deductions

Business Deductions for Meal, Vehicle and Travel Expenses: Document, Document, Document

Meal, vehicle and travel expenses are common deductions for businesses. But if you don’t properly document these expenses, you could find your deductions denied by the IRS.

A critical requirement

Subject to various rules and limits, business meal (generally 50%), vehicle and travel expenses may be deductible, whether you pay for the expenses directly or reimburse employees for them. Deductibility depends on a variety of factors, but generally the expenses must be “ordinary and necessary” and directly related to the business.

Proper documentation, however, is one of the most critical requirements. And all too often, when the IRS scrutinizes these deductions, taxpayers don’t have the necessary documentation.

What you need to do

Following some simple steps can help ensure you have documentation that will pass muster with the IRS:

Keep receipts or similar documentation. You generally […]

By |July 23rd, 2018|business, deduction, deductions, New Tax Laws, vehicles|0 Comments

Tax Extenders Reinstated

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In the massive budget deal passed last week, Congress has bestowed surprise tax breaks on homeowners, students and the climate conscious. There are tax breaks for mortgage insurance premiums, higher-education expenses, energy-efficient home-improvement projects and more. These were tax breaks that expired at the end of 2016, but are now back on for 2017, now that Trump has signed them into law.

The immediate good news for taxpayers: You could see additional tax savings on the tax return you’re filing now—for the 2017 tax year. Below are some highlights. For a complete list, click here. 

Tax Relief for Families and Individuals

Extension and modification of exclusion from gross income of discharge of qualified principal residence indebtedness. The provision extends through 2017 the exclusion from gross income of a discharge of qualified principal residence indebtedness. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into in 2017.

Extension of mortgage insurance premiums treated as qualified residence interest. The provision extends through 2017 the treatment of qualified mortgage insurance premiums as interest for purposes of the […]

By |February 13th, 2018|deduction, deductions, New Tax Laws, tax, tax implications|0 Comments

Standard Deduction Increased

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Taxpayers are allowed to reduce their adjusted gross income (AGI) by the standard deduction or the sum of itemized deductions to determine their taxable income. Under pre-Act law, for 2018, the standard deduction amounts, indexed to inflation, were to be: $6,500 for single individuals and married individuals filing separately, $9,550 for heads of household, and $13,000 for married individuals filing jointly (including surviving spouses).

Additional standard deductions may be claimed by taxpayers who are elderly or blind.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018. No changes are made to the current-law additional standard deduction for the elderly and blind. (Code Sec. 63(c)(7), as added by Act Sec. 11021(a))

By |January 5th, 2018|deduction, New Tax Laws|0 Comments

6 Key Factors to Consider When Evaluating a Property for Cost Segregation

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As the real estate market continues to rise, property owners are seeing the need to become more educated on ways to reduce their costs. Knowing that real estate is one of the only investments in the United States that can be depreciated (cost recovery), it comes as a no-brainer that property investors are utilizing the benefits of the tax code via cost segregation in order to maximize their cost recovery!

The IRS allows the separation of building components so that items such as land improvements and personal property can be separately depreciated over the shorter recover periods. A property’s structure is generally subject to a 39-year recovery period (non-residential) and 27.5-year for residential, while land improvements qualify for a 15-year recovery period and personal property qualifies for a 5-year recovery period. As a property investor, let’s say you installed new flooring throughout your building. Every year, you can write that flooring off on your taxes until the end of its useful life. That period of time that the asset depreciates is considered the recovery period and the shorter the recovery period, the greater the reduction […]

By |February 3rd, 2017|cost segregation|0 Comments

Real Estate Agent Not Permitted to Deduct Rental Losses

For our clients out there who are real estate agents and property owners: The taxpayer was a licensed real estate agent who owned rental properties. For 2006 and 2007, she deducted a total of $78,543 in rental losses. Upon audit, the IRS disallowed these losses because the taxpayer failed to show she materially participated in the rental activity. The taxpayer argued that her status as a real estate professional automatically rendered the losses nonpassive, regardless of material participation. The Court of Appeals for the Ninth Circuit sided with the IRS, holding that although real estate professionals are not subject to the per se rule under IRC Sec. 469(c)(2) that rental losses are passive, they must still show material participation before deducting rental losses. Therefore, the taxpayer was not entitled to deduct the losses.

If you have any questions, please contact your Linkenheimer CPA.

 

By |August 19th, 2016|deduction, irs|0 Comments

Challenging Tax Environment

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Taxpayers and their advisers engaged in year-end tax planning for 2015 are challenged by the uncertain fate of “extender legislation.” In previous years, a number of “temporary” tax rules, i.e., those having a termination date specified in the Code, routinely were extended for one or two years, but this year, Congress has yet to act on a host of important provisions that expired at the end of 2014. Some or all of these expired provisions may be retroactively reinstated, thereby opening up some truly last minute year-end tax planning opportunities, but there’s no way of knowing if that will take place.
The tax breaks that expired at the end of 2014 include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the line- deduction for qualified higher education expenses; tax-free IRA distributions for charitable purposes by those age 70-1/2 or older and the exclusion for up-to-$2 million of mortgage debt forgiveness on a principal residence. For businesses, tax breaks that expired at the end of last year and may be retroactively reinstated and extended include: 50% bonus first year depreciation for most new machinery, equipment and software; the $500,000 annual expensing limitation; the […]

By |December 1st, 2015|tax|0 Comments

Update Regarding the Tangible Property Regulations

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Update: The IRS issued Revenue Procedure 2015-20 0n Friday, February 13, effective for tax years beginning on or after January 1, 2014, that provide a “small business exception” for taxpayers to adopt the tangible property regulations without the filing of Form 3115, (Application for Change in Accounting Method), if a set of conditions are met.

Each separate and distinct trade or business (the most important requirement is that the activity maintains a complete and separable set of books and records, meaning the activity qualifies for its own methods of accounting on their own), qualifies for the small business exception if at least one of the following conditions is met:

  1. The activity has total assets of less than $10 million as of, or after January 1, 2014.
  2. Average annual gross receipts of $10 million or less for the prior three taxable years.

Taxpayers who use the small business exception will forfeit certain benefits that are only available to those who file Form 3115 for their first tax year beginning on or after January 1, 2014. Before your 2014 income tax return is filed,  you must decide whether to apply the small business exception or file Form 3115 . […]

By |February 24th, 2015|Tangible Property Regulations|0 Comments

Tangible Property Regulations That Will Effect Every Business and Property Owner

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Deducting and capitalizing business expenses under final regs

An important development this year will affect every business, including yours. The IRS has issued long-awaited regs  on the tax treatment of amounts paid to acquire, produce, or improve tangible property. The regs explain when those payments can be deducted, which confers an immediate tax benefit, and when they must be capitalized.

These final regs retain many provisions of the temporary regs that were issued in 2011. However, the final regs refine and simplify the temporary regs and add new safe harbor provisions that will help you to nail down expense deductions.

The regs must be followed for tax years that begin after Dec. 31, 2013 – whether a calendar year or a fiscal year, such as a fiscal year beginning July 1, 2014. Taxpayers have the option of applying the final regs retroactively to the 2012 and 2013 tax years. There’s also a third option to apply the temporary regs to the 2012 and 2013 tax years.

The regs are lengthy and complex. The summary below is intended to give an overview of how they treat issues of deduction and capitalization. We would be happy to […]

By |February 12th, 2015|Tangible Property Regulations|0 Comments

Casualty Loss Deductions for Natural Disasters

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As a California resident, most of us probably know someone who has suffered some kind of property loss courtesy of an earthquake. The recent Napa earthquake that shook the North Bay is a good reminder that many might be eligible to claim a casualty deduction for your property loss if you suffer property damage during the tax year as a result of a sudden, unexpected or unusual event (such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption. A casualty does not include normal wear and tear or progressive deterioration.). The casualty deduction is also available if you are the victim of vandalism.

Generally, you may deduct casualty and theft losses relating to your home, household items and vehicles on your federal income tax return. You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement, and you reduce the loss by the amount of any reimbursement or expected reimbursement.

If your property is personal-use property or is not completely destroyed, the amount of your casualty loss is the lesser of:

  • The adjusted basis of your property, or
  • The decrease in fair market value of […]
By |October 21st, 2014|casualty loss, deduction, earthquake|0 Comments