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Featured Articles:
Employers fear growing IRS interest in
personal use of company cell phones
The Ins and Outs of Interest Deductions
Budget Or Wing It?
What Are the Chances
That I
Will Be Audited?
Q&A
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Employers fear growing IRS interest in personal
use of company cell phones
Everyday, millions of people use
employer-provided cell phones. Company business comes first but many
employees probably have made personal calls. As long as they're not
too frequent or too costly, most employers don't mind; however, the IRS does. According to some reports from tax professionals
across the country, the IRS is starting to take the position that
personal use of a company cell phone should be taxed to the employee
as compensation. Employers would be responsible for federal
withholding.
Working condition fringe benefit
 The IRS is reportedly treating employer-provided
cell phones as a working condition fringe benefit. When people think
of working condition fringe benefits, cell phones don't usually pop
into their minds first. More traditional fringe benefits, such as
company cars, do.
If an employer provides a company car to a
salesperson and she is allowed to use the car for personal purposes,
the employer must include the value of this non-cash fringe benefit
in her wages as part of compensation. Technically, the same
treatment could apply to employer-provided cell phones if employers
permit personal use.
Strict substantiation rules have long been in force.
Employees are required to substantiate the business purpose of each
expense, generally in writing.
Cell phone usage is easy to track. Every month, the
cellular provider generates a bill, which usually lists all calls.
Even if the bill doesn't break down the calls individually, the
information is readily available. This makes it very difficult, if
not impossible, to claim that a cell phone is used 100 percent for
business purposes if the evidence shows calls to the employee's
spouse, boyfriend, sister, school, day care, and so on.
Employer action
Employers should immediately review their official
policy about personal use of employer-provided cell phones. If they
don't have a policy, it's time to implement one.
A blanket prohibition on all personal use of
employer-provided cell phones is not easy to police. Cell phones are
portable. Employees will, and do, use them outside of the office. An
employee may think that one or two personal calls a day doesn't
violate company policy. Over time, they can add-up and phone records
can quickly show how many personal calls an employee made in
violation of company policy.
Permitting employees to use cell phones for personal
use is probably the most common employer policy. More likely than
not, it's an unofficial policy. Its continuing viability likely will
be determined by what the IRS does over the next months and years.
If the IRS is really committed to going after personal use of
company cell phones, employers will have to make some changes.
Our office will continue to monitor this developing
issue. Contact our office and we can make an appointment to review
your company's cell phone policy.
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What Are the Chances
That I Will Be Audited?
Every year, the IRS releases statistical information about its
activities during the prior fiscal year. The news for the year
that ended September 30, 2004:
►Over a million individual
income-tax returns were audited out of 130.1 million filed in 2003, a
slight increase over 2002.
►Audit rates rose for sole
proprietors filing a Schedule C with their personal returns. Three
percent of those with gross receipts under $25,000 were audited.
The audit rate for those with gross receipts between $25,000 and $100,000
was 1.47%.
►For small corporations (assets
under $10 million) the odds of not being audited improved. Only
0.32% of small company tax returns were audited in 2004, compared with
0.58% in 2003.
►This is not so for large corporations
(assets of $10 million or more), their audit rose markedly from
12.08% in 2003 to 16.74% in 2004.
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The Ins and Outs of Interest
Deductions
You need a loan, so you compare alternatives and choose the loan with
the most favorable rate and repayment terms. Do you also consider the
tax implications? You should.
If the
interest you pay on a loan is tax deductible, your real cost of
borrowing will be less.
Business loans. Interest paid on loans taken to finance business
expenditures is generally deductible as
a trade or business expense. If you use the proceeds of a loan for both
business and non-business purposes, an allocation must be made to
determine the amount of interest that is deductible as a business
expense.Consumer debt. You cannot deduct interest on loans
taken to buy personal items, such as cars and appliances. (But see the
information on “home equity debt” below.)
 Home mortgages and home equity loans/credit lines. In general,
you can deduct as an itemized deduction interest paid on up to $1
million of “acquisition debt” — mortgage loans taken to buy or build a
primary and/or a second residence. On top of this deduction, the law
allows an itemized deduction for interest paid on up to $100,000 of
“home equity debt” — a home equity loan or line of credit, for instance
— no matter what the loan proceeds are used for.
Investment debt. If you borrow money to buy or carry taxable
investments, the interest you pay on the loan is deductible as an
itemized deduction, subject to a limitation based on your net investment
income. A margin loan from a brokerage is an example of investment debt.
Student loan interest. Qualified student loan interest of up
to $2,500 a year is deductible “above the line,” so the interest would
be deductible even if you don’t itemize your deductions. Above-the-line
deductions reduce your adjusted gross income, potentially allowing you
to qualify for other deductions and tax breaks that are reduced or
unavailable when adjusted gross income exceeds certain caps specified in
the tax law. The deduction for student loan interest is subject to an
income-based phase out.
Additional factors, such as alternative minimum tax and the itemized
deduction limitations that apply to higher income taxpayers, could
affect your interest deductions. We can help you weigh your options.
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Interest Related
Calculators
Amortizing Loan Calculator
Loan & Line Payment
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these calculators For other calculators
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 When I refinanced my $150,000 mortgage, I borrowed an
extra $40,000 and used the money to buy a car and pay for my daughter's
wedding. Will the interest on the $40,000 be tax deductible?
 Yes and no. For regular tax purposes, the $40,000 you
borrowed should be considered home equity debt. The related
interest should be tax deductible, provided your total home equity debt
doesn't exceed $100,000 ($50,000 if married filling separately).
Alternative minimum tax (AMT) is another story, however. For AMT
purposes, the interest paid on the "extra" $40,000 of debt won't be
deductible. back to top |
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Budget Or Wing It?
There are two
camps in the business world: the "Haves and the Have-nots". Which
camp you're in has nothing to do with fancy cars or skyboxes or
salaries. It has to do with having an effective budget - and using
it to guide your business decisions.
Why Bother?
Many business owners don't have budgets because they can be
time-consuming to prepare, but an effective budget can save time -
and money - in the long run. It provides you with guidelines for
managing costs and revenues, and helps you make important business
decisions quickly and confidently.
It's Worth It
Actually, some budgets are a waste of time. If all you do is
increase your current year's figures by a certain percentage, you might
as well not bother.
A budget is only as good as the process used
to create it and the data that is included. Here are some tips:
Go for the goal. This is a good opportunity to tweak
things. If you've been working on an 18% margin, for example, and
you want to make it 20%, you need to incorporate the necessary
adjustments into your budget. You may want to ask each key person
or department head to consider one or two new cost-saving or
revenue-increasing goals for the coming year.
Get your team psyched. Meet with the people who will be
involved in the process and make sure they understand the importance of
creating an effective budget. If you're enthusiastic, there's a
good chance that they will be, too.
Keep it real. Base your budget on accurate data.
Ask each person or manager to submit expense projections. If the
numbers look out of whack or you're not sure how they were calculated,
ask for explanations.
Check your crystal ball. Where do you think the economy
is headed? How healthy is your own industry or business sector?
Consider economic trends and other events that may impact your business
and incorporate those factors into your projections.
Stay in the game. Compare your actual results with your
budget projections on a regular basis and share the results with your
budget team. Make adjustments as necessary.
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Other Articles Of Interest On This Topic:
Business'
Crystal Ball: Financial projections are a valuable tool for business to
evaluate ideas
by Jay Hoover
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