this, can be physical or electronic? Just see, are you signing these forms? What kind of security does your tax professional have? These are all good questions.

And I recommend you check with because these are questions that I answer even before ones at us because people will say to me, well, you charge whatever I'm like, you know, this is what you are getting, you're getting all this you're getting experiences because it's not just putting numbers on a form, is putting the numbers on the right place on the form. And it's also the data security that you're paying for I pay to keep your data secure. And thus, that's what you're all included in what you're paying for. So, keep these thoughts in mind. And I really appreciate you listening today. Please once again, visit my website which is www.cashtracksfinancial.com or email me its success@cashtracksfinancial.com. I'm also on Facebook, look up the Cash Tracks Financial page. We're on LinkedIn as well and I got a Twitter feed. Also, there where we put periodic posts just to keep you updated on various tax matters.  Sign up for our free a newsletter at cashtracksfinancial.com. 

Cash Tracks Financial Inc.

Marcelino Dodge, EA, CFS

Colorado Springs: (719) 359-8987

Lamar: (719) 336-8739

www.cashtracksfinancial.com