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Tax-Deductible Expenses: Are You Recording All of Them?

Posted on 17 October 2017

2017 income tax preparation seems a long way off. Make it easier by tracking all the deductions you can take.  

You've heard it said before: Tax planning should be a year-round process. It's so true. Your life will be a lot easier early next year when all your tax forms start rolling in.

Forms like 1099s and W-2s do a lot of the tracking for you. You only need to transfer data over to your IRS tax forms and schedules. But what about the daily stuff, the expenses you incur as a part of your workday that no one else is documenting? There are a lot of tax-deductible costs that can really add up when it's time to file.

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2017 mileage rate

Posted on 21 July 2017

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

Final regs on marital status issued

Posted on 01 November 2016

IRS final regs defining marital status in the tax code are effective Sept. 2, 2016. They contain few changes from the proposed regs issued in Oct. 2015.

The proposed regs said a marriage of two individuals is recognized for federal tax purposes if it is recognized by any state, possession or U.S. territory. The final regs establish a separate rule for domestic v. foreign marriages.

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2016 mileage rate

Posted on 25 October 2016

The 2016 standard mileage rate for transportation or travel expenses is 54 cents per mile for all miles of business use (business standard mileage rate).

  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015.
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015.
  • 14 cents per mile driven in service of charitable organizations

Documents to Retain for Taxes

Posted on 15 September 2016

The IRS generally does not require that records be kept in a specific way, but all documents that may affect a tax return should be retained.

Small business owners must keep all employment tax records for at least 4 years after the later of when a tax is due or paid.

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Business Mileage Logs

Posted on 10 September 2016

The R’s were a married couple. He was a professor at a college 470 miles from their residence. She worked part-time at her mother’s farm. On their income tax return, he deducted on Sched. C mileage related to his “educational services” business. She listed on Sched. F mileage related to her part-time farming job, such as driving to look at equipment and attending auctions to buy livestock.

The IRS denied both of their mileage deductions.

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Deductions Denied in Audit

Posted on 05 September 2016

The case: X had some deductions denied in audit. He claimed that in at least two previous audits the same deductions were allowed, so the issue had already been resolved in his favor by the IRS, and the result should be no different this time.

Held: For the IRS. Failure to challenge or examine an item on a tax return in an earlier year is considered a mistake of law by the IRS and so does not prevent a challenge in a later year. The IRS can correct a mistake of law any time, even if the taxpayer relied on the mistake. [Aleamoni v. Comm., T.C. Summ. Op. 2016-21]

AIPB tip: When you have a recurring expense or other tax item, do not assume it is valid because it survived an audit. Continually monitor tax rules, your recordkeeping, and how your transactions are structured, and ways to reduce or eliminate potentially risky issues with the IRS.

Home Office Write-Offs

Posted on 01 September 2016

The IRS is drawn to returns that claim home office write-offs because it has found great success knocking down the deduction and driving up the amount of tax collected for the government. If you qualify, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance and other costs that are properly allocated to the home office. That's a great deal. Alternatively, you have a simplified option for claiming this deduction: The write-off can be based on a standard rate of $5 per square foot of space used for business, with a maximum deduction of $1,500. To take advantage of this tax benefit, you must use the space exclusively and regularly as your principal place of business. "Exclusive use" means that a specific area of the home is used only for trade or business, not also for the family to watch TV at night, or as a guest bedroom or children’s playroom.

Don't be afraid to take the home office deduction if you're entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.

Deductible Entertainment Activities

Posted on 20 August 2016

For entertainment activities to be deductible by your firm under §274, they must meet each of four requirements:

  1. The person(s) from your firm must have had more than a general expectation of deriving some income or other business benefit at an indefinite future time.
  2. During the entertainment period, the people from your firm must have engaged in a bona fide business transaction other than entertainment for the purpose of obtaining such business benefit.
  3. The principal character of the combined business and entertainment was the active conduct of your company’s trade or business.
  4. The expenditure was allocable to the person(s) with whom those from your company engaged in the active conduct of its trade or business during the entertainment.

Normal Retirement Age

Posted on 15 August 2016

What is “normal” retirement age? Up to 1999, the “normal” age to retire—i.e., the age at which a person received full SS benefits—was 65. As of 2000, this age increases gradually over a 22-year period, as follows (Medicare begins at 65 regardless):

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AIPB Tip: Reviewing Specific Expenses

Posted on 10 August 2016

AIPB Tip: Review your recordkeeping requirements for specific expenses. Auto, cell phone, travel, meals and entertainment expenses require more detail than other expenses. For other expenses, make sure the documents clearly show the date, payee, amount and business purpose of the expense.

Restrictive endorsements

Posted on 04 August 2016

To avoid losing money when customers appears to be paying their bills, watch for these red flags:

Restrictive endorsements. Depositing a check marked “Payment in Full” can be a mistake if you want to recover more on the account. This phrase may appear on either side of a check or in an accompanying letter. If an account is “disputed” (debtors can find ways to “dispute” almost any account) and you deposit the check, most courts will hold you to the wording. AIPB

Infamous Fees of 2011

Posted on 28 July 2016

The most infamous fees of 2011 were some that had targeted millions -- but that few people actually ended up paying.

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Back up data files

Posted on 19 July 2016

Back up data files at the end of each tax year so have a file with complete, but limited data. Some software programs allow you to provide a file in which data for any periods not under audit are condensed or archived. -- Tax Notes Daily

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—Evy Severino, CEO, Severino Consulting, LLC

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