Business Trip or Personal Vacation?

As I sit in a hotel room about to head on an overseas trip, I'd like to know how much of my impending expenses might benefit me come tax time. Fortunately, the IRS has some detailed, if not exactly easy to read, guidance on what's deductible.

Here are the facts: I'm traveling to Austria to visit a client of mine to whom I provide web design services. My wife is joining me, and we've stopped in the Atlanta area to drop off our children at my mother's. What portion of my expenses count for tax purposes?

First, I'm traveling outside of the USA, and will be pursuing some non-business activities. If I want my travel expenses to be fully deductible, I must meet one of four requirements:

1. No control over the trip - This one's out the door. I planned the whole thing myself
2. Outside US no more than a week - I think I'll be able to use this one...my stay is exactly one week.
3. Less than 25% time on personal activities - I don't think my wife will let this one happen. She's not coming with me to Europe to watch me mess with my laptop!
4. Vacation is not a major consideration - I can't legitimately argue this one.

Even if I can't use one of these exceptions to be able to deduct all of my travel expenses, I can allocate the expenses based on the ratio of business days to total days. A business day is any day that I spend most of the work day (probably at least 5 hours) on business, travel days, days my presence is required, or holidays/weekends that fall between business days. Sounds like I better have my client 'require my presence' every day, right?!?

I expect I'll be able to legitimately meet one of the above scenarios and deduct my travel expenses. Notice I said 'my', and not my wife's!

There are a lot more details regarding travel deductions available in the IRS publication on travel expenses.

Sales Tax - Due on Internet Sales?

As more businesses make sales or provide services via the Internet, we're often asked wether Internet-based businesses are taxed differently from other businesses. The answer is no.
The following discusses the tax application for internet businesses:

• Items delivered in Washington
  Washington sales tax must be collected on all sales delivered to customers in Washington. Income from these sales is also subject to B&O tax, though items delivered outside of Washington are not subject to B&O.
  
• Items delivered outside of Washington
  When items are delivered to the buyer at a location outside of Washington, the sale is an interstate or foreign sale and exempt from sales tax, as well as B&O tax.
  
• Services performed in Washington
  Providing services in Washington, such as web design, is subject to B&O tax, regardless of the customer's location.

Out-of-state businesses are required to collect Washington sales tax if they have a physical presence in the state of Washington.

For more information, check the Department of Revenue's website.

Clean Up With A Hybrid

Hybrid vehicles have become very popular recently, especially given the increase in fuel prices. The government has a special deduction available for purchasers of these vehicles, but it may not be what the salesman promised.

Hybrid vehicles are eligible for the clean-fuel deduction of up to $2,000 for vehicles placed in service in 2005. In 2006, the maximum is scheduled to be $500, and the deduction terminates after 2006.

Note that this is a deduction, and not a credit. As such, it will reduce your taxable income, but is not a direct credit back to you. For instance, if you were in the 25% tax bracket, the clean fuel deduction would save you $500.

We wanted to clarify this provision, as some clients have understood when purchasing these vehicles that they come with a $2,000 credit, which is not the case. A list of the vehicles that qualify for this deduction can be found on the IRS website.

The Facts About Extensions

As we near the due date for individual income tax returns, extensions become a necessary tool for those clients who may still be waiting on information, or who just haven't gotten around to visiting us yet!

Many clients have questions about the implications of extending their returns. One misconception is that extending the return extends your time to pay your tax. The reality is an extension simply gives you an extra four months to file the return, but taxes are due by April 15, whether your return is filed or not. Anything you owe will incur additional interest after April 15th.

For more information on extensions, we have made available a brochure that can answer common questions.

Sales Tax Rises April 1

Sales Tax Rate Hike Information

Go dig up that manual for your cash register - you'll need to reprogram it on April 1st, when the sales tax rate in Cowlitz County increases by .1%. As a result, sales tax inside Kelso and Longview will be 7.7%, and 7.6% in the rest of the county.

Interestingly enough, the Department of Revenue's flyer linked above states mistakenly that the increase was approved in the November 2004 elections. In fact, it was imposed by the Cowlitz County Board of Commissioners.

The Commissioners yesterday began a push for consideration of ANOTHER sales tax increase, this one up to .2%. The proceeds would be used for criminal justice, and the citizens would have to approve it at election time. I'm not sure if drawing more money out of the pockets of our already financially-depressed citizens is the answer to anything, but the commissioners seem determined to at least try.

As a side note, have you ever heard anyone propose a decrease in sales tax??

How Long Do I Have To Keep This?

Record Retention Schedule

If you're in business, you know that space costs money. As a result, businesses often try to eliminate as much historical paperwork as possible to more effectively use their office or storage space. When working on a project like this, our clients usually want guidance on what to keep, and for how long.

We've developed a record retention schedule that gives suggestions on how long to keep various documents. Essentially, you need to keep things as long as they may be relevant to taxing or regulatory authorities, and certain other items just need to be kept indefinitely. For instance, if you're considering selling your business, the seller might want to see an in-depth financial history of many years. Some payroll records need to be kept indefinitely as well.

The retention schedule is available in our Forms area. If you have a question on an unlisted item, please feel free to drop us a line or add a comment here.

Reduce Junk Mail and Identity Theft

We all know about the rash of identity theft that has hit our community and others nationwide. One of the key sources for the data that is used to commit these crimes is unsecured mail. More than 400,000 Americans each year can trace falsely-opened credit accounts to stolen mail. Reducing the excess mail can help you reduce your exposure to this type of crime.

There are three key places you should contact to help tame the junk mail in your box.

• Remove your name from this list sold by consumer reporting agencies to credit card companies for preapproved offers.
  
  
• The Direct Marketing Association's removal tool can pull your name off of the mailing lists used by their 5,200 members - most of the junk you get. Obviously, they're not really concerned about getting your name off the list; they charge $5 to submit your request online, although you can print your request from their site and mail it to them.
  
  
• Remove yourself from unsolicited mortgage and home equity loan offers by visiting the DataQuick website.
  

Take 10 minutes to visit these sites, and you'll be on the way to protecting your identity.

Death Now Less Taxing in Washington

The Washington Supreme Court eliminates state's estate tax

The Supreme Court eliminated the differences between State and Federal rules regarding taxable estates in Washington. You probably remember that the Congress passed legislation in 2001 that raises the threshhold for a taxable estate over the next several years, and eliminates estate taxes in 2010. Washington had never increased their threshhold accordingly, so individuals were having to deal with two different sets of rules for estate taxes. Even though an estate was exempted from federal tax, it could have a Washington liability.

This difference complicated financial planning and prevented Washington residents from enjoying the estate tax relief contemplated by Congress. The Supreme Court decided that Washington was only ever entitled to a portion of the federal tax. If there were no federal tax, Washington had no right to collect the state's portion.

As a result, estates that paid Washington will receive at least a partial refund of their estate taxes. If an estate was completely exempt from Federal tax, it looks like they will receive a full refund from Washington.

This is the type of change that makes a huge difference here in the financial and estate planning community. Differing sets of standards complicate the planning substantially, and simplification will help individuals better understand the rules.