Friday, July 31, 2015
* I realize it is early in the Presidential race – but the TAX FOUNDATION is already “Comparing the 2016 Presidential Tax Reform Proposals”.
The couple of tax proposals from Hillary Clinton, one involving the taxation of capital gains, are disappointing but not surprising. They continue to further complicate the Tax Code, already a mucking fess. Hillary and the Democrats, including BO, have absolutely no interest in serious and substantive tax reform. They want to continue to complicate the Code and use it for social engineering.
Those Republicans who have provided tax reform proposals tend toward a more simplified Tax Code and a flat tax. While many of the Republican candidates may be off on other important issues, and unacceptable due to Tea Party leanings, simply from a tax reform standpoint it is clear that the Republican position is truly the better one.
* A recent TAX FOUNDATION map answers the question “How High Are Gas Taxes in Your State?”
For once my situation is reversed. My new home state of Pennsylvania has the highest rate at 51.60 cents per gallon – but my former home state of New Jersey has the second lowest at 14.50 cpg. It is perhaps the only time where NJ actually does not have the highest, or almost highest, tax in the nation.
* More disturbing news on the sad state of IRS taxpayer service. Robert W Wood tells us “Report Says IRS Mishandled 24,000 IRS Tax Lien Notices---Just Ask Robert De Niro” at FORBES.COM.
Continued word on how budget cuts and mismanagement have wreaked havoc at the IRS, with taxpayers as the victims.
* Also at FORBES.COM “Taxgirl” Kelly Phillips Erb reports “Back To School Sales Tax Holidays For 2015 Starting Soon”.
Her post lists the states, dates, and specific exemptions.
* The BALTIMORE SUN gives us the word that “Maryland to Have 'Amnesty' for Delinquent Taxpayers this Fall”.
“Those who are behind on their taxes will have a relatively short window — Sept. 1 to Oct. 30 — to apply and be enrolled in the program. It applies to a variety of overdue taxes, including personal and fiduciary income tax, corporate income tax, sales and use tax, employer withholding tax, and admissions and amusement tax.”
Click here for the 2015 Amnesty page of the Comptroller of Maryland website.
THE FINAL WORD –
It is one thing to speak your mind and call a spade a shovel. But the contents of idiot Donald Trump’s mind are limited to thoughts of himself, and when he speaks only nonsense comes out.
Thursday, July 30, 2015
As a veteran tax professional with 44 filing seasons under my belt and tax blogger one question I am often asked by clients, readers, and cocktail party guests is “can I claim my son, or daughter?”.
In order to be claim someone as a dependent on your tax return that person must be either a “qualifying child” or a “qualifying relative”.
A qualifying child includes your child by birth, stepchild, or a foster child who is placed with you by an authorized agency or by judgment, decree, or other court order. A child you have legally adopted is treated as your child by birth.
He or she must be either under age 19 at the end of the year or under age 24 at the end of the year and a full-time student for any part, even 1 day, of 5 months during the year. A child is enrolled in an online or correspondence school does not qualify as a full-time student.
The child must live with you as a member of your household for at least 6 months of the year. If the child is temporarily at another location for a specific reason, such as in a dorm at college or in military service, he or she is still considered to be living with you.
A child who was born or who died during the year is considered to have lived with you for the entire year. There is no limitation on the number of days – a child who passes on January 1, 2014, or is born on December 31, 2014, can be claimed as a dependent.
And you must provide more than 50% the child’s support for the year.
A qualifying child who is married can only be claimed as a dependent if he or she does not file a joint tax return with their spouse, unless the only reason for filing a joint return is to claim a tax refund.
If a child is the “qualifying child” of both parents, who are separated, divorced or unmarried, there are “tie-breaking” rules for determining who can claim the child as a dependent. Generally the child is the dependent of the “custodial parent”, which is the parent with whom the child lives with for the greater part of the year. What is comes down to is the number of nights during the calendar year that the child sleeps at a parent’s home.
You may also be able to claim your son or daughter as a dependent as a “qualifying relative”. This happens if the child is over age 19, or 24, and has gross taxable income of less than the amount of the personal exemption deduction, which for 2014 was $3,950 and for 2015 is $4,000. Non-taxable income, such as SSI or non-taxable Social Security or Railroad Retirement benefits, do not count toward the $3,950 or $4,000.
In this situation the child does not have to live in your home as a member of your household, but you must provide more than 50% of his or her support.
Here are some examples, all assuming you provide more than half of the son or daughter’s support –
Your son, age 20, is a junior in college who lives away at school most of the year. He has a summer job and earns $6,000 in W-2 wages. You can claim him as your dependent.
Your 25 year-old daughter is in medical school. She does not work and has no taxable income other than interest, dividends, and capital gains that total less than $1,000 for the year. You can claim her as a dependent.
Here is a real-life example from my mentor’s practice. Your 40+ year old son lives with you. He does not work and has no income. He basically lives off you. You can claim him as a dependent.
How much tax will you save by claiming your child as a dependent? Depending on your situation the savings can be substantial.
In addition to claiming an additional personal exemption – a $4,000 exemption will save $1,000 in federal tax for taxpayers in the 25% bracket – based on your level of income and the child’s age you may also be able to take advantage of the Child Tax Credit, Child and Dependent Care Credit or exclusion of child care benefits paid through a flexible spending account (FSA), and the Earned Income Tax Credit.
The tax savings for having a dependent child, or the tax cost of losing a dependent, is much more substantial for a single parent with one child.
In order to be able to claim the tax-advantaged Head of Household filing status you must pay more than half of the cost of keeping up your home, which is the principal residence for more than 6 months of your qualifying child or qualifying relative. A qualifying child does not have to be claimed as a dependent – a custodial parent can “release” the dependency exemption to the non-custodial parent – but a qualifying relative must be claimed a dependent.
So, as with just about every tax question, the answer to “can I claim my son, or daughter?” is “it depends”.
Tuesday, July 28, 2015
Here is a summer-appropriate post taken from my THE NEW SCHEDULE C NOTEBOOK.
One of the reasons I am called the “Wandering” Tax Pro is because once the tax filing season ends I enjoy travel via all methods – car, bus, plane, ship and train (not necessarily in that order).
Over the past 30 years my annual travel itinerary has often included two totally tax-deductible domestic vacations. I would attend the National Conference of the National Association of Tax Professionals (NATP) and the Annual Convention of the National Society of Tax Professionals (NSTP), held each year in a different US city. I have visited Alexandria, Anaheim, Arlington, Atlanta, Austin, Boston, Corpus Christi, Las Vegas, Minneapolis, New Orleans, Orlando, Reno, Sans Antonio, Diego, Francisco, and Juan, Washington DC, and other locations as a registrant of these two annual events, and deducted my travel expenses.
You can deduct expenses that are “ordinary and necessary” for your business. An “ordinary” expense is one that is common and accepted in your specific trade or profession and a “necessary” expense is one that is helpful and appropriate.
One “ordinary and necessary” business expense for which you can claim a tax deduction is the cost of education that is (1) expressly required by an employer, by law, or by government regulation, or (2) maintains or improves skills required in your current trade or business. If a conference falls under this category the associated registration and travel expenses are deductible.
You must show that your attendance at the conference or convention benefits your business. The convention agenda or program generally shows the purpose of the convention.
Deductible expenses include –
• The registration fee and any related books or materials.
• Round-trip airfare, train fare, or bus fare at cost, or the standard mileage allowance for business travel if you drive (or, as an alternative, a percentage of the total actual costs of operating your car) and related red cap tips.
• Taxi fares to and from the airport, train or bus station, to and from your hotel, and to and from other business locations while away.
• Hotel or motel lodging expenses, including tips to bellman and maids and the cost of laundry services.
• 50% of meals.
After I deduct all my travel expenses, I often save enough in taxes to cover the registration fee and some of the travel expenses! I get a free quality education, which benefits my practice, and I save on the actual cost of the trip.
If you are travelling with your family, only your expenses are deductible. However airlines often offer discounts for accompanying family members, and a hotel room is generally the same price whether regardless of the number of people in the room. You can deduct what it would cost if you were travelling alone. There are special rules if your spouse also works for your business.
You cannot deduct auxiliary sightseeing expenses while at the conference or convention, such as guided tours or travel to and from attractions, museums, sporting events, theatres, etc (unless you were attending with a client or colleague and the activity qualified as deductible business entertaining).
As with any business expense you must keep detailed records and receipts. Use a credit card for all meals, get receipts from taxi drivers, and keep a copy of the detailed hotel bill in addition to the charge card receipt. And be sure to save the conference or convention agenda/schedule to prove its relevance to your business.
Just as with business use of your automobile and the standard mileage allowance, the IRS allows you to deduct either actual out of pocket expenses or claim a federal “per diem allowance” that is determined by the General Services Administration each year based the location of the trip. If you claim the per diem allowance you do not have to save receipts for actual expenses. There is a per diem rate for lodging and one for meals and “incidental” expenses. However sole proprietors cannot use the per diem rate for lodging; they must deduct actual lodging expenses.
The per diem rate for meals and incidental expenses includes tips given to porters, baggage carriers, bellhops, hotel maids (the “incidental” expenses) – so the actual out of pocket for these incidentals are not deductible if you claim the per diem. On the first and last day of a business trip you claim 75% of the per diem amount, unless you can show you leave before breakfast on the first day and return after dinner on the last.
The per diem rates are based on the city where you “lay your head” at night. If your business meetings are in New York City, but you stay overnight at a hotel in New Jersey to get a lower room rate, you would use the New Jersey location to determine the appropriate per diem amount.
If you do not incur meal experiences while traveling you can still use a per diem amount for incidental expenses, which is currently $5.00 per day regardless of the location.
You can decide whether to deduct the GSA meals and incidental per diem rate or actual expenses on a trip by trip basis, but you must use the same method for all days within any single business trip. You can use the actual expenses when attending a conference in New York City in May and the per diem rate for an August convention in Las Vegas.
If you are claiming actual meal costs you must have documentary evidence, such as a credit card receipt or an itemized hotel bill (if a meal is charged to your room), for any expense that is $75 or more.
For business meals and entertaining, whether away from home overnight for a conference or convention or any other business purpose or during the course of your normal business day, you also must record the time and place, the name(s) and “relationship” (1040 client, business owner or “CFO of XYZ”) of any person(s) you are entertaining or with whom you are dining, and the business purpose or business discussion (“NATP Annual Conference”, “business proposal”, “tax planning”, “audit preparation”). The back of your credit card receipt for the meal or drinks is a good place to record this information.
Make sure to schedule your trip so that it remains 100% business. If registration begins on Sunday, with activities that begin on Monday and end Thursday, you would want to arrive on Saturday or Sunday and leave on Friday. This way you have no “personal days”. Schedule your time so you spend at least four hours each day participating in a conference event or activity. Keep time logs or sign-in information to prove your participation in conference activities.
Travel that is extended to get a reduced airfare (such as a Saturday or Sunday night stay-over for domestic travel) is allowed, even though there is no business activity on the extra day, if the extra cost of the stay-over is less than or equal to your airfare savings (IRS Private Letter Ruling 9237014).
So you have always wanted to visit San Francisco. Find a conference or convention related to your business that is being held there and take a tax-deductible vacation!
The cost of THE NEW SCHEDULE C NOTEBOOK is normally $7.95. I am offering a special summer discount – for all orders postmarked by August 31st the cost is only $5.30 – a 1/3 discount!
Send your check or money order for $5.30, payable to Taxes and Accounting, Inc, to –
SUMMER SPECIAL OFFER
TAXES AND ACCOUNTING, INC
POST OFFICE BOX A
HAWLEY NJ 18428
Monday, July 27, 2015
* Jason continued his class on “Marriage in the Tax Code” at DINESEN TAX TIMES with “Part 12:Meet the Marriage Penalty” and “Part 13: Examples of the Marriage Penalty in the Early 1970s”.
* And Jason asked the question “Who Claims the Kids When a Single Parent Dies Mid-Year?” in “Part1” and provided the answer in “Part 2”.
* Professor Jim Maule reminded us to “Be Careful With Divorce Tax Planning” at MAULED AGAIN.
Regardless of how good your divorce lawyer is, it is very, very important to have a potential divorce agreement reviewed by a tax professional before signing anything.
As I said in a guest post at FORBES – “while you would certainly want Arnie Becker as your divorce attorney, you should have the divorce agreement reviewed and approved by Stuart Markowitz before signing it.”
The cultural reference shows my age. A more current reference would replace Arnie Becker with David Lee and Stuart Markowitz with Will Gardner.
* Another reminder was given by Russ Fox at TAXABLE TALK – “Yes, Illegal Income Is Taxable”.
THE FINAL WORD –
Perhaps the most disturbing development in American politics in my lifetime (and I am 61) is the fact that self-absorbed boob Donald Trump is taken seriously as a Presidential candidate. His past flirtations with Presidential politics have always rightfully been treated as the joke that it was., and is.