My CFO on the Go!

Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

• 50.5 cents per mile for business miles driven;
• 19 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations.

The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile; the standard rate for medical and moving purposes is based on the variable costs as determined by the same study. Runzheimer International, an independent contractor, conducted the study for the IRS.

The mileage rate for charitable miles is set by law.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

Revenue Procedure 2007-70 contains additional information on these standard mileage rates.

Starting a new business? Most new businesses are bootstrapping it, trying to get the business going while spending the least amount of money. But at what point does it make sense to hire a professional? This is the first in a series on how and when to hire professionals for your business.

After 20 years of offering accounting services I can tell you when most new businesses finally hire an accountant. It is when their business has hit it’s first growth spurt and they are running to keep up with business, their accounting system (or lack thereof!) isn’t working for them, and maybe they have even gotten a letter from the IRS. Things tend to be in chaos and the business owner(s) have no idea if they are making money or not. They are just trying to keep up. I’d like to suggest hiring an account before crisis hits. You’ll save money and maybe even your sanity. Here are some times when it makes sense to visit an accountant.

Right Before You Open Your Business

This is probably the most important time to consult with an accountant. During these initial first sessions a good accountant will give you advice on how to set up an effective accounting system, how to maximize your tax deductions, and which type of business entity is best for your business. (Corporation, LLC, Sole Proprietor, etc.) They will also point you in the right direction as far as what payments and reports you need to file with various government agencies.

Tax Time

You may be an expert when it comes to doing your own taxes, but the rules are different for businesses. Not only that, with tax law constantly changing, you are probably too busy running your business to keep up on the latest tax law. Often a good tax accountant will save you more in taxes than you are paying them in fees. At the very least, have an accountant prepare your taxes the very first year you are in business.

When You Are Looking For Investors

Smart investors with lots of money don’t get that way by trusting business owners. When you have an Independent Auditor review you books you give investors the assurance that financially everything is on the up and up. They then know that your financial statements are a true reflection of your business.

When Gross Receipts Reach $100,000

Preferably earlier, but once your gross receipts reach $100,000 you need professional accounting . At this point the accountant’s knowledge of money management and tax savings will almost certainly be cost effective. And your time will be better spent running and marketing your business.

Make sure that you are not “penny wise and pound foolish” when it comes to hiring an accountant. At the very least, consult with an accountant during these key times in your business. If you are searching for an accountant, one resource I found was AccountingAisle.com. They provide a service where they will match you with a local accountant based on your specific needs. You can also check with your local chamber of commerce, or ask other successful business owners in your area to give you a referral.

I was on a forum, and there it was. A poster declaring that you don’t have to pay taxes, that taxes are illegal, just watch this video and it will explain everything. I didn’t watch the video, I’ve seen too many of them I know how it goes. There will be a discussion of how the 16th amendment was never properly ratified, or a new definition of Income, maybe an explanation of how to file a Zero income tax return. Probably followed by an appeal to send just $49.95 for your un-tax kit.

So I replied to the forum poster that the IRS has probably heard his argument before, and dismissed it. Also, like it or not, they are the ones making the rules. I told him the best way to lower your tax burden was to either find a good tax professional who knew the tax law, or buy yourself a good tax book (like the JK Lasser book) and learn how to work within the laws to create the lowest legal tax liability. The other alternative is to not make much money. A married couple with 2 children who’s income is from earnings can make over $30,000 without owing federal income taxes.

He didn’t like my response. And gave the typical response of tax protesters everywhere. He said that if everyone knew they didn’t need to pay taxes I’d be out of a job. He claimed I probably knew that people didn’t have to pay taxes, but I wouldn’t tell them because I was working with the IRS to keep everyone “slaves to the system”.

That argument always makes me laugh. If I knew a legal way for people to avoid taxes I’d be the most popular tax adviser in the country. I’ve seen how much money people will pay for a tax scam, I can only imagine what they would pay for the real deal.

So before you hand over your money to “crack the code” or “un-tax” yourself, do me a favor. First read the IRS’s free PDF on the most popular tax scams. Then check out the Quatloos site for more information on scams, and the scammers that run them. Finally, take a look at eTaxe.com for some interesting commentary on the major tax protester arguments.

Now, I’d love to hear your tax story. Have you tried one of these “systems”? What did it cost? Have you heard from the IRS?

The IRS Stimulus payments are going out. Most single people are getting $600, married couples are getting $1,200 and there is an extra $300 per child under the age of 17. So a married couple with 2 children can expect a stimulus payment of $1,800. If you were expecting your stimulus payment by direct deposit you should have it by now. Paper check payments are being mailed weekly according to the last two digits of the primary filers social security number. You can look at this schedule of stimulus payments to see when you should expect your check. But not everyone is getting what they expected, and some people are surprised to find that they are getting nothing! Here are some of the reasons why your tax stimulus payment may be delayed or missing.

You may not have gotten the full amount of your payment because:

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This year Tax Freedom Day arrived on Wednesday, April 23, 2008. What is tax freedom day? That is the day that Americans stop working for the government, and start working for themselves. Just think about it, all the money that you have earned up until last Wednesday, went to pay taxes. Not just federal income taxes, but state income taxes, payroll taxes, corporate taxes, sales taxes and property taxes.

Every year The Tax Foundation calculates Tax Freedom Day. They ask “What price is the nation paying for government?” The answer is shocking. Americans pay more for taxes than for food, clothing and housing combined. About 33% of all income goes towards maintaining the government.

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