rlewis, Author at Whalen & Company, CPAs

Taking Advantage of Tangible Property Safe Harbors

rlewis on April 8, 2015

[vc_row][vc_column][vc_column_text]If your business has made repairs to tangible property, such as buildings, machinery, equipment and vehicles, you may be eligible for a deduction on your 2014 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”

Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted. Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. (A qualified small business is generally one with gross receipts of $10 million or less.)

Contact Whalen to ensure that you’re taking all of the repair and maintenance deductions to which you’re entitled.

Copyright 2015 Thomson Reuters
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Yes, there’s still time to make a 2014 IRA contribution!

rlewis on April 6, 2015

The deadline for 2014 IRA contributions is April 15, 2015. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on Dec. 31, 2014).

If you haven’t already maxed out your 2014 limit, consider making one of these types of contributions by April 15:

Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2014 tax return. Account growth is tax-deferred; distributions are subject to income tax.
Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits may reduce or eliminate your ability to contribute, however.
Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact Whalen.

Image courtesy of John Kasawa at FreeDigitalPhotos.net

Guidelines for Gift Tax Returns

rlewis on April 2, 2015

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Do you need to file a 2014 gift tax return by April 15?

Generally, you’ll need to file a gift tax return for 2014 if, during the tax year, you made gifts:

That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions, or
Of future interests — such as remainder interests in a trust — regardless of the amount.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

There may be other instances where you’ll need to file a gift tax return — or where you won’t need to file one even though a gift exceeds your annual exclusion. Contact us for details.

Copyright 2015 Thomson Reuters
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Employee Fringe Benefits – Commuting Rule

rlewis on November 4, 2014

myers resize — Katie Myers, CPA, MST
Lead Accountant

Each year, employers must determine the value of fringe benefits that they provide to their employees. One common fringe benefit item provided to employees is the personal use of a company car. Generally, the employer must include in an employee’s wages, the value of the personal use of a company car.

One often overlooked method that can be used to compute an employee’s personal use of a company car is the Commuting Rule.

Under the Commuting Rule, the value of the personal use of a company car is computed by multiplying each one-way commute (from work to home or home to work) by $1.50. The requirements to use this rule are as follows:

The vehicle must be provided to an employee for use in the trade or business and for bona fide business reasons, you require the employee to commute in the vehicle
A written policy is established which states that the employee is not allowed to use the vehicle for personal purposes other than commuting or de minimis personal use
The employee does not use the vehicle for personal purposes other than commuting and de minimis personal use
The employee using the vehicle is not a controlled employee
- A controlled employee includes:
  - A board or shareholder appointed or elected officer who’s pay is $105,000 or more,
  - A director,
  - An employee who’s pay is $210,000 or more,
  - An employee who owns 1% or more equity, capital, or profits interest in the business.
- A controlled employee can also be defined as any highly compensated employee. They must meet either of the following tests:
  - The employee was a 5% owner at any time during the year or preceding year.
  - The employee received more than $115,000 in pay for the preceding year – This test can be ignored if the employee was not also in the top 20% of employees when ranked by compensation for the preceding year.

When looking at year end planning, and computing fringe benefits for clients, be sure to evaluate the Commuting Rule to see if it would be beneficial to use this method over the other methods such as the Cents-per-Mile Rule or the Lease Value Rule.

Have you misclassified employees as independent contractors?

rlewis on July 10, 2014

#1151.92-112 Photographed for Porter Wright Morris & Arthur LLP — Featured guest blogger, Greg M. Daugherty, Porter Wright Morris & Arthur LLP

An employer may enjoy several advantages when it classifies a worker as an independent contractor rather than as an employee. For example, it generally isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws. However, there’s a potential downside: If the IRS determines that you’ve improperly classified employees as independent contractors, you can be subject to significant back taxes, interest and penalties.

To determine whether a worker is an employee or an independent contractor, the IRS generally considers the following 3 broad categories, in addition to other facts-and-circumstances-based issues.

1. Behavioral. Does the employer control, or have the right to control, what the worker does and how the worker does his or her job?

2. Financial. Does the employer control the business aspects of the worker’s job? Does the employer reimburse the worker’s expenses or provide the tools or supplies to do the job?

3. Type of relationship. Will the relationship continue after the work is finished? Is the work a key aspect of the employer’s business?

The Department of Labor looks at similar issues and also could penalize employers who misclassify their workers. Further, the DOL and IRS share information so that an audit by one agency could trigger an audit by the other.

The IRS offers voluntary correction programs that may mitigate the potential penalties, but even these programs contain potential risks. If you are concerned that you may have misclassified workers, it is important to consult with both your accountant and legal counsel. Your accountant should be familiar with your business and with the IRS procedures. Legal counsel can help you with both the IRS and DOL issues.

About Greg Daugherty
Greg Daugherty is a partner at Porter Wright Morris & Arthur LLP and a featured guest blogger for Whalen & Company. To view his professional bio, please visit http://www.porterwright.com/greg_daugherty/, and link to his blog at http://www.employeebenefitslawreport.com/.

Author: rlewis

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