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Home office

How to Convert Commuting Mileage to Business Mileage

Traveling from your home to your place of business and from your place of busines back home is considered commuting mileage, which is not deductible. Don't fret. There's a loophole that will let you convert those non-deductible commuting miles to deductible business miles. And it's perfectly legal!

Say you're a self-employed hairdresser. You drive 40 miles round trip to the shop, six days a week, 50 weeks a year, which comes to 12,000 miles a year. The 12,000 miles is commuting mileage and is not deductible.

Wouldn't it be great if you could convert that 12,000 miles to business miles so that you could get a hefty deduction? Twelve thousand business miles would give you a $6,900 deduction for tax year 2015 (57 1/2 cents per mile x 12,000).

If you're in the 15% tax bracket, that $6,900 deduction is can save you $1,035 in income taxes (15% x $6,900) and an additional . In addition to the $1,035 in income tax savings, you also slash your self-employment tax by $975 ($6,900 x .9235 x .153) for a total reducetion in taxes of $2,010.

Note: The .9235 is a pre-printed percentage on Schedule SE. It is used to reduce net profit carried from Schedule C, line 31 by 7.65%. The reduced amount is called net earnings from self-employment. Self-employment tax is computed by multiplying net earnings from self-employment by the self-employment tax rate of 15.3% (.153).

The Loophole

Back to the hairdresser example. Although you service your clients at the salon, you have no suitable place in the shop to do any of your business-related administrative work, such bookkeeping, recordkeeping, ordering supplies, setting up appointment, etc.

If you set aside space in your home where you could conduct your administrative or management activities of your trade or business, you suddenly have what is called: a principal place of business. Even though you see clients at the shop, your home office would still be considered your principal place of business provided you use the space in your home exclusively and regularly as your principal place of business.

Exclusively means is, you may not use the space where you conduct your administrative activities for any other purpose at any time. For example, you can't use your den one day to do business-related work and the next day use the den to watch T.V and entertain friends.

Regularly means

Here are the rules:

did these administrative activities in your own residence, So, how do you convert those non-deductible commuting miles into deductible business miles? Simple. Set up a home office. This could be space in your bedroom or a separate room in your house or apartment. The key is to follow the IRS's rules. There are only two of them.

Qualifying for a Deduction

Generally, you cannot deduct items related to your home, such as mortgage interest, real estate taxes, utilities, maintenance, rent, depreciation, or property insurance, as business expenses. However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements. Even then, the deductible amount of these types of expenses may be limited. Use this section and Figure A, later, to decide if you can deduct expenses for the business use of your home. To qualify to deduct expenses for business use of your home, you must use part of your home:

•Exclusively and regularly as your principal place of business (see Principal Place of Business , later),

•Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, •In the case of a separate structure which is not attached to your home, in connection with your trade or business, •On a regular basis for certain storage use (see Storage of inventory or product samples , later), •For rental use (see Pub. 527), or •As a daycare facility (see Daycare Facility , later).

  1. You must use your home office regularly and exclusively to conduct your business activities.

Principal Place of Business You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business. To determine whether your home is your principal place of business, you must consider: •The relative importance of the activities performed at each place where you conduct business, and •The amount of time spent at each place where you conduct business. Your home office will qualify as your principal place of business if you meet the following requirements. •You use it exclusively and regularly for administrative or management activities of your trade or business. •You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. However, see the later discussions under Place To Meet Patients, Clients, or Customers and Separate Structure for other ways to qualify to deduct home office expenses. Administrative or management activities.

There are many activities that are administrative or managerial in nature.

The following are a few examples.

•Billing customers, clients, or patients. •Keeping books and records. •Ordering supplies. •Setting up appointments. •Forwarding orders or writing reports. Administrative or management activities performed at other locations. The following activities performed by you or others will not disqualify your home office from being your principal place of business. •You have others conduct your administrative or management activities at locations other than your home. (For example, another company does your billing from its place of business.) •You conduct administrative or management activities at places that are not fixed locations of your business, such as in a car or a hotel room. •You occasionally conduct minimal administrative or management activities at a fixed location outside your home. •You conduct substantial nonadministrative or nonmanagement business activities at a fixed location outside your home. (For example, you meet with or provide services to customers, clients, or patients at a fixed location of the business outside your home.) •You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead.

start-up costs

How to Deduct Start-up Costs and Organization Costs

You may elect to deduct up to $5,000 of start-up costs in the year your business begins operations. The $5,000 first-year deduction limit is reduced by the amount of start-up costs exceeding $50,000.

Start-up costs that exceed the first-year limit of $5,000 may be amortized ratably over 15 years. The amortization period starts with the month you begin operating your active trade or businesss.

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Phishing and malware email scams

400% Surge in Phishing and Malware Incidents

After seeing an approximate 400% surge in phishing and malware incidents so far this tax season (tax year 2015), the Internal Revenue Service has renewed a consumer alert for e-mail schemes being reported in every section of the country.

These emails look official and can fool taxpayers into thinking they are from the IRS or others in the tax industry, including tax software companies.

The objective of these emails is gain access to sensitive taxpayer information. To get a taxpayer's attention, these emails will refer to hot topics, such as refunds, filing status, confirming personal information, ordering transcripts, verifying PIN information, and a host of other tax-related topics.

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10 Oddball Tax Deductions

Over the years the courts have allowed taxpayers to deduct some crazy things that most of us wouldn't even dream of claiming, ranging from pet food to free beer.

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IRS meall allowance, two people having dinner

Tax Extenders Bill Signed Into Law December 18, 2015

On December 18, 2015, the President signed into law the tax extenders bill, entitled the Protecting Americans from Tax Hikes (PATH) Act of 2015. The new law makes more than 20 tax breaks permanent and retroactively extends others for two or more years.

Here's a rundown of key business, individual, and miscellaneous provisions:

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IRS meall allowance, two people having dinner

IRS Meal Allowance

Generally, the cost of meals are considered a personal expense and are not deductible, unless they meet certain IRS rules.

For example, if you go out to lunch yourself during the course of your work day or with a business associate, and there is no business purpose other than to simply get a bite to eat, the cost of your lunch is a personal expense and is not deductible.

When Meal Costs are Deductible:

You can deduct meal and entertainment expenses only if they are both ordinary and necessary (not lavish or extravagant) and meet either one of the following two tests (discussed below).

  1. Directly-Related test
  2. Associated test

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Travel expenses

What Are Travel Expenses?

Travel expenses are defined as:

  • Ordinary and necessary expenses...
  • related to your business, profession, or job...
  • while traveling away from home.

Travel expenses may be deducted by:

  • Self-Employed Persons
  • Employees
  • Unemployed Persons
  • Transportation industry workers (get special treatment)

Self-Employed Persons:

Self-employed persons deduct business-related travel expenses while away from home as a business expense.

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Hiding assets in Offshore accounts

Hiding Assets In An Offshore Account

Offshore accounts have been used to lure taxpayers into scams and schemes. According to the IRS, hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.

Over the years, a number of individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds.

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Health care law and you.

Six Tips About Individual Shared Responsibility Payments

For any month during the year that you or any of your family members don’t have minimum essential coverage and don’t qualify for a coverage exemption, you are required to make an individual shared responsibility payment (a euphemism for penalty) when you file your tax return.

Here are six things to know about the penalty payment:

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affordable care act coverage, exemptions, and payments

Affordable Care Act Health Coverage Exemptions and Payments

The Affordable Care Act (ACA) will affect your federal income tax return.

The ACA requires you and your dependents to:

  • have health care coverage, or
  • an exemption from the coverage requirement,
  • or make a shared responsibility payment (pay a penalty) with your return for any month without coverage or an exemption.

Five things you should know about exemptions from the ACA coverage requirement and the individual shared responsibility payment that will help you get ready to file your tax return:

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Missoure storm victims 2015

IRS Gives Missouri Flood Victims Until May 16, 2016 To File Taxes, Estimated Payments and Business Taxes

The IRS announced that Missouri storm victims will have until May 16, 2016 to file their returns and pay any taxes due. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

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Affordable Care Act Consumer Alert!

Last tax season, 2015, some crooked tax preparers around the country victimized a number of uninformed taxpayers in connection with the penalty requirement for taxpayers without health insurance.


Starting January 2014, you and your family were required to either have health insurance coverage throughout the year, qualify for an exemption from coverage, or if you had no health insurance coverage, pay a penalty with your 2014 federal income tax return filed in 2015. The penalty is euphemistically called, The Individual Shared Responsibility Payment.

Many people already had qualifying health insurance coverage and did not need to do anything more than maintain their coverage.

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