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“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.
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.
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:
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.
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.
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.
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.
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:
For additional guidelines for substantiating charitable deductions, see the “Tips for Year-End Charitable Contributions” blog by Glenn Bailey.
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)
Business Provisions (may be subject to limitations)
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.
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.
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.
If you need help with your tax returns, the best time to choose a preparer is before the end of the year. That way you have time to find someone with the appropriate skill level for your situation and time to get on their schedule. Having a preparer with advance knowledge and understanding of your life can make your tax return preparation more efficient for the preparer and less stressful for you. Waiting until March can leave you at the mercy of the market. The most competent firms and preparers may not have time to do anything for you except file an extension at that point.
Starting early will give you time to sit down with a preparer and discuss your particular circumstances so the preparer can understand what services you will need and so you can understand the preparer’s knowledge level for your situation. There is also time to accomplish any tax planning that might be beneficial to you. After the end of the year there’s not much planning ability left.
What should you look for in a preparer?
The IRS issued a news release (IR2015-124) that lists some of the things to look for, and to watch out for. Here are some tips and information to consider: