Monthly Archives: November 2015

Should You Claim the Home Office Deduction?

Claiming the home office deduction for your practice can reduce your income tax obligation, but be sure you understand the IRS’s rules.

One of the many ways the internet has changed business over the last two decades is the increasing numbers of part-time entrepreneurs. Simple do-it-yourself website design tools have made it possible for anyone to create a virtual storefront that looks impressive – even if its CEO is working out of his or her spare bedroom.

At the same time – whether it’s good or bad – business people have found it easier to do office work at home.

If you’re in one of these two situations, you may be able to take the Home Office Deduction on your IRS Form 1040.

There are two primary requirements:

  • You have to use your home office space exclusively for business.
  • The area of your home that you’re claiming must be used as your “principal place of business.”

Prior to the 2013 tax year, doing the required calculations to determine the costs associated with the business use of a portion of your home was quite complicated. It can be a less complex task now, if you use what’s called the Simplified Option. However, you can still claim the Home Office Deduction using the Regular Method.

Warning: Once you select one of these options for a given tax year, you must stick with it through that year. If you change from the Simplified Option one year to the Regular Method the next, you’ll need to know how to handle depreciation. We can help with this.

Here are some of the specifics. Where you used to have to maintain records of actual, legitimate expenses (and you still can, using the Regular Method), you now have the option to take a standard deduction of $5/square foot (maximum 300 square feet) for the section of your home that you’re claiming.

Filing can be less time-consuming, too, using the Simplified Option. In previous years, you had to enter some home-related itemized deductions on the Schedule A and the rest on Schedules C or F. You can still do so using the Regular Method. But now you can claim them in total on the Schedule A.

Do you want to work with depreciation for your Home Office Deduction? If so, you’ll have to stick with the Regular Method. Using it, you can:

  • Take a depreciation deduction for the area of your home that you use for business, and
  • Recapture that depreciation when you sell your home.

Figure 1: The Simplified Option makes it easier to file for the Home Office Deduction, but it may not be best for your situation. We can help you sort it out.

If you’ve decided that you want to use the Simplified Option, there’s no depreciation deduction, and, of course, no recapture of it.

Loss carryover is affected, too. Using the Simplified Option, you cannot:

  • Carry over any amount that exceeds your gross income limitation, or
  • Claim a loss carryover that was derived from the use of the Regular Method in the previous year.

One thing that’s stayed the same in both is this – the Home Office Deduction can’t be higher than the gross income you’re declaring from the business use of your home minus business expenses.

Obviously, determining what the amount of your home office deduction will be is still a complex operation, even though the new rules are called the Simplified Option. We can’t recommend that you attempt either alternative without consulting with us. It may or may not be an effective way to lower your tax obligation, and you might spend hours trying to figure this out on your own, so let us help. Contact us today to get started.

Bassim Michael to Present on Dental Practice Exit Strategies at Fresno-Madera Dental Society Meeting

Only for Dentists Principal, Bassim Michael, CPA, MS Tax, will present information on dental practice exit strategies and tax planning at the upcoming Fresno-Madera Dental Society General Meeting.

Bassim’s presentation, “7 Ways to Exit Your Practice in Style & Save on Taxes,” will explain the difference in the various types of exit strategies that dental practice owners can pursue and proper tax planning steps for ensuring a smooth practice transition. The meeting attendees will learn valuable information regarding the top seven steps to exit planning and fundamental tax minimization strategies. Additionally, the presentation will include answers to the following questions:

  1. Why is there a need for exit planning?
  2. What are the main challenges facing practitioners?

The event will take place on November 17, 2015, at Tornino’s in Fresno, Calif. from 5:30 – 8:00 p.m.

Read more details about this event and download the registration form here.

About Bassim N. Michael, CPA, MS Tax:

Bassim has provided accounting, business advisory and tax services to dentists, business entities and individuals since 1997. Over the course of his career, he has provided high quality, personalized service to a wide variety of clients, ranging from individuals to small and mid-size companies in a variety of diverse industries including service, real estate, construction, retail, health care and manufacturing. Bassim’s background in both public and private accounting gives him a unique perspective into the financial, tax and business needs of dentists.

Bassim is licensed as a Certified Public Accountant in California and Nevada. He earned his Bachelor of Arts degree from Fresno Pacific University and also holds an MS in Taxation degree from Golden Gate University. He is a founding member of the Institute of Dental CPAs and a frequent speaker for a variety of dental organizations including the Santa Clara Dental Society, California Dental Association and CALCPA. Read Bassim’s complete biography here.

For additional inquiries, Bassim can be reached by emailing or by calling 559-436-8907.

Top 5 Estate Planning Mistakes

CBT6lC2P5ee5y0-lzLwCC11nfclylgU_0yYYP8erXTA,riS9CqAHreoQeESKqBA8Om-IY89MiNmbLlJHAcn0ROAWhen done well, estate planning can save the loved ones you leave behind a great deal of money in taxes and fees. When done wrong, as we’ve learned with a few high profile cases over the years, your loved ones can find hefty taxes, fees and penalties levied against them.

These are some costly mistakes many people make when it comes to estate planning. Don’t let them happen to you.

1) Procrastination

People procrastinate for many different reasons, one of the most prominent being that no one really wants to dwell too much on the idea of their own mortality. It’s understandable.

Unfortunately, it may prove costly for your family in the event that the unexpected does happen. You want them to be protected. Since no one is guaranteed to live for the next five minutes, much less then next 25 years, it’s important to bite the bullet and get busy planning your estate. If you don’t have an estate plan, the government will decide for you.

2) Failing to Understand the Advantages of Life Insurance

Life insurance offers multiple advantages to your family once you’re gone. First, it helps to cover the costs of any estate taxes and operating expenses the estate generates, which can be substantial. It’s also wise to clue your family in to the finer points of managing the estate long before you’re gone, if possible, so that the learning curve doesn’t prove quite as costly as it may otherwise be when the next generation takes the reins – especially if they’re younger than you’d like them to be when this occurs. The second main benefit life insurance represents is that it can be used as a “tax advantaged” investment. You definitely want to discuss the many ways you can use life insurance as a tax advantaged investment with your estate planner so you can best protect your legacy for future generations.

3) An Overly Simplistic Approach

Simple plans work well for families with less than two million dollars in total assets. If your estate is larger than a million, however, it’s important to make sure you’re making the right decisions to maximize the benefits to your family while minimizing Uncle Sam’s take. While taxes are a certainty, there are steps you can limit the amount of taxes taken from your estate. A simple move, such as including provisions in your will or living trust agreements at the death of the first spouse can protect your assets from excessive taxation thus protecting your estate for your children.

4) Failure to Revisit Your Plan Frequently

You don’t have to revisit your estate plan monthly or even quarterly. However, it’s a good idea to revisit it with any changes in your life to make sure all the information is properly updated. These changes include new jobs, divorces, marriages, the death of aging parents, the death of a spouse and even milestones in the lives of your children.

5) Neglecting the Little Details

While you may feel as though a big weight has been removed from your shoulders once you’ve put the plan on paper, if you don’t follow up with the appropriate signatures, notarizations, etc. then your careful planning is in peril of negation.

In addition to these five big mistakes that can derail your efforts to properly plan your estate, there are a few things you’ll want to remember and include in the estate planning process, such as planning for pets, protecting digital assets and assigning guardianship for your children.

When you keep the mistakes you could make in mind, the success of your estate planning efforts is much more likely. Don’t forget to consult an expert to help you navigate the tricky waters of estate planning so you can rest assured your family is truly protected — even when you can’t be there to protect them.

For more information about getting started with planning your estate or your personal estate planning issues, please don’t hesitate to contact us!

Why You May Get a Letter From the IRS & What to Do

Don’t panic: Receiving a letter from the IRS isn’t necessarily a bad thing, but it definitely can’t go unnoticed.

Getting a letter actually addressed to you personally is becoming a thing of the past, what with email and social media taking over a lot of our correspondence.

Nonetheless, you still received a letter addressed to you from the IRS. Your first reaction may be to wonder what you did wrong.

The IRS doesn’t always deliver bad news by mail. The agency may want to inform you that you have a larger refund than you expected, or that it simply needs some additional information or some extra time (if the processing of your return is delayed). Sometimes, you don’t have to take action on the notice, but sometimes you do. The IRS will send you a letter through the U.S. Mail if:

  • You owe more than you submitted,
  • You need to answer a query about your return, or
  • You must verify your identity or provide more information.

If you get a message that claims to be from the IRS in email or on social media, it’s not. The agency only communicates with taxpayers via U.S. Mail. Go to this page to see how to report the fraudulent note.

Letters from the IRS, though, need to be responded to in a timely manner. If you are given a deadline, you must answer within that time-frame. If you don’t, you may incur additional interest and penalty charges. You may also put your right to appeal in jeopardy.

Money you owe needs to be submitted as soon as possible. If you absolutely can’t pay in full, at least pay what you can. Payments can be made online. You can also request an Online Payment Agreement or Offer in Compromise. Please contact us if you have any questions regarding tax payments as we can tell you more about these options.

Here are some other tips from the IRS:
Read through the entire letter at least once and make sure you understand what is being said. Let us know if you are at all unsure of the situation. Your return may have been changed by the IRS, in which case you should compare the modifications to your original return.

The agency may also believe that the return was submitted fraudulently and not by you. You’ll be asked to verify your identity if identity theft is suspected.

Contact the IRS immediately if you don’t agree with its findings or if you have questions. There should be a phone number in the upper right-hand corner of the letter. Before you call, gather together your return and any other documents that relate to it. You can also respond in a letter of your own, but know that it can take at least 30 days to get a response from the agency.

Of course, you will also be contacted by the IRS through the U.S. Mail if you’ve been selected for an audit. Again, this doesn’t mean that the agency suspects that there are errors in your tax return. Some taxpayers are selected randomly. However, you don’t want to go through an audit alone.

We are very familiar with the IRS and letters sent to taxpayers, so we can assist you throughout the process.

Whether you get an audit notice from the IRS or any other kind of correspondence that concerns you, let us help. Call the office today!