Posts tagged deductions
Reminder: Are You 1099 Compliant?
Aug 30th
Are you a sole proprietor, farmer, landlord, partner or shareholder? If so, take note, because included on the 2012 Schedules, C, E and F and Forms 1065, 1120 and 1120-S are two questions regarding 1099 compliance that must be answered.
The first question is “Did you make any payments in 2012 that would require you to file Form(s) 1099?” Then, ‘If “Yes,” did you or will you file all required Forms 1099?’ These questions are part of the IRS’ ongoing effort to close the tax gap by ensuring that service providers report 100% of their income.
When are you required to file a 1099? A 1099 is required to be filed when $600 or more is paid to any unincorporated business or individual for any of the following.
- For services
- For services combined with providing materials
- For rent
In addition, if you paid $600 or more for legal or health care services, 1099′s need to be issued regardless of the vendor’s entity status (in other words, you must send them to corporations as well.)
Before you decide to simply answer “No” to these questions, keep in mind that the penalties for noncompliance can add up. For “Intentional Disregard” (purposefully not filing the required forms), the minimum penalty the IRS may impose is $100 per 1099 not filed, with no maximum penalty.
To avoid noncompliance be sure to complete a Form W-9 before you pay for services rendered. Examples of services rendered include, but are not limited to repairs, janitorial, accounting, legal, consulting and computer maintenance services. In other words, get the name, address, entity type and Social Security Number or Federal Employer Identification Number of anyone you make payments to for services rendered in the course of conducting your business. Five minutes worth of due diligence can save you hundreds, even thousands of dollars!
BRING US YOUR 1099-Ks!
1099-Ks are now required to be filed by credit card companies, banks and third party networks (think PayPal) to report gross receipts made by credit or debit cards. If you report gross receipts of less than the amounts reported on the 1099-Ks issued to you the IRS will be sure to assess additional tax and penalties. Because of this we must have your 1099-K’s to ensure correct revenue reporting.
The reporting requirements can be complex. Please contact our office if you need clarification on these issues.
IRS Announces 2012 Standard Mileage Rates, Most Rates Are the Same as in July
Dec 12th
IR-2011-116, Dec. 9, 2011 http://1.usa.gov/ttw0ow
The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 55.5 cents per mile for business miles driven
- 23 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.
Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
In 2012, Many Tax Benefits Increase Due to Inflation Adjustments
Oct 20th
IR-2011-104, Oct. 20, 2011, http://1.usa.gov/nPdoS7
WASHINGTON — For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.
By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:
- The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
- The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
Credits, deductions, and related phase outs.
- For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
- The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
- The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
- For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts; please see the table below.
| Medical Savings Accounts (MSAs) | Self-only coverage | Family coverage |
| Minimum annual deductible | $2,100 | $4,200 |
| Maximum annual deductible | $3,150 | $6,300 |
| Maximum annual out-of-pocket expenses | $4,200 | $7,650 |
The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.
Estate and GiftFor an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.
The annual exclusion for gifts remains at $13,000.
Other Items
- The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
- Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.
Details on these inflation adjustments can be found in Revenue Procedure 2011-52, which will be published in Internal Revenue Bulletin 2011-45 on November 7, 2011.
Ten Things to Know about Farm Income and Deductions
Mar 23rd
IRS Tax Tip, March 21, 2011 http://1.usa.gov/dLjkrk
If you have a farming business, there are several tax issues to consider before filing your federal tax return. The IRS has compiled a list of 10 things that farmers may want to know.
- Crop Insurance Proceeds —You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.
- Sales Caused by Weather — Related Condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone reporting the gain from selling the additional animals due to the weather until the next year.
- Farm Income Averaging — You may be able to average all or some of your current year’s farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.
- Deductible Farm Expenses — The ordinary and necessary costs of operating a farm for profit are deductible business expenses. An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.
- Employees and Hired Help — You can deduct reasonable wages paid for labor hired to perform your farming operations. This includes full-time and part-time workers. You must withhold social security, medicare and income taxes on employees.
- Items Purchased for Resale — You may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm.
- Net Operating Losses — If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.
- Repayment of Loans — You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.
- Fuel and Road Use —You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.
- Farmer’s Tax Guide — More information about farm income and deductions is in IRS Publication 225, Farmer’s Tax Guide, which is available at http://www.irs.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).
Links:
IRS Publication 225, Farmer’s Tax Guide
Health Insurance Tax Breaks for the Self-Employed
Mar 15th
IRS Tax Tip 2011-51, March 14, 2011, http://1.usa.gov/fiCYe7
Here is some information from the IRS about a special tax deduction for the self-employed. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following:
- A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
- A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 14, code A.
- A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.
The insurance plan must be established under your business.
- For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
- For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
- For more-than-2% shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
For more information see IRS Publication 535, Business Expenses, available at http://www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
IRS Publication 535, Business Expenses ( PDF)
Medical and Dental Expenses
Feb 2nd
IRS Tax Tip 2011-21, January 31, 2011 http://bit.ly/dEOvP3
If you itemize your deductions on Form 1040, Schedule A, you may be able to deduct expenses you paid in 2010 for medical care – including dental – for yourself, your spouse, and your dependents. Here are six things the IRS wants you to know about medical and dental expenses and other benefits.
- You may deduct only the amount by which your total medical care expenses for the year exceed 7.5 percent of your adjusted gross income. You do this calculation on Form 1040, Schedule A in computing the amount deductible.
- You can only include the medical expenses you paid during the year. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.
- You may include qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a multiple support agreement. If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child. You can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person didn’t meet the gross income or joint return test.
- A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription except for insulin.
- You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance may be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees.
- Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses.
For additional information on medical deductions and benefits, see Publication 502, Medical and Dental Expenses or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
Nine Tax Deductions You Shouldn’t Even Think About Claiming
Jan 24th
In her article Kelly Phillips Erb discusses the following nine tax deductions you shouldn’t even think about claiming:
- Reimbursed job expenses
- Diets and health club dues
- Primary telephone landlines
- Home improvements
- Campaign expenses
- Commuting costs
- Charitable services
- Pet Care
- Attorney’s fees
To read Ms. Erb’s article, please go to http://aol.it/fK67mc.
The 2010 Tax Relief Act – An Overview
Dec 22nd
After much speculation and anticipation, Congress finally passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Act). The President signed it into law on December 17. The Act, in essence, is an extension of the 2001/2003 Bush-era tax cuts for two years. Also, the Act provides a payroll tax holiday for 2011 and a change in the exemption amount and maximum tax rate for estate taxation. The Act extends and modifies many of the provisions first enacted in the 2009 American Recovery and Relief Act. Finally, the Act incorporates many individual extensions of the so-called annual extenders. The following is a list of individual provisions that will certainly affect your tax liability for 2011, 2012, and possibly 2010, as well. More >
IRS Announces 2011 Standard Mileage Rates
Dec 7th
IRS News Release IR-2010-119, December 3, 2010, http://bit.ly/fSi2OB
WASHINGTON — The Internal Revenue Service issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 51 cents per mile for business miles driven
- 19 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Revenue Procedure 2010-51 contains additional details regarding the standard mileage rates.
Do You Have What It Takes to Deduct Your Holiday Parties?
Nov 2nd
by W. Murray Bradford, CPA
This article gives you the knowledge you need to deduct your holiday party. The deduction depends on two factors:
First, whom did you invite to the party?
Second, what did you do at this party?
The “whom” and “what” are intertwined, so that’s the way we will discuss them in this article.
Employees
The cost of a holiday party for your employees is automatically deductible. No business meeting need occur. No business activity need occur.
Further, this party is not subject to the 50 percent cut that applies to entertainment expenses. Thus, make sure that your chart of accounts or other tax records contain a classification for entertainment that’s 100 percent deductible.
Spouses of Employees
You may allow your employees to bring their spouses to the holiday party. You deduct the cost of entertaining the spouses just as you deduct the cost of entertaining the employees. Thus, a holiday party for employees and their spouses is 100 percent deductible.
To read the rest of Mr. Bradford’s article (and learn more about inviting customers or patients and how to document your party!), please go to http://bit.ly/c2YGPw.
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