Tax & Business tips from the Futcher-Henry Group

Auto Deductions Need Documentation

david@futcher-henry.com (David Futcher, CPA) — Fri, 13 Mar 2009 17:41:00 +0000

Auto deductions are one of the most frequent business deductions, but is the amount you claim really deductible? Not if there's no documentation, say the laws and recent court cases.

Once recent case involved a man who could absolutely establish that his travel was for business purposes, and not reimbursed. However, he didn't have a log that showed when and to where his trips occurred. The IRS and the tax court denied him any deduction.

Keeping a log can be a tough habit to get into, but without one, your auto expenses may be completely disallowed. That change could be an expensive one for some of you, especially if you do a lot of travel. Something as simple as a small calendar book with the names of the cities you travel to on that day can save your bacon on this deduction.

Stimulus Summary

david@futcher-henry.com (David Futcher, CPA) — Fri, 13 Mar 2009 17:36:00 +0000

The recently passed economic stimulus bill contained several tax code changes designed to increase our personal and business spending. These include a deduction for sales tax on auto purchases, even for non-itemizers, increased depreciation for business asset purchases, and a credit for first-time home buyers.

A nice summary of these provisions can be found here.

IRS Mileage Rate for 2009 Will Be 55¢

david@futcher-henry.com (David Futcher, CPA) — Wed, 26 Nov 2008 23:07:00 +0000

The IRS announced that the standard mileage rate usable for business mileage reimbursements will move to 55¢ effective January 1. This rate falls in between the early 2008 rate of 50.5¢ and the late 2008 rate of 58.5¢. What's nice is that the stupid half cent is finally gone!

Medical and moving mileage will go to 24¢ per mile, with charitable miles at the good old standard rate of 14¢.

Employers who reimburse their employees should be sure to update their reimbursement systems immediately after year end. If the old rate of 58.5¢ is used instead, the difference of 3.5¢ is technically taxable income to the employee, and payroll taxes would be due on the difference. No big deal if you're a sole proprietor, but for larger companies, a miss on that could be a problem.

McCain & Obama's Plans For Your Tax Bill

david@futcher-henry.com (David Futcher, CPA) — Fri, 22 Aug 2008 01:29:00 +0000

As we head toward the climax of the 2008 presidential election, we'd like to bring you the highlights of some tax-related proposals of each of the candidates. We're not here to promote either candidate. While there are many other considerations in selecting your candidate, few will hit you as directly in the pocketbook as the income tax.

The Washington Post shows a nice summary of the effect the candidates changes would have on your family's income. You can see quickly that Obama favors reducing the overall tax burden slightly, but leans toward increasing the taxes for high-incomers to fund further reductions for those in the lower income levels. McCain's plan would reduce overall taxes further, and would provide some relief for all income levels, with more reductions to the high-incomers who pay more of the taxes.

If you'd like some detail on the proposals, visit the Tax Policy Center. Some of the highlights:

Issue	McCain	Obama
Capital gains/dividend tax rate (currently 15% max)	15%	20%
Max Corporate tax rate (currently 35%)	25%	35%
Estate tax exemption	$5 Million	$3.5 Million
Estate tax rate	15%	45%
Other	Require 60% approval for tax hikes	Impose additional 2-4% Social Security tax on those making over $200k-250k
	Increase dependent exemption by 70%	Increase education, earned income and child care credits for low incomers

IRS Increases Mileage Rate for 2nd Half of 2008

david@futcher-henry.com (David Futcher, CPA) — Mon, 23 Jun 2008 22:47:00 +0000

In case you haven't noticed, fuel prices are up. Oh...you already knew that?

Well, fortunately, the IRS has gotten wind of this trend as well. As of July 1, 2008, they have increased the standard mileage rate by 8¢, to 58.5¢ per mile. This mileage rate is used by employees or the self-employed to calculate deductions for the usage of their personal vehicles.

Also increasing is the medical and moving expense mileage rate, up 8 cents to 27 cents per mile. As always, the charitable mileage rate remains at 14 cents. Isn't that special...

New Rules Tighten Proof of Contributions

david@futcher-henry.com (David Futcher, CPA) — Fri, 11 Jan 2008 04:36:00 +0000

Guidelines issued by the IRS increased the level of documentation required for many contributions to charitable organizations. All monetary contributions must now be supported with either bank records or a written receipt from the organization that gives information about the date and amount of the donation.

Until this change, documentation from the charity was only required for individual contributions over $250. Now that bank records or receipts are required, some smaller cash contributions that we previously deducted are likely not going to qualify. For instance, dropping cash in the collection plate at church, contributing to the Salvation Army's kettle, and pitching in a buck or two at your Rotary meeting will be nondeductible without a receipt from the organization.

Sometimes it seems like the IRS has it in for charities. I'm not sure what that motivation would be, so I'll presume I'm wrong. I just don't see the damage in allowing some minimal threshold for deductible cash contributions with no receipts, if the circumstances seem reasonable.

IRS to Delay Refund Processing for Some Filers

david@futcher-henry.com (David Futcher, CPA) — Thu, 03 Jan 2008 00:12:00 +0000

Because Congress failed to fix the alternative minimum tax (AMT) until the last moment, the IRS announced that it will have to delay processing for some returns potentially affected by the AMT changes. Instead of delaying all returns, as was originally thought to be the case, the IRS will only delay processing of returns that use the affected forms.

The forms that will trigger an e-file rejection until the IRS systems have been updated are the following:

Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.

This seems to be pretty good news, as these forms are not incredibly common among returns filed by our office. The Education Credit form is probably the one that would affect the most filers, but the IRS still expects to be ready to accept these returns by February 11. The number of returns filed by our office before February 11 last year? Three.

2008 Mileage Rates Released

david@futcher-henry.com (David Futcher, CPA) — Mon, 03 Dec 2007 19:02:00 +0000

The IRS announced that the mileage rate for business use of a vehicle will increase to 50.5¢ per mile for 2008. This is just a two cent increase from 2007.

For moving and medical expenses, you can use a mileage rate of 19¢ in 2008. This is actually a one penny drop from 2007. Apparently there are special, cheaper gas stations you can use when moving or heading to the hospital.

And since the rate is set by statute, the charitable mileage rate of 14¢ remains another year.

Business or Hobby?

david@futcher-henry.com (David Futcher, CPA) — Mon, 30 Apr 2007 21:34:00 +0000

Is raising pigs for your kids' 4-H project a business? How about selling kitchen supplies just so you can buy at wholesale prices? In many cases, the IRS has found activities like these to be hobbies, not businesses. The IRS has issued fact sheet FS-2007-18 to explain the rules for determining if an activity qualifies as a business and what limitations apply if it's a hobby.

Basically, if you don't have a realistic chance of making money, the IRS will want to call your activity a hobby. The big downside of this treatment is that your expenses have to go on your Schedule A, in the section that's reduced by 2% of your gross income from all sources. The expenses also can't be more than the gross income from the activity. Don't worry too much about how to report it; just know that it's a lose-lose situation if your activity is deemed a hobby.

Oh, and even if you don't get any benefit from your deductions because of the rules above, you still get to pay tax on the revenue from the activity. Isn't that generous?

Things you can do to help your activity seem more like a business include having a business plan that realistically shows you could make money on the deal, handling things in a businesslike manner (business cards, advertising, etc.), and, well, making money! If you have a profit three out of five years, the IRS will leave you alone. Of course, you can be in a legitimate business and lose every year; the burden of proof is yours, though.

Tax Preparers Gone Wild

david@futcher-henry.com (David Futcher, CPA) — Mon, 12 Feb 2007 23:44:00 +0000

Nothing against our friends in the transportation industry, but if your school bus driver is preparing your tax return, you might have a problem. Such was the case for over 300 individuals in Missouri

A daytime bus driver and nighttime tax preparer, Yolanda White, has been accused of filing scores of bogus tax returns for people. Apparently, the IRS audited 30 of her clients, and they all contained fraudulent deductions. Guess who else the IRS will be auditing? That's right, the other three hundred clients of hers.

So when it comes to taxes, remember that the same person who gets you bussed can also get you busted.

Do You Owe Tax on eBay Sales?

david@futcher-henry.com (David Futcher, CPA) — Sat, 03 Feb 2007 06:56:00 +0000

The friendly folks at the Internal Revenue Service want to make sure you know that if you sell things on eBay, you might owe them money. They issued a summary that gives some guidelines on whether you're in the 'business' of auction sales.

Basically, if you're just selling things occasionally, in the online equivalent of a garage sale, you're clear. But if your activity is repetitive, or you buy items with the intention of reselling them for a profit, you could well be in business, whether you know it or not. In addition to regular income tax, the Service could want an extra 15% self-employment tax.

They just wanted to make sure you know! ;)

New Rules for 2007

david@futcher-henry.com (David Futcher, CPA) — Thu, 04 Jan 2007 19:40:00 +0000

As we begin the new year, you'll want to keep in mind some of these new or updated tax law provisions that take effect January 1:

Individuals

Charitable contributions have to be documented in order to count. Cancelled checks or receipts can fill that requirement. No more deductions for cash in the offering plate or Salvation Army kettle, though.
Private Mortgage Insurance (PMI) is now deductible if you get your mortgage in 2007 or beyond.
You can contribute an extra $500 to your 401(k) plan with a new maximum amount of $15,500.

Businesses

Maximum amount of equipment purchases you can immediately expense instead of depreciate increases to $112,000.
Standard mileage rate is up to $0.485 per mile.
For contractors and manufacturers, the pruduction activities deduction increases from 3% to 6% of your income.

IRS Gives Business Formula for Telephone Tax Refund

david@futcher-henry.com (David Futcher, CPA) — Wed, 22 Nov 2006 21:14:00 +0000

The IRS has announced a formula that businesses can use to determine the amount of a telephone tax refund. A while back, I discussed the fact that individual taxpayers will receive refunds of telephone taxes that were determined to have been illegally charged by the government. Individuals were given a formula based on the number of dependents that would determine their refund amount, but businesses were supposed to add up the tax from their phone bills.

Instead, the IRS has issued an easier way to calculate a refund amount. It's still a little complicated, but better than having to dig out all your old phone bills. You're supposed to figure the percentage of your bill that was made up of the tax, based on your September and April 2006 bills, then apply that percentage to your total phone bills for the refund period, March 1, 2003 to July 31, 2006.

The bottom line is that when we prepare a business's tax return, we're going to need those two months' phone bills in order to figure the refund that's due you. A business, for this purpose, is a corporation or partnership

Here Come the Dems

david@futcher-henry.com (David Futcher, CPA) — Mon, 20 Nov 2006 22:55:00 +0000

With the new regime about to take over Washington, tax proposals that would probably not have passed in a Republican-controlled Congress are already flying around. One idea on self-employment tax for S-corporation owners is particularly scary.

S-corporation owners are subject to payroll taxes on their wages, but not to the 15% self-employment tax on the income their company earns. One proposal would end that treatment for all S-corporations. Another more limited proposal would end it only for personal service companies: doctors, attorneys, ACCOUNTANTS, and the like.

This area is being addressed because of abuse in the S-corporation arena. Many owners will unrealistically lower their wages in order to increase company income. This saves them about 15% on the income. Handled appropriately, S-corporations have become a significant planning tool for businesses. Removing their advantage for everyone seems like a little overkill.

Welcome to life in a Democratic congress!

2007 Mileage Rates Released

david@futcher-henry.com (David Futcher, CPA) — Mon, 13 Nov 2006 16:57:00 +0000

Mileage rates will be back up to 48.5 cents per mile for business miles driven in 2007, according to the latest figures issued by the IRS. Medical and moving miles will be deductible at 20 cents per mile.
The increase for business miles is 4 cents over 2006. For medical miles, the increase is 2 cents, from 18 to 20.

Of course, charitable mileage rates have remained steady at 14 cents per mile.

Retirement Contribution Limits for 2007 Announced

david@futcher-henry.com (David Futcher, CPA) — Mon, 23 Oct 2006 21:48:00 +0000

The IRS has issued the latest limits on retirement plan contributions for 2007. While past years increased because of changes in the law, the 2007 increases are due to inflation adjustments.

Plan	Limit
401(k)	$15,500 (up $500) $20,500 if born before 1958
SIMPLE plans	$10,500 (up $500) $13,000 if born before 1958
Keoghs, profit sharing	$45,000 (up $1,000)

Another Tax Scam Sniped

david@futcher-henry.com (David Futcher, CPA) — Sat, 21 Oct 2006 05:04:00 +0000

Folks, we'd love to tell you you've got a $12 million refund coming to you. But when you hear things like that about your tax situation, take them with a ~~grain~~ pound of salt. Otherwise, you might end up indicted like Wesley Snipes!

Snipes bought into a scam that claimed only income earned outside of the United States is taxable under the Internal Revenue Code. Obviously, the scam and its purveyors were full of, well, hot air (this is a family-friendly blog!)

Snipes and his (former) CPA have been indicted on eight counts of tax evasion. With his current career status, I'm just trying to figure out how many decades it will take him to pay back the $12 million.

New Installment Payment System from the IRS

david@futcher-henry.com (David Futcher, CPA) — Fri, 20 Oct 2006 20:19:00 +0000

The IRS announced that they have a new, easier system for arranging payments on delinquent taxes. Taxpayers can now go online and arrange for a free 120 day extension of time to pay (interest and penalties will still apply), or for $43, can request to pay their balance on a monthly payment plan (again, with interest and penalties).

While this simplifies the process of applying for an installment payment arrangement, the fact remains that the IRS is not a low-cost lender. Between the interest and late payment penalties, you're going to pay over 13% finance charges. The best bet is always to pay the Service as quickly as you can, and let us help you avoid situations where you would have a delinquent balance in the first place.

Bottom line is, paying the IRS late is bad...almost as bad as paying your CPA late!

Check Your Credit for Free

david@futcher-henry.com (David Futcher, CPA) — Tue, 26 Sep 2006 15:26:00 +0000

AnnualCreditReport.com

Thinking about applying for a loan or refinancing your house? Make sure you know what the bank will see before you go. Federal legislation requires Experian, Equifax and TransUnion to allow you to get a free copy of your credit report each year.

The site is sponsored by the three companies, easy to use, and will give you your information without subjecting you to a hard sell for some kind of credit monitoring service. (You know the kind--"you can cancel in the next 30 days, but it's $40 if you don't"!)

You're eligible for a report from each agency each year, which means you can receive three free reports. If you want the FICO score, which many mortgage lenders use to evaluate you, it's a small charge.

Refunds for Everyone!

david@futcher-henry.com (David Futcher, CPA) — Fri, 01 Sep 2006 19:04:00 +0000

That's right, everybody's getting a refund! And they could be as much as ... (drum roll) ... sixty dollars!

Okay, maybe that's not much to get excited about.

The federal government has had its hand slapped in court over collecting a tax on telephone service since 1898. The courts decided that the Treasury Department should not have been collecting this tax on long distance service, just on local service. As a result, the IRS will refund $13 billion of the collected tax to taxpayers.

The refund will be claimed on your 2006 tax return, where it will be treated as a payment towards your tax bill. Individuals will receive a refund ranging between $20 and $60, based on the number of exemptions they claim on the return.

Businesses will also receive a refund, but right now, the IRS says businesses must prove the amount of tax paid based on phone bills since 2003. It's likely that they will come up with a method of estimating this amount instead, so you business owners don't need to go digging through your old invoices just yet.

No Receipt? No Contribution!

david@futcher-henry.com (David Futcher, CPA) — Wed, 16 Aug 2006 15:41:00 +0000

Contribution documentation will be tightened down in 2007 under the new tax bill passed by congress. To claim a deduction, a donor will be required to have a canceled check, bank record or receipt listing the name of the charity, the date and the amount of the contribution.

Current rules require a receipt from the donor only for contributions exceeding $250. Contributions for less than that amount have been documented in some instances by taxpayers keeping logs of their contributions. That's not going to cut it under the new rules.

Low Capital Gains Rates Extended

david@futcher-henry.com (David Futcher, CPA) — Thu, 15 Jun 2006 22:39:00 +0000

Taxes on capital gains and dividends have been locked in at their current low rates in the recent tax bill, at least for another two years.

Capital gains on assets held more than one year and dividends received from qualified corporations have been taxed at a maximum rate of 15% since the 2003 tax bill was passed. However, these rates always had an expiration date of 2008. With the recent changes, the rates are good through 2010.

One other interesting provision of the 2003 capital gains rate changes that will soon take effect: a 0% rate on low-income individuals. Between 2008 and 2010, these individuals will be allowed a certain amount of capital gain with no tax whatsoever! A planning opportunity may exist here...giving appreciated assets to your children (18 or over), who may have low enough income to take advantage of the 0% rate.

Kiddie Taxes Increased in New Tax Bill

david@futcher-henry.com (David Futcher, CPA) — Tue, 13 Jun 2006 15:43:00 +0000

The 'Kiddie Tax', which taxes children's unearned income over $1,700 at the parents' rate, has been extended to apply to children up to the age of 18. Until 2006, the additional tax only applied through the age of 14.

One consideration of this new law will be educational savings accounts. Custodial accounts (such as UTMA accounts) typically have the child named as the owner, and may result in income being subject to the Kiddie Tax. However, other college savings vehicles such as Section 529 plans are sheltered from current taxation, and may be a better option.

This is one of the provisions of the new tax bill signed in May. We'll provide more details on other facets of the bill over the next few weeks.

Social Security benefits reduced for upper-income retirees.

david@futcher-henry.com (David Futcher, CPA) — Fri, 05 May 2006 23:03:00 +0000

2007 will bring with it what is essentially a new tax on seniors with high income. Retirees with income over $160,000 in 2005 ($80,000 if single) will face a soaring Medicare Part B premium beginning in 2007, and increasing in 2008 and 2009.

Will this affect you? First, find your 2005 adjusted gross income - the last line on the front page of your 1040. Then, add tax exempt interest to see if you exceed the income threshhold. If you do, you will face a surcharge ranging from 13% to 73% of the Medicare Part B premium, depending on income levels.

The surcharges will double in 2008, and triple in 2009. By 2009, couples with income over $400,000 will be paying a surcharge equal to 220% of the Part B premium. And you thought all those Medicare taxes you paid were enough to give you coverage in your golden years!

Audits on the Rise

david@futcher-henry.com (David Futcher, CPA) — Fri, 17 Mar 2006 20:08:00 +0000

The Internal Revenue Service announced today that the 2005 IRS Data Book is available at IRS.gov. The publication contains tables detailing, among other subjects, the amount of revenue collected, the number of audits (examinations) conducted, and the number of refunds issued between October 1, 2004, and September 30, 2005 – Fiscal Year 2005.