What Business Expenses Are Deductible?

If you are a self-employed sole proprietor or operate an LLC or S-corporation any expense that your business incurs that is ordinary and necessary is deductible under Section 162 of the Internal Revenue Code. Therefore, please list the total spent on the expense categories listed below:

Accounting, legal and professional fees;

Advertising;

Car expense need total miles driven, business miles plus parking and tolls including business log with date, miles driven, business purpose and destination or
total miles driven, actual fuel invoices, auto insurance, repairs and total miles driven and business miles plus parking & tolls;

Fixed Assets – If you bought a vehicle, computer, equipment, office furniture or placed it in service during the tax year, even if you already owned it, bring in the purchase invoice so we can expense it under IRC Sec. 179;

W-3 – Salaries that your company paid to others. List officer and shareholder salary separately;

Employer share of employment taxes like FICA and FUTA;

Commissions or fees paid to other contractors, Get them to fill in W-9 if not incorporated so we can issue them a 1099;

If you already issued them a 1099, bring in the 1096 – showing total independent contractors paid.

Professional Liability Insurance, Workmans Compensation Insurance and Health insurance;

Office Supplies;

Materials or Purchase of inventory for resale;

Travel, Hotel, Airfare and Car Rental;

Meals (need date, place, person entertained and business purpose) Only need receipt if you pay more than $75.00 and have a day timer, If you do not have a day timer or digital calendar (such as Outlook or Google Calendar) then you need a receipt for everything;

Telephone include local, long distance, fax, land lines and mobile;

DSL, cable and internet charges;

Postage;

Continuing education and business seminars and conferences;

Interest expense paid on business loans and provide year end balances;

Rent for office space or equipment;

Utilities like electricity, fuel oil, water or gas.

Prior year PA franchise (Capital Stock) tax from Page 2 of the PA RCT-101;

Prior Year Local Income Tax paid;

Total state sales tax paid if you included it in gross sales receipts.

Remember to never pay any personal expenses from your business bank account but instead transfer them to your personal account. Feel free to contact Gregory J. Spadea of Spadea & Associates, LLC at 610-521-0604, if you have any questions or need your tax returns prepared.

Exclusion Of Gain On The Sale of Your Small Business Stock

Checking stock data
If you are the founder or an employee of a technology, manufacturing, wholesale or retail company you may be able to exclude all or part the gain on sale of your company’s stock if you hold the stock for more than 5 years. The amount of the gain to be excluded depends on when the stock was issued.

Exclusion % If Stock was issued
50% After August 10, 1993 and before February 18, 2009.
75% After February 17, 2009 and before September 28, 2010.
100% After September 27, 2010 and before January 1, 2012.

For a stock to be considered qualified small business stock it must meet all of the following five conditions:

  1. The actual stock must be issued after August 10, 1993. Note that options to buy the stock are not considered stock for purposes of Section 1202.
  2. The stock must be acquired by purchase from the corporation or for the performance of services which means it cannot be acquired by gift or inheritance.
  3. The corporation must be an active business.
  4. The corporation cannot be involved in certain activities such as;
    • One involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services;
    • One whose principal asset is the reputation or skill of one or more employees;
    • Any banking, insurance, financing, leasing, investing, or similar business;
    • Any farming business including the raising or harvesting of trees;
    • Any business involving the production of products for which percentage depletion can be claimed; or
    • Any business of operating a hotel, motel, restaurant, or similar business.
  5. The corporation’s gross assets before and after the issuance of stock cannot exceed $50 million.

Feel free to contact Gregory J. Spadea of Spadea & Associates, LLC in Ridley Park, PA at 610-521-0604 if you would like additional information on how to make the Section 1202 election.

How do I File a Protective Refund Claim or Get IRS Penalties Abated?

Taxes
Protective Claims

If there is a split between Courts of Appeal on the treatment of a deduction or taxability of income item you can file a protective claim using form 843. If the IRS denies the claim you have two years from the denial date to petition the Federal Tax Court or Court of Federal Claims.

An example would be when the Insurance companies demutualized ten years ago and policy holders received stock in the insurance company the IRS took the position the policy holders had a zero basis in the stock.  Before the case was decided the policy holders filed protective claims for refund after the IRS disallowed their basis on their 1040, to preserve their refund until the Tax Court made a decision.  Since there were so many policy holders with the same issue IRS  Counsel decided not to disallow the 843 claims outright until the case was decided.

Penalty Abatement

The IRS allows you to request an elimination of all or part of penalties assessed and the corresponding interest that has accrued on those penalties.  Form 843 can be used to request the following:

  • A refund of tax, other than a tax for which a different form must be used. For example if you can use form 1040X to request a refund of income tax that should be used and not the form 843.
  • An abatement of tax, other than income, estate, or gift tax. Employers cannot use Form 843 to request an abatement of FICA tax, RRTA tax, or income tax withholding.  Instead they should use form 941X.
  • A refund to an employee of excess social security or RRTA tax withheld by any one employer, but only if your employer will not adjust the overcollection.   When claiming a refund of excess social security or RRTA tax withheld by one employer you must  attach a statement from the employer indicating the following.  1) The amount, if any, the employer has reimbursed you for excess taxes withheld.   2) The amount, if any, of credit or refund claimed by the employer or authorized by you to be claimed by the employer.   3) The employer should include in the statement the fact that it is made in support of your claim for refund of employee tax paid by the employer to the IRS.  If you cannot obtain a statement from the employer, you should attach a statement with the same information to the best of your knowledge and belief and include in the statement an explanation of why you could not obtain a statement from the employer. Attach a copy of your Form W-2 to prove the amount of social security taxes withheld.
  • A refund of excess tier 2 RRTA tax when you had more than one railroad employer for the year and your total tier 2 RRTA tax withheld or paid for the year was more than the tier 2 limit.

  • A refund or abatement of interest, penalties, or additions to tax, caused by certain IRS errors or delays, or certain erroneous written advice from the IRS. An Example is if an IRS official gave you erroneous advice while acting in an official capacity that you relied upon you can get the penalty and the interest on the penalty abated.
  • A refund or abatement of a penalty or addition to tax due to reasonable cause or other reason  allowed under the law. An Example would be if you relied on your Accountant in taking a deduction and the IRS disallowed that deduction you could request abatement of the penalty.
  • A refund of the penalty imposed under section 6715 for misuse of dyed fuel.
  • A refund of a branded prescription drug fee. You would have to attach a copy of the Form 8947 that provided the basis for the fee as calculated by the IRS, as well as any additional information on the amount to be refunded.

If you have questions or need assistance in filing form 843, contact Gregory J. Spadea at 610-521-0604.

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