Professor Can't Use Mileage Log Created After-the-Fact:
Here's a story from a recent tax court case that should be a lesson for us all (Daniel-Berhe v. Comm'r, T.C. Summary 2013-33 (4/29/13)).

A professor, who taught at five different schools, could not deduct vehicle expenses related to traveling to the various schools because he did not adequately substantiate the remainder of his car and truck expenses. A mileage log created after the year at issue could not be used to substantiate his travel expenses. The mileage had to be entered at the time the vehicle was used, the court stated.  In addition, the taxpayer provided no evidence to corroborate entries in the mileage log for random trips to the schools other than testimony that he made various trips to prepare for the semester. The court was unable to verify whether these trips were for business or were personal and thus denied the related expense deductions. However, the court concluded that the taxpayer had a genuine misunderstanding of the law and thus held that the taxpayer was not liable for the accuracy-related penalties. [Code Sec. 162].


The Code and Regulations clearly state that a contemporaneous log must be maintained for your mileage records, not one created a year after-the-fact.  Here the court clearly upheld the letter of the IRS Regulations and denied the deduction for business travel expenses.  Lesson learned!

We've posted a new paper to our web site called "Closing the Books".  This paper details how you can do your business' year-end close easier, more accurately and probably faster than ever before.  The paper is free and you can download it now by going to this page.

We hope you find the information interesting and very useful.  As always we remain ready to assist you and your business with accounting, tax and consulting needs.  Please contact us to find out more about how we might be able to help you.

The sales tax rates in California will go up on January 1, 2013.  The new rates are posted at this State Board of Equalization Web site - 
http://www.boe.ca.gov/cgi-bin/rates_2013.cgi

For those who can't wait here are the rates for Fort Bragg and around Mendocino County, again, beginning January 1, 2013:
City of Fort Bragg...........................8.625%
City of Point Arena.........................8.125%
City of Ukiah..................................8.125%
City of Willits..................................8.125%
                                                                   Unincorporated Mendocino County...7.625%
For other counties in California drop on in to the State Board of Equalization site referenced above.

Taxpayers can deduct automobile expenses as ordinary and necessary costs of doing business and the Internal Revenue Code and Regulations allow either itemized expenses to be deducted or a standard mileage rate to be deducted.  Each year, sometimes more than once, the IRS updates the standard rate for businesses and other deductible automobile uses.  For 2013, the IRS has said that the following mileage allowance will be used: 56.5 cents per mile for business miles driven.  The 2013 rate is 1 cent higher than the 2012 rate.  So you have the option of computing the actual costs of using your vehicle or using the 56.5 cents per mile standard rate in 2013.

There are some specific rules, of course, that you need to follow in order to be able to use the standard mileage rate, so we suggest that you consult your tax adviser before making any changes to what you are doing for 2012.

There are standard mileage rates for other than business use of your car, and those other standard rates and uses are as follows:

Medical or moving expenses: 24 cents per mile
Charitable use of your personal vehicle: 14 cents per mile

NEW CA TAX RATES
On election day, November 6, 2012 the California voters passed Proposition 30 and retroactively increased certain tax rates as of January 1, 2012.  Pay attention now, you might need to consider these changes in your 2012 tax projections and planning.

The table below shows the increases passed as well as the level of income that will be impacted by the changes.

Governor's Ballot Initiative (Prop 30) changes:

10.3% (1% increase) on income of:
   $250,001–$300,000 for single/MFS;
   $340,001–$408,000 for HOH; and
    $500,001–$600,000 for MFJ.

11.3% (2% increase) on income of:
    $300,001–$500,000 for single/MFS;
    $408,001–$680,000 for HOH; and
    $600,001–$1,000,000 for MFJ.

12.3% (3% increase) on income of:
    More than $500,000 for single/MFS;
    More than $680,000 for HOH; and
    More than $1,000,000 for MFJ.

(Note: Income in excess of $1 million is also subject to the 1% mental health surcharge.)

Managing the Closing

This blog entry has been moved into a White Paper on how to close your books efficiently and accurately.  We've taken two blog posts and an article from our web site and combined them into the one White Paper.  You can get your own copy of the White Paper for free by going to this page on our web site - 


/closing-the-books---a-white-paper.html

Closing the Books………

This blog entry has been moved into a White Paper on how to close your books efficiently and accurately.  We've taken two blog posts and an article from our web site and combined them into the one White Paper.  You can get your own copy of the White Paper for free by going to this page on our web site - 
/closing-the-books---a-white-paper.html

Your business may be approaching a June 30th year-end or perhaps June 30th is the half-year mark in your business year but, whatever the circumstance, you need to be taking some time to review progress towards your annual goals.  We encourage our clients to set up benchmarks to help track their progress throughout the fiscal year. 

A benchmark is any unit of measure that you can use consistently in tracking performance.  Let me give you some examples of benchmarks that I like to see used in various businesses.  If you have a restaurant you have customers and the number of customers you have can be a very useful benchmark.  Every time a customer order is taken the person taking the order can write on the order slip itself the number of customers who are involved in that order.  We know that the order is processed and delivered to the customers and then they pay for the order.  Somewhere in that process the business needs to enter in its records that one extra piece of information: the number of customers served with this one order.  As you collect this information you can begin to use it in your business. 

You can answer several questions that will give you some insight into your business numbers such as how much is the average customer order, and how many customers do we serve in the course of a day/week/month or year?  How much does in labor cost does it take to serve a customer?  I bet you can think of more uses for this single piece of benchmark information.  After collecting the same information for a period of time you can then take the benchmarking to another level by comparing this week/month/quarter or year to last year’s benchmark numbers and then you will learn about how your costs have changed per customer as well as how the number of customers has changed.  Even if your sales are higher this year than last year you need to focus on the customer and how that benchmark has changed.

If your business is a hotel or motel you have an inventory rooms available and so the number of rooms rented in a period of time is an excellent benchmark to track.  If your business does deliveries to customers then perhaps the number of miles driven to deliver your customer’s goods would be a useful benchmark to track.  Think of all the information that can be pulled out of knowing the number of miles that your business drove in a period and the costs of those miles.

Other benchmarks include the number of productive hours billed to clients in most service orientated businesses, the number of retail sales recorded, and, well, you should be getting the idea by now.  You should look at your own business and come up with your own benchmarks and think about how they will give you some important insights into your business and the numbers.

Of course we remain available to help you come up with benchmarks and some ways to use them in your business.  Give us a call!

Health Care – It’s not time to panic, yet.

With the Supreme Court upholding most of the Affordable Care Act business owners will need to acquire an understanding of what the Act means to them and their business.  Here is a quick rundown on what you need to know –

1.     How many employees do you have in your business? 
If you have 50 employees or more, beginning in 2014 you must start providing health insurance for them.  If you have less than 50 employees you do not come under the mandate to provide employees with health insurance.

2.     How about the fines for not providing health insurance? 
Any company with 50 or more full-time employees must start providing health insurance for its employees but if you don’t do so and a single worker needs to turn to the government for a health care tax credit or subsidy on the new health exchanges then your company will be subject to fines.  The penalty starts at $40,000 and increases with the size of your company.

3.     If your company is subject to the mandate to provide insurance for your employees there is specific coverage required.

How will the Act affect a sole-proprietor?  Everyone must purchase some sort of health insurance by 2014.  If your company has less than 50 full-time employees then the responsibility to purchase the health insurance falls on the employees not the business.  The Act includes a fine for an individual who needs health care but doesn’t have insurance.  The fine will begin in 2014 at $95 or 1% of their income, whichever is higher.  By 2014 there should be state insurance exchanges up and running which will spread the risk among a large number of people and (in theory) bring the cost of the insurance coverage down for everyone.

This is just a summary; there is a lot more to learn and fortunately there is some time to take in the lessons.

Did you meet your goals for the year?  Are you better off this December 31st than the previous December 31st?  If your answers are No, or Maybe, or, how about this: Goals?  I didn’t set any goals for the year! Then maybe you need to add a new section to your getting ready for the tax return procedures and add some realistic goals for 2012 to the program. 

Here are some ideas for goals for 2012.  First on the income side your goals will depend on where your income comes from.  If you are an employee at a small business then maybe one goal is to discuss your position with the owner and assess how they feel about your work.  Most small businesses should have an annual evaluation process so this discussion may happen as a part of that process, or, if not, you can set your goal to try and initiate the discussion.  That’s right, take the initiative and the lead on this.  Go into the discussion with some information you have developed such as the number of years you have been at the company; the length of time at your current position; your current rate of pay and for how long you have been there; your current fringe benefits, etc.  Also consider your position and if there are any “certifications” or indicators of advancement in the position.  Do you have any?  Can you get some?  How would the business feel about the additional knowledge you can document and possess?

If you own a small business your goals would be different in the specifics but maybe not in the direction.  For a small to medium size business there are known metrics that can be applied to your operations and financial condition to gauge how you have done this past year as well as how you have fared over the past four or five years.  Is your business operation getting stronger and better?  Is the financial condition of the business improving, stabilizing or deteriorating?  In short you have a lot of details at your fingertips and you should be using them to manage your business.  And now is a great time of the year to sit down quietly and assess your progress.