Biz Tips

04/2008
More small vehicles qualify for
the cents-per-mile method…

Firms can value employees’ personal use of company cars at 50.5 cents a mile, (as opposed to using the more complicated lease value method), but only if the auto cost $15,400 or less.  For trucks and vans, the cents-per-mile method can be used if the vehicle costs $16,700 or less.  For more expensive vehicles, the IRS annual lease value tables must be used (Rev. Proc. 2008-13).  The service will release the updated lease value tables for 2008 soon.

The Kiplinger Tax Letter, February 22, 2008

03/2008
Claiming cell phones as a tax free
fringe benefit will get easier… 

Congress is prodding IRS to loosen the rules that tax personal use of employer-provided cell phones and require detailed records to be kept on business usage.  Workers now must document the business purpose, time and place of calls.  Lawmakers say cell phone usage should be on a par with that of company desk phones or e-mail, which needn’t be tracked.  If IRS doesn’t ease the rules soon, Congress will OK legislation doing so.

Kiplinger Tax Letter, February 22, 2008

02/2008
Highlights of the New $152 Billion Stimulus Law

In an effort to boost the U.S. economy, Congress passed the Economic Stimulus Package Act of 2008 on February 7th. The legislation will provide tax rebate checks to about 130 million households, starting sometime in May.

The package also contains business tax incentives and help for distressed homeowners. Here are the major provisions in the law:

• Single individuals may be entitled to receive a one-time tax rebate of up to $600; joint filers may qualify for up to $1,200. The rebate amount begins to phase out for higher-income taxpayers, beginning at $75,000 of adjusted gross income for single filers and $150,000 for joint filers (based on 2007 tax returns).
• People who don’t pay income tax, may qualify for $300 rebates if they had at least $3,000 of earned income or tax liability of at least $1 in 2007. Social security income and federal payments to disabled veterans, and their widows, count as earned income for rebate purposes.
• Those who qualify for the basic rebates are also eligible for an additional $300 for each dependent child under age 17.
• Businesses may qualify for 50% bonus depreciation on qualifying new equipment purchases in 2008.
• The Section 179 expensing limit for 2008 is increased from the previous $128,000, to $250,000, and the 2008 phase-out threshold is increased from $510,000 of total equipment purchases to $800,000.
• The loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration have been increased, a provision intended to assist taxpayers during the sub-prime mortgage crisis.

01/2008
YOU CAN NO LONGER USE YOUR IRA TO CIRCUMVENT THE WASH SALE RULE

Having your IRA quickly buy back stock that you sold at a loss will trigger this rule, IRS says. The wash-sale rule bars a deduction for a loss on the sale of a security if you purchase an identical one within 30 days before or after the sale. Also, you can’t raise your basis in your IRA by the amount of the disallowed loss according to new Rev. Rul. 2008-5. The IRS has flip-flopped on this issue in the past, initially OK’ing a loss deduction and then saying the issue was under study. Now the Service officially says no.

11/2007
Email Scams

The IRS has warned taxpayers of a new phishing scam in which a phony IRS email tells recipients they can receive $80.00 by filling out an online customer satisfaction survey.  The IRS does not initiate contact with taxpayers through email.

Another recent scam involves a “Tax Avoidance Investigation” email claiming to come from an IRS Fraud Department in which the recipient is asked to complete an “investigation form.”  It is believed that clicking a link to the form may activate a Trojan Horse that can take over the person’s computer hard drive and allow someone remote access.

10/2007
IRA Owners Should Steer Away From "Prohibited Transactions"

The IRS defines a “prohibited transaction” as the improper use of IRA assets by the participant, the named beneficiaries or a disqualified person under the law.  For this purpose, a “disqualified person” can be another family member, and the participant’s closely held company.

The list of prohibited transactions includes:

1. Borrowing funds from the IRA.
2. Selling property to the IRA.
3. Using the IRA as security for a loan.
4. Buying personal property with IRA funds.
5. Receiving unreasonable compensation for managing IRA funds.

According to a new government ruling, the prohibition extends to investments in a related party’s company.  When a prohibited transaction occurs, the IRS treats the IRA owner as having withdrawn his or her account’s entire balance.  So, if a client violates the rules, the distribution will be fully taxed at ordinary-income rates reaching as high as 35 percent.  Additionally, the participant could owe an extra 10 percent penalty tax if he or she is under age 59 ½. 

07/2007
IRA Owners Should Steer Away From "Prohibited Transactions"

The IRS defines a “prohibited transaction” as the improper use of IRA assets by the participant, the named beneficiaries or a disqualified person under the law.  For this purpose, a “disqualified person” can be another family member, and the participant’s closely held company.

The list of prohibited transactions includes:

1. Borrowing funds from the IRA.
2. Selling property to the IRA.
3. Using the IRA as security for a loan.
4. Buying personal property with IRA funds.
5. Receiving unreasonable compensation for managing IRA funds.

According to a new government ruling, the prohibition extends to investments in a related party’s company.  When a prohibited transaction occurs, the IRS treats the IRA owner as having withdrawn his or her account’s entire balance.  So, if a client violates the rules, the distribution will be fully taxed at ordinary-income rates reaching as high as 35 percent.  Additionally, the participant could owe an extra 10 percent penalty tax if he or she is under age 59 ½. 

05/2007
DID YOU KNOW?

The IRS will remove a tax trap for one-person S corporations.  The service is working on guidance clarifying that S-firm owners in states that don’t let such firms buy one-participant group health insurance plans can deduct the premiums.  The IRS had said that the above-the-line deduction applied only to policies purchased in the name of the corporation.  To get the deduction, the S firm must pay the medical premium, however.

The Kiplinger Tax Letter

Washington, January 12, 2007

03/2007

Under IRC Section 1244 of the tax code, you can claim a tax deduction for loss on stock from a “qualified small business corporation”. (IRC Sec. 1244(c)(3)  The loss is fully deductible against ordinary income as well as any capital gains.  Single filers can deduct up to $50,000 of losses from Section 1244 stock in any one year, while joint filers can deduct up to $100,000.  To qualify for Section 1244 treatment: The corporation must issue the stock directly to the investors, the stock must be acquired in exchange for cash or property contributed to the corporation, the stock must be issued by a small business corporation (invested capital of $1 mil or less), and the corporation must be an actual operating company (not an investment company).

12/2006
SEVEN STEPS TO SING SING

Here are the most common criminal violations of the tax law:

1. Claiming false deductions
2. Keeping two sets of books
3. Overstating the amount of deductions
4. Hiding or transferring assets or income
5. Making false entries in books and records
6. Claiming personal expenses as business expenses
7. Deliberately underreporting or omitting income

Source:  IRS, www.irs.gov

11/2006
Charitable Contributions:

Previously, documentation needed for cash contributions depended on whether the amount was less than $250. If under $250, recordkeeping was very minimal; if $250 or more, the taxpayer had to have a written acknowledgement from the charity that included certain information.

New IRS requirements.

Beginning in 2007, all cash gifts, regardless of amount must be substantiated by a bank record or a written communication stating the charity’s name and the amount and date of the contribution. In addition, self-created records (such as logbooks), which previously could be used to document small donations, will not be accepted. This new rule will encourage contributors to make donations by check or credit card, in order to satisfy the new requirements.

Regarding LLC's - 10/2006

Generally, profits and losses are divided among the Members of an LLC relative to their ownership percentage.  However, if the LLC is taxed as a partnership (not taxed as an S-Corporation or C-Corporation), the Members can choose to vary how profits are allocated each year.

For example, an LLC owned 50/50 by two members can choose to allocate profits 75/25 one year in favor of one of the members, then 25/75 in favor of the other the next year.  These allocations are called “Special Allocations” and the authority to do so must be contained in the LLC’s Operating Agreement.  Nevada Revised Statutes do not provide this authority—in order to have this power, the Operating Agreement must specifically provide for this contingency.

The IRS is casting a wider net during executive pay audits - 09/2006

Agents are digging deeper to make sure that employers are reporting and withholding on taxable fringe benefits provided to employees. Among the perks being eyed: Spousal travel to meetings, personal use of a company-supplied automobile, cell phones and home computers, stock options (both qualified and non-qualified), educational assistance, relocation expenses, prizes and awards, and country club memberships.

Deducting Sales Tax Now An Option…. - 07/2006

Remember when you could deduct sales tax on your federal income tax return? That deduction was eliminated in 1987 – but its back for a limited time. Legislation passed in 2004 allows taxpayers to choose between deducting state and local sales tax or state and local income tax on their 2004 and 2005 federal tax returns, and is expected to be extended for 2006. You can base your deduction for sales tax either on actual receipts you’ve kept or on amounts given in tables provided by the IRS.

2006 Mileage Rates Announced - 05/2006

The standard mileage rates have changed again. The IRS increased the rates for the final four months of 2005, but has lowered them for 2006.

The rate for business driving is 44.5 cents per mile, and the rate for medical and moving expenses is 18 cents a mile. The rate for charitable driving remains at 14 cents a mile except for driving related to hurricane recovery work.

The 2006 mileage rate for charitable driving related to the 2005 hurricanes is 32 cents a mile for deduction purposes and 44.5 cents a mile for reimbursement purposes.

More Audits... - 03/2006

The IRS has stepped up its audits of high-income taxpayers (those earning $100,000 or more). In fiscal year 2004, one hundred ninety five thousand two hundred (195,200) audits were conducted. This figure represents a 40% increase in the audit rate over 2003 and a 74% increase over 2002.

Cancelled Checks- 12/2005

All Companies should insist on having their bank return the Company’s cancelled checks with the monthly bank statement.  Cancelled checks are Company documents and will likely need to be presented to the IRS in the event of an audit of the Company’s records.

Most banks charge significant per check fees to produce copies of cancelled checks, and may not be able to provide copies of checks that are several years old.  It is currently the trend of banks to charge a monthly fee to return cancelled checks.  From the Company’s perspective, this is money well spent

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