Tag Archives: accountants toledo

Volunteer Expenses — Are They Deductible?

volunteerDonating money isn’t the only way to help out an organization whose cause is important to you. Volunteering your time and expertise can be valuable to the charity and rewarding for you. And, as a bonus, you may be able to deduct some of your out-of-pocket expenses on your income tax return.

What’s Deductible

If you use your car while performing services for the charity, you can deduct gas, oil, and other unreimbursed auto expenses or take the standard charitable mileage deduction (14 cents per mile). If you travel out of town on the charity’s behalf, your travel, lodging, and meal costs may be deductible. The cost of uniforms worn while volunteering is also deductible as long as the uniforms aren’t suitable for everyday use.

What’s Not

You can’t deduct your time or the value of any services you perform. And it goes without saying that you can’t deduct expenses that have been reimbursed by the organization.

You must itemize your deductions to claim a deduction for charitable contributions.

 

IRS Releases 2015 Standard Mileage Rates

The IRS has recently announced the 2015 standard mileage rates available for use in calculating the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Starting January 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be 57.5 cents per mile for business miles driven, which is up from the 56 cents per mile currently allowed in 2014. In addition, the rate will change to 23 cents per mile driven for medical or moving purposes, which is actually down half a cent from the 2014 rate. The rate for charitable miles driven will remain at 14 cents per mile as this rate is fixed by Congress.

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Some may wonder why there is such a difference between the business miles rate and the rate for medical or moving purposes. The reasoning behind this is that, in calculating the rate for business miles driven, the IRS uses an annual study of the various fixed and variable costs associated with operating a vehicle. These costs include depreciation, insurance, repairs, tires, maintenance, gas and oil. As inflation causes the cost of many of these expenses to rise, the IRS adjusts their rate for business miles accordingly. In contrast, the rate for medical and moving purposes is based only on variable costs, like gas and oil. As we have all noticed, prices at the pump have dropped considerably in recent months. In fact, the U.S. Department of Energy predicts the average price for a gallon of gas to be $2.60 in 2015, the lowest full-year average since 2009. As a result, the rate for medical or moving purposes has decreased to account for this expected drop in gas prices.

It is important to remember that these standard mileage rates are optional, and taxpayers always have the option of deducting their actual costs incurred with operating a vehicle. While deducting the actual costs may require more work, due to the increased recordkeeping required, in many cases the actual costs method provides the greatest benefit. It is also important to note that, when choosing to use the standard mileage rates, taxpayers should always keep an accurate and detailed log of their miles traveled for business, charitable, medical or moving purposes.

By: Ruben Becerra, Staff Accountant

Making the Most of Your Business Trip Abroad

If you travel outside of the United States and all of your time is spent doing business activities, then you can deduct the entire amount of travel expense. But say you fly to Madrid for a business meeting and you want to swing by and see Barcelona while you’re across the pond, is your travel still deductible?

Generally the rule states that for travel to be fully deductible, it has to be entirely for business purposes. But for every rule, there are exceptions. Here are four exceptions that can make your travel considered “entirely for business,” and thus making it fully deductible.

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1. You don’t have substantial control over arranging the trip.
This means you’re an employee and either not related to your employer or not a managing executive. Self-employed individuals usually have substantial control over their own business trips and need to meet one of the other exceptions.

2. You’re out of the country for no more than one week.
Any trip that doesn’t exceed 7 days (including travel days) can be fully deductible. This means that if you leave on a Wednesday and get back anytime before the following Wednesday, then you may deduct the full amount of travel.

3. You spend less than a quarter of the time on personal activities.
This means that if you’re overseas doing business for 10 days and spend 3 extra days sightseeing, then less than 25% (3/13 = 23%) is personal.

4. You don’t take major consideration into the vacation aspect of the trip.
This has a little more grey area than the other three and may be harder to prove. However, even if you do have substantial control over the arranging the trip, if you can establish that a personal vacation was not a major consideration during the planning of the trip, your travel can still be fully deductible.

Travel expenses include airfare, taxi or shuttles, or any other transportation related expenses. Of course, if you buy an additional plane or bus ticket for personal vacation or sightseeing purposes during your trip, those would not be deductible as business expenses. The same goes for other expenses that would normally be deductible; they must apply to a business purpose rather than a personal expense.

For the entire write-up on travel expenses see IRS Publication 453.

By: Anthony Mifsud, CPA

5 Strategies for Reducing/Eliminating Your Estate Tax

As many of you know the estate tax exemptions and rates have been all over the board in recent years. For many Americans, this isn’t an issue. However, when you begin amassing a large enough estate this becomes a huge concern. Historically, passing away with a large enough estate has imposed upwards of 55% tax. For 2014, this rate is at 40% with a $5,340,000 personal lifetime exclusion. Below are 5 strategies you can use now to help mitigate any future tax burden you should incur.

EstateTax1. Start gifting smaller amounts
There is an annual gift exclusion of up to $14,000 per person per year. Meaning a married couple could collectively gift 28,000 per year per person without eating into any of their lifetime estate tax exclusion.

2. Gift highly appreciable assets now
Gifts of over $14,000 will still need to be reported on the federal Form 709 (and will consequently count against your lifetime limit) but gifting these assets now, instead of waiting, allows the appreciation to build with the recipient instead of counting against your lifetime limit later on.

3. Buy life insurance
Life insurance proceeds are not includible in your taxable estate and are, therefore, a good way of sheltering your net worth. Doing this essentially transforms taxable assets into non-taxable income once a death occurs (assuming the estate is not the beneficiary of the policy and the decedent is not the owner).

4. Use both exemptions
Currently, the tax code allows for the husband and wife to each claim a $5.34 million estate/gift exemption. If elected timely, any unused portion of a spouse’s estate can be transferred to the surviving spouse (called portability).

5. Take advantage of unlimited exemptions
When in doubt, be charitable! The IRS allows you to contribute an unlimited amount to the qualified charities of your choice. So if you are considering donating a portion of your estate and are over the exemption limitation this would be a terrific way of sheltering those dollars from taxation.

Courtney Elgin, CPA

Driving A Lot? Deduct Your Mileage

I recently met with a client who is starting a new investment firm. He asked me how to determine if an expense can be classified at a business expense. He told me he drives to meet with potential partners and was wondering if any of that mileage would be considered a business expense. I told him if you are using your vehicle to meet people or to scope out locations, etc. then absolutely, those situations would fall under the business expense category.

The question then came up of how to track these expenses in order to receive the deduction. I explained there are two different methods, the first being the allowance method and the second, tracking the actual expenses. Each of these methods has a sidenote worthy of mentioning. The allowance method must be elected in the first year the vehicle is used for business purposes. If it is not, it cannot be used.

Mileage

The allowance method replaces taking a deduction for actual operating costs and depreciation. You can, however, deduct parking fees and tolls that are paid for business purposes. If you use the allowance method, you must keep records of your business trips. These records need to be comprised of the date, customer or client visited, the purpose and the number of miles travelled for business. This can be used for leased vehicles as well. However, it must be used for the entire lease period. The log can be kept electronically or on paper, but must be available at the request of the IRS. The total business miles for the year are then multiplied by the IRS standard mileage rate, $.56 in 2014, and deducted on the tax return.

Actual expenses can be deducted in the first year if the allowance method is not elected, or in any future year. This is only true if the vehicle is not leased. However, electing in a future year forfeits any first-year accelerated depreciation that may be available. Actual expenses must be tracked for items like, gasoline, oil, repairs, license tags, insurance, etc. Depreciation or lease payments can also be deducted. If the vehicle is also used personally, then the total expenses are allocated based on the business use percentage. This percentage is determined based on the total miles driven for the year and the business miles driven for the year.

Deducting automobile expenses can surely save you money on your tax return, just make sure you gather the appropriate documentation the select the right method for your deduction.

To receive a free copy of William Vaughan Company’s mileage log, email Jessica Sloan at sloan@wvco.com

By: Tara West, CPA, CMA

Deducting Charitable Donations: What You Need to Know

The end of the year will be here before we know it and if you are like most taxpayers, you will be scrambling for some last minute tax deductions. A taxpayer can itemize and deduct such items as medical expenses, state & local taxes, real estate taxes, mortgage interest and charitable contributions. While some of those items are added back if you are subject to alternative minimum tax (AMT) or as in the case of medical expenses, they are only deductible if they exceed 10% of income (7.5% for ages 65 and older); charitable contributions are not affected by these restrictions.

Nonprofit_Donation2Come year-end, some taxpayers frantically search for additional deductions. However, charitable organizations can use these donations all year around. So I’m sure the question you’re asking is, “do all donations qualify?” Here are a few general rules that you need to follow if you want your donation to qualify on your Schedule A of your Form 1040.

Cash Donations:
• Donations must be made to a qualified organization. Click here to check to see if your organization qualifies.
• Most donations are deductible up to 50% of adjusted gross income (in some cases 20% and 30% ceilings).
• For all cash donations over $250, the taxpayer needs to keep a record of a receipt or cancelled check with the donation amount, date and qualified organization.

Non-Cash Donations:
• As with cash donations, non-cash donations also need a written acknowledgement of the donation for all donations over $250. If the donation is between $500 and $5,000, additional records for cost basis, acquisition date, and fair market value will be needed. Donations over $5,000, along with the information mentioned above, may need an appraisal.
• Non-cash donations over $500 need to be reported on the Form 8283
• You can donate used clothing and household items, but they have to be in good condition or better. Those items count as a donation up to the current fair market value and not the cost of the item

Nondeductible Donations:
• Donations made to an individual are never deductible
• Donations to foreign charitable organizations are not considered to be a qualified organization
• Any donations made to a political campaign are not considered to be a deductible charitable contribution
• Any donations where you are provided benefit over your donation, is not deductible
• If you donate more than the value of the benefit, you can deduct the difference as a charitable contribution.

There are more specific rules based on different types of charitable contributions, so be sure to consult your tax advisor with any detailed questions you may have regarding your donation.

By: Jill Blakeman, CPA

Tax Planning & Trimming Your Tax Bill

When it comes to making moves to slash your federal income-tax bill, it pays to start early. You have a limited opportunity to come up with planning strategies that may help reduce the taxes you’ll owe for 2014, so don’t miss out.

Can You Say Loss?

While you haven’t actually lost anything until you sell an underperforming investment, now may be a good time to review your portfolio for potential candidates. An investment that has lost value since you acquired it and consistently underperformed its benchmark may no longer belong in your portfolio. If the investment shows no sign of improving, selling it before year-end and taking a capital loss may be your best move. Capital losses are fully deductible to offset capital gains and up to $3,000 of ordinary income each year ($1,500 if married filing separately). Excess losses can be carried over for deduction in future years, subject to the same limitations.

A Good Time for Gains

Favorable tax rates may make taking profits on appreciated stock you’ve held longer than one year advantageous. Long-term capital gains from the sale of stocks and other securities are currently taxed at a maximum rate of 15% for most taxpayers, 0% for taxpayers in brackets below 25%, and 20% for taxpayers in the top regular tax bracket (39.6%). Current capital losses or carryover losses from a prior year can offset gains from the sale.

Don’t make taxes your only reason for selling an investment. Consider the impact the sale will have on your overall portfolio before you make a decision.

Year End Tax PlanningSave More, Pay Less

Increasing your pretax contribution to an employer-sponsored retirement plan before the end of the year may be another strategy to consider. Since you don’t pay current taxes on your contributions, deferring a greater amount of your pay can lower your tax bill. If you’ve reached age 50 and already contributed the maximum annual amount through salary deferrals, your plan may allow you to make catch-up contributions.

In addition, the contributions you make to a traditional individual retirement account by April 15, 2015, may be deductible on your 2014 tax return. The 2014 contribution limit is $5,500 ($6,500 if you’re age 50 or older). Your tax advisor can review the deduction requirements with you.

 

Donating to Charity

You have until year-end to make donations to your favorite organizations and claim an itemized deduction for charitable contributions. (Make sure the organizations qualify to receive deductible contributions.) By donating with a credit card or with a check mailed by December 31, you’ll be able to take the deduction on your 2014 return even though you won’t receive your credit card bill or have your check processed until January 2015. You’ll need to have specific proof of your gifts. Deduction limits apply.

Bunching Expenses

Accelerating or delaying expenses is a strategy that may help you exceed the floor amounts for certain deductions. For 2014, medical expenses are deductible only in the amount that exceeds 10% of adjusted gross income, or AGI (7.5% of AGI for individuals age 65 or older). Scheduling and paying out-of-pocket costs before year-end for medical appointments, elective surgery, dental work, or eye exams that you were planning for early 2015 may help you exceed the floor. The deduction for unreimbursed employee business and miscellaneous expenses is limited to the amount that exceeds 2% of AGI.

Not every strategy mentioned will be appropriate for your personal situation. Your tax advisor can help you determine those that can make a difference.