Tax Rules & Laws

Tax Return Due Dates

Tax Return Due Dates

The Senate and the House passed a short-term highway funding extension that contains several important tax provisions. The bill modifies tax return due dates for several common tax returns starting for tax year 2016 (filed in 2017).

Partnership tax returns are due March 15, NOT April 15 as in the past. If your partnership isn’t on a calendar year, the return is due on the 15th day of the third month following the close of your tax year. A six month extension is still available.

C corporation tax returns are due April 15, NOT March 15. An automatic 5 month extension is available. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year. In addition, C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025. For years beginning after 2025, the due date for these returns will be October 15.

Individual and S corporation due dates remain at April 15 and March 15, respectively, and a six month automatic extension is still available for both.

If you have any questions about this blog post or other accounting topics, please contact one of our tax professionals.

Information from Forbes and the Journal of Accountancy was used in this blog post.

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Vacation Home Rentals

Vacation Home Rentals

If you rent a home to others, you usually must report the rental income on your tax return. However, you may not have to report the rent you get if the rental period is short and you also use the property as your home. In most cases, you can deduct your rental expenses. When you also use the rental as your home, your deduction may be limited. Here are some basic tax tips that you should know if you rent out a vacation home:

  • Vacation Home.  A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  • Schedule E.  You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.
  • Used as a Home.  If the property is “used as a home,” rent-a-houseyour rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  • Divide Expenses.  If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
  • Personal Use.  Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.
  • Schedule A.  Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  • Rented Less than 15 Days.  If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case you deduct your qualified expenses on schedule A.

Information from IRS Tax Tip 2015-03 was used in this post.

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Additional Medicare Tax

Additional Medicare Tax

Some taxpayers may be liable for an Additional Medicare Tax if your income exceeds certain limits. Here are six things that you should know about this tax:

  • Tax Rate.  The Additional Medicare Tax rate is 0.9 percent.
  • Income Subject to Tax.  The tax applies to the amount of certain income that is more than a threshold amount. The types of income include your Medicare wages, self-employment income and Medicare Taxrailroad retirement (RRTA) compensation. You must combine your wages and self-employment income to figure the tax.
  • Threshold Amount.  You base your threshold amount on your filing status. If you are married and file a joint return, you must combine your spouse’s wages, compensation, or self-employment income with yours. Use the combined total to determine if your income exceeds your threshold. The threshold amounts are:
Filing Status Threshold Amount
Married filing jointly $250,000
Married filing separately $125,000
Single $200,000
Head of household $200,000
Qualifying widow(er) with dependent child $200,000
  • Withholding / Estimated Tax.  Employers must withhold this tax from your wages or compensation when they pay you more than $200,000 in a calendar year. If you are self-employed you should include this tax when you figure your estimated tax liability.
  • Underpayment of Estimated Tax.  If you had too little tax withheld, or did not pay enough estimated tax, you may owe an estimated tax penalty.

If you owe this tax, file Form 8959, with your tax return. You also report any Additional Medicare Tax withheld by your employer on Form 8959.

Information from IRS Tax Tip 2015-41 was used in this blog.

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Adoption Tax Benefits

Adoption Tax Benefits

If you adopted or tried to adopt a child in 2014, you may qualify for a tax credit. If your employer helped pay for the costs of an adoption, you may be able to exclude some of your income from tax. Here are some things you should know about adoption tax benefits.

  1. Credit or Exclusion.  The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.
  2. Maximum Benefit.  The maximum adoption tax credit and exclusion for 2014 is $13,190 per child.
  3. Credit Carryover.  If your credit is more Adoption Handsthan your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2014, you can use it to reduce your taxes for 2015. You can do this for up to five years, or until you fully use the credit, whichever comes first.
  4. Eligible Child.  An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.
  5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.
  6. Domestic or Foreign Adoptions. In most cases, you can claim the credit whether the adoption is domestic or foreign. However, the timing rules for which expenses to include differ between the two types of adoption.
  7. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit ($13,190 in 2014) even if you didn’t pay any qualified adoption expenses.
  8. No Double Benefit. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
  9. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.

Information from IRS Tax Tip 2015-35 was used in this blog post.

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Home Mortgage Debt Cancellation

Tax Tips about Home Mortgage Debt Cancellation

If your lender cancels part or all of your debt, you normally must pay tax on that amount. However, the law provides for an exclusion that may apply to homeowners who had their mortgage debt cancelled in 2014. In most cases where the exclusion applies, the amount of the cancelled debt is not taxable. Here are the top 10 tax tips about mortgage debt cancellation:

  1. Main Home.  If the cancelled debt was a loan short saleon your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.
  2. Loan Modification.  If your lender cancelled part of your mortgage through a loan modification or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.
  3. Refinanced Mortgage.  The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. Amounts used for other purposes don’t qualify.
  4. Other Cancelled Debt.  Other types of cancelled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of cancelled debts to be nontaxable.
  5. Form 1099-C.  If your lender reduced or 1099-ccancelled at least $600 of your debt, you should receive Form 1099-C, Cancellation of Debt, in January of the next year. This form shows the amount of cancelled debt and other information.
  6. Form 982. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the form with your federal income tax return.
  7. Exclusion extended. The law that authorized this exclusion had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014.

IRS Tax Tip 2015-32 was used in this blog post.

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Facts about Capital Gains and Losses

Ten Facts about Capital Gains and Losses

When you sell a capital asset the sale results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are 10 facts that you should know about capital gains and losses:

1. Capital Assets.  Capital assets include CG Calculatorproperty such as your home or car, as well as investment property, such as stocks and bonds.

2. Gains and Losses.  A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. Net Investment Income Tax.  You must include all capital gains in your income and you may be subject to the Net Investment Income Tax. This tax applies to certain net investment income of individuals, estates and trusts that have income above statutory threshold amounts. The rate of this tax is 3.8 percent. For details visit IRS.gov.

4. Deductible Losses.  You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

5. Long and Short Term.  Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.

6. Net Capital Gain.  If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.

7. Tax Rate.  The capital gains tax rate Capital Gainsusually depends on your income. The maximum net capital gain tax rate is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gains.

8. Limit on Losses.  If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

9. Carryover Losses.  If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened in that next year.

10. Forms to File.  You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your tax return.

Information from IRS Tax Tip 2015-21 was used in this blog post.

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Home Office Deduction Tips

The following post is six tips to know in claiming a home office deduction.

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. If you qualify for the deduction 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, Home officeyou must 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, you 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 criteria for who may claim a home office deduction.
  2. Regular Method.  If you use the regular method, the home office deduction 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 8829 Flow Chartthe 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 choose 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.  If you are an employee, you must meet additional rules to claim the deduction. 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 2015-42 was used in this post.

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2015 Standard Mileage Rates

The Internal Revenue Service issued the 2015 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, 2015, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 57.5 cents per mile for business miles drivenmileage-photo
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Other Helpful Info

2014 Personal Limits/Deductions

  • IRA/Roth Contribution limit   $5,500
  • 401k Maximum employee contribution   $17,500
  • 2014 Personal/Dependency Exemption   $3,950
  • Married Filing Joint Standard Deduction   $12,400
  • Head of Household Standard Deduction   $9,100
  • Single & Married Filing Separately Standard Deduction   $6,200

2014 Estates, Gifts, & Social Security

  • Annual gift, per person   $14,000
  • Estate Exemption Equivalent   $5,340,000
  • FICA Earnings Limit   $117,000
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Tax Refund Statute of Limitations

So you overpaid your federal income taxes, life got busy, and you forgot to file a return to claim your refund. You’ll get around to it — but will you get around to it in time to get your money back?

The time limit for claiming your refund is called the statute of limitations. The general rule for your federal income tax return is that you havEXPIREDe either two or three years to file a refund claim. Specifically, you have to file the claim within three years from the time you filed the tax return or within two years from the time you paid the tax, whichever period expires later.

Worse, there’s a wrinkle you may not expect: When you haven’t filed a return, the two-year period applies.

And more bad news: Even if you file your claim within the proper two-year time period, your refund could be limited further by a “lookback rule.” This rule says you can only get a refund for the tax actually paid during those two years. The outcome? Estimated taxes or withheld federal income taxes may fall outside the time period. That means those amounts might not be recoverable.

Be aware that other time limits apply in certain circumstances, such as when your overpayment is due to a bad debt.

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Employer Responsibilities for the Affordable Care Act

If you are an employer, the number of employees in your business will affect what you need to know about the Affordable Care Act (ACA).

Employers with 50 or more full-time and full-time-equivalent employees are generally considered to be “applicable large employers” (ALEs) under the employer shared responsibility provisions of the ACA.  Applicable large employers are subject to the employer shared responsibility provisions.  However, more than 95 percent of employers are not ALEs and are not subject to these provisions because they have fewer than 50 full-time and full-time-equivalent employees.

Whether an employer is an ALE is determined each calendar year based on employment and hours of service data from the prior calendar year. An employer can find information about determining the size of its workforce in the employer shared responsibility provision questions and answers section of the IRS.gov/aca website and in the related final regulations.

In general, beginning January 1, 2015, ALEs with at least 100 full-time and full-time equivalent employees must offer affordable health coverage that provides minimum value to their full-time employees and their dependents or they may be subject to an employer shared responsibility payment.  This payment would apply only if at least one of its full-time employees receives a premium tax credit through enrollment in a state based Marketplace or a federally facilitated or Marketplace.  Also, starting in 2016 ALEs must report to the IRS information about the health care coverage, if any, they offered to their full-time employees for calendar year 2015, and must also furnish related statements to their full-time employees.

For 2014, the IRS will not assess employer shared responsibility payments and the information reporting related to the employer shared responsibility provisions is voluntary.  In addition, the employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.  Specifically, ALEs that meet certain conditions regarding maintenance of workforce size and coverage in 2014 are not subject to the employer shared responsibility provision for 2015.  For these employers, no employer shared responsibility payment will apply for any calendar month during 2015 (including, for an employer with a non-calendar year plan, the months in 2016 that are part of the 2015 plan year). However these employers are required to meet the information reporting requirements for 2015, this is why understanding aca reporting is so important to a business.  The employer shared responsibility provision questions and answers section of the IRS.gov/aca website and the preamble to the employer shared responsibility final regulations describe the requirements for this relief in more detail.  Both resources also describe additional forms of transition relief that apply for 2015.

Small employers, specifically those with fewer than 25 full-time equivalent employees, may be eligible for the small business health care tax credit.

Regardless of the number of employees, if an employer sponsors a self-insured health plan, it must report to the IRS certain information about its health insurance coverage plan for each covered employee.

If you have questions about your responsibility as an employer, please feel free to contact us at Fox Peterson

Information from IRS tax tip 2014-21 was used in this posting.

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