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Seven Facts about the Nonbusiness Energy Property Credit and NYC Income Taxes

16.08.2010

category: Uncategorized
tags: Amended Tax Returns New York, Delinquent Taxes New York City, income tax manhattan, llc cpa nyc, llc income taxes manhattan, Manhattan CPA, MANHATTAN TAX, small business cpa new york, small business tax advice nyc, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC, taxes manhattan, Taxes NYC

The following NYC income tax information is courtesy of the IRS:
Thinking about making some energy saving improvements to your home this summer? Taking some energy saving steps now may lead to bigger Manhattan income tax savings next year. The Nonbusiness Energy Property Credit, a New York income tax credit for making energy efficient improvements to homes was increased as part of the American Recovery and Reinvestment Act of 2009.

Here are seven things the IRS wants you to know about the Nonbusiness Energy

Property Credit:
1.       The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
2.       The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
3.       To qualify as “energy efficient” for purposes of this New York City income tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
4.       Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
5.       Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
6.       The improvements must be made to the taxpayer’s principal residence located in the United States.
7.       To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 NYC income tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.

If you would like to know more about the Nonbusiness Energy Property Credit and how it could benefit your NYC Income Taxes, please contact our Manhattan CPAs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

New York Income Tax Update: Closing Deadline Extended to Sept. 30 for Eligible Homebuyer Credit Purchases

15.08.2010

category: Uncategorized
tags: accountant new york city, Amended Tax Returns New York, Certified Public Accountant New York City, income tax manhattan, income tax new york, income tax new york city, llc cpa nyc, llc income taxesnyc, Manhattan Tax Preparation, small business cpa new york, small business cpa new york city, small business cpa nyc, small business tax advice new york, small business tax advice nyc, Tax Preparation Manhattan, TAX PREPARATION NYC

Our team of income tax CPAs in Manhattan would like you to know that eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal, according to the Internal Revenue Service.

The Homebuyer Assistance and Improvement Act of 2010, signed by the President today, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.

The IRS reminds taxpayers that special filing and documentation requirements apply to anyone claiming the homebuyer credit on their income taxes in NYC. To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures if required by local law, the property address, the purchase price, and the date of the contract.
Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible homebuyers must also include with their return one of the following documents:
•   A copy of the settlement statement showing all parties’ names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
•   For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
•   For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

Besides providing a tax benefit to first time homebuyers and purchasers who haven’t owned homes in recent years, the law allows a long-time resident of the same main home to claim the credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. Homebuyers claiming this credit on their income tax return in New York City can avoid refund delays by attaching documentation covering the five-consecutive-year period:
•   Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
•   Property tax records or
•   Homeowner’s insurance records.
There are three options for claiming the credit on a qualifying 2010 purchase:
•   If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year 2009. Though these returns cannot be filed electronically, taxpayers can still use IRS Free File to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.
•   If a 2009 return has already been filed, claim it on an amended return using Form 1040X.
•   Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.
•
If you have any questions about the Homebuyer tax credit, our team of New York income tax CPAs are here to help you.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

2010 Planning: Retirement Saving for Individuals in New York

13.08.2010

category: Uncategorized
tags: accountant new york city, Amended Tax Returns New York, C Corporation, Certified Public Accountant New York City, income tax manhattan, income tax new york city, llc cpa nyc, Manhattan Tax Preparation, small business cpa new york, tax preparation new york, TAX PREPARATION NYC

Now is a good time to evaluate your retirement savings position with a view towards maximizing your retirement assets and investments. The tax code provides significant incentives for individuals in New York City to make contributions to retirement savings and plans, including traditional and Roth IRA’s, as well as employer sponsored qualified and non-qualified plans, including qualified 401(k) plans. A saver’s credit may also be available for investors in certain tax brackets, which further enhances overall savings. There have been numerous changes in the laws designed to make it easier for individuals to save for retirement. Our team of CPAs are familiar with all of the individual tax laws in Manhattan and will be able to assist you.

NYC individual tax incentives can include deductibility of certain contributions, tax deferral on growth of assets in the plan, and potential distribution free of tax, varying on the investment vehicle chosen. The choice of investment that may be best for you depends upon your New York City individual tax and overall financial situation. Regardless of the type of contribution, any contribution should be made as early in the year as possible. If this approach is followed consistently over the years, the benefits will be far greater than contributions made at the last minute.
Please call our individual tax CPAs in New York to discuss your retirement savings situation and strategy. The rules applicable to the types of investment vary and can be complex. Our Manhattan income tax CPAs will be happy to help you maximize your individual tax benefit and overall savings.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Acquisition Cost Analysis For NYC Small Businesses

23.07.2010

category: Uncategorized
tags: accountant new york city, Amended Tax Returns New York, Certified Public Accountant New York City, income tax manhattan, income tax new york city, income tax nyc, llc cpa manhattan, llc cpa nyc, Manhattan CPA, Manhattan Tax Preparation, new york certified public accountant, NYC LLC Manhattan LLC CPA, nyc small business cpa, Small business CPA Manhattan, small business cpa new york city, small business nyc, small business tax advice nyc, TAX PREPARATION NYC

Congratulations on your recent acquisition of your new small business in New York. Acquiring a small business is often an emotionally exhausting, confusing and exhilarating experience. Further, acquiring a business can put a strain on the new company’s cash flow. As Manhattan CPAs experienced in working with S-corps, C-corps and LLCs in NYC, we can advise you on ways to improve your cash flow.
One way to improve cash flow is to reduce the amount of New York income taxes your small business is currently paying. One possible way to reduce NYC income taxes is to accelerate the deduction of costs currently capitalized as acquisition related costs. Generally, professional fees and other costs associated with the purchase of a business are “capitalized” in the stock or assets that are purchased. For income tax purposes, deduction of these costs may be over 15 years, on sale of the business, or the costs may never be deducted. Because invoices often do not clearly allocate fees among all the services performed by professionals, or costs associated with travel and other miscellaneous expenses, costs that are not associated with the purchase can be capitalized as acquisition costs.

If costs unrelated to the acquisition have inadvertently been capitalized, then properly re-characterizing these costs can permit them to be deducted in the year they were incurred. Further, in certain instances, costs incurred to expand your business can be deducted over 5 years, rather than 15 years. A thorough analysis of capitalized acquisition costs often results in a significant New York tax refund and/or a decrease in the Manhattan income tax paid in the years immediately following the acquisition.

Our CPAs would like to talk to you about the potential for accelerating the deduction of some of the costs you currently have capitalized, to better help your New York City LLC, S-corp, C-corp or other small business. Please contact one of our NYC LLC CPAs at our office to arrange a convenient meeting time.

Sincerely yours,
Jonathan Medows, CPA

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Accounting Method Changes Involving Nonaccrual Experience Method

22.07.2010

category: Uncategorized
tags: Certified Public Accountant New York City, CPA NYC, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc cpa new york city, llc cpa nyc, llc new york, Manhattan CPA, Manhattan LLC, NYC LLC, small business cpa new york city, Tax Preparation Manhattan, tax preparation new york city, TAX PREPARATION NYC

The IRS has provided procedures for taxpayers to make changes to, from, or within a nonaccrual-experience (NAE) accounting method, and to adopt certain NAE methods. This applies in particular to S-corporations, LLCs and other small businesses operating in New York who use CPAs. The NAE methods are limited to taxpayers that use an accrual method and that:
• provide services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts and consulting, or
• meet the $5 million annual gross receipts test.
A New York City small business, C-corporation, LLC or high net worth taxpayer who uses an accrual method for accounts receivable for services performed may request a change to the nonaccrual-experience method of accounting. Under this method, a taxpayer does not need to accrue any portion of the accounts receivable that on the basis of experience will not be collected.

The NAE method is unavailable if interest is charged on the amounts due or if there is any penalty for late payment. Generally, offering a discount for early payment is not regarded as charging interest or imposing penalties for late payments, if certain conditions are met. Income cannot be reported using the NAE method for activities related to lending money, selling goods, or acquiring receivables from other persons who earned the amounts through the provision of services.

The procedures apply to taxpayers that wish to:
•   change to a safe harbor NAE method; or
•   change to a period system; or
•   change from a NAE method to a specific charge-off method; or
•   change from a sub-method of its current NAE method regarding applicable periods or tracing of recoveries to another permissible sub-method; or
•   change a sub-method unrelated to the applicable period or to the tracing of recoveries for a taxpayer currently using a NAE method; or
•   change to or adopt a NAE method other than a safe harbor method provided by the IRS.

Our NYC CPAs specialize in helping LLC, S-corporations, C-corporations or other Manhattan based small businesses. If you are interested in reviewing your current collection procedures and method of accounting, please call one of our Manhattan LLC CPAs at your earliest opportunity to arrange an appointment.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Accounting for Liabilities for Services or Insurance

21.07.2010

category: Uncategorized
tags: CPA LLC Manhattan, CPA NYC, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc cpa manhattan, llc cpa nyc, Manhattan CPA, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC, Taxes NYC

There have been new guidelines released by the IRS that may affect C-corporations, S-corporations, LLCs and other small businesses in New York. Keep reading to learn more about these new guidelines and how a LLC CPA in Manhattan can help.
The IRS has issued guidance for accrual basis taxpayers as to when they incur a liability for services or for insurance. If a taxpayer wants to change its treatment of liabilities to comply with this guidance, they must obtain the consent of the IRS.
Under the accrual method of accounting, which you use, a liability is incurred, and is generally taken into account for federal income tax purposes in the tax year in which:
1.   all the events have occurred that establish the fact of the liability,
2.   the amount of the liability can be determined with reasonable accuracy, and
3.   economic performance has occurred with respect to the liability (the “all events test”).
There are exceptions, such as when the amount of the accrual is immaterial, or accrual of the liability in the tax year of payment results in better matching of the liability against the income to which it relates than would result from accrual of the liability in the tax year in which economic performance occurs. This is something that a skilled CPA experienced in handling Manhattan C-corporations will be able to assist you in sorting out.

The IRS specifically addresses two situations in which an accrual basis taxpayer incurred liability for services or for insurance in the year payment was due and paid, not in the year the taxpayer executed the contract for the services or the insurance. The IRS further provides guidance on how a taxpayer can change their method of accounting for services and insurance contracts. This is also something that a CPA versed in LLCs in Manhattan can help you with.

If you have any questions regarding this guidance or compliance with the accrual method of accounting, please call one of our New York City small business CPAs at your convenience.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Just A Reminder: Accelerated Tax Deduction For Haiti Earthquake Relief

20.07.2010

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tags: Certified Public Accountant New York City, CPA high net worth individuals Manhattan, income tax manhattan, income tax new york, income tax new york city, income tax nyc, Just A Reminder: Accelerated Tax Deduction For Haiti Earthquake Relief, LLC CPA ew york city, llc cpa nyc, Manhattan Tax Preparation, new york certified public accountant, small business cpa, Small business CPA Manhattan, small business tax advice new york, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC, Taxes NYC

The haunting images of destruction and moving stories of rescue have encouraged Americans to give generously to help their neighbors in Haiti recover from the January 12, 2010 earthquake. To encourage donations to charitable organizations working in Haiti, Congress recently passed, and President Barack Obama signed into law, a special measure making your monetary contributions tax deductible in 2009 even though they are made in 2010. The new law gives you flexibility in deciding when to claim a deduction for your early contributions on your income taxes in NYC. Below is a further look into how this accelerated deduction works, and how an income tax CPA in Manhattan can assist you.

Accelerated deduction. Typically, if you file an itemized individual federal return and you want to deduct your charitable contributions, you can only deduct the contributions you made in that tax year. The earthquake hit Haiti on January 12, 2010. Under the normal rules, charitable contributions made to help Haiti would be deductible when taxpayers file their 2010 New York income tax returns in 2011. The new law makes a special and temporary exception for Haiti relief.

Under the new law, you can treat a contribution made to help Haiti after January 11, 2010 and before March 1, 2010 as if made on December 31, 2009. You can decide whether to deduct your 2010 Haiti contribution on your 2009 Manhattan income tax return or on your 2010 return. However, you cannot deduct the same Haiti contribution on both your 2009 and 2010 income tax returns in New York. You can, however, allocate multiple donations to more than one year. Of course, to take a charitable deduction of any kind, you must opt to itemize your deductions rather than take the standard deduction on your NYC income tax return.

Monetary donations. Your contribution must be monetary to qualify under the new law. You can donate cash or make a donation by check or credit card. Property that is convertible into cash, such as marketable securities, however, is not eligible for this special treatment. Similarly, medical supplies, food and other items of property do not qualify for the accelerated deduction.

Currently, most charities are requesting monetary donations to help the earthquake victims. They use the funds to purchase relief items, such as food, medical supplies and emergency housing. If you want to make a non-cash contribution, make sure the charity will accept it. You will also want to contact our office of trained New York income tax CPAs and we can explain the appropriate tax treatment. Non-cash contributions are subject to special rules. For example, donations of food must be used only for the care of the ill, needy or infants.

Limits on deductions. The tax law imposes a 50 percent limit on the total of all charitable contributions you make during the year. Your deduction cannot be more than 50 percent of your adjusted gross income (AGI) for the year. You can carry over any contributions you are not able to deduct for one year because of the limit. The new law does not raise or remove the 50 percent limit for 2009 or 2010. There are other special limits, for example limits on gifts of capital gain property and qualified conservation contributions. Please contact one of our Manhattan income tax CPAs and we can discuss these limits in more detail.

Another provision in the tax law limits certain itemized deductions, including contributions to charity, for higher income individuals. For 2009, the limitation is reduced by two-thirds. For 2010, the limitation is reduced to zero but this treatment is only available for 2010. Depending on your income and tax strategy, you may find it more valuable to deduct your contributions to Haiti earthquake relief when you file your 2010 new york income tax return in 2011 rather than taking the deduction on your 2009 return filed in 2010.

Qualified charities. Contributions to domestic, tax-exempt, charitable organizations that provide assistance to individuals in foreign lands qualify as tax-deductible contributions for federal income tax purposes, provided that the U.S. organization has full control and discretion over the uses of such funds. Contributions to foreign organizations generally are not deductible. Additionally, contributions to benefit specific individuals or families are also not deductible on your income taxes in Manhattan.

For purposes of the accelerated deduction, contributions must be made specifically for relief of victims in areas affected by the January 12 earthquake. You should ensure that your contribution goes to a qualified charity. If you have a specific charity in mind, one of our Manhattan CPAs can tell you if it is a qualified charity for federal income tax purposes.

Documentation. The IRS has very strict rules about substantiating charitable contributions. To deduct any charitable donation of money, regardless of amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified charitable organization indicating the amount of the cash and a description of any property contributed and whether the organization is provided any goods or services in exchange for the gift.

The new law allows one additional method of substantiation. If you make a donation by texting a contribution to a charity, your telephone bill can provide the required documentation. Your telephone bill must show the name of the charitable organization, the date of the contribution and the amount of the contribution.
IRS disaster designation. Shortly after the earthquake, the IRS designated it as a “qualified disaster for federal tax purposes.” This means that recipients of qualified disaster relief payments may exclude those payments from income on their Manhattan tax returns. Additionally, the IRS is allowing employer-sponsored private foundations to assist victims in Haiti without affecting their tax-exempt status.

Scams. Tragedies not only bring out the best in people, they also sadly encourage fraud. The Haiti earthquake is no exception. First, be an educated donor. Before you make a donation, make sure the charity is legitimate. Many reputable and well known U.S. charities are working day and night to help Haiti.

Be wary about giving out your personal information, such as your Social Security number. Con artists can use your personal and financial information for identity theft. Be especially cautious of emails asking for donations. Some phony charities use names that sound or look like those of respected, legitimate organizations. If you are not sure that a charity is legitimate, call our office or call the Better Business Bureau.
If you have any questions about the accelerated tax deduction or charitable contributions in general, please contact our office. Our New York income tax CPAs will be able to assist you.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Abusive Corporate Tax Shelters in New York

19.07.2010

category: Uncategorized
tags: accountant new york city, CPA NYC, cpa s corp new york city, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc cpa manhattan, llc cpa nyc, manhattan llc cpa, Manhattan Tax Preparation, s-corp cpa new yprk, Tax Preparation Manhattan, TAX PREPARATION NYC

This letter is intended to answer questions that many New York LLCs, S-corporations, and other small businesses have been raising about the reach of the continuing IRS campaign to identify and shut down abusive corporate tax shelters. When combined with the simultaneous push by the federal government to enforce stricter corporate accounting and financial practices through Sarbanes-Oxley, the IRS’s tax-shelter enforcement activities undeniably have created some “sleepless nights” for many corporate executives. Whether such worry is unfounded or not, however, depends upon a number of factors, some still developing in the courts, in the IRS, and in the Treasury Department’s tax policy offices. Keep reading to determine if this may affect your LLC, S-corporation, or small business in New York City, and to see how a CPA can help if it does.

One of the key characteristics of a corporate tax shelter is that the transaction has no economic substance. Generally, if a transaction has a business purpose other than solely to minimize taxes, it is not a tax shelter. Once a transaction is deemed to be business related, restructuring that transaction to save the most taxes will not then transform those efforts as a tax-shelter activity.
To help identify tax shelters more easily, the IRS has been instructing its agents to look for following additional characteristics:
•   Exclusive of the tax benefits involved, corporate tax shelters typically earn no economic profit;
•   Inconsistent financial accounting and tax treatment, since tax shelters will often reduce taxable income while leaving book income unaffected;
•   The participation of a “tax-indifferent” party, for example, some type of entity involved in the transaction that can absorb the taxable income or deflect the tax liability, most often a foreign or charitable tax-exempt entity;
•   Use of special entities, structures, and innovative financing instruments that are unnecessary to the transaction except to be more able to claim on a technicality a direct tax result or one facilitated by the use of a tax-indifferent party; and
•   Unnecessary steps or novel investments, for example, steps unnecessary to achieve a corporation’s purported business purpose.

The past several years have marked a number of victories for the IRS in both the domestic and international tax shelter arenas. The IRS has won some huge tax shelter cases in the courts and these victories have encouraged it to go after even more shelters. The IRS has also cracked down on accounting and law firms that facilitate tax shelters. The “anything goes” attitude of past years ago is a long faded memory. And while the IRS has been enforcing the law, Congress is looking to close as many loopholes as possible to prevent NYC tax evasion.

The IRS has launched several tax shelter settlement initiatives in which it offers to settle with taxpayers who had participated in abusive tax shelters. These covered the notorious Son of BOSS tax shelter, abusive executive compensation schemes, and many other abusive transactions.

The IRS has also beefed-up its Large and Mid-Size Division (LMSB). LMSB services the largest business entities in the country. LMSB is implementing an Industry Issue Focus approach to compliance to ensure consistency in resolution across industry lines and increased coverage of non-compliant taxpayers by maximizing limited resources. These issues are prioritized or tiered based on how prevalent they are across industry lines and the level of compliance risk they present. Tier I issues are of high strategic importance to LMSB and have significant impact on one or more industries. Abusive tax shelters have been designated as a Tier I compliance issue. If you are a high net worth individual in Manhattan, you may want to obtain a CPA just to cover your back.

Some small businesses are concerned that the IRS’s focus on tax shelters will mean increasing scrutiny of other aspects of their business operations as well. Others want to undertake internal protective audits to set up a strategy against IRS involvement before the IRS sends out audit letters. Many high net worth individuals in NYC in particular are seeking the help of experienced CPAs to help. If you would like a further analysis of how the IRS assault on tax shelters may affect you, directly or indirectly, please do not hesitate to call one of our seasoned CPAs experienced in working with S-corps, LLCs, high net worth individuals and small businesses in New York and abroad.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Travel and Entertainment Review for Self-employed Income Taxes in NYC

16.07.2010

category: Uncategorized
tags: CPA high net worth individuals New York city, CPA LLC NYC, CPA New York City, income tax manhattan, income tax new york, income tax nyc, llc cpa nyc, Small business CPA Manhattan, small business cpa nyc, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC, Taxes NYC

Although the computer age and modern telecommunications have reduced the need for in-person contact, it is still sometimes necessary for New York self-employed people to go out of town on business, or to entertain clients and customers. This also applies if you are an owner of an LLC or other small business in Manhattan and you send employees out on business related travel. How travel and entertainment expenses are handled can have an impact on your net income, your paperwork burden, and on the New York income tax results for you and your Manhattan LLC employees.

If you require employees to substantiate travel or entertainment expenses that are bona-fide business deductions, partial or complete advances or reimbursements are not treated as compensation income to the employee, and the advance or reimbursement is not subject to social security taxes or to New York income tax withholding. However, only 50 percent of any business-related meal or entertainment expense is deductible by the company, including costs of meals consumed by employees while they are traveling. The same applies if you are a New York freelancer or are self-employed in NYC.

To ensure that the reimbursement is not subject to payroll and withholding taxes, the business must maintain a fairly detailed recordkeeping system. For travel, employees and self-employed persons must submit a written statement of the time, place, destination and business purpose of the trip and the amount of expenses incurred by category (e.g., travel, meals, lodging). For meals or entertainment, the employee must submit a written statement showing time, place and cost of the event, who was entertained, and the business purpose of the meal or entertainment (if the event follows or precedes a business discussion, additional recordkeeping is required). Finally, the NYC freelancer must keep and turn in to the employer documentary evidence such as receipts for all lodging expenses, and for other travel and entertainment expenses over $75.

Because the recordkeeping can be onerous, the law provides some shortcuts, depending on the type and frequency of the travel and entertainment expenses. For example, the paperwork burden and the cost of travel expenses can be decreased by giving NYC freelancers who travel for business purposes a flat daily allowance, a per diem, which varies by destination, to cover meals, lodging and incidental expenses. If the daily allowances do not exceed IRS-determined maximums, they are payroll and New York income tax free with a minimum of paperwork; all that is required is a record of the time, place and business purpose of the travel. To-the-penny accounting of expenses and corroborating receipts is not necessary. As with the other examples, this applies equally to those who are self-employed in NYC, own a LLC or other small business in Manhattan, and to those who are freelancers in New York.

One simple way to cut out paperwork while boosting NYC small business tax deductions is to give employees a flat allowance for anticipated travel and entertainment, and not require these expenses to be substantiated. The allowance is fully deductible as compensation (assuming the employees’ compensation packages are reasonable), and there is minimal paperwork required. The allowance, however, is subject to payroll and income tax withholding, and the company may not be able to determine what their actual travel and entertainment expenses are for budgeting purposes. In addition, there are unfavorable tax consequences for the employee, even if the travel and entertainment expenses are deducted on their own returns.
Travel and entertainment expenses are particularly susceptible to challenge by the IRS. However, in some instances, businesses may fail to deduct qualifying travel and entertainment expenses, or may be deducting these expenses improperly. If you are a small business, freelancer, LLC, S-corp, or are other wise self-employed in New york, you need a CPA to help you with the tax burden. Our Manhattan small business and self-employed CPAs can perform a confidential review of your company’s travel and entertainment expenses to ensure compliance with the complex rules that govern these deductions. Please call our LLC and S-corp CPAs in NYC today to arrange an appointment at your earliest convenience.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses