Frequently Asked Questions

Businesses

I have an assistant who frequently works with me.  Do I have to put this person on payroll or can I treat them as a subcontractor?

I am starting a new business, what do I need to do?

I am computerizing my accounting records, what software should I use?

The IRS has contacted me, what do I do?

I operate my business out of my home, I've heard that there are many deductions available to me because of that.  What can I deduct?

How long do I need to keep my tax records?

Do I need to report payments made to a subcontractor?

Individuals

How much can I deduct for charitable contributions?

I donated used clothing to my church rummage sale.  Can I deduct the original cost of the clothing?

How long do I need to keep my tax records?

I sold stock that I inherited.  How do I compute capital gains?

I owe money with my tax return.  Should I file an extension?

The IRS has contacted me, what do I do?

I haven't filed a tax return for a number of years, what should I do?


 

I have an assistant who frequently works with me.  Do I have to put this person on payroll or can I treat them as a subcontractor?

The answer generally depends upon the amount of control you exercise over the work.  While this is determined on a case by case basis, there are some general guidelines.  Think of a plumber.  When you hire a plumber, you show the plumber what needs to be done and let him do it.  He brings his own tools, provides the supplies and materials needed, he does the work the way he thinks it needs to be done, and you pay him for the job.  This is a clear case of a subcontractor since you are exercising no control over the way the job is performed.  On the other hand, if you were to supply the tools, the materials and provide instruction as to how the job was to be done, paying by the hour instead of the job, you probably have an employee.


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I am starting a new business, what do I need to do?

The first decision is the form of business you want to use.  An individual can be a sole proprietor, a corporation, or in many states a single member LLC.  A group of people can form a partnership in addition to a corporation or LLC.  Further, there are two types of corporations, one that is taxed as a separate entity and one where the tax liability flows through to the shareholders' personal income tax returns.  The choice of business structure is the first decision that needs to be made and one that cannot be easily changed.  Once that decision is made, you may need to register with the IRS and your state.  We have a New Business Kit to help guide you through this process.


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I am computerizing my accounting records, what software should I use?

We recommend Peachtree Complete Accounting.  This is a complete computer accounting program that can grow with your business.  It has many sample businesses that can be copied and easily modified for your business.  It is relatively "user friendly" and provides many standard detailed reports.  We can answer many of your questions involved in setting up and using this software.

 

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The IRS has contacted me, what do I do?

Contact us.  We can assess the notice and advise you of proper action.  While many notices from the IRS are routine and can be easily handled, the inquiry needs to be handled as soon as possible.  Delay in dealing with IRS questions leads to bigger problems.  If you have been contacted regarding an audit, you want professional representation at the audit.  Audits can take a lot of your time, if you try to handle it by yourself, time which you need to spend running your business.  Frequently, we can have the audit transferred to a local office and handle it for you, minimizing the time you need to spend and limiting the disruption to your business.


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I operate my business out of my home, I've heard that there are many deductions available to me because of that.  What can I deduct?

There are many rules concerning the deductibility of expenses related to a home based business.  To begin with, you must have an area of your home that is used exclusively and regularly for business.  If there is personal use of this area, no deduction is allowed.


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How long do I need to keep my tax records?

We recommend that you save your records for 7 years after filing your return.  However, records associated with the costs of capitalized assets should be retained for 7 years after you sell the asset or otherwise remove it from your depreciation schedule.  You should retain your tax returns, general ledger and supporting journals forever.


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Do I need to report payments made to a subcontractor?

Payments in excess of $600 made to unincorporated businesses or individuals for services should be reported on a 1099.  We recommend that payments in excess of $400 to sole proprietors be reported on 1099s.  Failure to properly report such payments could result in the IRS assessing penalties.


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How much can I deduct for charitable contributions?

You may deduct the amounts you have given to qualified tax exempt organizations.  The organization to which you made the contribution will be able to tell you whether contributions are deductible.  The amount of your deduction must be reduced by the fair market value of any premium you receive in exchange for your contribution.


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I donated used clothing to my church rummage sale.  Can I deduct the original cost of the clothing?

No.  Your deduction is limited to the fair market value of the clothing at the time of your contribution.  This can most easily be determined by visiting a thrift shop and comparing the prices charged for similar type clothing.  You may want to obtain Cash For Used Clothing which is published annually by Client Valuation Services in Lincoln, Nebraska.  It contains a detailed listing of market values for used items.


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How long do I need to keep my tax records?

We recommend that you save your records for 7 years after filing your return.  However, records such as closing statements for the purchase of your home and security purchases (stocks) should be retained for 7 years after you sell.  You should retain your tax returns forever.


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I sold stock that I inherited.  How do I compute capital gains?

Inherited property is valued at fair market value on the day of death.  When computing gain or loss, it is treated as Long Term regardless of how long it was owned by the decedent.


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I owe money with my tax return.  Should I file an extension?

Extensions are only valid if you have paid your estimated tax liability.  It is an extension of time to file, not an extension of time to pay.  If you have a balance due on your return that is under $10,000, you may file Form 9465 requesting an installment agreement to pay your tax.


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The IRS has contacted me, what do I do?

Contact us.  We can assess the notice and advise you of proper action.  While many notices from the IRS are routine and can be easily handled, the inquiry needs to be handled as soon as possible.  Delay in dealing with IRS questions leads to bigger problems.  If you have been contacted regarding an audit, you want professional representation at the audit.  Contact us.


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I haven't filed a tax return for a number of years, what should I do?

You need to file as soon as possible.  However, since there are a number of issues involved in not filing tax returns, you should contact us so that we may assess your situation and determine the best approach.


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