Tax preparers deserve a break!

I don’t usually link to other articles but I found it both interesting and educational.  Most taxpayers think we just sit there, enter the numbers in the tax program and “Voilà! Your tax return is complete.”  If it were that easy, wouldn’t you be doing your own taxes already?

We have to study tax changes. We have to, in California at least, get tested and registered.  We have to deal with bumps in the road every last quarter of the year like waiting for Congress to get their stuff together and finish their Christmas vacation (although if i had been President, I would have told them “No vacations, no pay until you have finished!”) Then there’s the IRS and state entities that have to update their forms, then the programmers of the tax programs and the list continues.

So here you go, straight from the mouths of accountants:

Let’s Never Do That Again

Oh no! Hacked!

oh-no-baby

We were hacked!  Apparently we couldn’t see it online but if you looked at our mobile site, there were advertisements for performance enhancing drugs!

Thanks to Google, we were informed of the issue.  We are rebuilding the site so please be patient as we try to get it up and running again.

It’s a work in progress!

Thank you for your patience!

An exciting change!

I am taking things to next level here at Pillai Consulting.  For too long, my dedicated colleagues and I have limited our talents by being what seems like not much more than data entry bookkeepers, plugging in each detail, grinding out a few reports, but leaving us with little or no time to really talk with our clients about their goals for their businesses and how to accomplish them!  This has, in fact, been crippling our business!

To make this change, I will be moving the majority of my clients over to Xero Accounting.  Much like Quickbooks Online, it is cloud-based.  However, it is simpler (more user-friendly) to use, the reporting capabilities are amazing and you instantly have access to your files at any time.  You can also see who the last person was to access the file and when they did so.  Quickbooks is a wonderful program but it’s not for everyone so we  will still be using it for certain clients as Xero is also not for everybody.

The thought process was to set up my clients online with Quickbooks Online (yes, we’ve been dinosaurs here using the old desktop version) but after using it with my own personal accounts, and then comparing it to Xero with the same accounts, it was a no-brainer to me.  I want a program that is simple enough for my clients to look at or even use, yet robust enough for me and my team to be able to give our clients the attention that they deserve and the information to analyze my clients’ accounts and consult them in their business finances.

If you would like me to move you over as well when it’s time, please let me know. 

Horse Farming – A Business or a Hobby?

As tax season is upon us, I thought it might be beneficial for horse owners and businesses to see whether you can claim your horse activities as a business and what factors will determine that.

The American Horse Council reports in “Tax Tips for Horse Owners” that the taxpayer cannot deduct expenses of an activity which are greater than income from that activity if the activity is “not engaged in for Profit”. In other words – A hobby- cannot be deducted against income from any sources. On the other hand, if an activity is engaged in for profit ( a business rather than a hobby), losses are fully deductable against other income.

In determining whether an activity is engaged in for profit, all facts and circumstances with respect to the activity are taken into account. These facts and circumstances must indicate that the taxpayer entered into the activity or continued the activity with the objective of making a profit. If a profit is made in two years during a seven year period, it will generally be presumed that the taxpayer has a profit motive.

The IRS regulations list certain factors which are considered in determining whether an activity is engaged for profit. All factors are considered, not only the ones listed in the regulations.

The factors normally considered are:

  • How does the taxpayer carry on the activity – is it in a business-like manner? Do they maintain complete and accurate bookkeeping records, carry on the activity in a similar manner to other activities of the same nature which are profitable and changes operating methods with the intent to improve profitability.
  • The expertise of the taxpayer or his advisors.
  • The time and effort taken by the taxpayer in carrying on the activity. If the taxpayer only devotes a limited amount of time, does he employ others to meet his goals?
  • Will assets such as land and horses appreciate?  Does the taxpayer intend to profit from that?
  • The success if the taxpayer in carrying on other similar of dissimilar activities.
  • The taxpayer’s previous income or losses associated to the activity.
  • The amount of profits in relation to the losses and in relation to the amount of the investment and the value of the assets used in the activity.
  • Substantial income from sources other than the activity, particularly if the losses from the activity generate substantial tax benefits.
  • Elements of personal pleasure or recreation, however pleasure derived from the activity is not considered sufficient cause to classify the activity as not engaged in for profit.

Presuming that an activity is a business:

Horse businesses, unlike most other businesses, have to show a profit in two years out of a seven year period in order to be considered a business.  This applies to the second profit year and all years thereafter within the seven-year period beginning with the first profit year. If it is a new activity, two profit years during any of the first seven years of operation will classify it as a business activity for all those seven years – provided the taxpayer makes a special election by the due date of the tax return for the third tax year in the seven year period.

If there are no profits shown in two years during a seven- year period, it doesn’t necessarily rule it out as a business.  If nothing can be presumed the taxpayer must rely on the factors listed in the regulations or other facts and circumstances.  The taxpayer should be able to demonstrate that the business will be profitable in the future, even if it hasn’t been for a number of years.

Any capital gains or any other sales relating to the activity are taken into consideration when determining a profit or loss year for purposes of the presumption.

If you want more information, email me a message through our contact page.