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For the Record

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Behind every successful small business story there’s a lot of hard work and administrative effort. If, however, you want your business to really flourish your brilliant ideas are only part of the equation. You first need to be sure your company’s administrative foundation is built solid from the ground up.

A cornerstone you should lay when building your business foundation is great record keeping. While this may not be the most glamorous aspect of running a successful business, it is nonetheless a prerequisite to consistently good results.

What are the advantages of good record keeping?

Accurate and consistent records help you keep track of your business progress. Good records accurately show whether your sales are up or down,

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Bad News From Your Friend at the IRS

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You may not realize it, but you have a friend at the IRS. Her name is Nina Olson, and she's the "Taxpayer Advocate." Olson and her 2,000-person staff are an independent organization within the IRS, charged with cutting through IRS red tape when the Service can't get the job done itself. Are you stuck between cogs in the IRS machine? Have you experienced a delay of more than 30 days to resolve your issue? Have you not received a response or resolution to your problem by the date the IRS promised? If so, Nina Olson and her 1,400 Case Advocates throughout the IRS are waiting to help.

Earlier this month, Olson released her 762-page Annual Report to Congress. And it's not pretty. In fact, it probably reads a lot like what your report on the IRS might read if your job was to dig up problems:

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The Best Investment in Today's Economy

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Investing isn't easy these days. Bank savings accounts and money market funds earn next to nothing. Bond yields are at historic lows. The stock market is at a recent high, but full of volatility. And alternative investments like real estate and private equity can be illiquid or bring with them other drawbacks.

If you're a corporate treasurer, you might consider investing in a Washington lobbyist. Back in 2009, three professors conducted a study revealing that companies who helped lobby for one particular tax break earned a staggering 22,000% return on every dollar they invested in lobbying! (For those of you who didn't major in accounting, that's $220 dollars coming back on every dollar going in.)

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Some Relief for Farmers & Fishermen

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The Internal Revenue Service announced that it will issue guidance in the near future to provide relief from the estimated tax penalty for farmers and fishermen unable to file and pay their 2012 taxes by the March 1 deadline due to the delayed start for filing tax returns.

What happened? The IRS computer systems were upended thanks to the enactment of the American Taxpayer Relief Act (ATRA) the first week of January. The ATRA affected several tax forms that are most often filed by farmers and fishermen, including the Form 4562, Depreciation and Amortization (Including Information on Listed Property). These forms will require extensive programming and testing of IRS systems, which will delay the IRS’s ability to accept and process these forms. The IRS is providing this relief because delays in the agency’s ability to accept and process these forms may affect the ability of many farmers and fishermen to file and pay their taxes by the March 1 deadline. The relief applies to all farmers and fishermen, not only those who must file late released forms.

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Home Office Deduction Simplified... Sort of

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Every now and then the government does actually simplify something. On Tuesday, January 15, 2013 the IRS released Revenue Procedure 2013-13 which gives you an optional method to calculate the amount of the deduction for expenses for your business use of your residence beginning with the current tax year.

As you read about this new home office deduction option, you may notice that it is very similar to the options you have for deducting business use of your automobile. One method is easy and based on a constant deduction the IRS provides the other method requires that you keep detailed records but the benefit may well be a higher deduction.

New Option Beginning with 2013

Beginning this year, 2013, you can elect to calculate your home office deduction by multiplying the allowable business square footage by $5.00. The allowable square footage is the portion of the house used in a qualified business use, but not to exceed 300 square feet. The maximum you can deduct annually under this new “safe-harbor” calculation method is $1,500. The IRS may update the $5.00 per foot allowance from time to time.

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Her Majesty, the Snoop

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Getting audited by the IRS is rarely anyone's spot of tea — unless, of course, you're the auditor. But at least our IRS "plays fair" and uses your actual return to decide whether to audit you. Not so for the folks at Her Majesty's Revenue and Customs Service across the pond!

Here in the former colonies, the IRS uses statistical analysis to find most of their audit targets. Every return gets a super-secret score called a Discriminant Information Function, or "DIF." The higher your DIF, the more potential the IRS sees for bringing in additional taxes in an audit. So, with limited resources available for auditing returns, the IRS naturally strives to audit the higher-scoring returns first. (It's like why Willie Sutton robbed banks — because that's where the money was!) Generally, small businesses organized as sole proprietorships face the greatest chance of audit — as high as 4% or more — because they have the greatest opportunity to under-report income and overstate deductions.