Several small business owners ask if they can travel for personal reasons and deduct the costs as business expenses. If travel is entirely for personal, it cannot be deducted. Travel should be proven to be for business to deduct the costs as travel expenses when you prepare your business return.

Nevertheless, we are humans, and we like to have fun occasionally. Many of you feel it’s justified to deduct personal travel because you could be doing so after a hectic working period. Imagine someone like me, a tax pro? I have been busy preparing returns non-stop from the last week of January until now. It’s been several weeks of hard work, and I will definitely take a few days off after closing the tax season. In such cases, I feel like the intensity of my work has warranted such a vacation – which makes it sort of business-related because the trip is more for rebuilding my strength. Call it a single-family team-building vacation. However, on a more serious note, in the eyes of the IRS, I will still be taking a personal trip. Hence it cannot be deducted.

Nevertheless, in this article, I will help you understand that you have a chance of deducting some or all your travel expenses, even if it was initially for personal reasons. When it comes to business deductions, they must be ordinary and necessary. This means that the costs you incur on a business tab must add value to your business, such as attending a marketing workshop during your travel away from your tax home and buying lunch while at it.

What is your tax home?

To deduct travel expenses, you must have traveled away from your tax home to conduct business-related activities. That’s when you can deduct costs such as air tickets, uber fees, meals, etc. But what is your tax home?

Your tax home is the entire city or area where you carry out your main business activities. This means a place where your office could be located or where you conduct business. This applies regardless of where your family stays, meaning you could be working in an entirely different city from where your family lives, only visiting them after a week or two. Your home where your family lives, in this case, is not your tax home. The place you work is your tax home. As such, when you travel outside this city where your office or area of work or business is located, for business-related activities, you can deduct expenses. Below, we will look into how you can deduct these expenses when your initial idea was to take a personal trip. While at it, it is imperative to understand that tax deductions must be implemented legally. Anything outside the dictates of the tax code will land you in trouble with the IRS.

How to mix personal travel and business for tax purposes?

To benefit from this, you ought to understand expenses you can deduct from business travel. These include air, train, bus, or taxi fares to travel from your place of business to your destination. Fares to travel to and from the airport and in between meetings are deductible too. Lodging, meals, and expenses related to using your own car are included. However, they must be specifically for the trip. As such, it should help to record the reading on your odometer before leaving and doing so when you come back to calculate the mileage.

So, the big question is how to ensure that your travel goes down as a business activity and is deductible.

First, you should set it so that more than 60% of your activities on the travel are for business. This should be deliberately planned so that you benefit from deducting transport costs, some meals, and costs for attending other activities while on vacation.

To turn most of your activities into business, set up meetings with clients while on the trip. More so, target random new prospective clients, arrange meetings with them during the vacation (in person), and market your business or services to them. Buy lunch and eat with them. If you can also coincide your vacation with a business conference or workshop, that would be great. Attend that workshop during your vacation. This helps to deduct your lodging expenses.

Finally, when on vacation, we tend to get into many fun activities with our loved ones. This time, do it so that you can record videos of yourself that can be repurposed to market your business. Mention your business while recording the videos and have them edited to include your logo. Expenses for those activities can then go down as marketing expenses. They are necessary and can be deducted from business income.

In conclusion, you should be careful not to break the law when engaging in these activities. If it is too difficult and results in you manipulating events a lot, you could be treading dangerously. In this case, you need me to help you do this properly. Contact my office and book an appointment with me to understand how to make your travel expenses ordinary and necessary.

Frequently asked questions

1. What is the purpose of travel tax?

A travel tax is levied by every government, such as the international arrival tax paid on air tickets. The purpose of such taxes is to find government activities such as the work of Homeland Security and other departments that work on airports and the roads. It is also to maintain public infrastructures such as roads and airports.

2. Can travel tax be refunded?

Travel tax is not refunded. But you can write off travel tax as part of travel expenses when you take a business trip outside your tax home. Travel tax is charged as part of your train, plane, or bus ticket. It is similar to sales tax.

3. How do I claim my travel tax refund?

You can only deduct travel expenses without claiming a refund. However, if your travel expenses reduce your taxable income such that you end up owing below zero in taxes, the IRS may refund any overpaid taxes. That is why it is important to itemize deductions and reduce your tax bill. However, it is unlikely that deductions will reduce your tax bill to below zero – only tax credits (which reduce your owed taxes, dollar for dollar, can do so).

The post Can you Mix Business and Pleasure When Traveling? first appeared on Suncrest Financial Services | Tax Preparer in Upper Marlboro Md.

The post Can you Mix Business and Pleasure When Traveling? appeared first on Suncrest Financial Services | Tax Preparer in Upper Marlboro Md.

President Biden’s Build Back Better plan is good news for the country’s progress. But with it comes along the need to raise more funds from the people and businesses to the Treasury Department. The government must raise the trillions of dollars needed to finance it. And to do it, they must tighten the screw on taxation. For this reason, even cryptocurrency traders and investors are finding themselves in the firing line. This is why I am always saying that no one is safe right now when it comes to taxes. The IRS is coming for everyone who has been potentially underpaying taxes.

However, this article focuses on how the IRS is already tightening the screw on cryptocurrency traders and investors.

What is cryptocurrency?

According to Investopedia, Cryptocurrency is “a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.” Examples of cryptocurrency are Bitcoin, Dogecoin, Ethereum, Litecoin, and Bitcoin Cash.

The above definition makes it interesting as it mentions the phrase “digital asset.” I said this is interesting because an asset is also someone’s property. And according to the IRS, “Virtual currency (or cryptocurrency) is treated as property, and general tax principles applicable to property transactions apply to transactions using virtual currency.” However, the IRS also includes all forms of digital currencies as taxable property, hence their use of ‘virtual currency’ on the above quote instead of using cryptocurrency.

You need to understand how the IRS uses words to communicate about taxing virtual currencies. This year’s most significant difference is in their use of “virtual currency transactions” other than just ownership. As such, the IRS is targeting virtual currency transactions this year and the years to come. This is because transactions in crypto are the ones that result in the need to pay taxes because there is money that exchanges hands.

For your benefit and for tax purposes, transactions in crypto include activities such as getting paid in crypto, selling crypto and getting rewards for crypto mining or free coins. Therefore, if you were involved in any of the above in 2021, you must declare it and the monies involved on your tax return during the ongoing 2022 tax season. The IRS has put a question on the first page of your Tax Return for you to indicate if you were involved in any virtual currency transactions in 2021.

How will the IRS know that you had activity in cryptocurrency?

A new $1.2 trillion Biden bipartisan infrastructure law requires annual tax reporting by digital currency brokers starting in 2023. That’s when they will know about your activities.

More so, merchants like PayPal, which many people use to fund crypto wallets and receive proceeds from selling crypto, will report transactions to the IRS when a user reaches the $600 minimum. So, if you received money from a virtual currency platform in 2021 via PayPal, the IRS would see this and expect to see the same on your tax return. That’s why I am emphasizing that no one is safe. Your safest option is to play by the rules.

What must you do to be safe if you are involved in cryptocurrency?

The IRS is targeting all crypto transactions that many taxpayers used to hide. They have changed the wording on the crypto question on Form 1040 (U.S. Individual Income Tax Return) to put taxpayers in a corner. The question is explicitly asking about ‘transactions’ in crypto – it is no longer vague, but direct. Choose (YES) if you transacted in virtual currency in 2021 and (NO) if you did not.

If you are my client or plan to be one for this tax season, your best way to be safe is to listen to me, your tax professional. I will guide you properly so that the IRS won’t come back to haunt you. Do not be tempted to hide any information from me.

More so, report accurate transaction amounts on your tax return. If you received virtual currency worth $2 million in 2021, indicate that exact amount when preparing your tax return. Finally, you must keep all paperwork that supports these transactions.

In conclusion, these are part of new changes that are confusing taxpayers in 2022. If you are part of taxpayers struggling with 2021 federal returns because of this and many other tax headaches, talk to me today by calling (202) 618-1297. I will assist you.

People have also asked the following

1. How do I get started with cryptocurrency?

You will need a “wallet” to keep your crypto, so to start this journey, you can open an account on a crypto exchange online. They helpful instructions on how to proceed, one of which is how to ‘load’ money on your account in order to buy the virtual currencies. You can load money using your bank or merchants such as PayPal.

2. Is it safe to buy cryptocurrency?

Crypto is safe because of the blockchain technology that it uses. It is not traceable or controllable by governments. However, activities such as funding your account on cryptocurrency exchanges or withdrawing money from there could be monitored since this is done through a bank or PayPal, etc. That is why the IRS is confident that they will catch cryptocurrency transactions hidden for tax purposes.

3. What is a cryptocurrency, and how do I invest in it?

A cryptocurrency is a form of a digital asset based on a decentralized huge network. To invest in it, you need to open an account with a cryptocurrency exchange and have a crypto wallet, be it digital or physical.

4. How much does it cost to start buying cryptocurrency?

Even though cryptocurrency such as Bitcoin may be pricey, you can still buy a small portion of it, for example, 0.00000001 of Bitcoin. This should cost less. Therefore, there is no minimum amount required – it all depends on the exchange you chose to open your account – some have minimum deposit thresholds. Besides Bitcoin, some cryptocurrencies are already cheap. You can buy them for some cents.

The post The Time for Not Reporting Your Cryptocurrency Transactions is Over. The IRS Wants to Know it all first appeared on Suncrest Financial Services | Tax Preparer in Upper Marlboro Md.

The post The Time for Not Reporting Your Cryptocurrency Transactions is Over. The IRS Wants to Know it all appeared first on Suncrest Financial Services | Tax Preparer in Upper Marlboro Md.

Imagine the pain of someone calling your name, asking you to trust that they will freely do something for you only to turn around and let you do everything by yourself? That is one classic example of the pain that TurboTax users go through. It’s called a TurboTax trap! And because of this trap, many innocent people have made tax filing mistakes that cost them their money and time.

Tax filing mistakes using TurboTax

Filing tax returns is no easy task unless if you hire a tax expert to help you prepare your taxes. But there are mainly two types of filers that are tempted to file their own taxes every year. These are individual taxpayers and small business owners. What lures them to such websites as TurboTax is the “Free Filing” tool they sell in their adverts. But we will probe if that is really true.

Many individuals struggle to get it right when they choose to file for themselves. Even as they do, bear in mind that individual taxes are widely composed of W-2s. They don’t have to compile many types of incomes, but they still face difficulties in doing so. Besides individuals, small business owners are also among people that want to utilize electronic filing systems for their business taxes. But even if they do, their pain is even more, given many forms and schedules involved with them. A Business’ earned income could be sourced from many sources, and their expenses are even wider. These result in many reporting obligations as laid out in the tax law – a source of tax filing pains!

Therefore, the need to file their own taxes is the root to mistakes arising from using TurboTax. They won’t notice the TurboTax trap until it’s too late. However, this article is here to help you realize what a mistake that will be to trust a software to prepare your taxes.

• TurboTax isn’t really free

It’s interesting that, even after the number of people using this software, people still ask if TurboTax is Really Free. Well, this software is really expensive in the sense that you pay a fee, and after paying, you still file your own taxes. I say this because if they can’t prepare your tax documents as what us, tax professionals do, then you are literally doing it yourself. So, in other words, it’s like you are paying twice for a service that you approached thinking is free.

Therefore, that is mistake number one; TurboTax is not free; you pay and gather all documents by yourself. After gathering them, you upload them one by one, something that my clients will never do. By so doing, you lose your money and time. To add to that, you also go through the stress of getting documents together.

• Is there an accuracy guarantee using TurboTax?

To answer this question, I don’t need to write a lot here. I did a simple search online and stumbled upon something on the Complaints Board. See the image below;

According to the above, TurboTax cannot guaranty accuracy even if they say they do. The pain about these mistakes is that they always come back to haunt you, the taxpayer, not them. If you follow that link with complaints, the IRS ended up demanding penalties from taxpayers, not TurboTax. Therefore, it’s a mistake to assume that this software guarantees accuracy. Your place of safety when filing taxes is with a real human, which is a tax professional!

• Schedule C Mistakes

I already spoke about how small businesses are tempted to file their taxes using TurboTax. Well, their overlooking of real tax experts (humans) usually results in Schedule C mistakes. How does this happen? Given that self-employed individuals report their business receipts and expenses on Schedule C, some of them don’t have accurate calculations. For example, they don’t know what deductions to legally take. Or, some of them are driven by the fear of being audited; hence they understate their deductions. Some even overstate their deductions, resulting in an IRS audit.

As I have always told my clients, tax calculations involving deductions are complex. For this, you will require the help of a tax expert, not an online software. Remember, the software is only coded in a certain way – and that’s for all filers using it. But, taxes are different. Your business’ earned income is different from another business in another industry. The same applies to your expenses and deductible items.

• State tax mistakes

Well, this is even more relevant during this pandemic period. Why? It’s because many people have been forced to work from home. And you find that some live in different states to their workplaces. Therefore, you could be required to file taxes for different states.

Federal taxes are the same, but state taxes differ with each state. As such, TurboTax isn’t built to handle multi-state tax return preparation. So, whether you are an individual taxpayer or a small business owner, as long as you are filing for different states, you might be the next to make state tax mistakes using TurboTax.

Here are some questions that people ask about this topic and taxes

1: Can I File Exempt & Still Get a Tax Refund?

Yes and No. Yes if you file exempt but are working and earning low to moderate income – making you qualify for the Earned Income Credit. This credit, and other Refundable Tax Credits, result in negative taxes owed, meaning the IRS must refund you.

It’s a no if you don’t qualify for any Refundable Tax Credits.

2: How to Ask for a Tax Refund

The IRS has two ways that you can utilize to ask for your refund status.

• You can use the IRS Where’s My Refund? It’s the fastest and easiest

You can call the IRS on 800-829-1954

3: Is TurboTax Really Free?

Even though they say they provide a free-filing service for certain individuals, a 2019 research revealed that TurboTax makes it very difficult for its website visitors to access free file. The researchers also put a warning saying ‘TurboTax Free Edition is not always free. It puts many people on track to pay.’

4: How can I be sure my tax information is safe?

Apparently, TurboTax guarantees the safety of your information – but that’s all you have – their word. However, they confirm on their website that some individuals have had their accounts hacked and hackers stole their information. Therefore, protection is not 100% guaranteed.

The post Tax Filing Mistakes using TurboTax | TurboTax Trap first appeared on Suncrest Financial Services | Tax Preparer in Upper Marlboro Md.

The post Tax Filing Mistakes using TurboTax | TurboTax Trap appeared first on Suncrest Financial Services | Tax Preparer in Upper Marlboro Md.