Frequently Asked Questions

Q.  I'm looking for someone to prepare my taxes.  Should I use a CPA or go to a company such as Liberty or H&R Block?

A.  The best way to answer this question is to point out the differences between a CPA and many of the tax preparers at a franchised tax service or other tax preparation business.

In order to become a CPA, an individual has to have earned a 4 or 5 year college education in accounting & tax, have taken a comprehensive exam covering accounting, finance, tax, law, and business management, and have worked for another CPA or in the accounting profession for multiple years...all before becoming a CPA.  In addition, CPAs are required to take 40 hours of continuing education each year, abide by a professional code of ethics, and be accountable to their state board of accountancy.

In respect to the franchised tax services or other tax services, there are no requirements that the preparer have any knowledge or education in tax.  Basically, anyone can call themselves a "tax preparer" and charge for their services.  It is likely that the tax preparer at franchised tax service has little to no experience in preparing taxes and may have recently completed a short tax preparation class.

That said, you should consider the complexity of your tax return and what level of service you expect from your tax provider.  My recommendation is that you seek out the service of a CPA, or if not a CPA, an enrolled agent (EA).  If the tax preparer is neither a CPA or EA, it would be wise to determine how qualified he or she is.

Q.  I'm a flight attendant for a major airline. My co-workers are telling me that I can deduct travel expenses on my taxes using a per diem rate. What is a per diem rate and are they correct?

A.  Yes you can and yes they are.  A "per diem" is an amount that the IRS allows an individual to claim on their taxes or a business to reimburse an employee tax-free for travel without providing specific documentation of the expense.  There are different per diem rates for travel inside the continental United States (CONUS) and outside the continental United States (OCONUS) as well as for different cities/metro areas within the U.S.

Most airlines reimburse flight crews for meals, lodging and incidental expenses using formulas based upon flight miles or hours instead of based upon actual expenses.  Often , the amount reimbursed by the airline is less than the per diem rate or actual amount incurred by the pilot or flight attendant.  As such, the taxpayer may deduct the unreimbursed lodging, meals & incidental expenses on his/her tax return.

There are many rules surrounding the use of per diem rates and the use of per diems by members of the transportation industry.  As such, it is recommended that you seek the advice of a qualified tax professional before filing your taxes.

Q.  I use my personal vehicle for business. Is a mileage log required?

A.  Yes.  The IRS does not allow individuals to deduct an expense that has been estimated. As such, you should maintain a log of the business miles incurred. The log should include the: date, destination, purpose and miles driven. The log can be comprised of a log book, trip sheets, diaries, and other similar documents.

Q.  My company reimburses me less than the federal mileage allowance. Can I claim the difference on my taxes?

A.  Yes.  When a company reimburses an employee less than the allowed mileage rate, the employee can claim the difference on his or her individual income tax return by filing Schedule A - Itemized Deductions.  The un-reimbursed mileage expense is reported in the Miscellaneous Deductions section.  The total amount of Miscellaneous Deductions is reduced by 2% of his/her Adjusted Gross Income.

Q. I am an employee and work from home. Can I claim an Office-in-Home deduction on my taxes?

A. Yes, if you qualify.  The IRS allows employees to claim a deduction for their home office but there are certain eligibility requirements: the home office must be used exclusively for business, the home office must be for the benefit of the employer, the taxpayer must file Schedule A (Itemized Deductions), and the office in home deduction along with all other Miscellaneous Deductions is reduced by 2% of his/her Adjusted Gross Income.

Q.  Can I claim home office expenses for my S-Corporation?

A.  Yes, by using one of three methods.  First, as an employee of the S-Corporation, you can claim an office in home deduction meeting the eligibility requirements (exclusive-use, employer-benefit, Schedule A subject to 2% of Adjusted Gross Income).  Second, the S-Corporation could pay rent to the owner-employee for the office space.  Third, the S-Corporation could reimburse the employee for his/her out-of-pocket expenses relating to the home office.  There are pros & cons to each of the three methods as well as documentation requirements.

Q.  I am the owner of an S-Corporation.  Can the S-Corp pay for my health insurance?

A.  Yes, if done correctly.  An S-Corp can provide health insurance to its >2% shareholders by including the shareholder on the company plan, paying the premiums of a personal policy, or reimbursing the shareholder for the amount he/she paid for a personal policy.  When paying a personal policy directly or via reimbursement, the company should receive a copy of the policy invoice.  The company must also include the cost of the insurance in box 1 of the shareholder's W-2.

Q.  I own an S-Corporation.  Does the company have to pay me a salary?

A.  Yes, if you are also an employee or officer of the S-Corp.  The company should pay you "Reasonable Compensation" for the duties you perform.

Q.  What is "Reasonable Compensation" and why is it important?

A.  Reasonable compensation is the amount of compensation that a company should pay its owner-employee for the services he or she provides the business.  It is not a specific amount or calculation, but is based upon the facts and circumstances of the business.  It's important because some business owners will pay themselves unusually high or unusually low salaries to avoid taxes.  If the IRS deems the owner-employee compensation to be unreasonable, the IRS can re-characterize payments received by the owner and assess additional taxes, penalties and interest.

Q.  How do I determine "Reasonable Compensation?

A.  There isn't a specific calculation for reasonable compensation.  In general, the business should review the services and functions provided by the owner-employee and determine a compensation level based upon similar work by individuals at other companies, within the industry, etc.  The company maintains supporting documentation for the reasonable compensation calculation.

Q.  How should I document my Meals & Entertainment Expenses?

A.  You can document the deductible M&E expenses by writing the names of the people being entertained, the business relationship, and the business purpose on the receipt.  The receipt should also include the date, place of entertainment, and amount.  In respect to entertainment expenses, the expense should meet one of two tests: 1) the directly-related test or 2) the associated test.

Q.  I extended my individual tax return.  What is the new filing deadline?

A.  When you extend your individual income tax return, you receive a 6-month extension.  As such, the new filing deadline will be October 15th.

Q.  If I extend my tax return, does that also extend the payment due date?

A.  No.  Whether you file timely or extend your filing return, payments are due on April 15th (individual return) or March 15th (calendar year 1120 corporate return).

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