Year-end 2016 is expected to bring a rush of tax-related legislation in Congress. Lawmakers will be up against a December 31 deadline to renew some expiring tax incentives and possibly pass new tax breaks for individuals and businesses. The year may end with what is often called a “Christmas Tree bill,” a bill that includes a variety of tax and other provisions.
Year-end 2016 is expected to bring a rush of tax-related legislation in Congress. Lawmakers will be up against a December 31 deadline to renew some expiring tax incentives and possibly pass new tax breaks for individuals and businesses. The year may end with what is often called a “Christmas Tree bill,” a bill that includes a variety of tax and other provisions.
Note: At the time this article was posted, the results of the November 8 presidential election was not yet known. That outcome will shape tax legislation in 2017 and beyond.
Tax breaks for individuals
In December 2015, many popular but temporary tax incentives for individuals were scheduled to expire at year-end. Congress renewed or made permanent most of these tax breaks in the Protecting Americans from Tax Hikes Act (PATH Act). However, some incentives were not included in the PATH Act and these are up for renewal, or possibly being made permanent, this December. They include the Code Sec. 25C residential energy credit (for energy-efficient improvements to homes) and the popular above-the-line deduction for higher education tuition and fees.
Tax breaks for businesses
The PATH Act also extended, and in some cases made permanent, many tax incentives for businesses. Some incentives, however, were not included in the PATH Act and are expected to come up for renewal this December. They include targeted incentives for film and television productions, Native American employment, the mining industry, railroads, and motorsports complexes. Along with these, some special tax breaks for alternative fuels are scheduled to expire at year-end.
More proposals
Along with the incentives already described, some stand-alone tax bills are expected to come to votes in Congress before year-end. The bills, if passed, impact individuals, small businesses, farmers, and tax administration. They include:
Any or all of these bills, and others, could be part of a year-end tax package. Our office will keep you posted of developments.
Following a natural disaster, the affect such a calamity would have on ones taxes is likely the last thing on an individual’s mind—if it crosses his or her mind at all. However, as inconsequential of a thought as it may seem as an individual is contending with the physical manifestations of what a natural disaster leaves in its wake, taxpayers should know that the IRS provides hardship related relief to those individuals so affected.
Following a natural disaster, the affect such a calamity would have on ones taxes is likely the last thing on an individual’s mind—if it crosses his or her mind at all. However, as inconsequential of a thought as it may seem as an individual is contending with the physical manifestations of what a natural disaster leaves in its wake, taxpayers should know that the IRS provides hardship related relief to those individuals so affected.
Disaster Area and Affected Taxpayer
Generally, for eligible taxpayers to take advantage of any relief offered by the IRS, the IRS must first denote whether a locale is a covered disaster area. A covered disaster area refers to an area of a federally declared disaster.
For taxpayers to take advantage of the natural disaster related tax relief that the IRS offers, individuals must be “affected taxpayers.” Those who qualify for relief include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a recognized deadline are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.
Relief Granted
Under Code Sec. 7508A, the IRS is afforded authority to give affected taxpayers an extended date to file most tax returns. In addition, the IRS may postpone tax payments that have either an original or extended due date that falls on or after the start of the disaster, and on or before the date of the extension. Additionally, the IRS can postpone periods in which to make contributions to, and distributions from, a qualified retirement plan, as well as recharacterization and rollover elections. Other actions that the IRS can postpone include the filing of a petition with the Tax Court, filing a claim for credit or refund, as well as bringing suit on a claim for credit or refund.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record that is located in the designated disaster area. As such, taxpayers need not contact the IRS requesting relief. In some instances, the IRS will also waive late-deposit penalties for federal payroll and excise tax deposits. However, taxpayers who receive late filing or late payment penalty notices should call the number located on the notice to have the penalty abated.
The most significant assistance that the IRS can afford those taxpayers affected by natural disasters is through the casualty loss deduction. Affected taxpayers in federally declared disaster areas are given the option of claiming disaster-related casualty losses on their federal income tax return for the year in which the event occurred, or the prior year, but in any case, not in more than one tax year. On October 13, the IRS issued final and temporary regs, as well as a revenue procedure that extends the due date by which a taxpayer may make a Code Sec. 165 disaster loss election.
The temporary regs has extended the due date for making a disaster loss election to six months after the due date for filing the taxpayer’s federal income tax return for the disaster year, which is determined without regard to any filing extension. The IRS provided guidance, in the form of Rev. Proc. 2016-53, along with the regs that provide the procedures and requirements for how a taxpayer makes or revokes the election.
Storm Preparation
In efforts to encourage taxpayers to be proactive in planning for storms and other natural disasters, the IRS released guidance advising taxpayers as to steps they can take before disaster strikes. Employers who use payroll service providers are advised to ask the provider if it has a fiduciary bond. Such a bond protects the employer in the event of default by the payroll service provider in the wake of a natural disaster. In addition, the IRS advised that taxpayers should have an updated disaster plan. In addition, taxpayers should keep a duplicate set of key documents including bank statements, tax returns, identifications and insurance policies. Taxpayers are encouraged to photograph or videotape the contents of their home, as this makes it easier to quickly claim any available insurance and tax benefits after disaster strikes.
Additionally, the IRS makes every effort to ensure that taxpayers can access their previous-filed tax returns. Taxpayers can request copies of previously-filed tax returns and attachments, to include Form W-2, by filing Form 4506, Request for Copy of Tax Return. Taxpayers may also request transcripts showing most line items on these returns by ordering through the Get Transcript link on www.irs.gov, by calling 1-800-908-9946, or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.
The ACA created Code Sec. 5000A. Individuals must have minimum essential health insurance coverage, qualify for a health coverage exemption, or make an individual shared responsibility payment. Minimum essential coverage includes most government-sponsored health care programs, such as Medicaid, Medicare, and TRICARE. Eligible employer-sponsored plans; individual market plans, including plans obtained through the ACA Heath Insurance Marketplace, and grandfathered plans provide minimum essential coverage.
The ACA created Code Sec. 5000A. Individuals must have minimum essential health insurance coverage, qualify for a health coverage exemption, or make an individual shared responsibility payment. Minimum essential coverage includes most government-sponsored health care programs, such as Medicaid, Medicare, and TRICARE. Eligible employer-sponsored plans; individual market plans, including plans obtained through the ACA Heath Insurance Marketplace, and grandfathered plans provide minimum essential coverage.
The ACA also provided that certain types of coverage are not treated as minimum essential coverage. These benefits are known as “excepted benefits.”
There are a number of types of excepted benefits for ACA purposes. They include (not an exhaustive list):
Additionally, the ACA created a number of health insurance market reforms. These reforms impose new minimum requirements related to coverage, premiums, benefits, cost sharing, and consumer protections. Generally, health plans must comply with the market reforms. The market reforms generally affect insurance offered to groups and individuals. The market reforms generally do not apply to excepted benefits.
After passage of the ACA, questions arose if Employee Assistance Programs (EAPs) were excepted benefits. EAPs are programs offered by employers, which frequently provide a wide-ranging set of benefits. Benefits may include referral services and short-term substance use disorder or mental health counseling, as well as financial counseling and legal services. They are typically available free of charge to employees and are often provided through third-party vendors. The IRS has issued guidance, explaining that generally EAPs are excepted benefits.
Please contact our office for more details about excepted benefits and the ACA.
The Tax Code is among the most complex of all federal statutes. To explain the Code, the IRS issues guidance. Recently, the IRS has used the “Frequently Asked Question (FAQ)” format to explain some of the tax laws. At the same time, questions have arisen about the FAQs. May taxpayers rely on them like other types of IRS guidance?
The Tax Code is among the most complex of all federal statutes. To explain the Code, the IRS issues guidance. Recently, the IRS has used the “Frequently Asked Question (FAQ)” format to explain some of the tax laws. At the same time, questions have arisen about the FAQs. May taxpayers rely on them like other types of IRS guidance?
Guidance
Congress has authorized the IRS to “prescribe all needful rules and regulations for the enforcement of” the Tax Code. Traditionally, the IRS has communicated its interpretation of the tax laws through published guidance, including regulations, revenue rulings, revenue procedures, notices, and announcements. These items are published in the Internal Revenue Bulletin (IRB). Taxpayers may rely on guidance published in the IRB.
The IRS has explained that its policy is to publish in the IRB all substantive issues and answers necessary to promote a uniform application of the tax laws. According to the Government Accountability Office (GAO), each annual volume of the IRB contains about 2,000 pages of tax regulations and other guidance items. The GAO reviewed the IRS’s guidance process in September in a special report.
FAQs
A quick search of the IRS website reveals FAQs on a host of subjects. The IRS has posted extensive FAQs about the Affordable Care Act. These FAQs cover topics such as the employer mandate, the premium assistance tax credit, minimum essential health coverage and more. Many FAQs also discuss reporting and disclosure requirements under the Foreign Account Tax Compliance Act (FACTA). Many topics in the tax law have a set of FAQs posted on the IRS website.
Sometimes, FAQs are published by the IRS in the IRB. These FAQs are authoritative because guidance published in the IRB is binding on IRS and can be relied upon by taxpayers as authoritative. One example, the GAO noted, was guidance issued by the IRS on virtual currency several years ago.
However, many FAQs are not published in the IRB. They may only appear on the IRS website. The GAO discovered that limitations on using these FAQs are not always explained to taxpayers. Sometimes, the IRS has posted a disclaimer alerting taxpayers that a particular set of FAQs are not authoritative. GAO found, however, that the IRS does not always post a disclaimer with every set of FAQs.
GAO recommended that the IRS provide more clarity about FAQs. The IRS could, for example, post some explanatory language to help taxpayers understand what type of IRS information is considered authoritative and reliable as precedent for a taxpayer’s facts and circumstances. The IRS generally agreed with the GAO’s recommendations and indicated that it will consider ways to communicate any limitations on information provided to the public.
With the soaring cost of college tuition rising on a yearly basis, tax-free tuition gifts to children and grandchildren can help them afford such an expensive endeavor, as well as save the generous taxpayers in gift and generation skipping taxes. Under federal law, tuition payments that are made directly to an educational institution on behalf of a student are not considered to be taxable gifts, regardless of how large, or small, the payment may be.
With the soaring cost of college tuition rising on a yearly basis, tax-free tuition gifts to children and grandchildren can help them afford such an expensive endeavor, as well as save the generous taxpayers in gift and generation skipping taxes. Under federal law, tuition payments that are made directly to an educational institution on behalf of a student are not considered to be taxable gifts, regardless of how large, or small, the payment may be.
Code Sec. 2503(e) allows taxpayers the benefit of an unlimited gift tax exclusion for payment of tuition to colleges for students. In this way, a taxpayer can navigate around the annual gift tax exclusion limit. By so doing, a taxpayer can both give an unlimited amount of money for a student’s tuition costs without incurring a gift tax penalty. In addition, a taxpayer can then directly provide that same student with an outright cash gift up to the annual gift tax exclusion amount, without a tax penalty for doing so.
However, a direct tuition payment might prompt a college to reduce any potential grant award in your grandchild's financial aid package, so make sure to ask the college about the financial aid impact of your gift.
Requirements
In order to qualify for the gift tax exclusion, the tuition payments must be made directly to a qualifying organization, which is defined in Code Sec. 170(b). A qualifying organization is an institution that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Therefore, such organizations are not limited to colleges and universities, but may include various types and levels of education institutions.
The donor of the gift of tuition does not have to be related to the beneficiary for the gift to be considered tax-free. However, the tuition must be directly paid to the institution. The donee may be enrolled either part-time or full-time.
Amounts ineligible for exclusion
Of important note, reimbursements for tuition paid by someone else is ineligible for tax-free gift exclusion treatment. Further, a transfer to an irrevocable trust established to pay tuition expenses of trust beneficiaries does not qualify for the unlimited exclusion, even if the trustee makes payments directly to the educational institution. In addition, amounts paid for fees, books, supplies or the donee’s living expenses while in school do not qualify for tax-free treatment.
Any contribution to a qualified tuition program on behalf of a designated beneficiary, as well as any contribution to a Coverdell Education Savings Account, is a completed gift of a present interest eligible for the annual gift tax exclusion at the time the contribution is made. However, such contributions are not treated as qualified transfers that are eligible for the educational expense unlimited gift tax exclusion.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of November 2016.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of November 2016.
November
Employers. During November, ask employees whose withholding allowances will be different in 2017 to fill out a new Form W4 or Form W4(SP).
November 2
Employers. Semi-weekly depositors must deposit employment taxes for Oct 26–Oct 28.
November 4
Employers. Semi-weekly depositors must deposit employment taxes for Oct 29–Nov 1.
November 9
Employers. Semi-weekly depositors must deposit employment taxes for Nov 2–Nov 4.
November 10
Employees who work for tips. Employees who received $20 or more in tips during October must report them to their employer using Form 4070.
Employers. File Form 941 for third quarter of 2016 only if the tax was previously deposited timely, properly and in full.
November 14
Employers. Semi-weekly depositors must deposit employment taxes for Nov 5–Nov 8.
November 15
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in October.
November 16
Employers. Semi-weekly depositors must deposit employment taxes for Nov 9–Nov 11.
November 18
Employers. Semi-weekly depositors must deposit employment taxes for Nov 12–Nov 15.
November 23
Employers. Semi-weekly depositors must deposit employment taxes for Nov 16–Nov 18.
November 28
Employers. Semi-weekly depositors must deposit employment taxes for Nov 19–Nov 22.
November 30
Employers. Semi-weekly depositors must deposit employment taxes for Nov 23–Nov 25.
December 2
Employers. Semi-weekly depositors must deposit employment taxes for Nov 26–Nov 29.
December 7
Employers. Semi-weekly depositors must deposit employment taxes for Nov 30–Dec 2.
To ease the pain of the ever-escalating costs of healthcare, many employers provide certain tax-driven health benefits and plans to their employees. To help employers understand the differences and similarities among three popular medical savings vehicles - health savings accounts (HSAs), flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) - here's an overview.
Health Savings Accounts (HSAs)
HSAs are relatively new. An HSA is a tax-exempt trust or custodial account that is established exclusively to pay for (or reimburse) the qualified medical expenses of the account holder (typically an employee), a spouse or dependents such as children. Individuals get to take an above-the-line deduction for HSA contributions, while employer contributions to an employee's HSA are neither included in the employee's gross income nor subject to employment taxes. HSA earnings grow tax-free and distributions to pay for qualified medical expenses are also tax-free.
For 2008, a deduction may be taken up to $2,900 by individuals with self-only coverage and $5,800 by individuals with family coverage. And, individuals age 55 or older may make additional "catch-up" contributions to an HSA.
HSA contributions in an account carry over from year to year until the employee uses them. HSAs are also portable, meaning that an employee can take their funds when they leave or change jobs.
To be eligible for an HSA, an individual must generally:
HDHPs feature higher annual deductibles than other traditional health plans. For 2008, the minimum HDHP deductible is $1,100 for self-only coverage, and $2,200 for family coverage. HSA annual contributions, however, are not limited to the annual deductible under an HDHP.
Flexible Spending Arrangements (FSAs)
An FSA is an employer-provided benefit program that reimburses employees for specified expenses as they are incurred. Employees must first incur and substantiate the expense before it is reimbursed by the employer. FSAs are also known as "cafeteria plans" or "Section 125 plans" because they are allowed under Code Sec. 125 of the Internal Revenue Code. An FSA allows employees to contribute before-tax dollars to the account to be used to reimburse health care costs. Employers can also contribute to an employee's FSA. Generally, distributions may only be made to reimburse an employee for qualified medical expenses. They generally cannot be carried forward from year to year; specific "use-it-or-lose-it" rules apply.
Funds set aside in an FSA, typically through a voluntary salary reduction agreement, are not included in an employee's gross income or subject to employment taxes (with an exception for employer contributions used to pay for long-term care insurance). Withdrawals from an FSA are tax-free if used for qualified medical expenses. Employees can also withdraw funds from their account to pay for qualified medical expenses even if they have not yet placed the funds in the FSA.
Health Reimbursement Arrangements (HRAs)
An HRA is a type of FSA in which an employer sets aside funds to reimburse employees for qualified medical expenses up to a maximum dollar amount. Employer HRA contributions are not included in employees' gross income or subject to employment taxes. Additionally, employers get to deduct amounts contributed to employees' HRAs. HRAs can only be established and funded by an employer, and can be offered together with other employer-provided health benefits. Self-employed individuals are not eligible for HRAs.
Generally, there is no limit on the amount an employer can contribute to an employee's HRA, and any unused amounts in an HRA can be carried forward to later years. HRAs, however, are not portable and therefore do not follow employees if they change employment.
Distributions from HRAs can only be used to pay for qualified medical expenses that an employee has incurred on or after the date he or she enrolled in the HRA. If a distribution is made to pay for non-qualified medical expenses, those amounts are included in the employee's gross income. Moreover, distributions made to someone other than the employee, their spouse or dependents are taxable income.
If you need further analysis of which of these health-benefit plans may be right for you, and your employees if applicable, please call us.
If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses, you may be able to write-off a larger percentage of your business-related automobile costs.
If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses, you may be able to write-off a larger percentage of your business-related automobile costs.
Regardless of the type of record keeper you consider yourself to be, there are numerous ways to simplify the burden of logging your automobile expenses for tax purposes. This article explains the types of expenses you need to track and the methods you can use to properly and accurately track your car expenses, thereby maximizing your deduction and saving taxes.
Expense methods
The two general methods allowed by the IRS to calculate expenses associated with the business use of a car include the standard mileage rate method or the actual expense method. The standard mileage rate for 2013 is 56.5 cents per mile. In addition, you can deduct parking expenses and tolls paid for business. Personal property taxes are also deductible, either as a personal or a business expense. While you are not required to substantiate expense amounts under the standard mileage rate method, you must still substantiate the amount, time, place and business purpose of the travel.
The actual expense method requires the tracking of all your vehicle-related expenses. Actual car expenses that may be deducted under this method include: oil, gas, depreciation, principal lease payments (but not interest), tolls, parking fees, garage rent, registration fees, licenses, insurance, maintenance and repairs, supplies and equipment, and tires. These are the operating costs that the IRS permits you to write-off. For newly-purchased vehicles in years in which bonus depreciation is available, opting for the actual expense method may make particularly good sense since the standard mileage rate only builds in a modest amount of depreciation each year. For example, for 2013, when 50 percent bonus depreciation is allowed, maximum first year depreciation is capped at $11,160 (as compared to $3,160 for vehicles that do not qualify). In general, the actual expense method usually results in a greater deduction amount than the standard mileage rate. However, this must be balanced against the increased substantiation burden associated with tracking actual expenses. If you qualify for both methods, estimate your deductions under each to determine which method provides you with a larger deduction.
Substantiation requirements
Taxpayers who deduct automobile expenses associated with the business use of their car should keep an account book, diary, statement of expenses, or similar record. This is not only recommended by the IRS, but essential to accurate expense tracking. Moreover, if you use your car for both business and personal errands, allocations must be made between the personal and business use of the automobile. In general, adequate substantiation for deduction purposes requires that you record the following:
Suggested recordkeeping: Actual expense method
An expense log is a necessity for taxpayers who choose to use the actual expense method for deducting their car expenses. First and foremost, always keep your receipts, copies of cancelled checks and bills paid. Maintaining receipts, bills paid and copies of cancelled checks is imperative (even receipts from toll booths). These receipts and documents show the date and amount of the purchase and can support your expenditures if the IRS comes knocking. Moreover, if you fail to log these expenses on the day you incurred them, you can look back at the receipt for all the essentials (i.e. time, date, and amount of the expense).
Types of Logs. Where you decide to record your expenses depends in large part on your personal preferences. While an expense log is a necessity, there are a variety of options available to track your car expenditures - from a simple notebook, expense log or diary for those less technologically inclined (and which can be easily stored in your glove compartment) - to the use of a smartphone or computer. Apps specifically designed to help track your car expenses can be easily downloaded onto your iPhone or Android device.
Timeliness. Although maintaining a daily log of your expenses is ideal - since it cuts down on the time you may later have to spend sorting through your receipts and organizing your expenses - this may not always be the case for many taxpayers. According to the IRS, however, you do not need to record your expenses on the very day they are incurred. If you maintain a log on a weekly basis and it accounts for your use of the automobile and expenses during the week, the log is considered a timely-kept record. Moreover, the IRS also allows taxpayers to maintain records of expenses for only a portion of the tax year, and then use those records to substantiate expenses for the entire year if he or she can show that the records are representative of the entire year. This is referred to as the sampling method of substantiation. For example, if you keep a record of your expenses over a 90-day period, this is considered an adequate representation of the entire year.
Suggested Recordkeeping: Standard mileage rate method
If you loathe recordkeeping and cannot see yourself adequately maintaining records and tracking your expenses (even on a weekly basis), strongly consider using the standard mileage rate method. However, taking the standard mileage rate does not mean that you are given a pass by the IRS to maintaining any sort of records. To claim the standard mileage rate, appropriate records would include a daily log showing miles traveled, destination and business purpose. If you incur mileage on one day that includes both personal and business, allocate the miles between the two uses. A mileage record log, whether recorded in a notebook, log or handheld device, is a necessity if you choose to use the standard mileage rate.
If you have any questions about how to properly track your automobile expenses for tax purposes, please call our office. We would be happy to explain your responsibilities and the tax consequences and benefits of adequately logging your car expenses.