Electric Car Tax Credits

fiX7aWb7dTlz2C_p9hDY75tP02_qkAU_gEoqvGUmnygBesides being healthier for the environment, purchasing an electric car can be healthy for your tax return. However, there are a few requirements that go hand-in-hand with the purchase of an electric car that one needs to understand to reap the full benefit from the tax credit.

Put simply, the current tax credit for purchasing an electric car is $7,500. This tax credit is not a rebate, so you will not receive it when you purchase the vehicle, nor is it a tax deduction. That means you cannot use it to reduce the amount of your taxable income.

How to Use an Electric Car Tax Credit
In the year you purchase an electric car, you are allowed to reduce the total amount of income tax you owe by $7,500. This means that if you own less than $7,500, you will lose the remainder of the tax credit. For example, if your tax liability is $6,500, then that is the full amount of the tax credit you will receive. The balance is not a refund nor can it be used to offset future tax liabilities.

Determining Which Cars Qualify for the Tax Credit
When considering the purchase of an electric car, keep in mind, it must be a new vehicle that will be used for your personal use. You cannot use the credit on a used car or a lease as the leasing company typically receives the tax credit. In addition, the car must have been manufactured by a car company and cannot be a conversion. Finally, the car must be used in the United States.

As with all things related to the IRS, there are conditions that must be adhered to when using the electric car tax credit, but the upside is that by utilizing this credit, it is possible to bring the cost of an electric car down to where it is inline with a gasoline vehicle.

For more information on the electric car tax credit and how it may apply to your dental practice, please don’t hesitate to call the office!

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.

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!

How to File an Amended Tax Return

Oops! Did you realize that you made an error on an income tax return that you already filed? It’s not unusual. That’s why the IRS has a special form that will fix it.

Maybe a 1099 that you had forgotten about came in after you’d filed your income taxes for the previous year. Or a big business deduction slipped your mind. Or as you glanced through your return before filing it, you noticed that one digit in your Social Security number was incorrect.

Sometimes, post-filing errors are your own fault and sometimes not. Whatever the reason, you should file an amended return as soon as you discover the error because it takes some time to get it processed. The IRS recommends you file a Form 1040X when you need to register a change – or changes – in your filing status, income, deductions, or credits.

Note: Keep in mind that there are exceptions to the general rules and additional forms that may be required depending on your situation. Also, there are some errors that, for numerous reasons, don’t warrant an amended return. So please talk to us before you file one.

Figure 1: You’ll need to file an IRS Form 1040X to correct a Form 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.

Though we strongly urge you to let us help you prepare and submit an amended return, here are answers to some questions you may have about the process.

What’s Needed: If you need to file an amended return, you’ll have to get a paper copy of the IRS Form 1040X. Besides the form itself and IRS instructions, you’ll need your original return and all of its supporting forms, schedules, worksheets, and instructions.

Where It Goes: Even if you originally filed electronically, you’ll have to complete and submit this the old-fashioned way: through the U.S. Mail. (See page 12 of the IRS instructions for this form to find the appropriate mailing address). Note: If you have discovered errors in more than one year, you’ll have to submit separate 1040X forms in separate envelopes.

How Long You Have to Submit It: The IRS wants to see your 1040X within three years of the date that your original form was filed (including extensions) or within two years of actually paying the tax – whichever date is later.

How Long It Takes the IRS to Process Your 1040X: It may not even show up in the IRS’ system for three weeks. Expect to wait up to 16 weeks for the change to be completed.

How You Can Check the Status of a 1040X: The IRS provides an online tool called Where’s My Amended Return?, which only has updates on certain types of amended returns. You can also call an automated toll-free number (866-464-2050).

What the IRS Does If It Has Questions About Your 1040X: It will contact you through the U.S. Mail.

Figure 2: The IRS Form 1040X is structured differently from the other forms in the 1040 family. It will actually replace your original return.

The Form 1040X is not as lengthy as the 1040, but it in essence becomes your new tax return for the year. You’ll supply your original entry or any adjustment that the IRS has already made in one column and then the new amount in another, with the difference in between.

Keep in mind that an amended federal form may have an impact on your state return. We can help you determine this and advise you on how to proceed.

You know how important it is to get everything right on your income tax return. Accuracy is just as critical – if not more so – when you file an amended return. You don’t want to have to correct your corrections, and we don’t want you to, either. So let us know if it looks like a Form 1040X is in your future.

Why United States Expatriates Worry About FATCA Penalties

5zM3PffMoL3RvIP-g9SXRIjL1p4YMoZ4yTFi7qjyiR0,BsmQJEDn9qRy9JL-JSBaheOfRXcXo0ZjDWdr1WVgsj8For one reason or another, thousands of American citizens are living outside the United States at any given time. Many retirees are taking advantage of the lower cost of living and temperate climate offered south of the border while younger individuals and families are abroad for school, business or simply for the adventure. While living abroad certainly has its advantages, there are also disadvantages.

Living abroad has always come with challenges. Learning a new language, adapting to a new culture and adjusting to a different pace of life have always been among those challenges. Recently, Americans living abroad have faced a new challenge. This one, however, does not come from their adopted country but from their homeland. With the passage of the Foreign Account Tax Compliance Act, or FATCA, many expatriates are worried about the penalties they face from the Internal Revenue Service for failing to comply with complex provisions of FATCA.

Wealthy Americans have historically taken advantage of foreign tax havens. Most likely everyone knows what a “Swiss bank account” means. Several countries in Central America as well as the Caribbean have also been popular options for off-shore accounts. Because these countries have traditionally maintained a policy of confidentiality with regard to the identity of account holders, wealthy Americans have been able to hide large sums of money in these offshore accounts and allow the funds to earn interest tax-free. As a result, experts estimate that the U.S. government loses as much as $100 billion dollars each year in revenue.

FATCA was passed in 2010 in an attempt to tighten up the reporting requirements for foreign financial accounts which will, in turn, result in a dramatic increase in tax revenue for the U.S. government each year. Unfortunately, FATCA applies to everyone living outside the United States and/or everyone who has a financial account located outside the U.S., and the potential penalties for non-compliance are steep.

FACTA has two main provisions. The first requires foreign financial institutions to enter into an agreement with the IRS. The agreement obligates the financial institution to provide names, TINs, addresses and transactional information regarding accounts held by U.S persons. The second provision requires most U.S. persons who have foreign accounts or certain types of assets to complete and file IRS Form 8938 “Statement of Specified Foreign Financial Assets” with their tax return each year. As a general rule, Form 8938 is only required if the value of the assets exceeds $50,000; however, there are exceptions to that general rule. In addition to Form 8938, financial accounts that total more than $10,000 must be disclosed using a “Foreign Bank Account Report”, or FBAR. Additionally, not only do account holders need to file a FBAR, but  beneficiaries, signatories and anyone with a power of attorney over the account need to as well.

Making a mistake on Form 8938 or failing to comply with the FATCA requirements for any other reason can incur a hefty penalty. The civil penalty for failing to disclose assets or accounts on Form 8938 can be as high as $10,000 plus an additional $10,000 for every 30 days of non-disclosure after the IRS officially provides notice of a failure to disclose. The maximum civil fine is $60,000 for a FATCA violation. The penalty for failing to file a FBAR is also up to $10,000 for a non-willful violation. For a willful violation, however, the penalty is the greater of $100,000 or 50 percent of account balances.

If you are an American living abroad and/or you own assets or financial accounts outside the United States you are likely subject to the provisions of FATCA. To ensure that you comply with all the FATCA requirements be sure to retain the assistance of a reputable accounting professional when you prepare your tax return this year and in subsequent years. For more information, please don’t hesitate to contact us.

What are Tax Extenders for Small Businesses?

hplPH6adK4C_VNiKofWgAb50SbVde0upgRcWgP0mc3M,9AaqB3hIXVeiw6Lcndepec6FCEoDKEzFYl-d2Na_StoTax extenders are a group of fifty tax breaks that apply not only to small businesses, but teachers and individuals as well. What you need to be concerned with are those that apply directly to small businesses, especially dental practices. While these tax breaks are temporary in nature, they can have a serious impact on how you conduct your business for the next year.

In 2013, these tax breaks actually expired on December 31st, but the United States Congress retroactively extended the tax breaks into 2014. They typically do this at the last moment of the year or right after the first of the new year, making it difficult for small businesses to plan ahead. These tax breaks are also only renewed for one year meaning they will have need to extend them again before the end of 2014, so they can carry over into 2015.

Currently, the tax extenders for small businesses include such items as a work opportunity tax credit of $1,375, a 15-year straight line cost recovery for qualified leasehold improvements for restaurant and retail establishments of $2,382, and bonus depreciation of $1,492.

Additional tax extenders include:

  • Exclusion of 100 percent of gain on certain types of small business stocks
  • A reduction in the S Corporation recognition period for built-in gains tax
  • Qualified zone academy bonds
  • An employer wage credit for activated military reservists
  • A new market tax credit

While not all tax extenders are good policy for the government or businesses, some of the tax breaks do help level the playing field and provide companies, including dental practices, a way to define actual business expenses with less effort.

For more information on tax extenders, please contact us!

Home Office Tax Rules

There was a time that determining the correct deductions for your home office was complicated and could potentially lead directly to an audit. Luckily, those days are in the past. The IRS no longer considers a home office a red flag, and they have found ways to simplify the process of taking this deduction.

Before 2013, business owners that worked out of their home were required to determine the actual expenses of their home office. This could include items such as utilities, insurance and mortgage interest. The amount that could be deducted as a business expense was determined by the percentage, of the total square footage of your home, that was used for office space, but in 2013 that all changed.

For taxable years of 2013 and beyond, the IRS has introduced a simplified option. This allows business owners to multiply a prescribed rate by the square footage of the home that is being used as office space to determine the allowable deduction.

This change permits business owners to reduce the need for recordkeeping as actual expenses no longer need to be tracked.

There are two requirements that a business owner needs to meet to be eligible for the home office tax deduction. First, the area of your home that is used for your office must be used exclusively for conducting business. That means a kitchen table is not a home office, but if you have a room in your home that you use for office space exclusively, that would qualify.

Secondly, your home office must be your principal place of business. That doesn’t mean you can’t have an office elsewhere, but you need to be using your home office for meetings with clients, or some other activity that would suggest it is not simply an area that you work in from time-to-time.

If you have a home office, don’t hesitate to take the deduction you are entitled to. With the simplified option to determine your deduction, this is one time the IRS has made it too easy to pass up.

For more information about deducting a home office, please contact us!

What is Cost Segregation?

Cost segregation is the process of identifying your assets and correctly classifying those assets for the purpose of paying federal taxes. In this process, personal assets that are mixed with real property assets are separated out, so all assets can be depreciated properly and potentially increase your bottom line.

Cost Segregation Studies

A cost segregation study is performed to determine which assets can be claimed as personal property instead of real property. These items usually include indirect construction costs, non-structural elements of buildings and exterior land improvements.

By separating these assets, they can be depreciated over a shorter term, which will reduce your current income tax liabilities and increase cash flow. This decreased depreciation period is typically between five and fifteen years instead of the twenty-seven and a half to thirty-nine years for non-residential real property.

For example, items such as carpeting, wallpaper, parts of the electrical system, and even sidewalks and landscaping all qualify for the shorter depreciation periods.

Eligibility and Advantages of Cost Segregation

To be eligible for cost segregation, a building must have been purchased, remodeled or constructed since 1987. This method of tax reduction is best used on new construction, but it can be used retroactively on older buildings as well.

Beyond the benefits of reduced tax liability and increased cash flow, a cost segregation study will provide your business with an audit trail of all costs and asset classifications. This will help put to rest any unwanted inquiry from the IRS in its early stages. Finally, during this process, you may identify possible ways to reduce your real estate tax liabilities as well.

While there are some costs associated with performing a cost segregation study, as long as the assets in question are valued over $200K, it’s worth the time and expense to complete the study and categorize these assets correctly.

For more information on the process, please contact us.

Questions and Answers: IRS Audits and Your Dental Practice

Being selected for an audit doesn’t mean that you’re suspected of incorrectly reporting your taxes for your dental practice.

There’s no getting around it: The prospect of being audited by the IRS is unnerving, but the agency chooses to audit individuals and businesses for a number of reasons, including:

  • Mismatched documents. If numbers from forms like W-2s and 1099s don’t match what was reported, a taxpayer may be targeted.
  • Proximity. When someone has a business relationship with someone else who’s being audited, like a partner or investor, an audit may be ordered because of shared issues and/or transactions.
  • No reason at all. Some are selected for audits simply because a statistical formula was applied and they came up.

What is an IRS audit?

The goal of an IRS audit is to determine whether the taxpayer has paid the correct amount of money in taxes. This is done by examining the taxpayer’s accounts and financial information.

How will I be contacted?

You’ll receive a phone call and/or a letter. The initial contact is never made via email.

Where will the audit be held?

There are many options. An audit may occur at an IRS office, or it may be at your home, your place of business, or at an accountant’s office. It may also be done through the U.S. Mail.

How long will it take?

There are many factors that have impact on the length of an audit, including complexity of the issues and availability of both the necessary records and the involved parties. An audit will of course take longer if the IRS and the taxpayer(s) have difficulty agreeing on the results.

How long after I’ve filed a return can the IRS still order an audit?

Audits are usually conducted within three years from the date a specific tax return was filed, so you should keep supporting documentation for at least that long. You should keep payroll records for a minimum of four years. In some cases, a longer period of safekeeping is needed. We can help you determine what should be stored and for how long.

What are my rights as an audited taxpayer?

There are many. The IRS has a publication called Your Rights as a Taxpayer. These include the right to:

  • Courteous, professional treatment by IRS representatives.
  • Confidentiality and privacy.
  • Representation, either by you or by an authorized representative.

How is the outcome of an audit determined?

An IRS audit can conclude in one of three ways. There can be no change, which means that you have provided information that the IRS accepts as valid, and the return does not have to be modified. In an audit that is agreed, the IRS has recommended changes based on the information provided. You understand them and agree with them. An audit can also be disagreed. The IRS has proposed changes, but you don’t agree with them. In a case like this, the IRS may call in a manager to review the findings. You also have the right to file an appeal.

Is there any way to avoid being audited?

Since some audits are selected randomly, there’s always a chance that you’ll be audited. However, there are red flags in tax returns that sometimes prompt the IRS to order an audit. We can tell you what these are, and we’ll prepare your return accurately and thoroughly to minimize your chances of being singled out.