Tax Credits & Deductions

CARES Act: Small Business Overview

This information is constantly changing. We will update it as we can. Please make sure to review the PPP loan under the SBA loan section below. It is something that most of our clients could and should take advantage of.

Employee Retention Credit

Qualifying employers can take a tax credit equal to 50% of employee’s wages if your business was entirely or partially shut down or closed due to COVID-19 related orders or if gross receipts declined by more than 50% when compared to the same quarter of the year before. More details are available on the IRS website here.

Delay in Payment of Employer Payroll Taxes

Although this provision is allowed we do not recommend it. Staying in the habit of paying payroll taxes is very important. Penalties for not paying payroll taxes at the deferred time can be very high.

This provision allows employers to defer payment their portion of Social Security (FICA) tax for wages from March 27, 2020 to December 31, 2020. Half of the taxes owed will be due by December 31, 2021 and the other half will be due on December 31, 2022.

In the example below the only portion that you would be able to defer would be the $6,200 of the employer’s portion of FICA or Social Security.

  • $100,000 gross wages from March 27 – December 31, 2020
  • $6,200 FICA, employee’s share
  • $1,450 Medicare, employee’s share
  • $6,200 FICA, employer’s share
  • $1,450 Medicare, employer’s share

Mandatory Paid Sick Leave and E-FMLA

See our post here describing the leave policy. Employers would receive a tax credit equal to the amount of paid sick leave and expanded family medical leave paid and the related taxes.

SBA Loans

Paycheck Protection Plan Loan (PPP Loan)

This loan is applied for through banks that are qualified to do SBA lending. Applications may begin to be sent beginning April 3, 2020. Please reach out to your banker or if you need a referral please let us know.

This loan allows you to receive up to 2.5x your average monthly payroll. If within the 8 week following the close of the loan you use the funds to pay payroll, rent, utilities or interest on loans, the amount you pay for those expenses may be forgiven and you won’t have to pay back that portion of the loan.

Most businesses will qualify including self-employed individuals (Sole Proprietors, Partnerships, etc.). There are many rules as to what is included in your average payroll and reductions in forgiveness if you have less employees than in the past. WCG Inc, another CPA firm, has a great post with many of those details.

Economic Injury Disaster Loan (EILD) and $10k Grant

This loan is applied for directly on the SBA website here. It is a basic application that is available right now.

In applying for this loan you can request that the SBA send you a one-time $10,000 grant that you do not need to pay back unless you also are participating in the PPP loan above. The $10k should arrive within a week of submitting your application.

This loan is essentially just a loan that is much easier to qualify for and the terms are favorable (3.75% interest rate, up to 30 year amortization). The entire country is in a disaster are due to COVID-19 so everyone should be eligible

Additional Resources

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CARES Act: Individual Overview

Updated 4/15/2020 11:00 AM AZ time

Stimulus Checks

On Friday the CARES Act was signed into law and one of its provisions allows individuals to receive one time stimulus checks. The Treasury Department has said that they will issue these checks starting today. Starting today the IRS has an online tool to check the status of your stimulus check (Get My Payment).

There are some rules as to who receives the stimulus checks and how the Treasury Department will be determining if you qualify for a stimulus check and how much. This post goes into a few details of how this will be determined.

How much do I get?

The IRS will be looking at your 2019 tax return first and if you have yet to file, they will look at the 2018 tax return. They will not be looking back further than your 2018 tax return. For those that haven’t filed a tax return or weren’t required to file you can go here to enter your information for direct deposit.

If you have not filed your tax returns in recent years then please reach out to us so we can get your returns filed so you can qualify for the stimulus check.

There are income limitations to receiving a stimulus check (see below) but the amount you will receive is $1,200 for a Single taxpayer or $2,400 for a married filing joint taxpayer. An additional amount of $500 per dependent child age 16 and younger at the end of the year of the tax return they are looking at will be sent as well (ex. 2019 tax returns they look at age as of December 31, 2019). This excludes dependents age 17 and older from receiving any sort of stimulus check (ex. older children, college students claimed by parents, retired parents being claimed by their child, etc.). There has not been guidance released on Married Filing Separate individuals as of yet.

Income Limitations

As mentioned above, the IRS will send out a check based on your 2018 or 2019 tax return but the stimulus check will actually be reconciled against your 2020 tax return. If in 2020 you exceed the income limitations below then you will be required to pay back any amount that you received. It is unclear on if they will require paying back any amount received for a child that was 16 or younger in 2019 but is now 17 or older in 2020.

For a Single taxpayer if your Adjusted Gross Income (AGI) is $75,000 or lower then you qualify for the full stimulus amounts listed above. If your AGI is between $75,001 and $99,000 then your benefit will be reduced by $5 for every $100 earned above $75,000 (see Stimulus Calculator at the end of this article). With income above $99,000 you will not receive anything.

For a Marries taxpayer if your Adjusted Gross Income (AGI) is $150,000 or lower then you qualify for the full stimulus amounts listed above. If your AGI is between $150,001 and $198,000 then your benefit will be reduced by $5 for every $100 earned above $150,000 (see Stimulus Calculator at the end of this article). With income above $198,000 you will not receive anything.

AGI can be found on your 2018 tax return on Form 1040, page 2 line 7. It is found on your 2019 tax return on Form 1040 (or Form 1040-SR), page 1, line 8b.

How will I get the money?

The IRS will be sending you the money using the same method that was used on your most recent tax return. If you set up direct deposit then it will go to that bank account that you set up. If you had your refund mailed to you or if you owed money last year then they will mail you a check to the address of your most recent tax return.

If you have changed bank accounts, the direct deposit will fail and they will then mail you a check instead. I imagine this will delay the check slightly but no information has been provided as of yet.

If your address is not current with the IRS then please fill out and file Form 8822 to change your address with the IRS. It is a simple form where you put your name, SSN, old address and new address. If you have set up mail forwarding you should be OK but the best option would be file update your address with the IRS.

Additional Resources

Student Loans

There were a few items changed in regards to student loans with the CARES Act:

  1. No payments due until September 30, 2020. Your balance is frozen.
  2. No interest through September 30, 2020.
  3. Skipping payments through September 30, 2020 counts towards the public service loan forgiveness program.
  4. Suspension of debt collection for student loans.
  5. Employers can provide up to $5,250 of payments tax free on student loan balances to employees.

This applies to federal student loans only, and not private student loans.

Exception to Using Retirement Funds because of Coronavirus

Under the CARES Act you are now able to withdraw up to $100k as a loan from your retirement account tax and penalty free. The withdrawal is only penalty and tax free if you pay back the entire amount withdrawn within 3 years. You must meet certain conditions (see below) in order to qualify for this loan.

  • Distribution made between 1/1/2020 and 12/31/2020
  • You are diagnosed with COVID-19 using a test approved by the CDC
  • Your spouse or dependent is diagnosed with COVID-19
  • You have experienced adverse financial conditions due to being quarantined, furloughed, laid off, or reduced work hours due to COVID-19
  • You are unable to work because you need to care for a child.
  • You own a business that has closed or reduced hours due to COVID-19
  • IRS will give further reasons in the future that may qualify.

Stoppage of Required Minimum Distributions (RMDs)

No RMD is required to be taken in 2020 by anyone. This means if were required to take an RMD for the first time in 2019 (turned 70 and 1/2 in 2019) you would normally be required to take the RMD by April 15th, 2020. Under this act you would not be required to take the 2019 or 2020 distribution this year but would begin in 2021.

Additional Charitable Deduction

Whether you itemize your deductions or not, you will be able to take a charity deduction above the line for up to $300. These contributions must be made in cash and the deduction will be claimed on your 2020 tax return.

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SBA Loans Available for COVID-19 Affected Businesses

The following information is very new and constantly changing but we wanted to provide it to you as quickly as we could. Please note the date of the post and recognize that each business is different in how this will or will not apply to them. We may not have the answers to all of your questions but we will do our best to answer how this applies to you.

We do not have the expertise or knowledge to fill out loan applications on your behalf at this time. We are able to provide necessary documentation that you may need from us if you are unable to find them in your records. We also have bank contacts that would be able to assist. Please reach out and we can pass on their information to you.

Coronavirus Emergency Loans (passed 3/27/2020)

With the passing of the CARES Act on Friday, March 27, 2020, there are some options for loan forgiveness as well for qualifying expenses. Please review the US Chamber of Commerce’s Guide and Checklist for details. This loan program is much better than the remaining information in this post.

Other SBA Loans (passed 3/6/2020)

Under the Coronavirus Preparedness and Response Supplemental Appropriations Act (the Act), small businesses that have suffered substantial economic injury as a result of COVID-19 can apply for low-interest federal disaster loans through SBA. Small businesses and nonprofits can apply for working capital loans of up to $2 million.

We’ve highlighted the following key details of the Act for you here, but you can also learn more by visiting the COVID-19 disaster assistance page on SBA’s website.

  • State governors must first request access to the Economic Injury Disaster Loan program. Once the declaration is made, information on the application process for disaster loan assistance will be made available to affected small businesses within the given state.
  • Loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits.
  • Loans can be used to cover accounts payable, debts, payroll and other bills.
  • Loans can be offered with long-term repayments in order to keep payments affordable—up to a maximum of 30 years. Terms are determined on a case-by-case basis.
  • Businesses will apply for loans online and select “Economic Injury” as the reason for seeking assistance.
  • SBA offers disaster assistance via its customer service center. If you have questions or want to check if your state is eligible, contact U.S. Small Business Administration via phone at 800.659. 2955 (TTY: 800.877.8339) or e-mail  disastercustomerservice@sba.gov.

The coronavirus situation is changing rapidly, as are the updates to various relief efforts. We will continue to monitor news and keep you updated as clarification is provided.

Additional Resources

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Tax Return and Payment Deadline Pushed to July 15, 2020

The IRS has changed the tax deadline to now be July 15, 2020. This means that tax returns do not need to be submitted and payments do not need to be made until July 15th. We encourage you to still file as soon as you can. If you owe you can still wait to pay but finalizing the information and getting it into the IRS early will be critical, especially as they have slowed down as well.

If you are expecting a refund we highly encourage you to get your return filed as soon as possible. As of this posting the IRS is still issuing refunds as normal but they will become busy sending stimulus checks in the coming weeks. Below is some additional information from the IRS.

Tax Deadline Extension

Below, you will find a list of frequently asked questions in reference to the Internal Revenue Service’s (IRS) Notice 2020-18 (PDF). In this Notice, the Treasury Department and the IRS announced special Federal income tax return filing and payment relief in response to the ongoing COVID-19 emergency.

You can review the IRS page for additional information here:
https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers.

Frequently Asked Questions

Question 1: Who is eligible for relief under the Notice?

Answer: Any person with a Federal income tax return or payment due on April 15, 2020 is eligible for relief under the Notice. “Person” includes any type of taxpayer such as an individual, a trust, an estate, a corporation or any type of unincorporated business entity. The payment due refers to both 2019 Federal income tax payments (including payments of tax on self-employment income) and 2020 estimated Federal income tax payments (including payments of tax on self-employment income)—regardless of the amount owed. The return or payment must be due on April 15, 2020—this relief does not apply to Federal income tax returns and payments due on any other date.

Question 2: Do I have to actually be sick, quarantined or have any other impact from COVID-19 to qualify for payment relief?

Answer: No, you do not have to be sick, quarantined or have any other impact from COVID-19 to qualify for relief. You only need to have a Federal income tax return or payment due on April 15, 2020 as described above.

Question 3: I am a fiscal year filer. My Federal income tax return for fiscal year 2019 is due on April 15, 2020. Am I an “Affected Taxpayer” eligible for relief under the Notice?

Answer 3: Yes, the relief provided in the Notice applies to Federal income tax returns and payments in respect of an Affected Taxpayer’s 2019 taxable year and postpones those 2019 return filings and payments due on April 15, 2020 until July 15, 2020. If your Federal income tax return for your fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the due date on extension, your due date is postponed to July 15, 2020.

Question 4: Does this relief apply to state tax liabilities?

Answer: No, this relief applies only to Federal income tax payments. State filing and payment deadlines vary and are not always the same as the Federal filing and payment deadline. We urge you to check with your state tax agencies for those details. More information is available at https://www.taxadmin.org/state-tax-agencies.

Question 5: I haven’t filed my 2019 income tax return yet (that would have been due on April 15), but I expect to file it by July 15. What do I need to do?

Answer: Nothing, except file and pay any tax due with your return by July 15. You don’t need to file any additional forms or call the IRS to qualify for this automatic Federal tax filing and payment relief. If you expect a refund, you are encouraged to file your return as soon as you can so that you can receive your refund. Filing electronically with direct deposit is the quickest way to get refunds. If you need more time beyond July 15 to file your return, request an automatic extension of time to file as described next.

Question 6: What if I am unable to file my 2019 income tax return (that would have been due on April 15) by July 15, 2020?

Answer: If you are an individual, you can request an automatic extension to file your Federal income tax return if you can’t file by the July 15, 2020 deadline. The easiest and fastest way to request a filing extension is to electronically file Form 4868 through your tax professional, tax software or using the Free File link on IRS.gov. Businesses, including trusts, must file Form 7004.

You must request the automatic extension by July 15, 2020. If you properly estimate your 2019 tax liability using the information available to you and file an extension form by July 15, 2020, your tax return will be due on October 15, 2020. To avoid interest and penalties when filing your tax return after July 15, 2020, pay the tax you estimate as due with your extension request.

Question 7: I already filed my 2019 income tax return (that would have been due on April 15) and I owe taxes, but I haven’t paid yet. What do I need to do to avoid interest and penalties?

Answer: To avoid interest and penalties, pay your taxes in full by July 15, 2020. If you filed Form 1040 or Form 1040-SR, the tax payment amount can be found on line 23. If you filed Form 1040-NR, the tax payment amount can be found on line 75. For a corporation filing Form 1120, the tax payment amount can be found on line 35.

Interest and penalties will begin to be charged after July 15 for any amount remaining unpaid by that date.

Question 8: I already filed my 2019 income tax return that would have been due on April 15 and scheduled a payment of taxes for April 15, 2020. Will this payment be automatically rescheduled to July 15, 2020?

Answer: No, the payment will not be automatically rescheduled to July 15, 2020. If you do nothing, the payment will be made on the date you chose. Here is information on how to cancel and reschedule your payment:

  • If you scheduled a payment through IRS Direct Pay, you can use your confirmation number from the payment to access the “Look Up a Payment” feature. You can modify or cancel a scheduled payment until two business days before the payment date. The email notification you received when you scheduled the payment will contain the confirmation number.
  • If you scheduled a payment through the Electronic Federal Tax Payment System (EFTPS), click on “Payments” from the EFTPS home page, login, click “Cancel a Tax Payment” from the left menu and follow the instructions. You must do so at least two business days before the scheduled payment date.
  • If you scheduled a payment as part of filing your tax return (authorizing an electronic funds withdrawal), you may revoke (cancel) your payment by contacting the U.S. Treasury Financial Agent at 888-353-4537. You must call to make a payment cancellation request no later than 11:59 p.m. ET two business days prior to the scheduled payment date.
  • If you scheduled a payment by credit card or debit card, contact the card processor to cancel the payment.

Question 9: The Notice postpones the deadline for first quarter 2020 estimated income tax payments due on April 15, 2020. What about second quarter estimated tax payments due on June 15? Have they been postponed as well?

Answer: No, second quarter 2020 estimated income tax payments are still due on June 15, 2020. First quarter 2020 estimated income tax payments are postponed from April 15 to July 15, 2020.

Question 10: Does this relief provide me more time to contribute money to my IRA for 2019?Answer: Yes. Contributions can be made to your IRA for a particular year at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, 2020, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020. For more details on IRA contributions, see Publication 590-A – Contributions to Individual Retirement Arrangements (IRAs).

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New Sick Pay and Medical Leave Requirements Due to COVID-19

The following information is very new and constantly changing but we wanted to provide it to you as quickly as we could. Please note the date of the post and recognize that each business is different in how this will or will not apply to them. We may not have the answers to all of your questions but we will do our best to answer how this applies to you.

Family and Medical Leave Act (FMLA) expanded to provide relief to those affected by COVID-19

“The Families First Coronavirus Response Act” (FFCRA), which goes into effect April 1, 2020 and expires December 31, 2020, responds to the coronavirus outbreak by providing additional assistance in the areas of COVID-19 testing, sick leave, food assistance, and more. We’ve compiled key details of FFCRA that we believe you need to know.

The following items are mandatory unless you believe it will “jeopardize the viability of the business is a growing concern”.  You may apply for an exemption, but the Department of Labor has yet to provide details of how this exemption process will work and who qualifies.

In summary, the Act:

  • Requires employers to provide emergency paid sick leave to workers affected by COVID-19
  • Expands family and medical leave (FMLA) for employees that are required to care for children out of school or daycare.
  • Offers increased funding for state unemployment insurance, food stamp and nutritional programs.

More specifically, here’s what The Families First Coronavirus Response Act means for both business owners and employees in the areas of sick leave and expanded family and medical leave.

  • Emergency paid sick leave:
    • Employees are eligible for up to two weeks of sick leave (full pay for self, 2/3 pay for family care) for illness, quarantine or school closures.
    • Applies to employers with fewer than 500 employees
    • All employees no matter the length of employment (some exclusions may apply)
  • FMLA expansion covers:
    • Employees are eligible for up to 12 weeks of FMLA leave for school closures (2 weeks unpaid and then up to 10 weeks at 2/3 pay).
    • Employers with fewer than 500 employees
    • Employees who have been employed for at least 30 calendar days (some exclusions may apply)
    • Employees who must care for children under the age of 18 in the event of school and place-of-care closures or if care provider is unavailable due to a public health emergency with respect to COVID-19.

Qualifying Reasons for Leave related to COVID-19

  1.  Is subject to Federal, State or local quarantine or isolation order related to COVID-19
  2. Has been advised by a health care provider to self-quarantine related to COVID-19
  3. Is experiencing COVID-19 Symptoms and is seeking medical diagnosis
  4. Is caring for an individual subject to an order described in number 1 or 2 above. (Does not have to be a family member.)
  5. Is caring for his or her child whose school or place of care is closed (or child care provider is unavailable due to COVID-19 related reasons

Is experiencing any other substantially similar condition specified by the US Department of Health and Human Services.

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2018 Tax Reform

What the Tax Reform Act Means for You

Congress has passed a tax reform act that will take effect in 2018, ushering in some of the most significant tax changes in three decades. There are a lot of changes in the new act, which was signed into law on Dec. 22, 2017.

You can use this memo as a high-level overview of some of the most significant items in the new act. Because major tax reform like this happens so seldom, we recommend you schedule a tax-planning consultation to ensure you reap the most tax savings possible during 2018. 

Key changes for individuals:

Here are some of the key items in the tax reform act that affect individuals:

  • Reduces income tax brackets: The act retains seven brackets, but at reduced rates, with the highest tax bracket dropping to 37 percent from 39.6 percent. The individual income brackets are also expanded to expose more income to lower rates (see charts below).
  • Doubles standard deductions: The standard deduction nearly doubles to $12,000 for single filers and $24,000 for married filing jointly. To help cover the cost, personal exemptions and most additional standard deductions are suspended.
  • Limits itemized deductions: Many itemized deductions are no longer available, or are now limited. Here are some of the major examples:
    • Caps state and local tax deductions: State and local tax deductions are limited to $10,000 total for all property, income and sales taxes.
    • Caps mortgage interest deductions: For new acquisition indebtedness, mortgage interest will be deductible on indebtedness of no more than $750,000. Existing mortgages are unaffected by the new cap as the new limits go into place for acquisition indebtedness after Dec. 14, 2017. The act also suspends the deductibility of interest on home equity debt.
    • No more 2 percent miscellaneous deductions: Most miscellaneous deductions subject to the 2 percent of adjusted gross income threshold are now gone.

Tip: If you’re used to itemizing your return, that may change in coming years as the doubled standard deduction and reduced deductions make itemizing less attractive. To the extent you can, make any remaining itemizable expenditures before the end of 2017.

  • Cuts some above-the-line deductions: Moving expense deductions get eliminated except for active-duty military personnel, along with alimony deductions beginning in 2019.
  • Weakens the alternative minimum tax (AMT): The act retains the alternative minimum tax but changes the exemption to $109,400 for joint filers and increases the phaseout threshold to $1 million. The changes mean the AMT will affect far fewer people than before.
  • Bumps up child tax credit, adds family tax credit: The child tax credit increases to $2,000 from $1,000, with $1,400 of it being refundable even if no tax is owed. The phaseout threshold increases sharply to $400,000 from $110,000 for joint filers, making it available to more taxpayers. Also, dependents ineligible for the child tax credit can qualify for a new $500-per-person family tax credit.
  • Doubles estate tax exemption: Estate taxes will apply to even fewer people, with the exemption doubled to $11.2 million ($22.4 million for married couples).

What stays the same for individuals:

  • Itemized charitable deductions: Remain largely the same.
  • Itemized medical expense deductions: Remain largely the same. The deduction threshold drops back to 7.5 percent of adjusted gross income for 2017 and 2018, but reverts to 10 percent in the following years.
  • Some above-the-line deductions: Remain the same, including $250 of educator expenses and $2,500 of qualified student loan interest.
  • Gift tax deduction: Remains and increases to $15,000 from $14,000 for 2018.

Farewell to the healthcare individual mandate penalty

One of the changes in the tax act is the suspension of the individual mandate penalty in the Affordable Care Act (also known as “Obamacare”). The penalty is set to zero starting in 2019, but remains in place for 2018 and prior years.

Tip: Retain your Form 1095s, which will provide evidence of your healthcare coverage. Without it, you may have to pay the individual mandate penalty, which is the higher of $695 or 2.5 percent of income. Beginning in 2019, this penalty is set to zero.

NOTICE: The IRS recently granted employers and health care providers a 30-day filing extension for Forms 1095-B and 1095-C, to March 2, 2018. The IRS clarified that taxpayers are not required to wait until receipt of these forms to file their taxes.

 

New 2018 tax bracket structures for individuals

Single taxpayer

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%

Head of household

Taxable income over But not over Is taxed at
$0 $13,600 10%
$13,600 $51,800 12%
$51,800 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%

 

Married filing jointly

Taxable income over But not over Is taxed at
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $165,000 22%
$165,000 $315,000 24%
$315,000 $400,000 32%
$400,000 $600,000 35%
$600,000   37%

 

Married filing separately

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $300,000 35%
$300,000   37%

 

Estates and trusts

Taxable income over But not over Is taxed at
$0 $2,550 10%
$2,550 $9,150 24%
$9,150 $12,500 35%
$12,500   37%

This brief summary of the tax reform act is provided for your information. Any major financial decisions or tax-planning activities in light of this new legislation should be considered with the advice of a tax professional. Call if you have questions regarding your particular situation. Feel free to share this memo with those you think may benefit from it.

Information from Knutte & Associates, Tax Reform Newsletter 12-28-17 was used in this blog post.

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Moving Expenses Can Be Deductible

Moving Expenses Can Be Deductible

Did you move due to a change in your job or business location? If so, you may be able to deduct your moving expenses. Moving expenses can be deductible and taken as a deduction to Adjusted Gross Income. Here are some tax tips for moving expenses.

In order to deduct moving expenses, your move must meet three requirements:

  1. The move must closely relate to the start of work.  Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
  2. Your move must meet the distance test.  Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.
  3. You must meet the time test.  After the move, you must work full-time at your new job for at least 39 weeks in the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at your new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

If you can claim this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home. You cannot deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.
  • Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.
  • Address Change.  When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Information from IRS Summertime Tax Tip 2016-20 was used in this post.

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2017 Mileage Rates

2017 Mileage Rates

The Internal Revenue Service has issued the 2017 optional standard mileage rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016;
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016;
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.

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.

These rules and rates are in Rev. Proc. 2010-51Notice 2016-79 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.

Information from www.accountingtoday.com was used in this blog post.

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Home Office Deduction Tips

Home Office Deduction Tips

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify, you can claim the deduction whether you rent or own your home. You may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction:

  1. Regular and Exclusive Use. As a general rule, you home-office-sandboxmust use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:
  • Your principal place of business, or
  • A place where you meet clients or customers in the normal course of business, or
  • A separate structure not attached to your home. Examples could include a garage or a studio.
  1. Simplified Option. If you use the simplified option, multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the rules for claiming a home office deduction.
  2. Regular Method. This method includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
  3. Deduction Limit. If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.
  4. Self-Employed. If you are self-employed and home-office-flowchartchoose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.
  5. Employees. You must meet additional rules to claim the deduction if you are an employee. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

Information from IRS Tax Tip 2016-53 was used in this blog post.

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Deducting Losses from a Disaster

10 Tips For Deducting Losses from a Disaster

To mark National Hurricane Preparedness Week, the IRS wants you to know it stands ready to help. If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are 10 tips you should know about deducting casualty losses:

  1. Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
  2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
  3. Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.
  4. When to deduct.  As a general rule, you must Disaster Housededuct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.
  5. Amount of loss.  You figure the amount of your loss using the following steps:
    • Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.
    • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.
    • Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.
  6. $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.
  7. 10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.
  8. Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.
  9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.
  10. Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

Information from IRS Special Edition Tax Tip 2015-08 was used in this blog post.

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