For the full text of a Revenue Ruling, Revenue Procedure, new Regulation, Notice, or Announcement go to:
Internal Revenue Bulletins
For a Tax Court Case:
Tax Court Cases
For IRS News Releases:
News Releases and Fact Sheets
For Letter Rulings and Technical Advice Memoranda:
IRS Written Determinations
For IRS Forms and Publications:
Forms and Publications
For Health Care Tax Tips:
Health Care Tax Tips
April 24, 2014
Revenue Procedure 2014-30 (IRB 2014-20) provides the 2015 inflation adjusted deduction limitations for annual contributions made to a health savings account (HSA) under section 223. These deduction limitations are updated annually pursuant to Section 223(g) to reflect the cost-of-living adjustments. The deductible amounts will be $1,300 for self-only coverage and $2,600 for family coverage and the out-of-pocket amounts will be $6,450 (self-only) and $12,900 (family).
A bill has been introduced in the House that would provide some added protection for consumers from unscrupulous tax return preparers, while another bill requiring regulation of tax return preparers along with a standard of training has also been introduced.
You may be able to settle your tax debt for less than the full amount, but you'll have to meet certain requirements. In Roger A. Buchanan (T.C. Memo. 2014-68) the taxpayer had outstanding trust fund recovery penalty liabilities (TFRP liabilities) of some $27,871. The taxpayer requested an installment agreement, an offer-in-compromise, or currently-not-collectible status. The settlement officer requested financial information. The taxpayer detailed his 25% interest in several parcels of land, but did not include a value for the interests. In his offer-in-compromise he offered to pay $1,357 on the basis as doubt as to collectibility. The IRS provided the settlement officer with a tax assessment showing the property worth $73,400 and the taxpayer's 25% interest valued at $18,350. The settlement officer rejected the offer-in-compromise, finding his reasonable collection potential to be about $20,666. The taxpayer did not show why he could not liquidate the property. The Tax Court sided with the IRS finding no abuse of discretion by the settlement officer.
Tip of the Day
Basis for sales tax . . . It's not unusual for a manufacturer (or distributor) to offer a rebate on an item. But that rebate doesn't affect the selling price on which sales tax is calculated. For example, the price of the lawn tractor to the customer is $1,750. After purchase he's entitled to a $250 rebate. Sales tax is computed on the $1,750. A trade-in generally lowers the final selling price to the consumer and sales tax is computed on that lower amount. Check the rules in your state.
April 23, 2014
Want to leave your business to your heirs? The estate tax law allows for the tax associated with a closely held business to be deferred for five years and then paid in installments over 10 years at attractive interest rates. One of the requirements is that the closely held business must comprise more than 35% of the adjusted gross estate. The deferred payments under Code Sec. 6166 aren't automatic; an election must be made. In Estate of Wallace R. Woodbury (T.C. Memo. 2014-66) the estate filed an extension request for the estate tax return, including a statement that it intended to make the election to pay the estate tax in installments. But the estate did not include any specific information regarding the properties that allegedly constituted closely held business interest or even a list of such properties. The estate requested an additional extension which the IRS denied. The return was filed nearly 2-1/2 years late. Along with the return the estate included an election to pay in installments which included all the required information. The IRS denied the election on the ground that it was not made on a timely filed estate tax return. The estate argued it substantially complied with the regulations. The Court held the estate did not substantially comply with the regulations nor did it comply with Code Sec. 6166 itself.
In Stefan A. Tolin (T.C. Memo. 2014-65) the taxpayer was an attorney engaged in thoroughbred horse breeding and racing. The IRS argued the taxpayer's horse breeding activity was passive and disallowed the losses (they could only be utilized against passive income). The taxpayer countered, claiming he materially participated in the activity (that would mean the activity was no longer passive and the losses could be deducted against ordinary income) because he passed the 500 hour test for material participation. While the taxpayer did not have a log of hours, he was able to show, in detail, and with credible third-party testimony and objective evidence the work performed and provide an accurate estimate of time spent. The Court rejected the IRS arguments, finding the taxpayer credible. It held he materially participated in the activity and was allowed to deduct the losses against ordinary income. Note that the IRS's disallowance of the losses was based solely on Sec. 469. The Court deemed the IRS to have conceded that the taxpayer operated the activity with a profit motive under Sec. 183 (so called hobby loss rules). Had the IRS used that line of attack, the outcome may have been different.
Tip of the Day
Keeping an employee . . . Working to keep an employee makes sense. The cost of hiring a replacement is costly from a number of standpoints. And some studies have shown that employees often leave because they feel pressured to do so rather than departing for a new opportunity. Think about it. Fred left to go to Madison Inc. Why? For a 7% pay raise? More than likely the raise was just the last incentive. He left because he wasn't even thanked for completing that project under budget and ahead of schedule. Or maybe because he didn't see any opportunity for promotion. Yes, employees do leave a boring job for exciting startups, but that's often the exception, not the rule. Make sure your employees are getting what they're looking for. Managers are often able to accomodate an employee's needs, even in tough times. Worried about cost? First, replacing employees is expensive. Second, what an employee wants may cost you little. An office party when that onerous job requiring late hours is done. Flex time for a working mom with kids. Give it some thought.
April 22, 2014
State and county migration data for 2010–2011 are now available on Tax Stats. Migration data for the United States are based on year-to-year address changes reported on individual income tax returns filed with the IRS. The data present migration patterns by State or by county for the entire United States and are available for inflows (the number of new residents who moved to a county or State and where they migrated from) and outflows (the number of residents leaving a county or State and where they went).
You can't have it both ways. In Ad Investment 2000 Fund LLC, et al. (142 T.C. No. 13) in anticipation of the taxpayer's affirmative defenses to accuracy-related penalties (e.g. reasonable cause and good faith), the IRS moved (1) to compel production of letters expressing attorney's opinions as to whether it was more likely than not that anticipated tax benefits from transactions in question would be upheld and (2) to sanction the taxpayers for noncompliance with any order directing production. The taxpayers objected on the grounds that the letters are privileged attorney-client communications. The IRS argued that the taxpayers impliedly waived any privilege by putting into issue the LLC's beliefs and state of mind. The taxpayers denied that the LLCs relied on the letters. The Tax Court held that by putting the LLC's legal knowledge and understanding into contention in order to establish a good faith and state-of-mind defenses, the taxpayers forfeit the LLC's privilege protecting attorney-client communications relevant to the content and the formation of their legal knowledge, understanding, and beliefs; an order directing production will tbe issued. The Court further held that if the taxpayers failed to comply with the order directing production, it would consider the sanction of preventing the taxpayers, in support of affirmative defenses, from introducing evidence of the LLC's reasonable beliefs and state of mind.
Tip of the Day
Mobile ads . . . Standard web ads work for a broad array of businesses but at least one study has shown that mobile ads aren't as universally accepted as standard web ads. The efficacy depends on the business, product or service, and your audience. Do some testing before committing your ad campaign.
April 21, 2014
New FATCA Frequently Asked Questions (FAQs) and Answers have been posted to the FATCA Website. Topics include Responsible Officers and Qualified Intermediaries/Withholding Partnerships/Withholding Trusts.
Looking for your refund? . . . In IRS news release IR-2014-54 the IRS reported that as of April 11 the IRS has issued more than 85 million refunds, about 78 percent of all the agency will issue. About 82% of the refunds were paid using direct deposits to a taxpayer's bank account (86% by dollar amount). Haven't received your refund yet? Go to Where's My Refund?.
Tip of the Day
Ditch the catalog? . . . Why bother with a paper catalog in the internet age? For many businesses it may be superfluous. But for a number, a catalog may still be vital. Some products don't show well on line and some high-end products demand paper (along with a quality presentation). A paper catalog can reinforce your web presence. It can also be vital if you're not e-mailing most of your customers with regular updates, new products, etc. Talk to a marketing professional and do a test.
April 18, 2014
The IRS has announced the filing statistics through April 11, 2014. The total number of returns filed increased by 0.3% over 2013 to 112,741, almost 90% of them e-filed. The number e-filed by tax professionals declined 0.3% from last year to 61,956,000 and the number self-prepared (and e-filed) increased 4.5% to 39,332,000. The proportion of e-filed professionally prepared returns declined from about 62% to 61%. The final statistics may provide additional clues.
The Subcommittee on Oversight is looking into the practice of the Department of the Treasury intercepting and seizing taxpayers' federal and state tax refunds to satisfy decades-old debts to the government, particularly those of the Social Security Administration.
In Antonio Edwards et ux. (T.C. Memo. 2014-57) the taxpayer owned and operated a consulting firm doing business through three entities, but reported for tax purposes as a single sole proprietorship with a principal place of business of Trinidad and Tobago. The Schedule C filed for 2007 showed gross income of $30,000 and a loss of $121,609. The taxpayers' return was selected for audit and during the course of the examination the taxpayers submitted an amended return showing $30,000 in additional receipts and substantially more expenses. The proposed amended return was received by the IRS but not signed by the taxpayers and was not considered a qualifying amended return. The IRS disallowed $22,579 in travel expenses and $100,275 of expenses categorized as "other expenses". The IRS became aware of the amended return and did a bank deposits analysis and found deposits of $232,484. That increased the proposed deficiency significantly. The taxpayers argued that a portion of the deposits represented transfers from a bank line of credit, but presented no evidence to convince the Court. The Court allowed the IRS's income reconstruction and its expense disallowance, noting the lack of documentation. The Court also allowed the 20% accuracy-related penalty.
Tip of the Day
Dumping the shoebox . . . If you're audited by the IRS (or state) you can't just present a shoebox of receipts and expect the agent to match them to the claimed expenses. That's your job and the better your presentation to the agent, the better your chances of getting the deduction allowed.
April 17, 2014
The IRS can file a lien on property other than real estate or bank accounts. In Michael D. McDaniel, et al. (U.S District Court, N.D. Alabame, South. Div.) the Court held that the IRS tax liens attached to insurance settlement proceeds for a delinquent taxpayer. The only party with a superior lien was a mortgagee of the property.
Tip of the Day
Royalties or fixed fee? . . . If you're the one on the receiving end getting a royalty sounds like the better deal--your chance to strike it rich. But it's the payor of the royalty that determines the amount. Whether it's for a gas well, a book, movie, or virtually anything else verifying the amount of the royalty can be tricky. There can be costs deducted before the percentage is applied, different gross amounts depending on the output of a well or where the book is sold, etc. You may be better off negotiating a fixed dollar amount and not having to worry about details and possible future events. You should have the right to audit the payor's numbers, but that can be expensive and still not conclusive.
April 16, 2014
Notice 2014-29 provides adjustments to the limitation on housing expenses for purposes of section 911 of the Code for specific locations for 2014. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States.
The IRS is once again strongly warning consumers (IR-2014-53) to guard against sophisticated and aggressive phone scams targeting taxpayers, including recent immigrants, as reported incidents of this crime continue to rise nationwide. The IRS noted it's unlikely these scams will end with the filing season.
Tip of the Day
Selling your business? . . . Unless you're getting all cash, you might want to make sure the buyer can succeed. In many cases, buyers are stretched thin at closing. They have little spare cash should the business not perform as expected. That could mean you won't be able to collect on a future installment. Making sure the buyer has the spare cash and helping with the transition, even if for free, may help insure you'll be paid.
April 15, 2014
A bipartisan bill has been introduced in the House that would make permanent the Section 179 expensing election, set the deductible amount at $500,000 and repeal the exclusion for heating and air-conditioning units and the $250,000 limit on real property qualifying for expensing. The deduction would be phased out once eligible investments exceed $2 million.
The IRS has updated its page The Truth About Frivolous Tax Arguments. You may have heard some of these frivolous positions from relatives, friends, coworkers, or unscrupulous tax promoters. The IRS is not amused and not only will you end up owing the taxes, but penalties and interest.
In IR-2014-52 the IRS is reminding U.S. citizens and resident aliens including those with dual citizenship who have lived or worked abroad during all or part of 2013 they may have a U.S. tax liability and a filing requirement in 2014. The filing deadline is June 16th (the 15th is a Sunday) 2014 for U.S. citizens and resident aliens living overseas or serving in the military outside the U.S. on the regular due date of their tax return.
Tip of the Day
Time's up! . . . Put down your pencils and turn in your papers. What should you do if you're not done? File for an extension. Even if you don't owe any tax, file an extension request. If you do owe tax, file the extension and pay any tax due. Play it safe and estimate high. Can't pay the tax? You may have options such as paying by credit card. Still can't pay? File the extension request anyway and pay whatever you can. The extension will allow you to avoid a late filing penalty--but you could still get hit with interest and a late payment penalty. Consider an installment agreement (Form 9465) if you can't pay the balance in full within 120 days. Finally, if you're filing paper, get proof of mailing. By the way, much of the advice above applies to your state return, but check the rules in your state.
April 14, 2014
The House has passed, by a 219 to 205 vote, the Republican FY 2015 budget which proposes some $5.1 trillion in spending cuts over a 10-year period. Tax changes include a reduction in the number of individual tax brackets to two from the current seven and a 25% corporate tax.
If you thought the "Heartbleed" bug would give you some extra time to file your tax return, think again. The IRS has indicated that the electronic filing of returns will be unaffected. On the other hand, the Canada Revenue Agency (CRA) announced April 9 that it decided to electronic filing temporarily.
Tip of the Day
Deadline looms . . . We're getting close to the wire. Returns are due on Tuesday. If you're filing electronically you don't have to worry how late your post office is open, but for many taxpayers a few hours won't help. Many professionals have a cutoff of one or two days before the deadline. Rushing to complete a return often invites mistakes. You may be better off getting as close as possible and filing for an extension. (Remember, gives you time to file, not time to pay.) An extension doesn't increase your chances of an audit. And you won't be alone. A significant percentage of returns go on extension. If you've got a complex return, you're better off taking your time, then putting it aside for a couple of days and reviewing all the items from scratch.
April 11, 2014
The IRS has announced (IR-2014-50) it has started more than 200 new investigations this filing season into identity theft and refund fraud schemes. IRS Criminal Investigation has started 295 new identity theft investigations since January, pushing the number of active cases to more than 1,800. The coast-to-coast effort by Criminal Investigation is underway as part of a larger effort at the IRS to combat identity theft and refund fraud by pursuing identity thieves, preventing fraudulent refunds from being issued and helping victims of this crime. Since the start of 2014, increased activity by CI has led to more prosecution recommendations, indictments and sentencing hearings, which reflect the overall success by the IRS on the increased number and effectiveness of ID theft filters used during the processing of tax returns. A new and key component for IRS-CI’s efforts this year is to investigate the misuse of Electronic Filing Identification Number (EFINS). An EFIN is assigned to tax preparers that have completed the IRS e-file Application to become an Authorized IRS e-file Provider. After the provider completes the application and passes a suitability check, the IRS sends an acceptance letter, including the EFIN, to the provider. IRS Criminal Investigation recognized an increase in the filing of tax returns utilizing stolen or fraudulently acquired EFINs. Since the start of the fiscal year through March 31, 2014, the IRS has revoked or suspended 395 EFINS based on recommendations from CI, and CI has initiated 60 EFIN source investigations involving EFINS used by individuals involved in refund fraud and identity theft schemes.
Tip of the Day
Sale of business property . . . Did you sell or otherwise dispose of property used in a trade or business during 2013? Just about every disposition will have to be reported on Form 4797, Sale of Business Property. (Involuntary conversions are generally reported on Form 4684; installment sales on Form 6252; and like-kind exchanges on Form 8824.) This is one area where you will probably need professional help. And you don't want to make a mistake here. In some cases you'll be reporting depreciation recapture on the disposition, which is taxed as ordinary income. You could also have a long-term capital gain which will receive favorable tax treatment. Losses on the disposition of most properties will create an ordinary loss (but you may have to offset it by recent gains). See the instructions for Form 4797 and IRS Publication 544, Sales and Other Dispositions of Assets.
April 10, 2014
A limited study by the GAO (General Accountability Office) found that paid tax preparers made significant errors in the preparation of tax returns. The study involved only 19 randomly selected tax preparer offices and did not include CPAs, attorneys, or enrolled agents. The study did find large discrepancies and significant errors by the preparers. You can obtain a copy of the report at the GAO's website, www.gao.gov.
A report by TIGTA (Treasury Inspector General for Tax Administration) disclosed that unless controls are in place the IRS may not be able to detect potentially improper claims for the saver's tax credit.
While used infrequently, a jeopardy assessment is intended to prevent a taxpayer from hiding assets. It's used when the IRS believes a taxpayer has already hidden assets and often when the taxpayer may flee the country. In Lee Ang (T.C. Memo. 2014-53) the taxpayer was a securities trader residing in the U.S. illegally. He had turned an $11,000 loan into more than $20 million over a number of years. The taxpayer filed returns late and not until the IRS opened a substitute-for-return examination. The taxpayer placed significant assets in the names of close family members and had no assets in his name. The taxpayer attempted to settle with the IRS through an offer-in-compromise, but failed to submit all required documentation and made no payments on the proposed offer. The Court held the IRS did not abuse its discretion in sustaining the jeopardy levy and in rejecting the offer-in-compromise.
Tip of the Day
IRA contribution . . . Time may be running out on filing your return, but if you haven't filed yet you should consider an IRA contribution. It must be made by the 15th, but you still can delay your return. A deductible one or a Roth make the most sense, but because of restrictions you may be precluded from doing so. That leaves a nondeductible one. The advantage over investing in your own name is that amounts contributed to the account grow tax free. That can be a significant advantage, particularly if you're young. Pick your investments carefully. Like a deductible IRA all amounts withdrawn will be taxed as ordinary income.
April 9, 2014
The IRS has indicated there is a backlog of some 60,000 Sec. 501(c)(3) applications, not a few of them over a year old. Commissioner John Koskinen has said that the Service is working on streamlining the application process for certain smaller organizations. Nonetheless, a substantial backlog will continue to exist for some time.
Notice 2014-19 (IRB 2014-17) provides guidance on the application (including the retroactive application) of the decision in U.S. vs. Windsor and the holdings of Rev. Rul. 2013-17 to retirement plans qualified under Sec. 401(a). The Notice discusses required plan amendments that must be made to qualified plans.
In SECC Corporation (142 T.C. No. 12) the taxpayer sought the Court's determination of the proper classification of the taxpayer's works for employment tax purposes and certain related issues. The IRS sent the taxpayer a letter which stated that the taxpayer's employment tax liabilities as determined by Appeals would be assessed. The letter was not sent by certified or registered mail. The taxpayer petitioned the Court more than 90 days after the IRS sent the letter. The Court held the letter was a determination relating to the classification of the taxpayer's workers, that the Court had jurisdiction over the matters (Sec. 7436(a)), and the determination related to an actual controversy in connection with an audit which was part of an examination. The Court also held that because the IRS did not send the taxpayer a notice of determination by certified or registered mail, the 90-day period for filing an action in the Tax Court was inapplicable and the petition was timely.
Tip of the Day
Investment expenses . . . You may be able to deduct investment expenses such as investment advisory fees, fiduciary fees, publications, etc., but only if they relate to producing taxable income (and exceed the threshold). If the expenses are incurred in producing tax exempt income, they are not deductible. If you can't associate the expenses with the income, you must apportion the expenses based on the income produced. The same rules apply for interest on funds borrowed to generate the income.
April 8, 2014
The IRS has announced (IR-2014-45) that victims of last month’s mudslides and flooding in Washington state will have until Oct. 15 to file their returns and pay any taxes due.
The IRS has announced (IR-2014-46) that taxpayers who make cash contributions on or before April 14, 2014, for Philippines typhoon relief can get an immediate tax benefit by choosing to claim them on their 2013 returns. Under special legislation enacted last week, taxpayers can choose to treat cash contributions made on or after March 26, 2014, and before midnight on Monday, April 14, 2014, as if made on Dec. 31, 2013. This special provision only applies to charitable cash contributions for the relief of victims of Typhoon Haiyan.
In order to protect taxpayer information, the IRS is no longer processing transcript requests through the Transcript Delivery System (TDS) in cases where an identity theft indicator has been placed on a taxpayer account. Instead, the taxpayer will receive notice that a request was made for his or her transcript. The notice will instruct the taxpayer to contact the Identity Protection Specialized Unit at 1-800-908-4490. Upon authentication, the IRS will issue a transcript to the taxpayer. This change was communicated last December and implemented on Jan. 5. A tax professional with a Power of Attorney can contact the Identity Protection Specialized Unit when a TDS letter instructs his or her client to do so. Authentication of the client’s tax return and/or income information is required. A tax professional must still call the Practitioner Priority Service for all other issues. The IRS is currently working on program changes that will eliminate the notice to a client when their tax professional requests a transcript on an account with an identity theft indicator.
If your the executor of an estate you have a fiduciary duty to the heirs, but you also have to satisfy the creditors of the estate. In Fred K. Whisenhunt et al. (U.S District Court, N.D. Texas) the executor distributed the assets of the estate before the estate tax was paid. The Court found the executor personally liable for the taxes.
Tip of the Day
Volunteer firefighters and emergency medical responders . . . You don't have to include in your income certain benefits you receive from a state or local government. Those benefits include rebates or reductions of property or income taxes you receive because of services you performed and payments you receive because of services performed up to $30 for each month you provided services. However, the excluded income reduces any related tax or contribution deduction. For example, you received $25 per month for each month in 2008. That's $300. Your out-of-pocket expenses (special clothing, travel to firehouse, etc.) amounted to $450 for the year. Your charitable deduction for the year is limited to $150.
April 7, 2014
As a result of severe winter storms in South Carolina during February 10-14, 2014, the counties of Aiken, Allendale, Bamberg, Barnwell, Berkeley, Calhoun, Chesterfield, Clarendon, Colleton, Dillon, Dorchester, Edgefield, Florence, Georgetown, Hampton, Horry, Marion, Orangeburg, Saluda, Sumter, and Williamsburg have been declared disaster areas (FEMA-4166-DR) and taxpayers who had losses related to the storm may deduct these on their 2013 return.
As a result of severe winter storms in Georgia during February 10-14, 2014, the counties of Baldwin, Bulloch, Burke, Butts, Candler, Carroll, Columbia, Coweta, Dade, Emanuel, Fayette, Fulton, Gilmer, Glascock, Hancock, Haralson, Heard, Jasper, Jefferson, Jenkins, Johnson, Jones, Lamar, McDuffie, Meriwether, Monroe, Morgan, Newton, Pickens, Pike, Richmond, Screven, Spalding, Upson, Walker, Warren, Washington, Whitfield and Wilkes have been declared disaster areas (FEMA-4165-DR) and taxpayers who had losses related to the storm may deduct these on their 2013 return.
It's getting tougher to avoid the long arm of FATCA (Foreign Account Tax Compliance Act). The Republic of Honduras and the Grand Duchy of Luxembourg have signed agreements with the U.S. implementing FATCA. Under the agreements, parties will exchange information about financial accounts held by U.S. taxpayers in these countries.
Just because you paid a foreign tax doesn't mean you can take a credit for it. In Ory Eshel et ux. (142 T.C. No. 11) the taxpayers paid two taxes to the French Government--la contribution sociale generalisee (CSG) and la contribution pour le remboursement de la dette sociale (CRDS) and claimed credits for these payments under Sec. 901. The IRS disallowed the credits, contending that they were paid to France in accordance with the terms of the U.S.-France Totalization Agreement. The Court held the taxpayer were paid to a foreign country in accordance with the terms of a totalization agreement and that SCG and CRDS are covered by the U.S.-France Totalization Agreement because they amend or supplement the French social security laws enumerated in that agreement. Thus, the taxpayer could not take a foreign tax credit for these taxes.
Tip of the Day
Payment of ex-spouse's mortgage may be deductible . . . If a divorce or separation agreement requires you to pay home mortgage interest on a home owned by both you and your former spouse, the payment of the interest may be alimony.
April 4, 2014
Revenue Ruling 2014-9 (IRB 2014-17) provides simplified safe harbor due diligence procedures a plan administrator may use in order to be deemed to have reasonably concluded that an amount was a valid rollover contribution. The revenue ruling provides two new streamlined safe harbor due diligence procedures that, in the absence of evidence to the contrary, will give rise to the presumption that the administrator of the receiving plan reasonably concluded that a rollover was valid.
The IRS has released the latest statistics on the current tax season. On a year-to-year comparison, total returns received are up by 0.6%, those process are up by 4.8%. Total e-filed returns are up by 1.8% but those e-filed by tax professionals are down by 0.9%. The number of self-prepared returns is up by 5.9%.
Tip of the Day
Converting personal property to business use? . . . It's not unusual to start a business by contributing personal property such as an auto, computer, office furniture etc. to the business. You can depreciate the property once it's placed in service for business use. Your basis for depreciation is the lesser of the FMV of the property on the date it's first used for business or your adjusted basis on that date. For example, you purchased a pickup truck for $26,000 three years ago. On January 1, 2013 you start to use it solely for your business. From a blue book you ascertained that the FMV of the property at that time was $16,500. Your basis for depreciation purposes is $16,500. If the FMV at the time of conversion was $27,000, you would have used your cost, $26,000.
April 3, 2014
Details of the Senate's tax extenders bill, Expiring Provisions Improvement Reform and Efficiency (Expire) Act, have been released by the Joint Committee on Taxation. Included for businesses are the work opportunity tax credit, 15-year straight-line recovery for qualified leasehold improvements, restaurant buildings and retail, and bonus depreciation. For individuals the extended provisions include the deduction for state and local taxes, qualified tuition, and the exclusion of income from the discharge of acquisition debt on principal residences.
Professional gamblers filing a Schedule C can claim net losses from their activity. That's not true for ordinary gamblers. But it's difficult to get the IRS to recognize you're a professional gambler. In Estate of John F. Chow et al. (T.C. Memo. 2014-49) Ms. Chow was able to convince the Tax Court that she had a profit making intention in her activities during the years 2004 and 2005. The IRS didn't give up and claimed the activity was not engaged in for profit for the years 2006, 2007, and 2008. The taxpayer's wagers were not insubstantial. For one of the years at issue they exceeded $3 million. The Court noted Ms. Chow continued to have substantial losses after the Court's first decision. The Court went on to say that she did not show for the years at issue (1) had a business plan for her gambling activities, (2) had a budget for her gambling activities, (3) maintained a separate bank account for her gambling activities, (4) attempted to change her gambling methods in an effort to make them profitable, (5) did any research in slot machine gambling about ways to improve her chances of making a profit from her gambling activities, (6) consulted anyone with expertise in slot machine gambling about ways to improve her chances of making a profit from her gambling activities, or (7) otherwise engaged in her gambling activities in a businesslike manner. While the first case was a close decision, this one was not. The Court found her gambling activities were not engaged in with a profit motive.
Tip of the Day
Foreign accounts and trusts . . . Part III of Schedule B contains questions about foreign accounts and trusts. You've got to check the appropriate boxes if you had over $1,500 of taxable interest or ordinary dividends (whether or not you have a foreign account), had a foreign account or received a distribution from, or were a grantor of, or a transferor to, a foreign trust. A foreign account can include a bank, brokerage, savings, etc. account maintained with a foreign financial institution. The definition is very broad. Even if the account doesn't hold your money, you have to answer the questions if you have signature authority over the account. See the instructions to Schedule B.
April 2, 2014
The Senate has passed the Protecting Access to Medicare Bill of 2014 that would put off a 24% cut in the Medicare reimbursement rate for physicians for one year. The House has already approved a similar bill.
House Ways and Means Committee Chairman Dave Camp (R. Mich.) has announced he will not run for reelection.
The IRS has published corrections to the final regulations with respect to the Net Investment Income Tax (NIIT).
In Patricia A. Moosally (142 T.C. No. 10) the IRS rejected the taxpayer's OIC for her trust fund recovery penalties for the periods ending March 31 and September 30, 2000, and the taxpayer's income tax liability for her 2008 tax year. The taxpayer appealed the IRS's rejection, and the Service assigned Appeals Officer S to review the taxpayer's OIC. The IRS also filed an NFTL for the taxpayer's tax liabilities in issue and issued a Letter 3172. The taxpayer requested a CDP hearing pursuant to Sec. 6320, and the IRS assigned Appeals Officer K to conduct the CDP hearing. After Appeals Officer S had initiated review of the taxpayer's OIC, the IRS transferred the CDP case from Appeals Officer K to Appeals Officer S. Appeals Officer S sustained the IRS's rejection of the taxpayer's OIC and sustained the Service's filing of the NFTL. The taxpayer petitioned for review, contending that the CDP hearing was improper because Appeals Officer S was not an impartial officer pursuant to Sec 6320(b)(3). The Tax Court held Appeals Officer S was not an impartial officer pursuant to Sec. 6320(b)(3) and Reg. Sec. 301.6320-1(d)(2). The Court further held the taxpayer was entitled to a new CDP hearing before an impartial Appeals Officer.
Tip of the Day
Excess IRA contributions . . . Excess contributions to an IRA can occur for a number of reasons, but if uncorrected they can be subject to a 6% penalty each year. The solution is to withdraw the excess contribution. You won't have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw interest or other income earned on the excess contribution by the due date of your tax return, including extensions. Things can get more complicated if you withdraw the excess after the due date.
April 1, 2014
The IRS has issued final regulations (T.D. 9662) under Section 3504 providing circumstances under which a person (payor) is designated to perform the acts required of an employer and is liable for employment taxes with respect to wages or compensation paid by the payor to individuals performing services for the payor's client pursuant to a service agreement between the payor and the client.
If you have set up a plan, you may be able to claim a deduction on the front of Form 1040 for a contribution to an SEP (Simplified Employee Pension) if you have income from a sole proprietorship, farm, or partnership. In a recent audit, the Treasury Inspector General for Tax Administration (TIGTA) found that a number of taxpayers who made contributions to their SEP did not file a Schedule C, E, or F to indicate they were self-employed. Reporting net earnings from self-employment is a requirement for taking an SEP deduction.
Tip of the Day
Nondeductible IRA contributions . . . If you're covered by a pension plan and your income is too high you won't be able to make a deductible IRA contribution. The next best choice is a Roth, but there are income limitations. Your last option is a nondeductible IRA. Not as much bang for the buck, but at least your investment will grow tax free. But if you're making a nondeductible contribution the amount has to be reported on Form 8606, Nondeductible IRAs. If you're using software to prepare the return, the program should take care of the details if you enter the information correctly.
March 31, 2014
The IRS is warning consumers to be on the lookout for a new email phishing scam. The emails appear to be from the IRS Taxpayer Advocate Service and include a bogus case number. The fake emails may include the following message: “Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.” Recipients are directed to click on links that supposedly provide information about the "advocate" assigned to their case or that let them "review reported income." The links lead to web pages that solicit personal information. Taxpayers who get these messages should not respond to the email or click on the links. For more information, visit the IRS's Report Phishing web page. The Taxpayer Advocate Service is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The IRS, including TAS, does not initiate contact with taxpayers by email, texting or any social media.
In Frank Aragona Trust et al. (142 T.C. No. 9) the taxpayer was a trust that owned rental real-estate properties and engaged in other real-estate activities. The trust's rental real-estate activities would be considered per se passive activities under Sec. 469(c)(2) unless the trust qualified for the exception found in Sec. 469(c)(7). This exception is applicable if more than one-half of the personal services performed in trades or businesses by the taxpayer are performed in real-property trades or businesses in which the taxpayer materially participates and if the taxpayer performs more than 750 hours of services during the year in real-property trades or businesses in which the taxpayer materially participates. The Tax Court held a trust can qualify for the Sec. 469(c)(7) exception. A trust is capable of performing personal services within the meaning of Sec. 469(c)(7). Services performed by individual trustees on behalf of the trust may be considered personal services performed by the trust. The Tax Court held further the trust materially participated in real-property trades or businesses.
Tip of the Day
Long-term health insurance premiums . . . You can include in medical expenses amounts paid for qualified long-term care services and premiums paid for qualified long-term care insurance contracts. In order to qualify, a long-term insurance contract must be guaranteed renewable, not provide for a cash surrender value, provide that refunds must generally be used only to reduce future premiums or increase future benefits, and generally not pay or reimburse expenses incurred for services under Medicare. In addition, your deduction for premiums is limited based on your age. For example, if you're between 61 and 70, the maximum deduction for 2013 is $3,640. For more details, see IRS Publication 502, Medical and Dental Expenses.
March 28, 2014
President Obama has signed the Philippines Charitable Giving Assistance Act. The new law allows charitable cash contributions made for the benefit of Typhoon Haiyan victims may be deducted on a taxpayer's 2013 tax return if made after March 25, 2014 (the date of enactment) and before April 15, 2014. The bill allows provides that a telephone bill that shows the name of the donee organization and the date and amount of the contribution will meet the recordkeeping requirements.
Senate Finance Committee Chair Ron Wyden, D-Ore. has indicated he intends to release a "tax extenders" bill on March 31.
In Humboldt Shelby Holding Corp. et al. (T.C. Memo. 2014-47) the taxpayer purchased H Corp. and S Corp., two corporations that had recently realized large capital gains. To avoid paying taxes on the gains it inherited, the taxpayer executed a common tax avoidance scheme to generate capital losses. Under the scheme, it contributed largely offsetting short-term options to two LLCs it had formed. The taxpayer increased its bases in the LLCs by the cost of the purchased options but did not reduce its bases by the cost of the sold options. This accounting treatment allowed it to increase its bases in the partnerships by approximately $75 million while spending only $320,000. After the options expired, the taxpayer resigned from the LLCs and received stock with nominal fair market value but very high bases. It sold the stock and recognized capital losses of almost $75 million, which completely offset the gains it had inherited from H Corp. and S Corp. The IRS issued a notice of deficiency disallowing the taxpayer's claimed deductions from the stock sales and professional fee deductions it had also claimed. The Tax Court held the taxpayer improperly deducted capital losses on stock whose basis was artificially inflated with a transaction that lacked economic substance and that it was not entitled to deduct professional fees under Sec. 162. The Court also found the taxpayer liable for the accuracy-related penalty under Sec. 6662.
Tip of the Day
Required minimum distributions . . . The IRS is reminding taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014. The April 1 deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans. The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2013 and receives the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014. Affected taxpayers who turned 70½ during 2013 must figure the RMD for the first year using their life expectancy on Dec. 31, 2013 and their account balance on Dec. 31, 2012. Three points. One, if you already took your RMD last year, no need to worry about the April 1 deadline. Two, if you turn 70-1/2 in 2014, review your tax situation before yearend. You may want to avoid taking two distributions in one year. Three, the penalty for not taking the distribution is 50% of the amount you should have withdrawn. That's a stiff penalty.
March 27, 2014
In Quality Stores the taxpayer made severance payments to employees who were involuntarily terminated as part of a bankruptcy. Payments, which were made pursuant to plans that did not tie payments to the receipt of state unemployment insurance, varied based on job seniority and time served. Quality Stores paid and withheld, FICA taxes. Later believing that the payments should not have been taxed as wages under FICA, the company sought a refund on behalf of itself and about 1,850 former employees. When the IRS did not allow or deny the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in its favor. The District Court and Sixth Circuit affirmed, concluding that severance payments were not wages under FICA. The U.S. Supreme Court has now held, in an 8-0 decision, that the payments at issue are taxable for FICA purposes.
The IRS has provided taxpayers an extension until Oct. 15, 2014 to decide when to claim disaster losses arising from last September’s flooding in Colorado. The extension means that eligible individuals and businesses will now have until Oct. 15 to decide whether to claim these losses on either their 2012 or 2013 returns. Without this extension, these taxpayers would have had to make this choice by the original due date for the 2013 return, usually April 15. Depending upon various income factors, claiming losses on a 2012 return versus a 2013 return could result in greater tax savings for some taxpayers. The extra time is available, regardless of whether a taxpayer requests a tax-filing extension for either year. Eligible taxpayers are those who suffered uninsured or unreimbursed losses resulting from severe storms, flooding, landslides and mudslides in the 20 federally-designated disaster area counties from Sept. 11 to Sept. 30, 2013. The disaster area counties are Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Crowley, Denver, El Paso, Fremont, Gilpin, Jefferson, Lake, Larimer, Lincoln, Logan, Morgan, Pueblo, Sedgwick, Washington and Weld. Further details are in Notice 2014-20 (IRB 2014-15).
Notice 2014-23 provides guidance for 2014 that will allow taxpayers who are the victims of domestic violence to satisfy the joint filing requirement of Sec. 36B(c)(1)(C) with a married-filing-separate return, in order to obtain the premium tax credit. The notice also informs that the IRS and Treasury will be issuing regulations on this subject.
The IRS announced that Detrick and Natashia Tucker, a husband and wife who owned and operated a tax preparation business named T&T Express Tax located in Pine Mountain, Ga., were sentenced to serve 12 months and one day and 46 months in prison, respectively, for crimes relating to the preparation of false tax returns. Detrick Tucker previously pleaded guilty to aiding and assisting in the preparation of false tax returns and Natashia Tucker pleaded guilty to conspiring to defraud the United States by filing false tax returns. Natashia Tucker was ordered to pay $1,483,025 in restitution and Detrick Tucker was ordered to pay restitution in the amount of $66,235. According to court documents, the Tuckers conspired to fraudulently inflate refunds on their clients' tax returns in order to increase the popularity of T&T Express Tax and secure more business. Detrick Tucker contributed to the conspiracy by registering T&T Express Tax with the IRS so that the false returns could be electronically filed and by performing managerial duties. He also knowingly allowed Natashia Tucker to use his IRS registration numbers to file her own false tax returns. As the main tax return preparer at T&T Express Tax, Natashia Tucker prepared the majority of the false returns at the business. She primarily obtained the artificially high refunds by abusing the Earned Income Tax Credit and by creating false business information for her clients. During its three years of operation, T&T Express Tax filed at least 268 fraudulent federal tax returns that claimed over $1,000,000 in false refunds.
Tip of the Day
Gift tax return due? . . . There's an annual exclusion of $14,000 for gifts to any one donee. Gifts of $14,000 or less are not included in your lifetime total and generally no gift tax return need be filed. But there are a number of common exceptions to the general rule. If you elect to split gifts with your spouse (you write a check for $20,000 to your daughter and elect to split the gift with your spouse), if a gift is of community property, or you made a gift of property held by you and your spouse as joint tenants or tenants by the entirety. There's no limit on the gifts you can make to your spouse without filing a return, except if your spouse is not a U.S. citizen. Keep in mind that forgiving a debt can result in a gift, as can making an interest-free loan and transferring the benefits of an insurance policy. There's an unlimited exemption for gifts for education or medical expenses. There are some other fine points. Check them out in the instructions for Form 709. Form 709 is due April 15th.
March 26, 2014
The IRS has issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency. In some environments, virtual currency operates like “real” currency--i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance--but it does not have legal tender status in any jurisdiction. The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:
Further details, including a set of 16 questions and answers, are in Notice 2014-21.
It appears that work on the House version of a tax bill will begin in April when a decision on which "tax extenders" will be made permanent. An earlier draft indicated that about half of the 57 expired provisions were not slated for revival.
The Treasury Inspector General for Taxpayer Administration (TIGTA) has issued a warning to taxpayers to beware of phone calls from individuals claiming to represent the IRS in an effort to defraud them. This scam is nationwide and has TIGTA has received reports of over 20,000 contacts and has become aware of thousands of victims. This is a sophisticated scam. The calls provide a name and fake badge number and your caller ID may show the call coming from the IRS. Callers claiming to be from the IRS tell intended victims they owe taxes and must pay using a pre-paid debt card or wire transfer. The scammers threaten those who refuse to pay with arrest, deportation or loss of a business or driver's license. Be aware that most first contacts by the IRS are by mail and the IRS never asks for payment using a pre-paid debit card or wire transfer. The best approach is to call TIGTA at 800-366-4484. In a new twist, at least one state, Massachusetts, has reported that taxpayers have received notices of outstanding liens that are not from the Massachusetts Department of Revenue. The liens are actual, but the notices are not from the state. It's possible similar scams are being or will be used in other states.
Tip of the Day
Where you report a deduction is important . . . Does it make a difference where you report expenses? Yes. For example, you can't deduct charitable contributions on your Schedule C. Instead, they should be deducted on Schedule A as itemized deductions. What's the difference? If deducted on Schedule C the contributions would reduce your self-employment tax liability. You might be able to deduct them on Schedule C if the amounts aren't really contributions but advertising expense. For example, you buy a 1-page ad in the local high school's yearbook. Whether or not it would be advertising could depend on a number of factors. A similar rule applies to S corporations and partnerships. Charitable contributions are passed through to the shareholders and deducted on their individual returns, not from S corporation or partnership income.
March 25, 2014
Revenue Procedure 2014-25 (IRB 2014-15) provides the list of countries for tax year 2013 for which the minimum time requirements are waived for purposes of the foreign earned income exclusion.
The president recently declared certain areas of Vermont (counties of Caledonia, Chittenden, Essex, Franklin, Grand Isle, Lamoille and Orleans) eligible for disaster assistance as a result of severe winter storms during the period of December 20 to 26, 2013. Areas of Oklahoma (counties of Choctaw, Le Flore, McCurtain and Pushmataha) have been declared eligible for disaster assistance as a result of a severe winter storm during the period of December 5 to 6, 2013.
The IRS has issued proposed regulations (REG-163195-05) that will remove regulations relating to information reporting and backup withholding for the Qualified Payment Card Agent (QPCA) Program. This document also amends regulations to remove references to the QPCA Program and withdraws proposed regulations relating to the QPCA Program. Enactment of the payment card and third party network reporting requirements in the Housing Assistance Tax Act of 2008 made the QPCA Program obsolete. Because no payors have applied to be designated as a QPCA (and no payors have been designated as a QPCA), no taxpayers will be affected by these proposed regulations.
Tip of the Day
Child and dependent care credit . . . It's available if you have to pay someone to take care of a dependent in order to enable you (and your spouse if married) to work. The credit generally applies to children under age 13, but can apply to other dependents who are not physically or mentally able to care for themselves. You'll have to supply the name and social security number of the caretaker. The amount of the credit depends on the expenses incurred and your adjusted gross income, but you're entitled to some credit no matter how high your income. See the instructions for Form 2441 and Publication 503, Child and Dependent Care Expenses for more information.
March 24, 2014
The IRS is requesting the help of tax professionals to refer only taxpayers who receive Letter 5071C or Letter 4883C to the Taxpayer Protection Program (TPP) toll-free line. The TPP line is set up for identity verification for letter recipients. But TPP assistors do not have information to help your clients with other issues such as refund inquiries.
The IRS announced its Office of Professional Responsibility (OPR) has entered into a settlement agreement with a group of appraisers from the same firm accused of aiding in the understatement of federal tax liabilities by overvaluing facade easements for charitable donation purposes. Under the settlement agreement, the appraisers admitted to violating relevant sections of Circular 230 related to due diligence and submitting accurate documents to the government. The appraisers agreed to a five-year suspension of valuing facade easements and undertaking any appraisal services that could subject them to penalties under the Internal Revenue Code.
Tip of the Day
Medical expenses and personal injury awards . . . If you receive an amount in settlement of a personal injury suit, part of that award may be for medical expenses deducted in an earlier year. If it is, you must include that part of the award in your income in the year your receive it, but only to the extent it reduced your taxable income in the earlier year. If a personal injury settlement amount is in part for future medical expenses you must reduce any future expenses for those injuries until the amount you received has been completely used.
March 21, 2014
The IRS has announced that California attorney Christopher M. Rusch was sentenced to serve 10 months in prison for helping his clients Stephen M. Kerr and Michael Quiel, both businessmen from Phoenix, hide millions of dollars in secret offshore bank accounts at UBS AG and Pictet & Cie in Switzerland. U.S. District Judge James A. Teilborg also ordered Rusch to serve three years of supervised release following his prison sentence. On Feb. 6, 2013, Rusch pleaded guilty to conspiracy to defraud the government and failing to file a Report of Foreign Bank and Financial Accounts (FBAR). Kerr and Quiel were sentenced in September 2013 to each serve 10 months in prison after both were tried and convicted of filing false income tax returns for 2007 and 2008. The jury also convicted Kerr of failing to file FBARs for 2007 and 2008. According to the evidence presented at trial, Kerr and Quiel, with the assistance of Rusch and others, including Swiss nationals, established nominee foreign entities and corresponding bank accounts in Switzerland to conceal Kerr and Quiel's ownership and control of stock and income they deposited in these accounts. Rusch testified at trial, admitting that he and others caused the sale of the shares of stock through the undeclared accounts. Rusch further testified that, at Kerr and Quiel's direction, he transferred some of the money in the secret accounts back to the United States through Rusch's Interest on Lawyer's Trust Account before dispersing the money for Kerr and Quiel's benefit, including the purchase of a multi-million dollar golf course in Erie, Colo. According to court documents and evidence presented at trial, with Rusch's assistance, Kerr and Quiel each failed to report more than $4,600,000 and $2,000,000 of income, respectively, during 2007 and 2008 which they hid in the undeclared accounts with Rusch's assistance.
The IRS has reported that as of March 14, approximately half of all returns have been filed with the number up by 5.8%. The total number of e-filed returns is up by 1.4% and the number of self-prepared returns is up by 5.9%. The number of returns prepared by professionals is down by 1.8%. The average refund is virtually unchanged, and the number of refunds directly deposited has increased by 0.7%.
You may be able to recover your attorney's and related fees if you best the IRS either in an administrative proceeding or in court. But you'll have to meet a number of criteria. One is that you'll have to be the prevailing party. In Mary C. McCauley (T.C. Memo. 2014-44) the taxpayer took the position that her liability was $3,249; the IRS took the position it was $11,076. The IRS and the taxpayer compromised and settled for $7,626. The difference between the two party's positions, $7,827, was the amount in issue (or amount in controversy). The Court noted that of the $7,827, the taxpayer prevailed as to only 44% ($3,450/$7,827). On the basis of this percentage, the Court held the taxpayer did not substantially prevail with respect to the amount in controversy. The Court also noted the taxpayer did not prevail as to the most significant issue presented. The Tax Court held the taxpayer did not substantially prevail and was not the prevailing party and that she was not entitled to any award of administrative costs.
Tip of the Day
Casualty loss limited to lesser of FMV or basis . . . Personal property losses are limited to the lesser of the fair market value of the item at the time of the casualty or your cost basis. For example, you paid $3,000 for that big screen TV, but at the time of the flood, it's fair market value was $500. If the TV was completely destroyed, your loss would be $500. The autograph of Teddy Roosevelt which you bought for $250 was worth $3,000 when the flood washed it away. Your deductible loss would be limited to $250. Add the two losses and your deduction (before the $100 floor and 10% limitation) would be $750.
March 20, 2014
The IRS announced that refunds totaling almost $760 million may be waiting for an estimated 918,600 taxpayers who did not file a federal income tax return for 2010. However, to collect the money, a return for 2010 must be filed with the IRS no later than Tuesday, April 15, 2014. If you didn't file a return for 2010, but had withholdings or had earned income and might have qualified for the earned income tax credit, you should to get any refund or credit. Don't wait till the last minute to see a tax professional.
In almost all cases the taxpayer is claiming an abuse of discretion by the IRS. In Judy Macdonald (T.C. Memo. 2014-42) the tables were reversed. The taxpayer had been filing no or frivolous returns for many years. The IRS finally caught on and filed notices of federal tax liens (NFTLs) covering 18 years. The taxpayer demanded a collection due process hearing, but didn't show up. She petitioned the Tax Court, and then refused to engage in discover or appear at calendar call. The Appeals officer found the taxpayer hadn't relieved the notice of deficiency. While the Tax Court would have dismissed the case brought by the taxpayer, the IRS challenged the determination not to proceed. The IRS argued that the Appeals officer had abused his discretion by applying the wrong rule of law when he mistakenly reasoned that he had to verify whether the taxpayer had received the notice of deficiency for the years at issue and not simply whether the IRS had sent them to her last known address. The Tax Court was a little perplexed by the strange position by the IRS and the questions raised. The Court decided to remand the case a second time.
Tip of the Day
Maximizing depreciation benefits . . . For 2013 you can take 50% bonus depreciation on many assets, use the Section 179 expense option, etc. But you can also opt out of the faster depreciation rules (check with your tax advisor on the mechanics). Why would you do so? There can be a number of reasons. You don't want to take so much depreciation that you're in the 10 or 15% bracket in 2013, only to have a better year in 2014 and be without those large depreciation deductions. It might be better to even out your income and tax brackets. If you do business as sole proprietorship, partnership or LLC, you'll be paying the self-employment tax on your net earnings from the business. The depreciation will reduce that tax, but only up to the breakeven point. Additional deductions will be permanently lost. Better to save some to offset income in a later year. Finally, while not very likely, tax rates could be higher in the future.
Copyright 2014 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Articles in this publication are not intended to be used, and cannot be used, for the purpose of avoiding accuracy-related penalties that may be imposed on a taxpayer. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536