Other News & Info Archives - Page 28 of 77

Are frequent flyer miles ever taxable?

Kathleen Hargrove on September 1, 2016

08_30_16-484741843_ITB_560x292 If you recently redeemed frequent flyer miles to treat the family to a fun summer vacation or to take your spouse on a romantic getaway, you might assume that there are no tax implications involved. And you’re probably right — but there is a chance your miles could be taxable.

Usually tax free

As a general rule, miles awarded by airlines for flying with them are considered nontaxable rebates, as are miles awarded for using a credit or debit card.

The IRS partially addressed the issue in Announcement 2002-18, where it said “Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.”

Exceptions

There are, however, some types of mile awards the IRS might view as taxable. Examples include miles awarded as a prize in a sweepstakes and miles awarded as a promotion.

For instance, in Shankar v. Commissioner, the U.S. Tax Court sided with the IRS, finding that airline miles awarded in conjunction with opening a bank account were indeed taxable. Part of the evidence of taxability was the fact that the bank had issued Forms 1099 MISC to customers who’d redeemed the rewards points to purchase airline tickets.

The value of the miles for tax purposes generally is their estimated retail value.

If you’re concerned you’ve received mile awards that could be taxable, please contact us and we’ll help you determine your tax liability, if any.

Now’s the time to start thinking about “bunching…”

Kathleen Hargrove on August 25, 2016

…miscellaneous itemized deductions, that is.

Many expenses that may qualify as miscellaneous itemized deductions are deductible only to the extent they exceed, in aggregate, 2% of your adjusted gross income (AGI). Bunching these expenses into a single year may allow you to exceed this “floor.” So now is a good time to add up your potential deductions to date to see if bunching is a smart strategy for you this year.

Should you bunch into 2016?

If your miscellaneous itemized deductions are getting close to — or they already exceed — the 2% floor, consider incurring and paying additional expenses by Dec. 31, such as:

Deductible investment expenses, including advisory fees, custodial fees and publications
Professional fees, such as tax planning and preparation, accounting, and certain legal fees
Unreimbursed employee business expenses, including vehicle costs, travel, and allowable meals and entertainment.

But beware …

These expenses aren’t deductible for alternative minimum tax (AMT) purposes. So don’t bunch them into 2016 if you might be subject to the AMT this year.

Also, if your AGI exceeds the applicable threshold, certain deductions — including miscellaneous itemized deductions — are reduced by 3% of the AGI amount that exceeds the threshold (not to exceed 80% of otherwise allowable deductions). For 2016, the thresholds are $259,400 (single), $285,350 (head of household), $311,300 (married filing jointly) and $155,650 (married filing separately).

If you’d like more information on miscellaneous itemized deductions, the AMT, or the itemized deduction limit, let us know.

Combining business and vacation travel: What can you deduct?

Kathleen Hargrove on August 17, 2016

08_15_16-180520428_SBTB_560x292 If you go on a business trip within the United States and tack on some vacation days, you can deduct some of your expenses. But exactly what can you write off?

Transportation expenses

Transportation costs to and from the location of your business activity are 100% deductible as long as the primary reason for the trip is business rather than pleasure. On the other hand, if vacation is the primary reason for your travel, then generally none of your transportation expenses are deductible.

What costs can be included? Travel to and from your departure airport, airfare, baggage fees, tips, cabs, and so forth. Costs for rail travel or driving your personal car are also eligible.

Business days vs. pleasure days

The number of days spent on business vs. pleasure is the key factor in determining if the primary reason for domestic travel is business. Your travel days count as business days, as do weekends and holidays if they fall between days devoted to business, and it would be impractical to return home.

Standby days (days when your physical presence is required) also count as business days, even if you aren’t called upon to work those days. Any other day principally devoted to business activities during normal business hours also counts as a business day, and so are days when you intended to work, but couldn’t due to reasons beyond your control (such as local transportation difficulties).

You should be able to claim business was the primary reason for a domestic trip if business days exceed personal days. Be sure to accumulate proof and keep it with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or training seminar, keep the program and take notes to show you attended the sessions.

Once at the destination, your out-of-pocket expenses for business days are fully deductible. These expenses include lodging, hotel tips, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. Expenses for personal days are nondeductible.

We can help!

Questions? Contact us if you want more information about business travel deductions.

You may have to prove this to deduct business losses

Kathleen Hargrove on August 11, 2016

You can only deduct losses from an S corporation, partnership or LLC if you “materially participate” in the business. If you don’t, your losses are generally “passive” and can only be used to offset income from other passive activities. Any excess passive loss is suspended and must be carried forward to future years.

Material participation is determined based on the time you spend in a business activity. For most business owners, the issue rarely arises — you probably spend more than 40 hours working on your enterprise. However, there are situations when the IRS questions participation.

Several tests

To materially participate, you must spend time on an activity on a regular, continuous and substantial basis.

You must also generally meet one of the tests for material participation. For example, a taxpayer must:

Work 500 hours or more during the year in the activity,
Participate in the activity for more than 100 hours during the year, with no one else working more than the taxpayer, or
Materially participate in the activity for any five taxable years during the 10 tax years immediately preceding the taxable year. This can apply to a business owner in the early years of retirement.

There are other situations in which you can qualify for material participation. For example, you can qualify if the business is a personal service activity (such as medicine or law). There are also situations, such as rental businesses, where it is more difficult to claim material participation. In those trades or businesses, you must work more hours and meet additional tests.

Proving your involvement

In some cases, a taxpayer does materially participate, but can’t prove it to the IRS. That’s where good recordkeeping comes in. A good, contemporaneous diary or log can forestall an IRS challenge. Log visits to customers or vendors and trips to sites and banks, as well as time spent doing Internet research. Indicate the time spent. If you’re audited, it will generally occur several years from now. Without good records, you’ll have trouble remembering everything you did.

Passive activity losses are a complicated area of the tax code. Contact us today to further discuss your situation.

CLIENT ALERT: Prospective Billing True-Up Process Deadline

Kathleen Hargrove on August 9, 2016

Last July, the Ohio Bureau of Workers’ Compensation (BWC) modernized their billing system and switched to Prospective Billing. This change has affected private employers, and includes a new true-up process to reconcile differences in premiums paid. The reporting change has been in effect since July 1, 2015, with installment payments made during the year. The deadline to submit this annual true-up report for the reporting period of 7/1/2015 thru 6/30/2016 is fast approaching.

The true-up report MUST be completed and payment received no later than next Monday, August 15. Please allow two business days for payments to be posted by BWC to your account.

What is the true-up process?

BWC provides worker’s compensation coverage based on estimated payroll
- Installment payments were required to be made during the reporting year, with the installment total estimated using prior year reported payroll
- At the policy year end, employers must report their actual payroll for the prior policy year
- Employers will either pay any shortage or receive a refund for any overage

What happens if the true-up is not completed before the deadline?

BWC will remove employers from their current rating plan or discount programs
Employers with outstanding true-ups will be ineligible for participation in future rating plans or discount programs
- Employers will be eligible again after all outstanding true-ups are submitted
BWC will put any plans in a “lapse” category
- Claims during the lapsed period will not be covered by workers compensation

As an additional reminder, the next installment payment for the NEW reporting year will be due 8/31/2016. This payment is separate from the True-up reporting for the PRIOR reporting year that is due 8/15/2016.

We hope this information has been helpful to you. If you think this change could affect you or you have any further questions, please contact your Whalen & Company representative.

Source: https://www.bwc.ohio.gov/employer/brochureware/prospectivebilling.asp

Category: Other News & Info

News & Tech Tips

Are frequent flyer miles ever taxable?

Now’s the time to start thinking about “bunching…”

Combining business and vacation travel: What can you deduct?

You may have to prove this to deduct business losses

CLIENT ALERT: Prospective Billing True-Up Process Deadline