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Business Tax Planning

04/10/2017

Deducting Work-Related Expenses

Work expensesTaxpayers who work for an employer and who pay for work-related expenses out of their own pocket may be able to deduct them on their income tax returns.  Qualified employee business expenses are deductible if when combined with other miscellaneous deductions, the total spent is more than two percent of a taxpayer’s adjusted gross income.

Some examples of qualified deductible employee business expenses may include:

  • the cost of purchasing required uniforms or work clothes not worn away from the work environment,
  • business use of a home,
  • business use of a personal vehicle,
  • business-related meals and entertainment,
  • work-related travel away from home, and
  • tools and supplies purchased for use on the job.

Other deductible expenses that employed taxpayers often overlook are costs of things like the depreciation of their own computer they use for work-related purposes, union dues, malpractice or business liability insurance premiums and subscriptions to professional journals and trade magazines related to work.

Taxpayers must to itemize the deductions and maintain records of income along with receipts of expenses.  If expenses have been reimbursed by an employer, they are not tax deductible.

The expenses must also be ordinary and necessary for their work.  An employee who purchases an item featuring their company’s logo may not deduct the expense unless the employer requires them to wear or use the item while performing their job.  For example, flight attendants who must buy their own uniforms to wear while serving passengers on an aircraft may deduct the expense of the uniform, but not the cost of personal earrings worn to complement their uniform.

K-12 teachers may be able to deduct up to $250 of certain out-of-pocket expenses.  Deductible expenses for 2016 federal income taxes may include the cost of books, classroom supplies, equipment and other materials teachers use to help instruct students.  For example, a physical education teacher may deduct up to $250 of athletic supplies purchased for students that were needed and used by the student(s) to complete or perform physical education course requirements. This particular work-related deduction is calculated as an adjustment to income rather than an itemized deduction, so they need not itemize to claim this deduction.

IRS Publication 529 “Miscellaneous Deductions” and Publication 463 “Travel, Entertainment, Gift and Car Expenses” provide more specific details about deducting employee business expenses.

If you need more information on deducting work-related expenses, contact one of our experts on tax preparation at McRuer CPAs.

02/10/2017

W-2 Scam Targets Small Business

Question-yikA5pBiEThe IRS has issued a new tax-related identity-theft scam warning to small businesses and human resources professionals.  The email phishing scam uses a business owner’s, corporate officer’s or human resource professional’s name in what looks like company or even official tax agency emails. The emails request copies of employee Forms W-2 from company payroll, internal accounting or human resources departments.

This is the second time the email scam has been identified as attacking businesses nationwide. The IRS urges business owners, internal accountants and company payroll officials to double check any executive-level requests for lists of Forms W-2 or Social Security Numbers.

The W-2 scam first appeared in early 2016. The IRS reports that cybercriminals tricked payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns to create fraudulent income tax refunds in a tax-related identity theft scheme.

This phishing variation is known as a “spoofing” e-mail.  It will contain, for example, the actual company chief executive officer’s name.  In this variation, the “CEO” sends an email to a company payroll office or human resource employee requesting a list of employees and information including their SSNs.

Crime investigators say some of the wording used in actual scam emails included:

  • “Kindly send me the individual 2016 Forms W-2 (PDF) and earnings summaries of our company staff for a quick review.”
  • “Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary).”
  • “I want you to send me the list of Form W-2 copies of employees’ wage and tax statement for 2016.  I need them in PDF file type, and please send it as an attachment.  Kindly prepare the lists and email them to me asap.”

Working together in the Security Summit, the IRS, states and tax industry representatives have made progress fighting against tax-related identity theft.  However, cybercriminals continue developing more sophisticated tactics to impersonate taxpayers in their effort to steal even more data.

For more information about tax-related identity theft and other tax scams, click here to link to The Security Summit’s national taxpayer awareness campaign called “Taxes. Security. Together.

01/09/2017

2017 Mileage Rates for Business Use of a Vehicle

As reported by the Journal of Accountancy: The IRS has announced  the optional standard mileage rates for business use of a vehicle will drop slightly in 2017, the second consecutive annual decline. For business use of a car, van, pickup truck, or panel truck, the rate for 2017 will be 53.5 cents per mile, down from 54 cents per mile in 2016. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

Driving for medical or moving purposes may be deducted at 17 cents per mile, which is two cents lower than for 2016. The rate for service to a charitable organization is unchanged, set by statute at 14 cents per mile (Sec. 170(i)).

The portion of the business standard mileage rate that is treated as depreciation will be 25 cents per mile for 2017, one cent higher than for 2016.

To compute the allowance under a fixed and variable rate (FAVR) plan, the maximum standard automobile cost is $27,900 for 2017 (down from $28,000 for 2016) for automobiles (not including trucks and vans) and $31,300 for trucks and vans (an increase of $300 from 2016). Under a FAVR plan, a standard amount is deemed substantiated for an employer’s reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.

See more at: http://www.journalofaccountancy.com/news/2016/dec/irs-2017-mileage-rates-201615701.html#sthash.sxZ6OHvw.dpuf

01/06/2017

2017 Tax Rates (If Nothing Changes)

Income tax graphicPending any immediate changes under a new administration, tax officials say low inflation rates will ensure that current tax brackets and most other tax system features will change only slightly in 2017 with the exception of effects of health coverage mandates.

The standard deduction will rise $50 for individuals to $6,350 from $6,300.  The personal exemption increased $4,050 in 2016 and will remain the same in 2017. The standard deduction for married filing jointly rises $100 to $12,700.

The personal exemption for tax year 2017 remains at $4,050.  However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly).

But for those taxpayers who do not maintain the minimum essential health coverage in 2017, the penalty which is collected by the IRS will increase significantly. The charge for failing to have qualified health insurance coverage will be $695 or 2.5% of income for individuals and $2,085 or 2.5% of income for families.  The penalty was $325 for individuals and $975 for families in 2015. That was an increase from the penalty of $95 for individuals or $285 for families in 2014.

The 2017 top individual tax rate of 39.6% will apply to income above $470,000 for married couples, up
from $466,950.  The Affordable Care Act (ACA) or ‘Obamacare’ mandates that high-income taxpayers pay another 3.8% surtax on net investment income, so the top federal income tax rate for individuals is actually 43.4% and will remain at that level pending a possible ACA repeal.

Qualified dividends and long-term capital gains are also taxed an additional 15% or 20% depending upon income and are subject to another 3.8% net investment income tax.

Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.

These rates are set to apply to 2017 taxes which will be filed in early 2018.

Call us at McRuer CPAs if you have any questions: 816.741.7882 or contact us online by clicking here.

11/30/2016

Trump's Take on Taxes

President-Elect Donald Trump’s tax plan promises to take a hatchet to the current tax code affecting individuals and businesses alike.  Experts and analysts have varied views about what his administration will do and how soon, but they agree that the Republican control of both the House and Senate will enable faster action and more radical moves.

Trump speakingComprehensive tax plans which would reduce tax rates for individuals and businesses while eliminating many deductions and tax breaks have been in the works, but politics prevented their introduction.  Because most of this legislation has already been written, pulling together the plans into a Trump-approved tax bill for debate could happen at lightning speed.

Considering ordinary income taxes only, the current tax code charges individuals complicated graduated tax rates from 10% to 39.6%.  Trump’s proposal includes only three individual income tax brackets: 12%, 25% and 33%.  Itemized deductions would be capped or no longer allowed and personal exemptions would be eliminated.

Under the Trump tax plan business taxes would be slashed and corporations would pay 15% instead of 35% on earnings.  A more simplified tax structure would eliminate most business deductions including interest on debt.  Depreciation of assets would also be calculated differently through a more limited and simplified tax code.

Trump plans to eliminate estate taxes which currently charge 40% tax on assets above $5.45 million.  His plan would still allow an income tax on the appreciation inherent in the assets for larger estates that would be paid when the assets are sold by the beneficiary.

America’s new President is set to be sworn in January 20th.  In the footsteps of two former Presidents, John F. Kennedy and Herbert Hoover, as billionaire real estate mogul Trump has opted to forego the annual Presidential salary of $400,000.  He is quickly putting together a team of lawmakers who will fulfill his campaign promises to slash taxes and repeal major provisions of the Affordable Care Act (see more below in “2017 Tax Rates (If Nothing Changes)”) among his first days in office.

This is a good time to review and understand your options. Contact us now to confirm your year-end tax planning session and we’ll help you determine the best tax strategy during changing times.

04/08/2016

Tax Payment Options to Meet Deadline Date

The IRS says more than 70 percent of taxpayers will receive tax refunds this year due to tax credits and having too much of their income withheld.  Last year’s average tax refund was $2,797 and it’s expected to be close to the same average for this year’s tax season.

Meanwhile, for the rest of taxpayers who owe taxes there are new and faster ways to pay.  The IRS offers several online or direct-call opportunities to pay taxes even without filing on time. 

Paying-moneyThe Direct Pay option allows individuals to pay their outstanding taxes or estimated taxes directly from a checking or savings account.  A taxpayer receives an immediate confirmation of payment if making an instant payment or can schedule a payment to be made at a later time or at future intervals.  The IRS system does not store the payment information after the transaction to avoid online hackers.  See a previous ReSource article Another Cyberattack on Taxpayer Information for more information about tax-related identity theft occurring through IRS systems.

For the first time there’s a new cash payment option for taxpayers in partnership with two online payment processing companies including OfficialPayments.com and PayNearMe.  Individuals may now use up to $1,000 cash per day to pay outstanding taxes if they do not have or do not want to use a bank account or credit card.  Payments can be made at more than 7,000 participating 7-Eleven convenience stores across the country.

The IRS still promotes that the easiest way to pay individual and business taxes is through the Department of Treasury’s Electronic Federal Tax Payment System or EFTPS.  A relatively new feature to this online registration payment method is the EFTPS Voice Response System.  Both services are offered for free with no extra fees charged for processing and scheduling regular payments.

Through EFTPS a taxpayer can use the internet, phone or mobile device to make, schedule and review tax payments any time of day.  Businesses and individuals can schedule payments up to a year in advance. Payments can be changed or cancelled up to two days before the scheduled transaction date. This method provides a way to pay all types of federal taxes from individual to business federal income taxes, employment taxes, estimated taxes and excise taxes.

Should a taxpayer prefer to use a credit or debit card to pay taxes, the IRS accepts payments from Visa, MasterCard, American Express and other card vendors.  The taxpayer must submit the payment information through IRS-approved secure credit card processing companies.  Each processing company charges a fee for the transaction.  The system is not designed to accept high balance tax payments nor federal tax deposits. Generally, the payments are limited to 2 per year for individuals and 2 per quarter for estimated tax payments.  The providers are Pay1040.com, PayUSATax.com and OfficialPayments. You can review the the IRS-approved options by clicking here.

We’ve explained a lot about federal income taxes, but don’t forget that you also have state and local tax obligations and deadlines.  Each state, county and municipality has different ways of accepting tax filings and payments.  Most have online payment programs in place.  Check with your state and local tax collector’s office online or by phone if you have questions about how, when and where to file your tax return and make tax payments as needed.

If you continually receive tax refunds, it may be a sign that you’re having too much withheld.  The money could be put to better use than loaning it to the government for free.  On the other hand, if you owe taxes every year that you did not expect, you may benefit from strategic tax planning that could lessen your tax burden or provide a more consistent tax payment structure that could ease tax deadline pressures. 

At McRuer CPAs it is our goal to make certain you pay only the taxes you owe. Contact us to set up a tax review session with one of our tax preparation experts.

04/04/2016

Tax Freedom Day Federal and State

The Tax Foundation has released its summary on Tax Freedom Day. It reveals that April 24th is the day this year that marks theoretically how long all Americans must work to earn enough income to pay the nation’s total tax bill.

A Wikipedia entry describes how Tax Freedom Day is calculated; “Every dollar that is officially considered income by the government is counted, and every payment to the government that is officially considered a tax is counted.” The specific date is determined by adding up all federal, state, and local taxes and then dividing that number by the nation’s income.

The Tax Foundation summary reports Americans will pay $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. That’s a total tax bill of nearly $5 trillion adding up to 31% of the nation’s income. The reports says, "Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.”

This year’s April 24th Tax Freedom Day is 114 days into the year (excluding Leap Day). It is one day earlier than last year, due to slightly lower federal tax collections.

If you add annual federal borrowing into the mix, that is, future taxes owed, Tax Freedom Day would occur 16 days later on May 10.

FreedomStates have different State Tax Freedom Days because they each have different tax policies. The taxation and income variances translate into higher-income and higher-tax states celebrating the date later while lower-income and lower-tax states hit the mark sooner. For example, Mississippi has the lowest average tax burden and the tax freedom day for its residents is April 5th this year. Connecticut and New Jersey’s tax freedom days are much later on May 21 and May 12, respectively.

McRuer CPAs clients in the central Midwest see the following State Tax Freedom Days: April 12 for Missouri, April 14 for Iowa and Nebraska, April 13 for Arkansas, and April 19 for Kansas.

To find out more about Tax Freedom Day click here to read the Tax Foundation’s Summary Report.

03/25/2016

Internet Sales Tax Still on the Burner

The use of the Internet can no longer be taxed, but the debate over taxing what is purchased over the Internet remains heated and unsettled.

The Permanent Internet Tax Freedom Act, signed into law in February, permanently bans any state and local taxes on Internet access. The measure also prohibits taxes on Internet-related digital goods and services, thereby ending nearly 20 debate and moratorium extensions on the matter.

Seven states that had been allowed to temporarily charge an access tax due to a grandfather clause must now phase out those taxes by 2020. The states include Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin.

Sales tax calculatorSupporters of the new law say it will guarantee Americans will never have to pay taxes on the service that connects them to the Internet. Federal Communications Commissioner Ajit Pai has put it this way, “Americans need and want the certainty that the digital world will be spared the taxman.”

While Internet connection and operation services can no longer be charged access taxes, most states continue to push for a variety of sales taxes on Internet purchases. Arguments are that the taxes will protect brick-and-mortar businesses from unfair competition. The most recent legislation on this sales taxes issue is called the Marketplace Fairness Act.

The Marketplace Fairness Act would enable states to not only collect sales taxes on Internet purchases but to also impose taxes specifically on remote retailers who have no physical presence in their state. The act requires states to adopt simplified sales tax laws.

As debate has dragged on for years, technology has improved, making it much easier to track online purchases across state lines and then assess and collect sales taxes. Dozens of states are seeking to impose sales taxes on Internet purchases made within their borders. This would subject an online purchase to the same state and local taxes a product or service would have been charged at a local store. Some states are debating proposals that would tax third-party delivery services, targeting major online retailers who use regional shipping centers with massive inventories.

While purchasing tax-free products online provides an immediate cost savings for consumers, supporters of online taxes say the long-term effects of tax-free purchases are painful and deep. They argue that sales taxes generally range between 5 to 10 percent. Local businesses must impose and collect them from customers, so they suffer a 5 to10 percent price disadvantage to Internet retailers who are not required to collect sales taxes. The effects on business range from suffering lower profits to being forced out of business. Internet sales tax proponents say it’s not about supporting taxes in general, but rather about ensuring local job and business growth.

Currently, there is no uniform way to confirm the quantity and scope of tax-free online sales, which makes it difficult to accurately predict sales tax revenues for local and state budget planning. Meanwhile, the ban on Internet access and use taxes will cost states that are currently imposing some type of user fee an estimated $561 million annually. It’s expected that these states will step up their push for sales taxes to make up the difference, but there’s no agreement on the most effective tax rate.

Those who oppose online sales taxes say it’s all about grabbing more tax revenues to facilitate bigger government. They claim taxes charged on out-of-state purchases force those companies to collect taxes without representation. There is also concern that the federal government would enact a law compelling all states to collect a set rate rather than allowing each state to determine its own tax formula.

Some economists add that competition provides the best products at the best prices. They point out that the Internet and sophisticated transportation networks now allow for better consumer choices than ever before and that business is growing. They say sales taxes on those choices would be like an artificial and unnecessary price increase that would affect jobs and economies negatively.

03/09/2016

State-Managed Retirement Savings Accounts Now in 27 States

Retirement jar 1Several states are working on plans to help workers save for retirement. The Bureau of Labor Statistics shows that only about half of full-time workers employed by small businesses or organizations have access to an employer-based retirement plan. By comparison, the numbers show 85 percent of Americans who work for employers with 100 or more employees do have access to an employer-provided retirement plan or benefits program.

To help close the gap, some states are providing access for eligible workers to state-managed individual retirement accounts funded by automatic deductions from the worker’s paychecks.  For example, in 2017 Illinois will launch the Secure Choice Retirement Savings Program, which gives workers a retirement plan option. Full-time employees working for qualified businesses (who do not already provide retirement benefits) will be automatically enrolled into a direct deduction retirement savings plan with a minimum three percent deduction each paycheck.  The employee can choose to have more withheld or to opt out of the program entirely. The money is deposited into a Roth IRA.

The Pension Rights Center in Washington, DC has been monitoring the development of state-administered retirement plans for private-sector workers. It shows that currently 27 states have already approved or are debating proposals to launch state-based retirement plans including: Arizona, California, Colorado, Connecticut, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin.

Last September, the Government Accountability Office (GAO) published a report detailing how “half of private sector workers, especially those who are low-income or employed by small firms, lack coverage from a workplace retirement savings program primarily because they do not have access.” The GAO is recommending ways that the federal government can make it easier for states to manage such plans, while not placing a financial or administrative burden on small business.

01/20/2016

IRS Releases ID Theft Videos

ENews 2016 pic tax theif graphicA series of new videos titled “Taxes. Security. Together.” is being released on YouTube to provide more information about how to protect your identity online. The information includes tips for properly handling the online exchange of tax and financial data.

The videos are a joint effort between the IRS, state revenue departments and tax preparation professionals. The information campaign follows last year’s “Security Summit” where experts gathered to exchange ideas and tactics to fight online tax-related identity theft and tax refund fraud.

IRS Commissioner John Koskinen says, “We are jointly implementing major new procedures to protect taxpayers on our end, but people can help by taking some precautionary steps themselves to help us work to prevent identity theft.”

Many new IRS identity-theft protection steps may be invisible to taxpayers, but you may notice updates for the 2016 tax season that include new password standards for tax software admissions, faster information sharing about tax fraud and tax-related identity theft schemes, and updated verification standards.

The number one tip to prevent your identity from being stolen in a tax-related fraud scheme is to remember the IRS NEVER contacts you by email or telephone. The IRS communicates by letter through the US Postal Service. The department already knows your social security number and an authentic letter will not request you to submit that information.

To review the six new videos released by the IRS, click here.

To read more about online tax-related identity theft, click here.

If you need more information or feel you may have been a victim of tax-related identity theft, contact one of our tax planning and preparation experts at McRuer CPAs.

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