Get Organized for Tax Season

There’s no need to wait until the last minute to start getting ready for tax season.  Whether your tax return is prepared by a professional or you complete the process on your own, staying organized throughout the year will help make tax time a little bit easier.  Staying organized will also help reduce the likelihood of an error, helping to ensure the accuracy of your return and reduce the risk of an audit.

As tax deadlines approaches, we always hear clients say, “I’m trying to get everything together!”  Many tax payers have large amounts of documentation and information to gather for the preparation of their annual tax return.  Some of these items only come around every few years and are easily forgotten or overlooked.  For example, most people don’t buy or sell a home every year, but your Settlement Statement or Closing Disclosure documentation is important information to include on your tax return.  Other times clients will receive excessive documentation from a company and they are unsure which pieces are necessary.  If you have investments, for example, you probably receive monthly statements as well as an end of year statement.  You should also receive a Consolidated 1099 – that’s the only document truly needed for your taxes (all pages, not just the cover sheet).  Additionally, if you have multiple investment accounts, you will receive documentation for each individual account and they may not be sent out at the same time (even if they are with the same company).  This leads many clients to believe they have received everything when, in fact, they are missing important information.

How can you make tax season organization easier?  The simplest way is to have a designated folder – either physical or electronic.  When documents are received they automatically go into the folder.  If there are two tax payers in the home, make sure both spouses know about the folder and its location.  It won’t be effective if one partner is putting documents in the folder while the other is placing them in a drawer somewhere else.  Take your organization a step further by including a checklist with your document storage.  “It’s not something most people want to think about, but if you take a few minutes after filing your taxes to go ahead and make a quick checklist for next year while the information is fresh, most clients find it goes more smoothly when the time comes to get organized,” reports Chelsea, Levesque & Associates Office Manager.  “It’s as simple as W-2, 1098, 3 investment statements, childcare, home office, mileage, donations, etc.  Making note of what you needed for your return this year will help guide you as you gather information next year.”

If you’re feeling like an organization pro, leverage technology!  SmartVault is a secure storage solution that is free to Levesque & Associates clients.  With more companies starting to deliver information electronically, it’s simple to upload the documents to your personal vault.  When tax season begins, much of what you need will already be available to your accountant without you having to lift a finger!  Paper documents that you receive can be scanned and uploaded thereby reducing the need to store (and potentially misplace) paper.  Don’t have a scanner?  No problem!  Tons of scanning apps exist for Apple and Android devices.  Check out a list of a few here.

If you don’t have access to SmartVault, electronically storing your documents and information is still a great way to reduce any potential headaches when it’s time to get ready for tax season.  It minimizes, and sometimes even eliminates, the need to locate paperwork.  Additionally, it’s ready to be sent to your accountant via email or through another form of electronic uploading.  Look into secure storage options like Dropbox or Google’s OneDrive.

Not all information needed for tax purposes comes as a document mailed or emailed to tax payers.  Many people will have business expenses, mileage, home office costs, and more.  “I always tell clients to keep receipts in case the IRS comes knocking one day, but so many options are available to limit the storage needs and make tax season go more smoothly.  Apps exist for receipts and mileage.  I personally use them every day.  Other clients choose to track information in an Excel document that they send to me when it’s time to prepare their return.  There are also many affordable bookkeeping programs available for those who require a more robust solution for tracking information,” stated Conrad Levesque, CPA, Owner of Levesque & Associates.

Whichever method(s) you choose for the storing and disbursement of your tax information, spending a little time staying organized throughout the year will make your life much easier when tax season comes.

Questions about your documentation needs or interested in accessing your personal Vault?  Call or email us – we’re happy to help!

Driving for Uber or Lyft? 2018 Tax Changes and 5 Tax Deductions You Can’t Afford to Overlook

If you drive for a rideshare service such as Uber or Lyft you are considered an independent contractor.  The new 2018 tax law includes a 20% pass through deduction which was designed to give small business owners a boost.  Rideshare drivers as well as other freelances and independent contractors can benefit from this as well.  Most drivers will be able to take a deduction equal to 20% of their total profit (income limits exist).  For example, a driver who earns $30,000 from fares and has $5,000 in expenses, has a profit of $25,000.  The deduction for this driver would be $5,000 (25,000 x 20%).

You are still eligible for the pass through deduction even if you only drive part time and have another job.  The deduction is only applicable to the profit earned from the rideshare position.  For example, a rideshare driver has a fulltime job from which he earns a salary of $50,000 and a W-2 at the end of the year.  He drives a few weekends a month to make extra money and at the end of the year has earned $10,000 from fares and has $1,500 in expenses.  His rideshare profit is $8,500 and his 20% deduction is $1,700.

Additional deductions exist for rideshare drivers.  Make sure you are not missing out on these common tax deductions.

  1. Mileage

Mileage is probably the single largest deduction available to those working with a rideshare service.  In general, drivers see the most benefit from taking the mileage deduction over deducting actual expenses.  With that being said, there are still some expenses drivers are allowed to deduct in addition to the mileage.  

  1. Cleaning Expenses

If you are taking the standard mileage deduction then fuel, oil changes, tires, car payments, car maintenance, vehicle registration fees, etc., are not deductible.  However, as a rideshare driver you can deduct the cost of car washes and car detailing.

  1. Other Vehicle Expenses

Additional, often overlooked expenses you can deduct alongside the standard mileage deduction are interest paid on your vehicle loan and annual ad valorem taxes.   Additionally, any tolls paid or parking costs incurred while driving for rideshare purposes are 100% deductible.

  1. Goodies for Your Passengers

Many drivers offer treats to their passengers.  Anything you purchase with the intent of distribution to your passengers for business purposes is deductible.  This typically includes bottled water, gum, mints, candy, etc.

  1. Phone (Maybe)

If you rent a phone from the rideshare company you work for then you can deduct the rental expense.  If you use your personal phone, it’s not as straight forward.  An applicable usage rate must be assigned and that rate is applied to the overall bill each month to get the deduction that will be included on schedule C of the return.  Examples of determining applicable usage rate is talk time, usage time, etc.  For rideshare drivers, because they use GPS, usage time can often be calculated as working driving time.

For everything listed here, it is critical that you keep receipts and track mileage according to the IRS guidelines.  For more about mileage deductions, rules you should know, and how to track your mileage, check out our previous blog post “All About Mileage.”

 

Mileage apps

Receipt apps

 

All About Mileage

The mileage deduction is a tax write-off used to offset the cost incurred through using a personal vehicle for business purposes.  If you are a business owner using a personal vehicle or an employee driving your own car or truck for work, you should be tracking your mileage.

Is it Business Mileage?

The IRS only allows a deduction for miles that are driven for business.  This does not include your commute between your home and your regular place of business.  Applicable miles include:

  • Mileage driven between your place of employment and a second work site/location or to meet clients off-site
  • Work related errands such as driving to the post office, bank, or to the office supply store
  • Do you drive to meet clients or vendors for dinner or a quick coffee? Miles driven for business meal or entertainment purposes are deductible
  • Miles driven to and from the airport for a business trip
  • Do you have a side-gig such as babysitting, dog walking, or lawn care? Miles driven to the location of an odd job should be tracked for deduction
  • Miles driven to a temporary job site (if it lasts less than 1 year)
  • Mileage related to job seeking (there are limitations)

Be sure to track and document your actual mileage driven for business purposes.  Claiming a round number, such as 15,000, on your return is more likely to create red flag with the IRS.  Should you ever be audited, you will be expected to produce a log of your mileage for the year.

Reimbursement vs. Tax Write-off           

It is important to note that if your employer reimburses you for the miles you drive your own car then you cannot deduct the mileage on your taxes.  Business owners, you may choose to reimburse yourself at the Standard Mileage Rate through your business or claim the miles as a deduction.  Alternately, you may choose to deduct actual vehicle expenses in lieu of mileage.  A few examples of vehicle expenses you can deduct are:

  • Gas and oil
  • Parking or toll costs for business trips
  • Lease payments
  • Car insurance
  • Repairs and maintenance
  • Depreciation of the vehicle and any improvements
  • License fees

If you choose to deduct the Standard Mileage Rate, there are still a few vehicle expenses that are deductible:

  • Any interest you pay on a car loan
  • Personal property tax paid on the car (ad valorem)
  • Parking or toll costs for business trips

Regardless of the category you fall into, be sure you are accurately tracking the miles in a mileage log or documenting car-related expenses and keeping a record of receipts.

Log Requirements

The IRS has minimum requirements for mileage logs.  To be compliant, your log must include at least the following for any miles driven for business purposes:

  • Actual mileage
  • Date of the drive
  • Places driven
  • Purpose of the trip

Restrictions

To avoid any headaches down the road with the IRS, it is important to know what restrictions exist.  Most importantly, you should note that should you choose to use the actual expense method the first year that you use a car for business purposes, you must continue using that method until the car is sold or no longer used for business purposes.  If you use the Standard Mileage Rate the first year a car is in service, then you may switch back and forth between the two methods in the following years.  However, it is important to note that switching back and forth may result in the need to recapture depreciation.  Consult your CPA or tax professional for additional information.

2018 Mileage Rates (valid 01/01/2018 through 12/31/2018)

It isn’t exclusively business mileage that is tax deductible.  If you commute for medical purposes, such as regular visits to a doctor or medical facility, or for charity or volunteer purposes, be sure to track that mileage as well.  The mileage rates are considerably lower than business miles, but are still considered deductible.

  • Miles driven for business purposes: 54.5 cents per mile
  • Miles driven for medical or moving purposes: 18 cents per mile
  • Miles driven for charity or volunteer purposes: 14 cents per mile

 

Instead of keeping a paper record of your mileage, consider taking advantage of technology!  Lots of apps exist to make tracking your mileage a breeze: