Tag Archives: tax help

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.

Mileage_Car
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

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

Your Fantasy Football Team’s Biggest Fan Is…

The fantasy football season is in full swing as we are approaching the middle of the NFL season. For some, the season is going great and you are eagerly awaiting the playoffs, while others are all but eliminated from contention after drafting a team full of underachieving duds. For those of you lucky enough to be in the thick of the playoff hunt, remember that Uncle Sam is cheering you on. That is, he wants a cut of your winnings.

fantasy-football-winningsSome of you may be thinking, “why would the government care about fantasy football? It’s just a fun hobby and gives me something to talk about at the water cooler.” The truth is, fantasy football is a major industry and the IRS is very aware of such notion. According to an article from the Fantasy Sports Trade Association’s website, nearly 37 million people play fantasy football. According to the article, fantasy football players will spend an average of $111 per year. At 37 million players, that’s a staggering total of $4.1 billion each year. You better believe that Uncle Sam wants in on the winnings!

If your fantasy football skills earn you a payout of $600 or more, you will likely receive a 1099-MISC in the mail come January, which reports your winnings to the IRS. The amount of your winnings that are taxable can be reduced by entry fees, transaction fees, research materials (such as magazines) and losses from other leagues where you weren’t quite as lucky. So be sure to keep records of all your expenditures to support the information reported on your 1040.

Once you come to the net of all your winnings less all expenses, this amount will be reported as “other income” on line 21 of your 1040. Since the amount reported will not match the 1099-MISC you received, you will need to attach a statement to the return reconciling the 1099-MISC to the amount reported. Note that if you were in several fantasy football leagues where you lost money and one where you won, you will not be able claim a loss on your return and will just report income of $0.

So I hope everyone’s season is going well, but remember, Uncle Sam has a rooting interest in your team as well.

By: Mark Sawyer, CPA

Are You an Audit Target?

Each year there are individuals who are targeted for IRS audits based on minor decisions they may have made during the year. One goal during tax season, besides being on time, should be to completely avoid the IRS in an ethical manner. There are multiple ways that individuals may intentionally or unintentionally raise red flags, which makes them susceptible to an IRS audit.
While there are a number actions that may call for an IRS audit, here are some of the more common red flags:

auditCharitable donations. Who would have thought being generous could land you in hot water? The truth is, usually, it won’t. However, people who are audited in regards to charitable donations are the ones who over exaggerate the value of their donations, generally when dealing with non-cash items. Avoid the headache of dealing with the IRS and be realistic when it comes to pricing your donations. Also, remember to keep all of your charity receipts just to be safe.

Reported income. Failing to report income seems like an obvious red flag to most people, but you would be surprised to find out how many people honestly forget to report certain income. If you are an individual with multiple brokerage statements, it may be a good idea to create a checklist to keep on hand, ensuring each form of income is reported. Being organized will keep you safe and less stressed come tax time.

Being a millionaire. While the red flags associated with charitable donations and reporting income are ones that you may be able to avoid, there is one red flag that may be waving regardless of your action. Once you become a millionaire, your chance of being audited increases exponentially. While the current audit rate is at 1% on average, the rate climbs all the way up to 9% if you make $1 million. Just to give you an idea of how much the risk of being audited grows in relation to what you earn, people who bring in more than $10 million have a 27% percent chance of an audit. Let’s hope these individuals are reporting all of their income as well, because this percent does not have a limit!

Overall, there are some red flags that individuals will be able to avoid and some that should be expected. The goal should be to eliminate as many red flags as possible while being remaining. Make sure you keep donation receipts, record realistic values on donations and report all of your income. Hopefully, you will be on your way to a headache free tax season!

By: Jason Wenner, Staff Accountant

Most Common Tax Return Mistakes

A majority of tax returns are e-filed to the IRS, making your return on your refund much faster … unless, you do one of these common mistakes that can delay your return from being processed.

Double check not only your social security number, but also your spouse and children’s social security numbers. Transposing these numbers are very common.

Another common error is misspelling your name or having the wrong name. If your name has changed due to marriage or divorce, make sure you do a change of name with the Social Security Administration before you file your tax return. Just changing it with your employer on your paycheck does not change it in the IRS system. The IRS recommends you change it with Social SecurityAdministration even before you ask your employer to change it for paychecks and W-2’s.

Many people are confused with their filing status when it comes to head of household, mainly when you are divorced with kids. If both parents claim head of household and both claim the kids … there will be delays.

Errors in figuring credits or deductions, such as the child and dependent care credit, or the earned income tax credit, or if you are over 65 and/or blind will also delay processing.

Receiving your refund through electronic direct deposit is the safest and fastest … unless you enter the wrong bank account numbers. Double check the routing and account number to make sure they are correct.

People are 20 times more likely to make errors doing manual pen and paper returns compared to people who use tax software and e-file. Many are errors from either arithmetic or transferring figures from line to line or form to form. Always double check your figures with a calculator.

Should you have received a Misc/Interest/Dividend 1099 Form? If you haven’t received it, check with the company. Your copy may have gotten lost in the mail, while the IRS will still have received their government copies. If you do not claim the income on your return, the IRS will send you a notice asking for the missing tax you owe on the unreported income. This could also result in penalties and interest.

tax-errors-516x325If you are mailing your return, remember to sign and date your return. If you are e-filing, make sure you use the correct Electronic filing pin number that you used the prior year.

If you are unable to file your tax return on-time, make sure to fill out an extension and mail it to the IRS. You will also need to pay in any tax that you might owe, but it gives you an extra 6 months to file the return.

The best way to avoid common mistakes is to not wait until the last minute to work on your taxes. Even giving it to your tax preparer within the last few days before the deadline is an easy way to end up getting a delay in your return being processed due to missed items or mistakes.

By: Sandra Stone, Accountant

Important Birthdays Related to Your Taxes

happy-birthdayFrom a tax standpoint, some birthdays are more important than others. Here are some notable tax milestones.

BIRTH: You generally can start claiming a dependency exemption for your child in the year he or she is born. In 2014, the exemption is $3,950, subject to phaseout for higher income taxpayers. For married taxpayers filing jointly, the phaseout begins with an adjusted gross income (AGI) of $305,050, and the credit is completely phased out with an AGI of $427,550.*

13: The child care credit is available to eligible working parents until the year their child turns 13. The credit is 20% to 35% of employment-related child care expenses, depending on income. The maximum amount of expenses eligible for the credit is $3,000 for one qualifying child and $6,000 for two or more. As a general rule, qualifying expenses are limited to the earned income of the spouse who earns the lesser amount (no earned income, no child care credit).

17: A child tax credit is available until the year a child turns age 17. The maximum credit is $1,000 per qualified child, and it is phased out above certain income amounts.

19: Your child may continue to qualify as your dependent until the year he or she reaches age 19. If your child is enrolled as a full-time student for some part of five calendar months during the year, then he or she can qualify as your dependent until age 24.

59½:You won’t have to worry about the 10% penalty tax on early withdrawals from tax-deferred retirement accounts and traditional individual retirement accounts (IRAs) once you reach age 59½.

65: If you claim the standard deduction instead of itemizing your deductions, you can celebrate your 65th birthday with an additional standard deduction. For 2014, the additional standard deduction is $1,200 for a married individual (filing jointly or separately) or a surviving spouse and $1,550 for a single or head-of-household taxpayer.

70½: After you reach age 70½, annual required minimum distributions (RMDs) from traditional IRAs and employer retirement plans generally must start — and they represent taxable income. (Your plan may allow you to delay RMDs if you are still working for the company sponsoring the plan and you are not a 5% owner.)

* The 2014 AGI phaseout range for single taxpayers is $254,200 to $376,700. It’s $279,650 to $402,150 for heads of household.

 

1099 Misc and W-2 Form Tips

TaxTips4The February 28th deadline has just past for submitting the red copies of W-2’s and 1099’s to the federal governing agencies. Many companies were finished long ago. Others are still hustling around getting employee and subcontractor information from individuals who maybe no longer working for the company anymore.

Since it’s the early part of a new year, now is a good time to take a look at your paperwork and verify information. This will help the last minute calls from those involved trying to get information to prepare the necessary forms. Have your employees prepared a new W-4 for payroll tax withholding since they were originally hired? Have vendors or subcontractors filled out an IRS form W-9? One can easily update their vendor and subcontractor information with a mass mailing requesting the completion of an enclosed W-9. This will enable you to have the correct name, address and social security/federal ID number on file. When it comes to January 2015, you will have everything you need for the accountant to process the W-2 and 1099 forms without a big delay.
Please print neatly when hand writing information. If you can’t read it, chances are, others probably can’t either! These simple tips will help insure that your company will be ready when the end of the year tax forms are needed.

By: Sandra Stone, Accountant