Tax Facts

Information to help individuals and small business navigate our complex Tax Laws. Not to be construed as tax advice. Contact your hired tax advisor for your specific tax situation and advice.

Moving Expense Deduction in 2018

This calendar year 2018, you can deduct moving expenses only if you are an active duty member of the Armed Forces and meet certain other requirements such as a military-ordered permanent change of station (PCS).

But what if your moving expenses were paid out of pocket in 2017, and your move also occurred in 2017, and you were not reimbursed until this year, 2018? The IRS just issued some guidance on this very situation in their Notice 2018-75 which states that if your employer waited until 2018 to reimburse you for those expenses, then the reimbursements should be excluded from your wages on the W-2 and are also not subject to federal income taxes or the payroll taxes.

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Small Business Inventory and Charity

What if you have a small business such as a sole proprietorship that files on Schedule C and you want to contribute some of your inventory to charity? How should you account for that? There are some things to consider regarding charitable contributions of inventory before you do so.

First, consider that unfortunately, charitable contributions of any kind cannot be deducted on Schedule C. They are deducted on Schedule A of your personal tax return as itemized deductions. Obviously, you should consider whether or not you even itemize your deductions or take the standard. And with the new tax legislation that is going into effect for 2018, you may have itemized in the past but will not in the new year.

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Taxation of Minister/Pastor/Clergy Housing Allowance


Contrary to general belief, clergy do pay income taxes. This can come as a surprise both to clergy and to laypersons; especially with regard to the housing allowance. An ordained minister, priest, pastor, etc. pays no federal income tax on a housing allowance that the congregation has officially designated as part of the minister's compensation package. This means at best the housing allowance should appear on the W-2 separately as such; at worst it should be listed in a contract dated prior to any payments made for the same.

However, this does not mean the housing allowance is not taxed at all. And it is a misnomer to say it is "tax free." The housing allowance must be reported as Self Employment income. Therefore, it is subject to the self-employment taxation. If a pastor does not receive a housing allowance, then what must still be reported is the rental value of a rectory, parsonage, or other housing that is provided, as self-employment income. The rental value is generally equal to what comparable housing in the area goes for on the rental market.

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Tax Reform: Proposed New Tax Brackets


Currently, there are eight regular individual income tax brackets and they are: 0%, 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Such a large set of tax brackets can easily move you into a higher tax rate sooner (as you make more money), especially when considering the bracket thresholds. Note that politicians and journalists often fail to mention the 0% tax bracket - but it does exist. With standard deductions, exemptions and tax credits, many citizens pay zero in tax and actually receive money when they file (called credits on the tax return).

The new Tax Cuts and Jobs Act (TCJA) proposes to cut those eight tax brackets down to only five: 0%, 12%, 25%, 35% and 39.6%. The zero percent bracket in the new proposal is significant because of the proposed enhanced standard deduction (essentially doubles) - the impact of which is that those who might have paid some tax will now pay zero tax with such a high standard deduction against their income - and of course receive credits (money in the form of a refund) as well.

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Hurricane Areas and E-filing for 2016 Tax Year


Just a reminder that taxpayers who need to file a 2016 federal tax return electronically, should do so by Saturday, November 18, 2017. On November 18, 2017 the IRS is shutting down their e-filing system so they can get ready for the new tax season. It will remain closed for e-filing until January 1, 2018.

Most taxpayers have already filed their 2016 federal tax return, but if you live in an area that was federally declared a disaster area (hurricanes Harvey, Irma and Maria, for example and wildfire victims in California) and you obtained a 6-month extension of time to file then you have until January 31, 2018 to file your federal 2016 tax return.

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Florida 2016 Tax Extension Filers and Hurricane Irma


If you are living in Florida in any area designated by the FEMA as qualifying for either individual assistance or public assistance from Hurricane Irma, and you filed an extension for your 2016 individual or corporate tax return, the IRS has announced an additional extension for you. Taxpayers with valid extensions that normally run out on October 16, 2017 and businesses with extensions that ran out on September 15, 2017 will now have until January 31, 2018 to file returns.

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Medical Expenses: 10% Floor for All in 2017

This change is most important to note for those who are 65 and over. For tax year 2017 the amount of qualifying medical expenses that can be deducted on Schedule A of the tax return must now exceed 10% of your adjusted gross income (AGI) for all taxpayers. In previous years, for those 65 years and over, the floor was 7.5% of AGI, which has now expired.

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Electing to Deduct Sales Tax


The election to deduct sales tax on your tax return only applies to taxpayers who itemize their deductions. Normally, if you're itemizing, you should hire a licensed tax professional to prepare your taxes for you. Itemizing can quickly become complex, involve more details in the preparation process, involve strategy for maximizing deductions and minimizing tax and most importantly take up lots of your time.

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Where are State and Local Taxes Deducted?


State and local income taxes are deductible as itemized expenses on your tax return in the year that they are paid. The tax may be paid either through withholding on a paycheck or through estimated tax payments made each quarter of the year or through an over payment from a prior year. Careful how you shift your payments, if you are planning with strategy for maximizing your deduction in a particular year, though.

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Get Your Tax Refund

If you did not file a tax return in the past three years, perhaps because you did not meet the filing threshold or you encountered a life event that put you on hold, maybe it's a good idea to meet with a tax professional and determine if you are due a refund!

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Real Estate Taxes

Real estate taxes are deductible in the year they are paid to the county tax office. If taxes are paid into an escrow account, they are deductible when actually paid to the taxing authority, not when they are paid to the escrow account or agent. If you pay late and incur penalties and interest, those are not deductible; only the tax portion.

What if you paid someone else's real estate tax? For example, you pay your parents' property tax bill or when you sell your

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A List of Medical Expenses


Clients so often call to ask if one or another expense can be deducted as a medical expense. There are the obvious ones, like visits to the doctor, dentist and chiropractor. It is clear these are deductible. But what about maternity clothes? Or acupuncture? Well the former is not allowed and the latter is. So here's a list of some unusual ones that can be deducted:

Acupuncture, alcoholism (treatment, meals and lodging while at the center), ambulance service, artificial limbs and teeth, braille books/magazines, dyslexia language training, a doctor recommended (in writing) exercise program for a specific condition, eye surgery for nearsightedness, fertility treatment (if medical condition required it), legal fees paid to authorize treatment for mental illness, lifetime care advance payments (if part of the advance fee is allocated to medical care and the percentage is specified in the agreement with the retirement home, mattresses and boards bought specifically to alleviate an arthritic condition, wheelchairs, guide dogs (including their food and vet costs), Medicare Parts B, C, and D and A if not covered under Social Security), entire cost for medical care, including meals and lodging if the main reason for residence is to obtain medical care, reclining chair on doctor's written advice, smoking cessation programs (no doctor recommendation necessary), tuition for a mentally disabled person, prescribed therapeutic swimming costs, weight loss program prescribed by doctor for obesity or other specific condition.

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Defining a Long-Term Asset


Our small business clients often ask the difference between a long and short term asset - especially with regard to deduction and depreciation of that asset. We'll define a Long-Term Asset in this post.

The main distinction is to first ask the question: how long will this asset have a useful life in the business you are operating. So, don't get this confused with its actual physical life. The IRS generally sets the rules on what is reasonably expected to be the useful life of a particular long-term asset.

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Property That's Not Eligible for Depreciation


Rules apply (of course!) when you want to deduct long-term assets in a business and on your business tax return. If it's property - real property, personal property, or otherwise - you can only depreciate or expense the cost of purchasing that property if it's used in your business and if it wears out or gets used up over time.

So, for example, if you have a rental property and it's a single-family house on land, you can only deduct (and in this case it becomes a depreciation deduction) the house portion of what you purchased and not the land. Land does not wear out. (There are exceptions to this when you are purchasing land specifically for oil drilling - then you have a deduction each year for the depletion of that oil in the land. But that's a different and special case.)

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Hiring a Family Member?


Thinking about hiring your child to work for your business? The IRS expects that you will be following some rules if you decide to, so it's a good idea to become familiar with those rules prior to bringing Mini Me on board and taking the payroll deduction for it. Here are a few main ones:

The child must actually be an employee and that means they must actually be doing some productive work for the business and not sitting in a chair playing video games. On the other hand, the services they provide don't have to be along the lines of "resident genius" either. As long as they are doing work that is common and accepted for your type of business and helping things move along in the daily grind, then you're okay.

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Business Entity Concept in Bookkeeping and Taxes

Many clients ask about setting up a small business and which entity they should select: LLC, Corporation, S Corporation, Partnership, etc. The answer is "it depends" and there are many factors to consider. To be sure, a knowledgeable advisor can help you choose the right one. We recommend hiring and Enrolled Agent, a CPA or a business attorney to do so.

There is a concept that does apply to any business entity you may choose for your small business and it is an accounting/bookkeeping concept called the Business Entity Concept. This concept is based upon an assumption that every business - no matter how big or small - and regardless of the legal entity of choice, is to be accounted for separately from the owner.

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Home Office Measurement Methods

In today's economy and with today's technology it is becoming more common that people work as independent contractors, statutory employees or simply have side jobs in the evening that provide extra income. For each of these scenarios, a person might use part of their home as their place of business.

One of the first things you'll have to do when meeting the requirements for and intending to take a home office deduction on your tax return, is to estimate the amount of space in your home you're using for business. There are two ways you can do this:

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Safe Harbor Home Office Deduction

A taxpayer (either a business owner or an employee) may elect a simplified method to compute the home office deduction for tax years beginning on or after January 1, 2013 without having to substantiate, calculate, and allocate deductible home office expenses. This is referred to as a safe harbor method of taking the home office deduction.

Under the safe harbor, the deduction is equal to $5.00 times the number of square feet of the home office. It is limited to a maximum of 300 square feet. So even if your home office is 500 square feet, the maximum deduction you can take is $1,500. Additionally, the deduction cannot exceed the taxpayer's gross income from the business (and this has to be calculated as a percentage if you are conducting your business elsewhere for parts of the day, week or year).

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Are Traveling Expenses Tax Deductible?

In general, a taxpayer may deduct ordinary and necessary traveling expenses incurred while away from home in the conduct of a trade or business. Internal Revenue Code Section 162(a)(2) and Treasury Regulation Section 1.162-2 allow for a deduction when individuals are away from home if it is reasonable for them to need to sleep or rest while their duties require them to be away from the general area of their tax home for a period substantially longer than an ordinary workday.

It doesn't always have to be that you are away for more than 24 hours. In some cases, travel expenses may be deductible even though you are away for part of the day. So, for example, a pilot that flies a charter trip and needs to rest because of duty time limits.

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Tax Deductible Car Expenses

Did you know that expenses for fuel, oil, tires, repairs, insurance, depreciation, parking fees and tolls, licenses, and even garage rent incurred for cars used in a trade or business are deductible? They are, but only to the extent the expenses are attributable to business use.

Keep in mind that these expenses must be substantiated with an exact record of the amount paid for fuel, insurance, etc. You also have to keep a mileage log of where you went, number of miles driven, and the business purpose for the trip. In lieu of calculating the operating and fixed costs for business purposes, taxpayers may use the standard mileage rate method as a simplified way to compute deductions for car expenses. So instead of adding up all the actual expenses, you simply take the total business mileage for the year and multiply it by a standard rate. For 2016 the standard mileage rate is 54 cents per mile. Even if you use the standard mileage rate method for calculating your deduction, you still have to keep a mileage log. It is the first thing an auditor will ask for when he or she sees a car expenses deduction. If you don't have one, you'll likely lose the deduction altogether and consequently have to pay tax on the added income.

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