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Lewitz, Balosie, Wollack, Rayner & Giroux, LLC
Certified Public Accountants
Newsletter
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2013 Mileage Rates
The IRS has issued new standard mileage rates:
Business: 56.5 cents
Medical: 24 cents
Charitable: 14 cents
These rates may be used instead of calculating the actual cost of using a vehicle. |
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Quick Link To Our Website:
www.saybrookcpas.com
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Quick Reminders
For Businesses
The 50% "Bonus" depreciation deduction generally expired for property acquired and placed-in-service after 2012. This deduction has been generally extended to property placed-in-service through 2013 by the American Tax Relief Act of 2012.
The Act also increased and expanded the Section 179 deduction. The maximum amount was scheduled to be reduced to $139,000 for 2012 and $25,000 for 2013. The Act retroactively provides for a maximum Section 179 deduction of $500,000 (subject to phase-outs) through tax years beginning in 2013.
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Most taxpayers with less complicated returns are now able to file their 2012 federal income tax returns. However, some taxpayers will not be able to file until late in February or possibly early March due to the last-minute tax changes Congress approved. This includes individuals who claim residential energy credits or education credits. Form 4562 for depreciation and amortization is also not yet being accepted by the IRS, so many businesses, including corporations and partnerships, will have a delay in filing.
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Donating to Charity? Be Sure You Have The Required Documentation
When gathering your tax records, pay extra attention to the support you have for your charitable contribution deduction. One family ran afoul of the IRS when they didn't have the correct acknowledgement. The Durdens claimed a charitable contribution deduction of $22,517 to their church. Upon IRS questioning, the Durdens produced a letter from their church as well as cancelled checks supporting the claimed deduction.The IRS did not accept the church acknowledgement as it did not contain the required statement regarding whether goods or services were received in consideration for the contributions. The Durdens obtained a second acknowledgement from their church with the required language, but the IRS refused to accept this one either because it did not meet the contemporaneous requirement. This requirement states that the receipt must be obtained by the earlier of the date the tax return is filed or the extended due date of the tax return. Deduction denied. Lesson: Be sure that you have properly worded receipts for your charitable contributions before you file your income tax return.
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Debit Card Refunds
Connecticut will again be issuing refunds using debit cards this year and in most cases will not be sending checks. The only way to avoid a debit card refund is to request to have your refund deposited directly into your checking or savings account. You make this election on your tax return and will need to insert your account number and the routing number. This option is also available for your federal income tax refund. Both the IRS and the Connecticut DRS claim that using direct deposit is faster and safer than having your refund sent by mail.
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Medical Deduction Allowed For
Long-Term Caregivers
 Lillian Baral was diagnosed by her physician as suffering from dementia and that she needed 24-hour assistance and supervision for medical reasons. Her brother hired two individuals to provide that care and paid them $49,580 for their services and reimbursed them $5,566 for supplies they purchased. Baral did not file a tax return for 2007, so the IRS prepared a substitute return for her and determined she had a tax deficiency of $17,681. Baral died in 2008 and her estate sued to have the amounts paid for her long-term care allowed as a medical expense. The Tax Court sided with Baral's estate. It held that Baral qualified as a chronically ill individual because she required substantial supervision to protect her from threats to her health and safety due to her severe cognitive impairment. The court also held that the services provided by the caregivers were necessary maintenance and personal care services due to her diminished capacity and were provided pursuant to a care plan prescribed by her physician. Although the Tax Court held that the payments for the caregivers' services qualified as deductible medical expenses, the court disallowed the payments for supplies because the estate did not provide receipts for the purchases or otherwise prove that they were for medical purposes.
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IRS Hit List For 2013
The IRS monitors taxpayer compliance by conducting many different compliance projects every year. The results of these projects help the IRS identify problem areas which they, in turn, will focus their audits on. Expect increased audits in the following areas:
- Noncash Charitable Contributions: The Treasury Inspector General for Tax Administration has reported that in 2010 alone taxpayers may have deducted approximately $3.8 billion of erroneous noncash charitable contributions, in part due to inflated valuations being claimed.
- High Income Taxpayers: The IRS considers taxpayers with more than $200,000 of income before deductions to be "high income" and therefore on their watch list. Especially at risk are those with more than $1 million of income who also file Schedule C.
- Foreign Accounts: New reporting requirements is giving the IRS better information to track down individuals with foreign assets who are not properly declaring them. There are programs that allow taxpayers to "come clean" and there are very significant penalties for those who don't.
- Fringe Benefits: The IRS has identified proper reporting of fringe benefits by businesses to be low, especially the personal use of company cars. Business owners are advised to beef up their record keeping and reporting of benefits.
- Form 1099s: IRS audits of businesses and nonprofits now include a review of form 1099 reporting compliance. This is part of the effort to reduce the "underground economy" and to identify non-filers and those who underreport income.
- S Corporations: These corporations will be targeted to identify unreasonably low (or no) salary paid to owners and for deducting losses in excess of basis.
- Worker Classification: This is a hot issue not only for the IRS but also for state income tax departments, state labor departments, and worker's compensation insurance companies. It is important for businesses and nonprofits to carefully document that a subcontractor meets the criteria to not require classification as an employee. Taxes, penalties, and other costs can be significant if a contract worker is deemed to be an employee. The IRS does have an amnesty program for qualifying businesses.
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Discharge of Mortgage Debt May Be Excludable From Income
The American Tax Relief Act of 2012 extended the Mortgage Debt Relief Act through the end of 2013. Basically, this act allows homeowners who have a qualified mortgage debt (mortgage used to purchase or improve a principal residence) cancelled to not be required to pay income tax on the amount of the debt cancellation. More details can be found on the IRS website: Click here
Homeowners considering walking away from a home that is "under water" should consult with an attorney. The Office of the Inspector General at the Federal Housing Finance Agency is actively searching for "strategic defaulters", which are individuals who have the means to pay their debt, but decide it is financially advantageous to default on it.
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A word of caution: this is a brief summary and does not include all of the details that may impact your individual situation. Please contact us if you would like more information.
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About Lewitz, Balosie, Wollack,
Rayner & Giroux, LLC
Our five partners have over 150 years of combined professional experience. We provide accounting, tax, and financial services to individuals, businesses, nonprofit organizations, estates, and trusts. Our services include tax return preparation, software consulting, and compilations, reviews, and audits of financial statements. We have been located in the shoreline community of Old Saybrook, Connecticut for over 50 years. Feel free to contact us if we can be of service. We can be reached at 860-388-4451.
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IRS Circular 230 Disclosure:
To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
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