Monthly Archives: December 2012

Maximizing the Deduction for Start-Up Expenses

Westchester Tax Preparation firm Herman & Company CPA’s has all the answers to your personal finance questions!

Individuals starting a new business or acquiring the assets of an existing business often incur start-up expenses, which can be considerable, in the investigation and acquisition phase before actual business operations begin. Most start-up expenditures can be segregated into two broad categories: (a) investigatory expenses and (b) business pre-opening costs.

Taxpayers can immediately deduct up to $5,000 of start-up expenses in the year when active conduct of a business begins. However, the $5,000 instant deduction allowance is reduced dollar for dollar by cumulative start-up expenses in excess of $50,000 for the business in question. Start-up expenses that cannot be immediately deducted in the year a business begins must be capitalized and amortized over 180 months on a straight-line basis. In many cases, start-up expenses for small businesses will be modest enough to qualify for immediate deduction under the $5,000 instant deduction allowance in the year when active conduct of business commences.

Example: Claiming the deduction for start-up expenses.

Suzie (a calendar-year taxpayer) incurs $4,200 of start-up expenses in 2012 before opening her new car wash in November of 2012. Suzie’s 2012 deduction is $4,200. Since her start-up expenses did not exceed $50,000, she can deduct the entire $4,200 in 2012.

Note: A taxpayer is not considered to be engaged in carrying on a trade or business until the business has begun to function as a going concern and has performed the activities for which it was organized.

Record Retention Guide

Westchester tax preparation firm Herman & Company CPA’s, P.C. has all the answers to your personal finance questions!

The American Institute of Certified Public Accountants has developed and distributed detailed a guide for record retention. We reproduce below selections that may be of particular interest to housing cooperatives and condominiums and their residents.

Keep Permanently
Appraisals by outside appraisers
Audit reports
Blueprints and plans
Bylaws
Capital stock and bonds records
Cash books
Charter
Charts of accounts
Cancelled checks for

  • important payments
  • taxes, special contracts

* file with papers for the transaction
Contracts, mortgages,

  • leases in effect

Correspondence on

  • legal matters

Deeds, mortgages, bills of sale A A A A
Depreciation schedules
Year end financial statements
General ledgers, year-end

  • trial balance

Insurance records,

  • current accident reports, claims, policies

Journals
Minute books of directors, stockholders
Retirement and pension records
Tax returns and related worksheets
Training manuals
Union agreements
Vouchers/payment to employees, vendors

Keep for 7 Years
Accident reports/claims (settled cases)
Accounts payable ledgers and schedules
Cancelled checks (see exceptions at left)
Expense analyses/expense distributions
Expired contracts, mortgages, leases
Garnishments
Inventories of products, materials, supplies
Invoices
Notes receivable ledgers and schedules
Option records (expired)
Payroll records and summaries
Personnel files (terminated)
Purchase orders
Stock and Bond certificates (cancelled)
Subsidiary ledgers
Time books/cards
Voucher registers and schedules
Withholding tax schedules

Keep for 3 Years
Bank statements
Employment applications
Insurance policies (expired)
Internal audit reports
Internal reports (miscellaneous)
Petty cash vouchers
Sales commission reports

Keep for 2 Years
Bank reconciliations
General correspondence
Duplicate deposit slips

Keep for 1 Year
Magnetic tape and tab cards
Purchase orders
Requisitions

 

 

Selling Your Home

Tax preparation firm Herman & Company CPA’s in Westchester, NY has all the answers to your personal finance and tax questions!

If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.

To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. You also must not have excluded gain on another home sold during the two years before the current sale.

If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use. Longer breaks, such as a one-year sabbatical, do not.

If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home.  Please contact us for more information!

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.