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IRS Tax Audit Help

The Repair Regulations — Opportunities for Businesses

IRS3The IRS allows business owners to deduct the ordinary and necessary expenses of operating a business each year. However, business owners also are required to capitalize the costs associated with acquiring, producing, and improving tangible property used in their businesses (such as equipment, supplies, buildings, etc.). Because these two rules had often proved difficult to reconcile, the IRS issued new final regulations in 2013 clarifying how the rules apply. Though these regulations are extensive and complex, small business owners should be aware of some of the opportunities they provide.

General Rules

The regulations delineate when you may deduct and when you must capitalize amounts paid to acquire, produce, or improve tangible property. Generally, amounts paid to improve a unit of property must be capitalized, while amounts paid for repairs and maintenance, as well as for materials and supplies consumed during the year, may be deducted.

Safe Harbor for De Minimis Expenditures

Qualifying businesses may elect to use a de minimis safe harbor that allows them to deduct costs incurred to acquire or produce tangible property in amounts of up to either $5,000 or $500 per item or invoice. The higher limit is available for taxpayers with an applicable financial statement (AFS). An AFS can be a certified audited financial statement used for nontax purposes, such as for obtaining credit. If you don’t have an AFS, you may still qualify for the $500 safe harbor if you expense amounts in accordance with a consistent accounting procedure in place at the beginning of the tax year.

Use of the safe harbor does not limit the ability to otherwise deduct amounts paid for incidental materials and supplies or for repairs and maintenance. Rather, it is an administrative convenience to allow expensing of smaller items without analyzing each one under the relevant rules.

Safe Harbor for Routine Maintenance

You may deduct amounts paid for recurring activities that keep your business property in its ordinarily efficient operating condition. For buildings and their systems, you must reasonably expect to perform the maintenance more than once during the 10-year period beginning at the time the property is placed in service. For other property, you must expect to perform the maintenance more than once during the property’s class life used for depreciation purposes.

Safe Harbor for Small Taxpayers 

Qualifying small businesses may also deduct the costs of work performed on a building with an unadjusted basis of less than $1 million. To qualify for the safe harbor, the business must have average annual gross receipts of less than $10 million. Additionally, the total amount paid during the taxable year for the building’s repairs, maintenance, and/or improvements may not exceed the lesser of $10,000 or 2% of the unadjusted basis of the eligible building property. The building may be owned or leased.

Additional restrictions may apply for you to qualify for these safe harbors. Contact us if we can help you determine how the final regulations apply to you.

If you would like to become more aggressive on lowering your taxes and worry less about trying to manage this yourself, call 410-466-3779 and ask for Steven Graber.

 

Graber & Associates is a Baltimore CPA Accounting firm that has operated since 1993.  We provide two convenient office locations, International Drive in the Inner Harbor area and Park Heights Avenue near Pimlico, to better serve our clients throughout the broader Baltimore metro.

Payroll Taxes – Do NOT Touch

There is zero wiggle room when it comes to handling the federal income taxes and FICA taxes withheld from employees’ paychecks. The taxes are government property, which employers hold “in trust” and then remit to the IRS on a set schedule. Employers are not permitted to use this “trust fund” money for other purposes.

Serious Penalty

Payroll TaxThe penalty for breaking the rules is harsh. Any person involved in collecting, accounting for, or paying the trust fund taxes — a “responsible person” — who willfully fails to do so may be liable for a penalty equal to 100% of the unpaid taxes. The penalty is aggressively enforced.

Responsible Persons

Generally, a responsible person is anyone with the power to see that the taxes are paid. This might include a corporation’s officers, directors, and shareholders; employees; and the partners in a partnership. Under certain circumstances, even family members and professional advisors may be subject to the penalty.

It’s not uncommon for there to be more than one responsible person. When that’s the case, each responsible person could be found liable for the full penalty.

A Word About Willful

Failure to pay trust fund taxes can be willful without being an intentional attempt to evade paying the taxes. Temporarily “borrowing” from the trust fund to meet bona fide business expenses in a pinch can qualify as being willful.

If you would like to become more aggressive on lowering your taxes and worry less about the audits and fines, call 410-466-3779 and ask for Steven Graber.

 

Graber & Associates is a Baltimore CPA Accounting firm that has operated since 1993.  We provide two convenient office locations, International Drive in the Inner Harbor area and Park Heights Avenue near Pimlico, to better serve our clients throughout the broader Baltimore metro.

Business Start-up Costs — What’s Deductible?

Start UpLaunching a new business takes hard work — and money. Costs for market surveys, travel to line up potential distributors and suppliers, advertising, hiring employees, training, and other expenses incurred before a business is officially launched can add up to a substantial amount.

The tax law places certain limitations on tax deductions for start-up expenses.

  • No deduction is available until the business becomes active.
  • Up to $5,000 of accumulated start-up expenses may be deducted in the tax year in which the active business begins. This $5,000 limit is reduced (but not below zero) by the excess of total start-up costs over $50,000.
  • Any remaining start-up expenses may be deducted ratably over the 180-month period beginning with the month in which the active business begins.

Example. Gina spent $20,000 on start-up costs before her new business began on July 1, 2015. In 2015, she may deduct $5,000 and the portion of the remaining $15,000 allocable to July through December of 2015 ($15,000/180 × 6 = $500), a total of $5,500. The remaining $14,500 may be deducted ratably over the remaining 174 months.

Instead of deducting start-up costs, a business may elect to capitalize them (treat them as an asset on the balance sheet). Deductions for “organization expenses” — such as legal and accounting fees for services related to forming a corporation or partnership — are subject to similar rules.

If you would like to become more aggressive on lowering your taxes and worry less about trying to manage this yourself, call 410-466-3779 and ask for Steven Graber.

 

Graber & Associates is a Baltimore CPA Accounting firm that has operated since 1993.  We provide two convenient office locations, International Drive in the Inner Harbor area and Park Heights Avenue near Pimlico, to better serve our clients throughout the broader Baltimore metro.

 

New Tax Law Provisions and Twists

Last summer’s highway trust fund extension law* includes a few important federal tax provisions that affect business and individual taxpayers.

Return due dates

The new law accelerates the filing deadline for partnership returns by one month, effective with returns for tax years that begin after December 31, 2015. As a result, the due date for partnership returns will be the fifteenth day of the third month after the end of the partnership’s tax year — March 15 for a partnership with a calendar year.

C corporations will have an additional month to file their returns, generally effective with returns for tax years beginning after December 31, 2015. As a result, C corporation returns will be due by the fifteenth day of the fourth month after the end of the tax year (by April 15 for a C corporation with a calendar year). The extended deadline doesn’t take effect until tax years beginning after December 31, 2025, for C corporations with fiscal years ending on June 30.

Basis reporting

For federal estate-tax purposes, property included in the gross estate is generally valued at its fair market value on the decedent’s date of death. That same fair market value then becomes the property’s income-tax basis in the hands of the person who acquires the property from the decedent.

The new law doesn’t change this rule. However, it requires the executor of any estate required to file a federal estate-tax return to furnish an information statement to the IRS and to each person receiving property from the estate. The statement must show the value of the property as reported on the return (and any other information the IRS may require). There are penalties for failure to file and for tax understatements resulting from inconsistencies in basis reporting.

Mortgage information returns

Under the new law, mortgage lenders must include additional items, such as the amount of principal outstanding at the beginning of the year, on information returns required to be furnished after December 31, 2016.

If you would like to become more aggressive on lowering your taxes and worry less about trying to manage this yourself, call 410-466-3779 and ask for Steven Graber.

 

Graber & Associates is a Baltimore CPA Accounting firm that has operated since 1993.  We provide two convenient office locations, International Drive in the Inner Harbor area and Park Heights Avenue near Pimlico, to better serve our clients throughout the broader Baltimore metro.

 

* Surface Transportation and Veterans Health Improvement Act of 2015

Consider Taxes in a Divorce

Tax planning is an important step in finalizing a divorce agreement. Here are some issues divorcing couples may want to consider.

What’s in a Name?

Alimony and child support both involve one spouse making payments to the other, but that’s where the similarity ends. Alimony payments are tax deductible to the payer and taxable to the recipient. Child support is not deductible and can be received tax free.

Dependent — or Not?

Generally, the custodial parent claims the dependency exemption, although couples can make other arrangements. Parents with more than one child may decide to split the exemptions between them. Parents might also decide to alternate claiming the exemption.

Who Gets the Credit?

The parent who claims the child as a dependent typically is entitled to claim tax credits such as the child tax credit and the credit for higher education expenses. However, a custodial parent paying work-related child care expenses can claim the child care tax credit even if the other parent claims the dependency exemption.

 Assets To Transfer?

No taxes are owed on the transfer of assets between spouses. However, when dividing assets, it’s important to consider how taxes, such as capital gains, may come into play in the future.

How About Retirement Benefits?

Where retirement plan benefits have been made payable to a former spouse under a court-issued qualified domestic relations order (QDRO), subsequent distributions will be taxable to the former spouse.

If you would like to become more aggressive on lowering your taxes and worry less about trying to manage this yourself, call 410-466-3779 and ask for Steven Graber.

 

Graber & Associates is a Baltimore CPA Accounting firm that has operated since 1993.  We provide two convenient office locations, International Drive in the Inner Harbor area and Park Heights Avenue near Pimlico, to better serve our clients throughout the broader Baltimore metro.

Divorce and Taxes

Tax AvoidDivorce opens up a whole new territory of legal, personal, and financial issues. Here are some things to be aware of on the tax front.

Alimony and Child Support

Alimony payments are tax deductible; child support payments are not. On the other hand, amounts received as alimony have to be included in income for tax purposes, while child support can be received tax free.

Dependency Exemption

Typically, the parent who has legal custody of a child has the right to claim the dependency exemption. However, parents can agree otherwise. A custodial parent uses IRS Form 8332 to release the exemption.

Tax Credits

Generally, the parent who claims the child as a dependent also gets the benefit of child-related tax credits, such as the child tax credit and the credit for higher education expenses.

Retirement Plan Benefits

Retirement plan benefits received from the retirement plan of a former spouse under a court-issued document called a “qualified domestic relations order” are taxable to the recipient.

Personal Residence

Gain from the sale of a principal residence is not taxable if certain requirements are met. The tax-free ceiling is $500,000 of gain for a married couple and half that amount for a single person.

 

Income tax preparation becomes more complicated for divorcing individuals.  If you’d like assistance, call Steven Graber at 410-466-3779.  We have two offices in Baltimore to better service you.  Our Baltimore CPA Accounting Firm has operated since 1993.

Graber & Associates focuses on lowering your taxes within the legal limits.  Our firm specializes in IRS Tax Problem Resolution in the event that problems arise down the road.