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Tax Blog
“Taxing” is a word synonymous with “onerous” and “wearing.”  Bond Beebe, Accountants & Advisors, have created a user friendly blog called “It’s Taxing” to inform and educate our clients and business associates on timely topics related to tax, estates, accounting and finance.  We hope our blog answers your questions and alleviates the heavy burden and anxiety related to understanding complicated tax laws and related matters. 

 

Achieving a Better Life Experience (ABLE) Act of 2014

Earlier this week, when the Senate passed the Tax Increase Prevention Act of 2014, they not only approved a number of tax extenders, but they also passed the Achieving a Better Life Experience (ABLE) ACT as well. The ABLE Act, which applies to tax years beginning after December 31, 2014, allows each state to establish a new type of tax-advantaged savings program for disabled individuals and families with disabled children. These new accounts will operate in a similar fashion as 529 college savings accounts, where contributions can be made to an account for a qualified beneficiary and the earnings and qualified distributions will not be subject to income tax.


Qualified Beneficiary

An ABLE account can only be established for a qualified disabled beneficiary. A qualified beneficiary can be determined in two ways:

  1. The individual is entitled to disability benefits under the Social Security disability insurance program or the Supplemental Security Income (SSI) program, and the individual became disabled before reaching the age of 26; or
  2. A disability certification for the individual, signed by a licensed physician, has been filed with the IRS for the tax year certifying that the individual has a medically determinable physical or mental impairment and that the disability occurred before the individual reached the age of 26. 

It is important to note that in both scenarios, an individual must have become disabled before reaching the age of 26.

One Year Tax Extenders Package Passed in the Senate

Just in time for year-end tax planning, the Senate passed the tax extenders bill by vote of 76 to 16 on Tuesday, December 16. As discussed in our previous post, this bill includes many previously expired tax provisions that will be extended through December 31, 2014. The bill will be sent to the President for his signature and is expected to be signed into law quickly. 

An Alternative to Capital Gains Taxes: Donating Stock to Charity

This time of year many individual taxpayers are seeking ways to reduce their 2014 tax bill with April right around the corner. It is no secret tax rates have increased beginning January 1, 2013 leaving some with an uncomfortable reality last April. Plus, many previous beneficial tax provisions have expired on December 31, 2013 and without an extension by Congress*, tax preparers and clients alike are left searching for alternatives to reduce their tax liabilities.

Rest easy, there is one tax planning strategy that can realize the appreciation, increase your itemized deductions and reduce your tax bill all at the same time. Taxpayers are eligible to take a charitable deduction for contributions of long term capital gain property to qualified charities.

Long term capital gain property would include stocks, mutual fund shares, real estate held for investment and a few other similar types of investments held longer than one year. Many people make cash contributions to their favorite charities throughout the year, but instead of cash, you could donate stock at its fair market value and accomplish a similar deduction. This planning tip is effective because it alleviates the need to sell the security in your portfolio and pay capital gains tax on the appreciation above your historical cost basis then to later make a cash contribution to the charity. In other words, you can skip the sale of the security and make the contribution of the security directly to the qualified charity. Many qualified charities are capable of receiving this type of property just as easily as the charity would receive a cash contribution.

Tips for Year-End Charitable Contributions

The IRS has issued a news release (IR 2014-110) to remind taxpayers of the important tax law rules and documentation requirements that they should follow when making donations to charity.


Rules for donations of clothing and household items. To be deductible, clothing and household items donated to charity must be in good used condition or better. Clothing or household items (e.g., furniture, furnishings, electronics, appliances, and linens) for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Be aware of this rule and the value you intend to claim before you make the donation. In practice, this is a burden that few taxpayers are willing to bear, which can result in them receiving no benefit at all. Donors must get a written acknowledgment from the charity for all gifts worth $250 or more that includes the name of the charity, date of the contribution and a description of the items contributed. In practice you should have this receipt for all donations of property. If a donation is left at a charity's unattended drop site, you should keep a written record of the donation that includes this information. It is good practice to take pictures of your items to substantiate their condition as well as their existence. Make an itemized list of your contribution and note the value of each item prior to making the donation. Receipts that have generic listings like “3 bags of clothes: $500” have been disallowed due to a lack of detail that is considered a lack of substantiation by IRS.

IRS Releases New Standard Mileage Rates for 2015

The IRS has issued the 2015 standard mileage rates. The new rates go into effect beginning January 1, 2015 and are as follows:

  • 57.5 cents per mile for business miles driven.
  • 23 cents per mile driven for medical or moving purposes.
  • 14 cents per mile driven for charitable purposes.

One Year Tax Extenders Package Passed in House

taxformOn Wednesday, the House overwhelmingly passed a bill that will extend, for one year, a package of tax provisions into 2014. Though the year is almost over, these breaks had all previously expired as of December 31, 2013, and under this bill they will be extended through December 31, 2014. There has been considerable debate over the content of this package, and whether to pass a one-year extension or two. Last week, President Obama threatened to veto a two-year extension, so there is hope that this one-year extension will work instead. If the House and the Senate pass the bill, it is likely that the President will sign it into law.

The bill covers a host of provisions typically referred to as “tax extenders” as they are temporary tax breaks that need to be renewed every year or so. Though the bill has not yet passed into law, it is worth listing out some of the major provisions. Some highlights of the bill are listed below:

Individual Provisions (many are subject to income limits)

• $250 above-the-line deduction for teacher’s classroom expenses
• employer-provided mass transit benefits are increased to equal employer-provided parking benefits
• mortgage insurance premiums allowed as a deduction
• state and local sales taxes can be deducted in lieu of state and local income taxes
• tuition and fees can be deducted above-the-line
• tax-free distributions from IRAs directly to charities for those over 70 ½ years old

I am an S-Corporation Owner-Employee, What Should be Reported on my W-2?

As an S-Corporation shareholder there are certain items that should be reported on your W-2 as compensation. These items are commonly either reported incorrectly or not reported at all. The good news for this year is that you still have time to call your payroll company and have these items correctly reported on the W-2. The following are two items that are often not reported correctly.

  • Medical insurance of a 2% or more shareholder-employee: Medical insurance paid by the corporation for 2% or more shareholders is considered compensation and must be reported on the shareholder-employees W-2. These items are not subject to Social Security, Medicare, and Unemployment taxes so they are only reported in box 1 of the W-2. The shareholder is picking these amounts up as income, but the IRS does allow an above the line deduction for the amount of the premiums on the shareholders personal return. If the premiums are not properly reported on the W-2 there is a chance that upon audit the IRS can disallow this deduction.

  • Personal use of business owned automobile: Personal use of most company owned vehicles is considered compensation and must be included on the W-2. The employee must track the personal miles. The value of these personal miles is reported as wages on his/her W-2. If, upon audit, an IRS agent determines that there was personal use of a company owned vehicle and that the personal use portion was not reported on the employee’s W-2, the agent can potentially disallow the personal amount of automobile expenses from the corporation’s tax return or add this amount as income on the employee’s 1040.

IRS Provides Guidance on Annual IRA Rollover Limit

IRS Issued Announcement 2014-32 last week, which provides guidance on the IRA one-rollover-per-year Rule.


Generally, you are not allowed to withdraw money from  an IRA until you reach age 59 1/2. If you do, the cash is subject to a 10%  penalty in addition to tax, making early distributions potentially very costly.


If a distribution from an IRA is  paid directly to you, you can avoid the related tax and penalty as long as you deposit the distribution in an IRA or other retirement plan within 60 days. One key component of this rule is that this type of rollover can only be done once within the same 12-month period.


In the past, IRS took the position that the annual limit applied to each IRA account. Thus, taxpayers with several IRA accounts could roll each one over  in the same 12-month period without penalty if it was properly done within the 60-day period.


However, earlier in 2014, as a result of the Tax Court opinion in “Bobrow v. Commissioner,” the IRS changed its position on this type of rollover. Now the one-rollover-per year rule will apply to each taxpayer, instead of each IRA. In essence, if you own several IRA accounts you will only be able to roll over one account  each year  and still avoid penalties.  Furthermore, if you make more than one IRA rollover in the same year, depositing the funds into another IRA will be considered an excess contribution, which is assessed an additional 6% penalty on top of the initial tax and 10% penalty.

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