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Finally, Tax Breaks coming for 2015

It appears that Congress will pass and the President will sign the “Protecting Americans from Tax Hikes” Act.

For businesses, this will make permanent the $500,000 section 179 deduction and will extend bonus depreciation through 2019 as well as allow for a 15 year depreciation life for certain leasehold improvements and restaurant property.

For individuals, the Bill extends permanently the ability to make to $100,000 of charitable contributions directly from an IRA. Other tax benefits such as the $250 educator expense deduction and the American Opportunity Tax Credit for college tuition were also made permanent.

Good news for taxpayers, it is a shame that Congress waited until the last two weeks of December to finally address this.

On another note, the IRS has issued the standard mileage rates for 2016.

2016 Standard Mileage Rates Released (IR-2015-137; Notice 2016-1)

The IRS has released the 2016 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes.

The 2016 standard mileage rate has decreased to 54 cents per mile for business uses and 19 cents per mile for medical and moving uses. It remains at 14 cents per mile for charitable uses. For purposes of computing the allowance under an FAVR plan, the standard automobile cost may not exceed $28,000 ($31,000 for trucks and vans).

The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2016, and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2016.

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2015 Planning Issues for Individuals

Overlooked tax issues

With the end of each year there are issues to be considered which vary with each individual’s circumstance.   Some overlooked issues are listed below.

Retirement Distributions:  The requirement to take minimum distributions from retirement accounts begins the year a taxpayer reaches the age of 70½. This first distribution may be delayed but no later than April 1 of the following year but, if delayed, it will mean that two distributions will be received in one year. The balances of all retirement accounts should be considered in determining the required minimum distribution; however, the distribution can be taken from one or all accounts. Failure to take the required amount can result in a penalty of 50% of the amount that was not distributed.

Medicare:  An individual becomes eligible for Medicare at age 65 even though they have not yet reached the age to receive full Social Security benefits. There is a 7 month enrollment period which is the 3 months prior to, the month of, and the 3 months following the month of obtaining age 65. If this enrollment time frame is missed, unless special circumstances apply, enrollment would take place during the general enrollment period of January 1 through March 31 of each year with coverage beginning July 1. Late enrollment may result is higher premiums for both Part A and Part B.

Beneficiaries:  Reviewing the designated beneficiaries listed for retirement accounts and life insurance proceeds should be done periodically. The designated beneficiary on the account, whomever that may be, is entitled. There have been many instances where beneficiaries should have been changed due to a change in circumstances but were not. The review should also include bank and brokerage accounts for payable upon death beneficiaries. Beneficiary designations override any instructions left in a will.

 

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2015 Charitable Donations and NC Medical Deductions

Charitable Donations:   Donations must be made to a qualified IRS tax-exempt organization in order to be deductible. There is an on-line IRS tool (http://tinyurl.com/a72f74x) available to check the status of an organization. Churches will not be listed since they are automatically exempt. Donations to individuals are not deductible.

 NC Taxes:  The NC 2015 personal income tax rate is 5.75% which is a small drop from the 2014 rate of 5.8%. Medical expenses were not allowed as an itemized deduction on the 2014 returns but changes to the tax law in 2015 have again allowed these deductions against income for the 2015 returns. Itemized deductions for the NC return are

  • charitable contributions as allowed under federal rules
  • property taxes plus home mortgage interest limited to $20,000
  • medical expenses that are deductible under for federal tax purposes
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2015 Tax Issues – Continued

Additional year-end information for small businesses.

Tangible Property Expensing: On November 24, the IRS raised the safe harbor threshold for expensing eligible capital acquisitions from $500 to $2,500. This increase applies to businesses that do not have audited financial statements. The threshold applies to any item that is substantiated by an invoice and is effective for the 2016 tax year. However, use of the new $2,500 threshold by eligible businesses for prior years will not be challenged by the IRS (audit protection).

W-2s: NC has changed the due date for Form W-2 to be filed with the Department of Revenue. The new due date is January 31 which is the same date the forms must be delivered to employees. The reason behind the change is identity theft and its use to file fraudulent returns with refunds being issued.

Worker Classification: In July 2015, the U.S. Department of Labor issued guidance (http://www.dol.gov/whd/workers/misclassification/AI-2015_1.htm) to assist in classifying a worker is an independent contractor or an employee. Improper classification of workers could result in an employer’s liability for unpaid payroll taxes plus interest and penalties. It could also change whether or not the employer was required to provide certain benefits for which penalties could be substantial.

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2015 Tax issues

With only about seven weeks left until we turn the calendar to 2016, what do small business owners need to consider for the rest of the year and for 2016.

Here are some items to think about:

Sales Tax:  North Carolina changed its sales tax rules effective March 1, 2016, for repair services to be subject to sales taxes.  Currently, separately stated labor charges on repairs are not subject to sales tax.  Parts are subject to sales tax.  This expansion of the sales tax base will affect any business that performs repairs. Businesses will have to adapt their invoicing to capture the additional sales tax.  From a consumer standpoint, your car repairs, your appliance repairs, your equipment repairs, will all cost more with sales tax added on labor costs.

Section 179 and Business Fixed Asset Purchases: Current law ( as of 11-12-15) limits the expensing of new equipment to $25,000.  For 2014,  Section 179 allowed a business to write off up to $500,000 of business personal property additions.  Hopefully, Congress will extend this provision for 2015 and make it retroactive.  This has been done in the past as last-minute December  tax bills.  We recommend that business owners proceed with purchasing needed fixed assets based on the hope that the $500,000 limit will be allowed for 2015.  If the increased Section 179 is not extended, a business could still take regular depreciation on the assets and expense a portion of the costs in 2015.

Obama Care Reporting: All businesses with more that 50 full-time equivalent employees (related party entity rules apply) will have to provide their employees with IRS Form 1095-C which will list information about health insurance coverage paid by the company. This form will have to be provided to employees by January 31, 2016.

Obama Care Penalties: The penalties for large employers (those with more than 50 FTE employees) who do not offer health insurance will affect more businesses.  For 2016, the employer may incur a penalty for each full-time employee over a 30 employee threshold. This threshold was 80 for 2015.

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Tax Identity Theft – Continued

Your tax return will be rejected for Electronic Filing if someone has used your or your spouses Social Security Number on a return that has already been filed and accepted by the IRS.

I have just spent the last hour this morning dealing with just this situation.  It is happening all across the country and the IRS has not been able to solve this problem.

In our previous post, we explained what to do if you get a letter,  Form 5071C, from the IRS about potential problems the IRS knows about with your return.

In this case, the IRS is not yet aware of the fraudulent activity.

Here is what you should do if you are affected:

  • Call your CPA
  • Complete Form 14039, Identity Theft Affidavit
  • Attach a copy of Form 14039 with your Paper Return
  • Mail to the IRS
  • Get a Power of Attorney signed to authorize your CPA to receive communications on this matter.

This is a long process to settle this issue.  If you were expecting a refund, it could easily be six months to a year before this is processed.

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Tax Identity Theft

In the past week, several of our clients have received letters from the IRS notifying them that the IRS needs additional information to process their 2014 returns whenever they have not yet filled for 2014.  Our CPA Connect National Discussion List has notes from other CPA’s across the country that this is happening everywhere.

Just today, the IRS issued this release which addresses what you should do if you receive such a notice.

Taxpayers Receiving Identity Verification Letter Should Use IDVerify.irs.gov 

WASHINGTON – The Internal Revenue Service today reminded taxpayers who receive requests from the IRS to verify their identities that the Identity Verification Service website, idverify.irs.gov, offers the fastest, easiest way to complete the task.

Taxpayers may receive a letter when the IRS stops suspicious tax returns that have indications of being identity theft but contains a real taxpayer’s name and/or Social Security number. Only those taxpayers receiving Letter 5071C should access idverify.irs.gov.

The website will ask a series of questions that only the real taxpayer can answer.

Once the identity is verified, the taxpayers can confirm whether or not they filed the return in question. If they did not file the return, the IRS can take steps at that time to assist them. If they did file the return, it will take approximately six weeks to process it and issue a refund.

Letter 5071C is mailed through the U.S. Postal Service to the address on the return. It asks taxpayers to verify their identities in order for the IRS to complete processing of the returns if the taxpayers did file it or reject the returns if the taxpayers did not file it. The IRS does not request such information via email, nor will the IRS call a taxpayer directly to ask this information without you receiving a letter first. The letter number can be found in the upper corner of the page.

The letter gives taxpayers two options to contact the IRS and confirm whether or not they filed the return. Taxpayers may use the idverify.irs.gov site or call a toll-free number on the letter. Because of the high-volume on the toll-free numbers, the IRS-sponsored website, idverify.irs.gov, is the safest, fastest option for taxpayers with web access.

Taxpayers should have available their prior year tax return and their current year tax return, if they filed one, including supporting documents, such as Forms W-2 and 1099 and Schedules A and C.

Taxpayers also may access idverify.irs.gov through www.IRS.gov by going to Understanding Your 5071C Letter or the Understanding Your IRS Notice or Letter page. The tool is also available in Spanish. Taxpayers should always be aware of tax scams, efforts to solicit personally identifiable information and IRS impersonations. However, idverify.irs.gov is a secure, IRS-supported site that allows taxpayers to verify their identities quickly and safely

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