A Quick Reference | Current IRS Standard Mileage Rates for tax deductions

Posted on September 26, 2011 by Administrator
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A Quick Reference | Current IRS Standard Mileage Rates

In mid 2011, due to higher fuel prices, the IRS increased some of the standard mileage rates. This is the first time they have done so since 2008. Standard mileage rates are now as follows…

standard IRS mileage rateBusiness Driving Standard Tax Mileage Rate

This has changed from 51 cents per mile to 55.5 cents per mile (for the second half of the year 2011).

Medical | Moving Expenses Standard Tax Mileage Rate

This also went up $0.045. It is now 23.5 cents per mile (for the second half of 2011) up from 19 cents per mile.

Charitable Driving Standard Tax Mileage Rate

This has not changed – it is still 14 cents per mile. The IRS can’t really change this so easily because it is written into the actual tax code.

Vehicle Depreciation Standard Tax Mileage Rate

This also has not changed and is 22 cents per mile, as dictated by IRS Notice 2010-88

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Vehicles for Hire May Now Use Standard Mileage Rate

Posted on September 8, 2011 by Administrator
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This is a big change in the way vehicles for hire may write off expenses. The IRS issued Rev. Proc. 2010-51 which update the standard mileage rates for 2011 also modified the limitation on using actual expenses for vehicles for hire.

standard mileage rate tax news vehicles for hire

Automobiles for Hire and the Standard Mileage Rate

Unlike in previous years, vehicles for hire, such as taxis, may now claim the standard mileage rate instead of actual expenses. Prior to 2011, this was not available.

Still, there are other restrictions that remain that taxpayers and tax preparers must be aware of. A taxpayer who owns or leases five or more vehicles at the same time (a fleet) must use actual expenses. Also if a depreciation deduction was taken in past years (including bonus depreciation), then actual expenses again must be continued to be used.

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Court Decision – No homebuyer Credit for Home bought from Mom’s Estate

Posted on August 11, 2011 by Administrator
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If you along with other siblings inherit an estate from a parent and you wish to buy the property – be sure to buy it from your siblings and not the estate if you want to collect first tiem homebuyer’s credit. Here’s why.

The first time homebuyer credit

tax news court decision home buyer's creditThe first time homebuyer’s credit that was for qualifying purchases in 2008, 2009, and 2010 did not apply to homes purchased from specified related parties (related party rule). This covers a spouse, parent, grand parent, great grand parent, child, grand child, or great grand child. A sibling, however, does not count as a disqualifying member.

Home Purchase from Mother’s Estate

There was recently a court case where in 2002 a group of siblings inherited a house from their mother.  Under the mother’s will, each sibling received a one-seventh share of the estate after the mother’s death. In 2008, one of the Siblings purchased the home from the estate and claimed $7,500 in first time homebuyer’s credit. This was disallowed by the IRS and it went to tax court.

The IRS says the credit is disqualified under the related party rules

The sale was set up by an attorney and one of the sisters was titled as the executrix of the estate and signed the sales paperwork accordingly. The tax court has decided that the sale was indeed structured in such a way, however, that she purchased the home from the estate and not her siblings. This is too bad. It turns out that the taxpayer’s attorney had advised for other reasons that the home purchased be worded in this manner. Had the sale been structured so that it was worded that the taxpayer was buying the home from her brothers and sisters and not specifically the estate, the credit would have been allowed. The taxpayer had to repay the full amount of the credit back tot he IRS. I’m not sure if there was penalties, fees, and/or interest involved in the case, they news source did not specify.

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The top 8 tax reasons that people get in trouble with the IRS

Posted on August 10, 2011 by Administrator
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When it comes to breaking the tax code, these are the things that individuals are most likely to get in trouble for with the IRS

tax code trouble reasons with the IRS

1) Under reporting income

This is when the IRS finds out that you had more income than you reported – and they take this very seriously and it could mean jail time. The first thing the IRS will look at in an audit is your bank statements. Be prepared to explain where all of your deposits came from.

2) False dependent claims

There are a high number of taxpayers that try to scam the revenue system by claiming children, etc that are not within the rules of claiming dependents. Some go as far as to try to make up dependents that don’t even exist.

3) No source of income

There are plenty of “under the table” careers out there. If an individual supports a family, pays rent all year, etc, and has no income…. he or she can expect a knock on the door at some point.

4) Overstated deductions

There have been cases where taxpayers have tried to claim hundreds of thousands in tax deductions for simply things like cost of gas in their car to get to work – which by the way is  not even tax deductible in the first place in most cases.

5) Claiming personal expenses as business expenses

An obvious no no. Remember that any time there is self employment, a tax return is much more likely to get audited.

6) A sudden transfer of all property and capital

This raises the tax flag. The IRS is likely to investigate.

7) Property and or funds transferred to family

Same as number six.

8  Keeping two sets of books when self employed – or not keeping books at all

There are business owners that keep track of how much they make with cash payments and then a separate set of books for payments that are easier for the IRS to track – such as credit card proceeds. The IRS knows that business owners do this and they weren’t born yesterday. It;s right to your bank statements in an investigation and any kind of laundering is a serious offence. Just be sure to report everything.

In summary, I know it is easy to become resentful when we have to pay taxes. Taxes, however, are the sign of a civilized society. Despite all of the waste – you are still getting a lot back for your money. Take pride and comfort in paying up and staying squeaky clean when it comes to being legal.

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Filing a tax return is not “voluntary”

Posted on August 6, 2011 by Administrator
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This is sort of old news but it keeps coming up. There have been many cases where a fraudulent tax preparing companies and rouge lawyers have tried to twist the wording of the tax code to argue this case. The IRS keeps winning these battles.

Tax News – Filing a tax return is not voluntary

is filing a tax return voluntaryDo not assume that you do not have to file a return based on this simple bit of confusion. According to the IRS, “The word voluntary, as used in Flora and in IRA publications, refers to our system of allowing taxpayers initially to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them from the outset. The requirement to file and income tax return is not voluntary and is clearly set forth in sections 6011(a), 6012(a), and 6072(a). See also Treasury Regulations 1.6011-1(a).”

In other words – you as the tax payer must check to see if the law states that you must file a return or not. This is based mostly on your gross income amount.

The tax payer must figure out if filing a return is necessary

This is done by comparing the standard deduction and adding the personal exemption and comparing this to filing status and gross income. Though there are many exceptions. Filing a tax return is certainly not voluntary for most people that have an income. It’s true, however, that if you make less income than the required amount to file based on your filing status, that filing a tax return to claim a refund is, in fact, optional. So before you go and “not file a tax return”, consider the gross income requirements for this under your filing status. This can be somewhat complicated and your best bet is often to consult a tax professional.

If you do not file, and you were supposed to, you can be subject to the non-complying individual to criminal penalties. This includes fines and perhaps even imprisonment.

Many court rulings have confirmed this tax law

There have been many cases in which individuals have used their own interpretations of the tax code to try and get away with not filing a tax return. None of these have been successful and many have led to real prison terms.

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Tax News – IRS now allows breast feeding equipment as a medical deduction

Posted on August 5, 2011 by Administrator
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Some time ago, the IRS ruled that breast feeding equipment could not be claimed as a medical expense and taken as an itemized deduction or a qualifying Health Spending Account expense. Recently, however, the IRS gave in to pressures from a group of senate legislators and agreed to reverse that decision.

Breast feeding equipment is now a qualified medical deduction

breast feeding tax newsThe IRS ruling about a year before this reversal stated that the cost of breast pumps and other breast feeding supplies were not considered legal medical expenses for Schedule A deduction. Now and thanks to this reversal, the IRS totally allows these medical expenses as legitimate deductions. At first the IRS denied such a deduction, saying that it was more for feeding than it was for health. All of this even though the American Academy of Pediatrics has long argued that breastfeeding has many medical benefits for both mother and baby.

Senators Jeff Merkley (D-OR) and Tom Harkin (D-IA), and Representatives Sander Levin (D-MI) and Carolyn B. Maloney (D-NY), wrote the IRS commissioner to reverse the ruling and allow breastfeeding equipment to be tax deductible. Forty five members of Congress got on board and wrote the IRS to protest its classification of breast pumps. Finally, the IRS was persuaded to allow the deduction.

Since the IRS reversal, several issued a statement praising the new ruling. They were Rep. Sander Levin, D-Mich., Rep. Carolyn Maloney, D-N.Y., Sen. Jeff Merkley, D-Ore., and Sen. Tom Harkin, D-Iowa. Breast feeding equipment and Flexible Health Spending Accounts.

Flexible Health Spending Accounts

Along with this ruling, the IRS generously agreed to allow tax free Flexible Health Spending Account reimbursement for this equipment. This means that tax deferred money that is set aside for medical expenses may now be used accordingly.

Accountants, tax preparers, clients, and do it your self taxpayers can now confidently claim breast feeding equipment as a medical expense. Let’s not forget, of course, that these deductible expenses on the schedule A must be greater than 7.5% of adjusted gross income to be deducted.

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Tax News

Posted on August 3, 2011 by Administrator
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IRS rulings, court decisions, and clarifications based on the United Stated Tax Code / Law.

The significance of tax news

Often times, a client along with their tax professional does not know which was to prepare their taxes because of grey areas. On one hand, the taxpayer wants to do the correct thing and abide by the federal tax code. On the other hand, it seems a waste to pay more tax because of not claiming something that is perfectly legal to deduct. It is up to both the client and the preparer of the tax return to figure out exactly how the IRS interprets different tax laws. Being up to date on the latest tax news and court decisions will help the taxpayer to maximize their refund.

IRS Court Rulings

It is of obvious significance that we can place a lot of weight when we look to see how the federal courts ruled in IRS hearings. Thus it makes sense to archive such rulings for tax code reference for when we must prepare a tax return. We can access this tax law database whenever we come to a question about a tax code grey area. If there is no supporting tax news or court rulings to go by then we must do further research and always stay alert for new court decisions in the appropriate area of the code.

Tax Code Clarification

When we make decisions regarding which way to file certain areas and forms of the tax return, we can research tax news data to see which way is the most correct and legal way. This avoids rejected returns and also means less IRS letters back to clients. In an audit, it helps to be fully prepared as to explain why you filed in the way that you did. Now you can justify and prove that you did not intentionally violate the tax code.

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