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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. 

 

IRS WARNS OF NEW TAX SCAMS

According to the IRS, tax scammers are getting more aggressive this tax season with evolving tax schemes. This time, they are calling unsuspecting people claiming that they have the person’s 2015 tax return and wish to verify a few details in order to process the return. The scammers are attempting to get personal information such as Social Security Numbers or personal financial information, such as bank numbers and credit cards.

This scheme is a continuation of past schemes in an attempt to catch people off guard so they will be more likely to give up this information. Please be aware that the IRS would not call you out of the blue to ask you to verify your personal tax information or make threats for you to make an immediate payment.

If you have a question about a telephone call from the IRS, please contact your tax advisor.

For more information, please read the IRS's press release

Estate Basis Reporting Requirement Approaching

In recent years, congress has enacted various tax laws to increase the accurate reporting of tax basis. These laws have extended to individuals, financial institutions, and most recently executors (e.g. - personal representatives, and trustees). With the Surface Transportation Act of 2015, executors of estates required to file an estate tax return must now separately provide to the receiving beneficiaries as well as the IRS the estate’s claimed tax value of all property included in the decedent’s estate that was or will be distributed..

This new law became effective for estate tax returns filed after July 31, 2015. The due date for the separate reporting of the estate tax value of property is 30 days after the earlier of the date of which a return was filed or required to be filed (including extensions). However, shortly after the Act was passed, the IRS issued Notice 2015-57, which provided a delay for filing until February 29, 2016. The Notice is intended to allow the IRS sufficient time to provide guidance on ‘how’ executors can best report the estate tax value to the IRS and the inheriting beneficiaries.

While penalties can be assessed for non-compliance and the deadline is fast approaching, the IRS has not issued any guidance to date. Stay tuned for the IRS prescribed method on how to report the estate tax value of property to beneficiaries.

2016 Mileage Rates Announced

The IRS has announced the 2016 standard mileage rates effective for mileage driven on or after January 1st, 2016. The optional standard mileage rate multiplied by the number of miles driven is a simplified method commonly used to calculate the deductible cost of using a vehicle for business purposes. In addition, the rates can be used to calculate the deductible mileage allowed for attending medical appointments, moving, or when driving to serve with a charity.

The 2016 rates are as follows:

  • Business Mileage can be deducted at 54 cents per mile, reduced from 57.5 cents per mile in 2015. The rate is reviewed annually and is based on fixed and variable costs of operating a vehicle.
  • Medical and Moving Mileage can be deducted at 19 cents per mile, reduced from 23 cents per mile in 2015. The rate is reviewed annually and is based on variable costs.
  • Charitable Mileage can be deducted at 14 cents per mile, there is no change to the rate as it is based on statute.

Taxpayers have the option of using the mileage rates or using the actual cost of maintaining and operating their vehicle. Maintaining accurate records of mileage used and the cost of vehicle up keep can aid tax preparers in deciding which method will provide the greatest benefit to the taxpayer.

More information on the new published rates and limitations that may apply can be found in Notice 2016-1. Questions concerning whether using the optional standard mileage rates would be of benefit should be directed to your trusted tax advisor.

2015 & 2016 Qualified Transportation Benefits made Permanent

For those employers providing mass transit and qualified parking benefits to their employees, congress retroactively increased the excludible transit benefits for 2015 from $130 to $250 effective January 1, 2015, as part of the 2015 extender package, through the Consolidated Appropriations Act. The fringe benefit for these exclusions was made permanent and is adjusted for inflation.

Stay tuned for more information from our blog and the IRS on how to reclaim any pre-tax benefit in excess of the originally stated $130 per month amounts for 2015.

For 2016, the monthly fringe benefit exclusion for both the qualified parking and for commuter highway vehicle transportation and transit passes is $255.

IRS Extends Deadline for Employer Health Insurance Notices & Forms

It looks like the IRS is providing help to some employers in keeping their New Years’ resolution to timely comply with the Affordable Care Acts’ information reporting requirements. On December 28, 2015, the IRS issued Notice 2016-4 extending the due dates for the 2015 information reporting requirements for applicable large employers and for insurers, self-insuring employers, and some other providers of minimum essential coverage.

  • Employers have until March 31, 2016 to provide their employees the 2015 Form 1095-B, “Health Coverage” and the 2015 Form 1095-C, “Employer-Provided Health Insurance Offer Coverage”.
  • Employers not filing electronically now have until May 31, 2016 to submit the 2015 Forms 1095-B, 1095-C, 1094-B “Transmittal of Health Coverage Information Returns,” and 1094-C, “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns” to the Service.
  • Employers filing electronically now have until June 30, 2016 to submit the 2015 Forms 1095-B, 1095-C, 1094-B “Transmittal of Health Coverage Information Returns,” and 1094-C, “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns” to the Service.

The automatic and permissive extension provisions will not apply to these extended due dates.

The extended deadlines will not impact employees enrolled in employer-sponsored coverage and employees will still be able to file their returns timely by April 15th. The forms with the extended deadlines assist in determining individual eligibility for a premium tax credit, which is subject to very specific rules for health insurance coverage purchased through the Marketplace.

For further questions on the extended deadlines and these forms, please contact us.

Being Smart With Your Charitable Donations

Donations to charitable organizations can be a great way to both lower your tax liability and support causes you care about. When making your donation, keep in mind the IRS has specific requirements in order for your charitable contribution to be tax deductible. To deduct a donation you will need to itemize your deductions, donate to a qualified organization, and keep records.

First and foremost, for any charitable contribution you make to be deductible, you must itemize your tax deductions. If you claim the standard deduction, you will not be able to deduct any donations. For 2015 the standard deduction is $6,300 for singles and $12,600 for married filing joint.

Next, research the organizations to which you are considering making donations. Unfortunately, not all charities are equal. Some use donations more effectively and are more transparent than others. In 2015, the Federal Trade Commission took unprecedented legal action against several charities for over $187 million in charity fraud.

Not all nonprofits are qualified charitable organizations. The IRS only allows deductions for donations to qualified tax-exempt organizations. A site like Guidestar or CharityNavigator can help you find reputable charities that are also qualified tax-exempt organizations.

Once you have made a donation, you will need to be able substantiate it in case the IRS has questions. Generally, for donations over $250 of either cash or property the IRS requires a special receipt from the charity, known as a letter of acknowledgement. You must obtain a copy of this letter prior to filing the tax return on which you are claiming the donation deduction, or the tax return’s due date (including extensions). The letter of acknowledgement must have the following elements:

  • It must be written,
  • The amount of cash and/or description of property donated,
  • If you received any goods or services, as well as a good faith estimate of their value, received as a result of the donation,
  • Or if applicable, a statement that the only benefits received were intangible religious benefits.

For additional guidelines for substantiating charitable deductions, see the “Tips for Year-End Charitable Contributions” blog by Glenn Bailey.

President Signs Bill For Permanent And Extended Tax Breaks

A little cheer has come early this year, as President Obama has signed into law both permanent and extended tax breaks for individuals and businesses. This expansive bill has been the subject of much debate, as to which provisions would become permanent vs. extended for another year. Listed below are some of the more pertinent tax breaks that individuals and businesses having been hoping would be remain.

Individual Provisions (may be subject to income limitations)

Permanent Provisions

  • Additional Child Tax Credit – In addition to the $1,000 Child Tax Credit, taxpayers with qualifying children will continue to be eligible for up to a 15% refundable credit of earned income in excess of $3,000
  • American Opportunity Tax Credit – The $2,500 credit for four years of post-secondary education
  • Educators - $250 above-the-line deductions for educator’s expenses that will be indexed for inflation
  • Charitable Contributions- the deductions for contributions of real property for conservative purposes and donations up to $100,00 made directly from an IRA for taxpayers who are over 70 ½ 

Extended Provisions

  • Bonus Depreciation - 50% immediate expensing of assets that have been acquired during the tax year
  • Mortgage Premiums- Qualified mortgage insurance premiums will continued to be treated as deductible mortgage interest
  • Tuition Deduction- Up to $4,000 above-the-line deduction for qualified tuition costs and related expenses for higher education
  • Energy Incentives - $500 credit for purchase of energy efficient property for non- business use.

Business Provisions (may be subject to limitations)

Permanent Provisions

  • R&D Credit – The credit will remain and beginning in 2016 eligible small businesses ($50 million or less in gross receipts) will be able to use the credit to offset AMT liability and the credit will be available for use against certain small business’s employer’s payroll tax liability.
  • Section 179 Deductions- The threshold of up to $500,000 with a phase out beginning at $2 million for the cost of asset acquisitions will remain and now will be indexed for inflation. Air conditioning and heating units placed in service after 2015 will now be eligible for expensing
  • Improvements Depreciation – Qualified leasehold improvement, qualified restaurant property, and qualified retail improvements will remain 15 year straight- line recovery vs. 39 years.

Extended Provisions

  • Bonus Depreciation - 50% immediate expensing of assets that have been acquired during the tax year.

The bill, also included delayed provisions related to the Affordable Care Act (Obamacare). There will be two year delay on the 2.3% excise tax for medical devises. The 40% excise tax on high-cost health plans whose value is greater than $10,200 for individual coverage, also known as the “Cadillac Tax”, will be delayed til 2020.

Tax Benefits Available for Childcare Expenses

As parents excitedly plan for the arrival of a new addition, they may be in for a bit of a surprise when they calculate the cost of childcare. According to 2015 data from Child Care Aware of America, the cost of full-time infant childcare can take up as much as 15% of median family income. Currently there are two tax benefits that parents may consider using towards their childcare expenses.

The first is the Child Dependent Care Credit, a nonrefundable tax credit of up to 35% of qualifying childcare expenses. Qualified expenses are those paid for an in home sitter, summer camps, daycare center, or a before and after school care program. One item of note is that overnight camps are not considered a qualified expense. Parents can elect to use expenses paid up to $3,000 for one child or up to $6,000 for two or more children in the calculation of the credit. In addition to having qualified childcare expenses, parents must meet the following tests.

  • Taxpayer(s) filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
  • If filing jointly each spouse must have earned income, a spouse can be considered to have earned income if they were a full-time student or were physically or mentally unable to care for themselves.
  • Care must have been provided in order to allow the taxpayer and spouse to work or look for work.
  • Care has to be provided for dependents age 13 or younger or other qualifying persons who have lived with the taxpayer for over half the year.
  • Care cannot be provided by a dependent.
  • Any expenses used in calculation of the Child Dependent Care Credit are reduced by benefits provided by an employer.

More information about the Child Dependent Care Credit can be found in IRS Pub. 503.

The second benefit that may be available to some parents is the use of a Flexible Spending Accounts. An FSA is a benefit offered by employers that allows an employee to contribute up to $5,000 of pre-tax dollars for childcare expenses. These contributions allow parents to recognize a tax savings by reducing their taxable income. In some cases parents may be able to utilize both an FSA and still qualify for the Child Dependent Care Credit. However, as mentioned above the use of an FSA will reduce qualified expenses that can be used towards the calculation of the Child Dependent Care Credit.

As parents research their best options in using tax benefits to help aid in the cost of childcare, there is one item of consideration. Parents who elect to hire a babysitter as their qualified childcare expense, will need to take into consideration that they are hiring a household employee. Hiring a household employee does come with additional tax considerations. Currently taxpayers who pay wages of more than $1,900 in a calendar year or more than $1,000 in a quarter are required to withhold Social Security and Medicare (FICA). They are also responsible for paying the matching portion of FICA, and possibly federal and state unemployment insurance taxes. These additional expenses need to be weighed by parents as they consider using the tax benefits for childcare expenses.

More information for tax treatment of household employees can be found in IRS Pub. 926.

Finding affordable, quality childcare can be an arduous process that is not a one size fits all scenario. However tax benefits are available, and if questions or concerns arise, parents should consult a trusted tax advisor.

 

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