Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Jul 30

    How to Write Off Katie’s Soccer Camp

    Yes, it is quite do-able. But, like many things in the tax code the devil is in the details. Let’s see if I can cut through the Tax Mumbo Jumbo for you.

    If Katie (or Bruce) is younger than 13 and goes to a DAY camp (overnight doesn’t work), and you are both working (or “looking for work”) then,…

    Cha-ching.

    You can then choose to pay for the camp using a Flexible Spending Account (FSA) or you can take the child care credit. Remember: credits are better than deductions. With both the FSA and the child care credit, other eligible expenses include the cost of day care or preschool, before or after school care and a nanny or other babysitter while you work.

    The size of the credit depends on your income and the number of children you have who are younger than 13. You can count up to $3,000 in child care expenses for one child or up to $6,000 for two or more children.

    There are some limitations. The credit is only good for families of a certain income range and the percentage of eligible costs varies with income.

    All told, it’s a good deal which you should take advantage of, if you qualify.

    Bonus… If you have two or more children and child care costs exceed $5,000 for the year, you can benefit from both accounts. You can set aside up to $5,000 in pretax money in your FSA for child care costs, then claim the child care credit for up to $1,000 in additional expenses.

    Other strange, but true, deductions

    You can pay your significant other (pay attention now) to do legitimate work for you and take a deduction.

    Bruce hired his live-in girlfriend to manage his rental properties. Her duties included finding furniture, overseeing repairs and running his personal household. He went to Tax Court and fought the IRS which had disallowed the entire deduction. He won a deduction for the portion of his payments which could legitimately be tied to her business work.

    A married couple owned a junk yard and put out cat food to attract wild cats. Why, you might ask? The feral cats they were trying to attract dealt with snakes and rats on the property. That made for a safer junkyard for customers.

    And that made cat food a business deduction. The IRS first thought this was ridiculous, but before the case reached the Tax Court the IRS agreed!

    The details are always important, so be careful and ask us for advice first.

  • Jul 30

    Well, the dream of freedom, birthed on the 4th, does still live. But let’s face it, our government is poised to become a deeper, larger influence in our lives. Perhaps no agency more so than the IRS.

    It’s ironic, in this month of Independence, to recognize how much power the IRS has. It is perhaps, one of the most powerful organizations in our country. It, and it alone, is responsible for collecting the vast majority of all Federal taxes and imposing related penalties. The IRS poses one of the biggest financial threats to individuals and entrepreneurs alike.

    The Internal Revenue Service has a unique position in its roles as an information resource and has a unique legal standing as a law enforcement agency. The IRS has the authority to issue regulations, interpret legislation and the freedom to make mistakes without consequences. (They’re protected from penalties for false accusations!)

    So what can we do to protect ourselves from the IRS’ power and potential for financial wrath???

    Well, if there was a concrete answer to that, the IRS wouldn’t be near as intimidating as they are, would they? But, there is one thing each of us can do to keep the IRS off our back: Keep Good Records!!

    I know, I know, a bit lame sounding, but it’s true.

    Our best defense against audits and false accusations is accurate, detailed records of the flow of money into and out of our lives or business.

    A few years back, I received a frantic phone call from a potential client. She was being audited. Could I help? This small business owner ran a completely online business and all of her transactions, all of her payments and all of her revenue, ran through her Pay Pal account. Not necessarily a problem, but as it turns out, these were the only “records” she had. She didn’t keep a running total of how she spent her money and didn’t reconcile the account like you would a bank account.

    In short, she had no system. No way of knowing exactly how much income she had or how she spent her money. When queried she couldn’t even reproduce whatever she had given to her tax preparer who somehow managed to come up with something to put on the tax return. And the preparer was no help either. She no longer had any records that identified where she got the numbers from.

    Not the way you want to go into an audit.

    After an investigation, we determined that she had understated her business income and overstated her business expenses, each by more than 20 percent. Great combination, huh? After the IRS expanded the audit to include another year, she owed a whopping $40,000 in back taxes, penalties and interest.

    She ended up selling her house in order to pay the taxes.

    But, it could have been avoided. Now I know, depending on your situation, that recordkeeping can be complicated, time-consuming and downright boring. But it is a necessary evil. In addition to helping you prepare an accurate tax return, your good record keeping provides you the feedback you need in order to know how well you’re doing. It’s your scorecard.

    Where to begin? A great place to start is by calling our office. We can help you develop an effective system that will build a strong defensive wall around you. Generally speaking, the better your records, the better your chances are in an All-Out Battle with the IRS!