Although the tax benefit for mileage used for work is no longer deductible as an unreimbursed employee expense, business mileage deduction is still an option for business owners.
Business mileage deduction has always been a hot area to audit for the IRS.
They know taxpayers do not keep or maintain appropriate contemporaneous logs necessary to substantiate their tax deductions.
**You should keep a record of your travel whether you take standard mileage or actual expenses on your return**
I see it time and time again. Taxpayers are so busy managing and growing their business they do not have time to kept a required log.
IRS Publication 463 defines Adequate evidence as “documentary evidence ordinarily… adequate if it shows the amount, date, place, and essential character of the expense.” (see page 25)
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Throughout the year, I come across concerns that frequently affect individual taxpayers and their planning strategies. Often times, they ‘hear’ information from a friend or co-worker that is useful. Sometimes that information is inaccurate.
One area that has come up more than once is deductions related to work expenses not reimbursed, although eligible for reimbursement.
There are a number of factors to consider when determining if work expenses are deductible for tax purposes. However, here is a great article that demonstrates what can happen if a taxpayer does not consult a tax professional when taking a position on their income tax return.
Congratulations Shanikwa on passing the CPA exam!!
Shanikwa Davis brings over 12 years of tax consulting experience to those who find tax time difficult. Her knowledge of tax law changes, along with her clients’ needs, makes her a one-of-a-kind consultant.
In addition to her professional prowess, Shanikwa provides clarity and honesty to each client as well as personalized time and attention. Regardless of your needs, individual or business, she will meet them.
Furthermore, Shanikwa is also an Online Tax Instructor at Northeastern University.
You may learn more about Shanikwa and her background here.
If you recall, I sent an email on Christmas Eve regarding strategies when ‘planning’ for 2018 tax law changes.
Prepayment of state and local income taxes were specifically addressed and not allowed by Congress. However, treatment for prepayment of state and local property taxes were not specified.
This has been a major source of discussion among tax professionals.
The IRS has finally issued guidance (and examples) on December 27, 2017, see IR-2017-210.
In short, if your state and local officials have ASSESSED the 2018 real property tax prior to the end of 2017 AND that tax has been paid by the end of 2017 – then the ‘prepayment’ is deductible.
If not, prepayment of any tax not yet assessed will not be deductible on your 2017 Individual Income Tax Return.
See What Massachusetts says about Prepayment of Property Taxes – click here.
** Individuals (including Married Couples) subject to AMT (Alternative Minimum Tax) will not receive benefit from prepayment of property taxes.**
Contact your tax professional to see if your ‘prepayment‘ will qualify for 2017 itemized deduction (before the limits kick in).
- Medical Expenses
- State and Local Tax Deductions
- Mortgage Interest Deduction
- Alternative Minimum Tax (AMT)
- Standard Deduction/Personal Exemptions
This is not a complete summary of the proposed changes. Check out this article to learn more. It also has the complete PDF of the conference bill at the end of the article.
Erb, Kelly Phillips. “It’s Beginning To Look A Lot Like Tax Reform: Here’s What’s In The Final Version.” Forbes, Forbes Magazine, 16 Dec. 2017, http://www.forbes.com/sites/kellyphillipserb/2017/12/15/its-beginning-to-look-a-lot-like-tax-reform-heres-whats-in-the-final-version/#20924c4c4d63.
photo credit: Business Insider- Trump tax plan chart
What is the process for proposed tax reform???
There is a lengthy process before tax law (or any proposed changes) can be enacted.
“The Constitution says that “all bills for raising revenue shall originate in the House of Representatives” and that “Congress shall have the power to lay and collect taxes.” Presidents can, and frequently do, recommend changes to current tax laws, but only Congress can make the changes.
As the [Ways and Means] Committee [is the tax writing committee of the House of Representatives] reaches tentative decisions on the proposals, they draft them into legislative language. It also prepares a detailed report on the proposed Legislation. The report can be longer than the bill itself, and presents the Committee’s (the ‘House’) reasons for recommending the bill. The Internal Revenue Service and the courts may use this Committee report as an interpretation of the legislation. Once the bill and the report are completed, they get introduced in the House of Representatives for consideration
The [Senate Finance] Committee begins its formal work on the legislation after the House has passed its version of the bill. It holds hearings similar to those held earlier by the House Ways and Means Committee. Instead of considering the tax proposals made by the [the President] Administration, however, it considers the bill passed by the House.
Witnesses appear at the Committee hearings in the same order as in the Ways and Means Committee. They direct their testimony to the House version of the bill.
After the hearings are finished, the (Senate Finance) Committee marks up the House bill, similar to the markup by the Ways and Means Committee (the House). When the (Senate Finance) Committee completes its markup, the bill is usually very different from the one passed by the House. It then gets reported to the full Senate for floor action.
A report gets filed along with the bill. The report explains in detail the amendments made by the (Senate) Finance Committee.
The entire Senate debates the bill as reported by the Committee. During the debate, the Senators may further amend the bill before they bring it to a vote.
If the Senate passes the House version of the bill, without amendments, it gets sent directly to the President.”
There was a law passed, sometime ago now, that allows your tax issues to affect your international travel plans.
The Internal Revenue Service is set to enforce the directives beginning January of 2018.
Under this law, governed by Internal Revenue Code Section 7345, the IRS will notify the State Department to revoke your current passport and/or deny passport applications due to ‘certain’ tax delinquencies.
The law also gives the IRS discretionary enforcement options.
The State Department generally will not issue a passport to you after receiving certification from the IRS.
What does this mean for your current or future travel plans?
If you already have a U.S. passport, you can use your passport until you are notified by the State Department that it has been revoked.
What if I need my passport to keep my job?
You must fully pay the balance, or make an alternative payment arrangement to have your certification reversed.
How will I know if my passport is revoked?
The IRS will send written notice by regular mail to your last known address. This is usually the address provided on your last filed tax return.
However, Taxpayer Advocate Service has identified cases in which taxpayers affected are not receiving proper written notification of revocation status.
“The passport language in the broader [Collection Due Process] notice is delivered at a time when the taxpayer is focusing on resolution of the debt and claiming [Collection Due Process] rights – thus the language is buried among the other information and may not constitute effective notice.’ – National Taxpayer Advocate. (2017, July 7). The IRS’s New Passport Program: Why Notice to Taxpayers Matters (Part 1 of 2). Retrieved November 07, 2017, from https://taxpayeradvocate.irs.gov/news/the-irs-s-new-passport-program-why-notice-to-taxpayers-matters-part-1-of-2
What if I satisfied or ‘settled’ my tax debt?
The IRS will make this reversal within 30 days and provide notification to the State Department as soon as practical.
Because revocation will not be reversed automatically, there are cases in which an application of reversal may be required. You should receive a written notice of reversal in the mail.
Contact your tax professional to determine actions appropriate to ‘settle’ your seriously delinquent tax debt.
Once you ‘settle’ your tax debt or make appropriate arrangements, there are remedies to reverse the delinquent status with the State Department and remove restrictions for your passport.
You may contact the State Department at the National Passport Information Center to verify if your passport status: 1.877.487.2778.
If you have tax issues – obtaining representative may be crucial. Review our blog on benefits of tax representation.
Did you know you could purchase Savings Bonds with your Tax Refund?
The option to purchase savings bonds via tax refund, for yourself or another person became available in 2010.
This is a great gift to your children, grandchildren, nieces or nephews. The bonds will be mailed to your address with the beneficiary’s name on the bond.
Do I have to use all of my refund to purchase bonds?
- You can use all or part of your tax refund to purchase I bonds.
- Your request for bonds must be in increments of $50.
- Any remaining refund amount not used to purchase bonds will be mailed to you as a paper check or you may elect to have the remaining amount directly deposited into a checking or savings account.
Can I buy savings bonds for a child, grandchild or someone else using this tax refund method?
- Yes. You can use your refund to buy savings bonds and designate ownership or co-ownership for someone else, such as a child, grandchild or anyone, or elect a beneficiary using form 8888.
If you are a client and interested in purchasing Savings Bonds this upcoming tax season, let us know or contact our office at 508.203.1676.