Author Archives: support52

Step Forward to Receive Charitable Deductions for Good Deeds

You can’t deduct the cost of the time and effort you spend on behalf of charity. But that doesn’t mean your good deeds will go for tax naught.

Track your out-of-pocket costs. Even though you can’t deduct the value of your endeavors, itemizers can write off actual expenses associated with charitable activities.

Furthermore, you don’t have to be a board member or one of the charity’s biggest donors. This tax break is available to regular volunteers and others who help out sporadically. What sort of expenses are we talking about? Here’s a partial list.

  • Transportation: If you use your car for charity, deduct the related costs attributable to gas and oil, repairs, insurance, etc. Alternatives: You might opt for the flat-rate deduction of 14 cents per mile (plus related parking fees and tolls). Similarly, you can deduct plane, train or bus costs for traveling to charitable events.
  • Telephone charges: You may deduct the full cost of long-distance telephone calls, faxes and cell phone charges made on behalf of a charity. If you install a landline in your home that you use solely for charitable purposes, the entire cost is deductible.
  • Home entertainment: If you host a fundraiser or aboard meeting, you can deduct the entire cost of the catering expenses as a charitable deduction. Note: The 50% limit on entertainment and meal expenses doesn’t apply here.
  • Fundraising dinners: Normally, you can deduct the portion of the cost that exceeds the fair market value of a fundraising dinner. For example, let’s say you and your spouse attend a dinner that costs $100 a head. If the meal is valued at $35 a head, you can deduct $130 ($200 cost – $70 value.) Note: For amounts exceeding $75, obtain written documentation from the charitable organization.
  • Uniforms: A deduction is allowed for the cost of uniforms used while performing charitable services as long as the clothing isn’t suitable for everyday wear. Classic example: You can write off the cost of Boy Scout or Girl Scout uniforms.
  • Foreign exchange students: If you host a foregin exchange student in your home, you can deduct up to $50 per month for each month the child attends high school. To qualify, the student must live in your home under a written agreement with a qualified charity. Also, the exchange student can’t be a relative.
  • Charitable conventions: You may be able to deduct the cost of attending a convention on behalf of a charity – such as meals and lodging – if you’re an official delegate to the convention. But the convention must be the primary purpose of the trip. The deductible amount includes meals and lodging while you attend the convention.

Individually, these deductions may be small, but collectively they add up. Keep the records you’ll need at tax return time.

Small Business Tax Strategies

July 2021

Avoid 7 Common Filing Blunders

It happens every year: taxpayers in a hurry to complete their returns make mistakes or omit certain items. Then the IRS catches up to the error of their ways and imposes additional tax, penalties or interest – or all three.

Don’t commit the types of blunders that often plagued taxpayers who have rushed in the past. Take the time to do things right the first time.

What sort of mistakes are we talking about? The list of possible foul ups is a long one, but these seven mistakes often show up on returns.

  1. You don’t report all your income. If your company issues you a W-2, you just report the wages on your return, but things are more complicated for self-employeds or those with sideline businesses. Typically, you’re inundated with 1099s from a wide variety of sources, and it’s easy to miss or forget one.
  2. You enter the wrong name or Social Security number. Getting names and numbers wrong is one of the most common mistakes year in and year out. The IRS verifies names and Social Security numbers when it possesses returns. If the numbers don’t match up, the return is flagged and could be rejected. Likewise, use your legal name and not a nickname or shorthand version.
  3. You enter the wrong numbers for financial accounts. This can cause problems if you’re listing investment income from a brokerage or interest from a bank. In the worst-case scenario, you could be penalized if a payment is late because one or two routing numbers are off.
  4. You don’t contribute to an IRA. Although you can sock away more money in other types of plans, like 401 (k)s and Simplified Employee Pensions (SEPs), IRAs still offer valuable tax-saving benefits. The contribution limit for the 2020 tax year is $6,000, plus you can add $1,000 more if you were age 50 or older at the end of the 2020. Contributions to a traditional IRA may be wholly or partially deductible, depending on your income, but Roth IRAs offer future tax-free benefits. The deadline for 2020 IRA contributions is April 15, 2021 – no extension allowed.
  5. You “overpay” to have your return filed. We’re not saying that you should not use a tax professional to prepare your return when it is warranted. But if the return is relatively simple, filing with one of the widely available software packages is easy and cheaper.
  6. You don’t e-file your return. You can avoid some potential errors – such as sending your return to the wrong location – if you file electronically instead of submitting a paper return. This is the fastest, most accurate and most secure method of filing. Plus, the IRS typically processes e-filed returns within 48 hours, so you’ll receive any refund sooner.
  7. You wait too long to file. Last, but not least, if you have to rush through your return, you’re more likely to make mistakes, even if you e-file. Don’t procrastinate. Not only can you cross this task off your to-do list, filing early may give you peace of mind. Whether you will be filing your own return or using a paid preparer, get all your ducks in a row now. You may need to request information from your employer or financial institution if you don’t have all the documents you need. If needed, simply request an automatic six-month filing extension to October 15. Note: This is not an extension to pay tax.

Small Business Tax Strategies

March 2021

5 Ways to Deduct ‘Commuting’ Costs

If you’re self employed and have resumed work related driving, you may be entitled to deduct some vehicle expenses.

Squeeze every last deductible dime out of your business travel. Keep detailed records to back up your claims.

For instance, here are five ways you may be able to deduct “commuting” costs.

  1. Short stops. It may be convenient for you to visit a client on the way into work or on the way home. As a result, you can deduct the cost attributable to the travel between your regular place of business and the client’s business location.
  2. Separate offices. If your business has several different offices, you might drive between two or more business locations during the day. As with other business travel, you can deduct the costs between the different business locations.
  3. Long distance commuting. Suppose you spend a couple of weeks visiting a client’s office outside your local geographic area. You never go to your regular workplace. In this case, you can deduct the cost of your daily commute, even though it’s long distance travel.
  4. Temporary assignments. It may be necessary to work at a distant business site for a few months. Instead of commuting daily, you stay near the work site and come home on weekends. Assuming that the job lasts no more than a year, it qualifies as a temporary assignment. Therefore, you can deduct lodging and meal expenses (within certain limits) plus the cost of the weekend trips.
  5. Night school. If you’re taking courses at a local college to improve your job skills, you may go straight to school after work. The cost of travel between work and the school is deductible.

Small Business Tax Strategies

March 2021

5 New Tax Breaks on ’20 Returns

When you file your 2020 tax return, you may be in line for a pleasant tax surprise, thanks to the latest tax legislation.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created several new tax-saving opportunities for 2020. For individuals, the changes will be reflected on the return you must file by May 17.

Here’s a roundup of five new tax savers you might have a chance to use.

  1. Reward yourself for donations. Prior to 2020, you could write off charitable donations on your tax return only if you itemized deductions. Those folks who claimed the standard deduction got no tax benefit for their generosity. But the CARES Act allows nonitemizers to deduct up to $300 of their 2020 cash contributions to public charities. The Consolidated Appropriations Act (CAA) extends this above-the-line deduction to 2021 and doubles the maximum to $600 for joint filers.
  2. Reap charitable deduction bonanza. The Cares Act also gives a big boost to itemizers who make cash donations to charity. The Tax Cuts and Jobs Act (TCJA) bumped it up to 60% for 2021-2025. Then the CARES Act increased this limit to 100% of AGI for 2020. In other words, you may be able to offset your entire taxable income! The CAA extends the 100%-of-AGI limit to 2021.
  3. Collect your rightful EIPs. Uncle Sam handed out two economic impact payments (EIPs) in 2020, subject to phase-outs. The first round authorized by the CARES Act featured a maximum payment of $1,200 plus $500 for each qualified child under age 17. Then the CAA granted EIP’s of $600 for each individual and qualified child. The EIP’s are tax free to recipients. If you didn’t receive the full EIP you’re entitled to, you can recoup the difference by claiming a recovery rebate credit on your 2020 return.
  4. Avoid RMD liability. Normally, taxpayers who have reached their required beginning date (RBD) must take required minimum distributions (RMDs) from qualified plans and IRAs each year. The RMDs are based on life expectancy tables and account balances as of December 31 of the prior year. But the CARES Act suspended the RMD rules for 2020. So you can dodge this tax bullet on your 2020 return if you didn’t take any RMDs last year.
  5. Max out net operating losses. Back in the day, a business could carry back a net operating loss (NOL) for two years and then forward for up to 20 years. The TCJA repealed the two-year carryback rule (except for qualified farms and insurance companies) while allowing indefinite carryforwards. In addition, a NOL carryover could only offset up to 80% of taxable income in the carryover year. The CARES Act allows a five-year carryback for NOLs that arose in tax years beginning in 2018, 2019 or 2020. The CARES Act also suspends the 80% deduction limit for NOL carryovers into tax years.

Small Business Tax Strategies

March 2021

Unused Flexible Spending Accounts Balances

Unused funds in a dependent care FSA at year-end can’t be carried over, IRS confirms privately. Nor can the FSA refund you the extra money, even if you know that you cannot use the funds by December because your child’s day care after-school program is shuttered as a result of the Coronavirus pandemic.

Earlier this year, the IRS allowed, but did not require, employers to amend their plans to allow participants in dependent care flexible spending accounts to elect midyear to cease making 2020 contributions or to reduce the amount of their 2020 payins.

Small Business Tax Strategies
December 2020

Tax Breaks for Business Cars

Buying a new or used passenger auto for your business can lead to tax breaks. If bonus depreciation is claimed, the first-year depreciation cap is $18,100 for vehicles bought after September 27, 2017, and put in use this year.

The second-and third-year caps are $16,100 and $9,700. After that…$5,760. If no bonus depreciation is taken, the first-year regular depreciation ceiling ends up falling sharply to $10,100.

Buyers of heavy SUVs used solely for business can write off the full cost, thanks to bonus depreciation. SUVs used solely must have a gross weight rating over 6,000 pounds. Up to 100% of the cost of a big pickup truck can be expensed.

As noted above, total amounts expensed can’t exceed the business’s taxable income.

Small Business Tax Strategies
December 2020

Paycheck Protection Loan Forgiveness

More bad news from the IRS for firms that took out paycheck protection loans. In May, the agency issued public guidance saying that small businesses that have their Paycheck Protection Program (PPP) loans forgiven cannot deduct expenses that result in forgiveness of the loan.

The IRS now confirms companies can’t deduct such expenses paid or incurred in 2020 if they reasonably expect at year-end to receive forgiveness of the debt in 2021. This is so even if the taxpayer hasn’t yet submitted an application for forgiveness of the PPP loan before the end of 2020 (Revenue Ruling 2020-27).

Lobbying groups continue to press Congress for a legislative fix.

Small Business Tax Strategies
December 2020

Avoid Tax Trap on 529 Withdrawals

If you’re like many parents of children in college, your kid is currently learning remotely from home, even though you signed up for room and board at the school.

Watch out for a hidden tax trap. If you’ve withdrawn funds from a child’s Section 529 plan and don’t return them, you could be hit with an unexpected tax bill.

To add insult to injury, the IRS can tack a 10% penalty tax onto the amount that you owe.

A Section 529 plan is an education savings plan operated by one of the states. As long as certain requirements are met, there’s no income tax on the accumulation of earnings within the plan, plus qualified distributions are exempt from tax. Furthermore, contributions to the plan may be sheltered from gift tax by the annual gift tax exclusion.

The list of qualified expenses includes:

  • Tuition: This qualifies for both full-and part-time students at accredited institutions.
  • Room and Board: As long as the student is attending college at least half-time and room and board are paid directly to the school, it’s a qualified expense.
  • Technology Items: A 529 plan can be used to cover items like computers, printers, laptops and even Internet service.
  • Books and Supplies: These are qualified expenses if the school requires them.

Caution: You may have withdrawn funds to pay for anticipated room and board or other anticipated qualified expenses, but now the expenses won’t be incurred due to COVID-19 related fee refunds or room and board costs because your child is living at home instead of in the dorm.

Refunds of qualified expenses must be re-contributed to the 529 account within 60 days to avoid being taxed on the amount of the 529 withdrawal that is no longer needed due to the refund(s). There will also be a 10% tax penalty on the amount that consists of earnings.

Tip: If you’re returning money to a 529 account, be sure it’s characterized as a recontribution due to a refund of qualified expenses.

Small Business Tax Strategies
December 2020

Closing a Struggling Business?

Hopefully not !!

Are you thinking of shuttering your struggling business? Don’t forget taxes. The IRS is aware of the many small-business closures during the coronavirus pandemic and has redesigned its “Closing a Business” page on its website to help.

The agency has information and procedures for sole proprietorships, partnerships and corporations. Among the to-dos:
– File a final return
– Pay taxes
– Check the rules for terminating a retirement plan
– Cancel your employer identification number and your IRS business account
– Keep your business, tax and payroll records

The Kiplinger Tax Letter
October 2020

Short Term Rental Property

The passive loss rules are strict for short-term rentals of real estate, meaning average rentals of seven days or less. A couple owned beachfront property that they rented out over the years for an average rental period of seven days or less. They paid a management company to get tenants, collect rents, clean and the like. The couple visited the property occasionally to buy supplies and to make repairs.

According to the Tax Court, the couple did not materially participate in the property and can’t deduct the losses. The couples claim that they devoted at least 100 hours a year to the activity and that their participation was more than anyone else’s, even the management firm’s, didn’t fly with the Court. (Lucero, TC Memo. 2020-136).

Renting through a management company doesn’t negate short-term stays. A real estate pro and his wife owned units at a resort in Colo., Mexico and Hawaii. They contracted with management firms to handle rentals of the units to guests. The average period of per-guest use was less than seven days. The IRS claimed the rentals were not a qualified rental activity because of the guests short-term stays. The couple argued that the management firms, and not the end users, were rental customers. After the couple lost in district court, they appealed, but to no avail. An appeals court said they are not involved in rental activities. They also didn’t materially participate, so the losses are disallowed (Eger, 9th Cir.).

The Kiplinger Tax Letter
October 2020