deduction

When Can I Expect My 2018 Tax Refund?

Many clients have called to ask when they can file their tax return and more importantly, when to expect to receive their refund? Now that the Government is open after a 35-day partial shutdown, refunds are expected to be provided in a timely manner.

For your convenience, here is a summary of recent updates in the news:

TAXDAY

According to TAXDAY, 2019/01/29, I.1 “the IRS has announced that it expects the first tax refunds to go out during the first week of February. Additionally, many refunds will be paid by mid-to-late February, as in previous years”.

CCH Treasury Secretary, Steven Mnunchin

  • In an interview, Secretary Mnuchin said, “the Treasury and IRS are prepared for the 2019 tax filing season”, which began January 28.
  • In a January 29th televised interview Treasury Secretary Mnuchin said “#we’re taking tax returns. We’ll be ready for tax refunds. We’ll have the phones re-staffed” and went on to say, “We are ready for tax season, and I can assure you that tax refunds will be paid as normal”. Mnuchin sounds like the Treasury and IRS have this tax season under control.

IRS Commissioner, Charles Rettig

  • In a statement, Commissioner Rettig said, “the IRS will be doing everything it can to have a smooth filing season”. We will all hope this is the case given the implementation of the Tax Cuts and Jobs Act (TCJA). Given the many changes created by TCJA we can only wonder what a “smooth filing season” is truly going to be. There will be an increase in taxpayer questions coupled with an anxiety to receive refunds while navigating the TCJA. This will be a daunting task for all taxpayers and the IRS.

Where can I go for more information or questions on my refund?

If you are wondering about the status of your refund, taxpayers can go to “Where’s My Refund” on the IRS website . You will need to have a copy of your tax return to answer IRS authentication questions before your tax refund status will be provided.

Given the partial Government shutdown and in order to avoid long call wait times, utilize the IRS website as much as possible.  The website has a lot of information that may be able to answer your question.

 

It is important this year that taxpayers and preparers exercise extreme diligence when preparing tax returns. The implementation of TCJA coupled with the partial government shutdown pose risks that could generate tax return processing delays.

If you enjoyed this post, I’d be very grateful if you’d help it spread by emailing it to a friend, or sharing it on social media. Thank you!

—Tom

 

Thomas D. Terranova, Jr., CPA, PFS, CITP is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Terranova & Associates, LLC is located in Danvers, MA.  Please contact at 978-774-7700 for consultations.

Posted by Terranova & Associates LLC in Credit, deduction, deductions, Internal Revenue Service, refund, tax, Tax Tips, taxes, 0 comments

I’m Nervous- When can I file my tax return?

It’s tax time again! Are you ready to file?

Many taxpayers are nervous and apprehensive regarding this upcoming tax season.

Questions that many have are:

  • Will I get my usual refund?
  • Did I have enough withheld to pay my tax?
  • Will I be able to itemize my deductions?
  • Will I receive the same deductions and credits for my children this year?
  • Will my refund increase under the new tax law?

These are just a few of the questions that we’ve already received this tax season.

When can you, the taxpayer, begin filing tax returns with the Internal Revenue Service? The IRS issued a notice on Monday January 7, 2019 stating they will process tax returns and issue refunds starting January 28, 2019.

The next logical question is how will the IRS accomplish this with approximately 88% of the staff on furlough as a result of the Government Shut Down? 

On January 7, 2011 Congress enacted 31 U.S.C. Section 1324, which the IRS believes Congress made an indefinite and perpetual appropriation for the IRS to issue refunds. This section goes on to state “Necessary amounts are appropriated to the Secretary of The Treasury for refunding Internal Revenue collections as provided by law”.

The IRS will be recalling required staff to return to work to accomplish this task. We are all appreciative to the Commissioner and Federal Employees who will return to work without being compensated so We the People can file our tax returns starting January 28, 2019.

The IRS Commissioner Mr. Rettig said “IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years”!

The usual filing deadline for 2018 tax returns is Monday, April 15, 2019. This deadline is not the same for Massachusetts and Maine residents because of Patriots Day Holiday on April 15, 2019 and Emancipation Day Holiday on April 16, 2019; this results in a filing deadline of April 17, 2019 for Massachusetts and Maine residents.

Thomas D. Terranova, Jr., CPA, PFS, CITP is managing member of Terranova & Associates, LLC, member of the AICPA and MA Society of CPA’s.
Terranova & Associates, LLC is located in Danvers and contact be contact at 978-774-7700 for consultations.

Posted by Terranova & Associates LLC in deduction, deductions, individuals, Mortgage, tax, Tax Tips, 0 comments

Tax Extender Act of 2017 – Extension of Tax Credits

On February 7, 2018 the 115th Congress passed the Tax Extender Act of 2017. This Act addresses temporary or scheduled to expire tax breaks at the end of 2016 or 2017. All of these temporary or scheduled to expire tax breaks are referred to as “Tax Extenders” because Congress will review all or most of them to extend for the benefit of taxpayers. Congress enacts temporary tax provisions (usually a tax credit or deduction) to address a temporary need such as floods in Texas or Hurricanes in Florida. Some of these temporary benefits prove to be so beneficial to the economy they are made permanent. The enacted tax credits or deductions are scheduled to expire on a certain date, this is known as a “sunset”. Therefore, the Tax Extender Act of 2017 extended or made permanent tax deductions or credits that expire or “sunset” in 2016 or 2017.

Hooray for Tax Extender Bill!

The following are some of the Tax Extenders that have been extended:

  • Exclusion from gross income the discharge of qualified principal residence through 2017
  • Mortgage insurance treated as qualified residence interest through 2017 with limits
  • Deduction for qualified tuition and related expenses through 2017 with limits
  • Classification of race horses as 3-year property placed in service during 2017
  • 7-year depreciation for motorsports entertainment complexes placed in service during 2017
  • Extension of special expensing rules for certain film, television and theatrical productions through 2017 with limits
  • Extension of empowerment zone tax incentives through 2017
  • Extension of credit for nonbusiness energy property through 2017
  • Extension and modification of credit for residential energy property with limits
  • Extension of credit for new qualified fuel cell motor vehicles through 2017
  • Extension of credit for alternative fuel vehicle refueling property through 2017
  • Extension of credit for 2-wheeled plug-in electric vehicle through 2017
  • Extension of credit for energy-efficient new homes through 2017
  • Extension and phaseout of energy credit through 2022 with limits
  • Extension of energy efficient commercial buildings deduction through 2017
  • Individuals held harmless on improper levy on retirement plan
  • Modifications of user fee requirements for installment agreements
  • After 2017 attorney fees relating to awards to whistleblowers are deductible above the line
  • Modification of rules governing hardship distributions from retirement account
  • Tax home of certain citizens of the USA living abroad

 

These are some of the Tax Extenders that are applicable to many taxpayers. It is exciting to see that Congress is committed to preserving electric and biofuel motor vehicle credits. In this day with many taxpayers owning vehicles it is important to reduce all of our carbon foot prints in any way we can, to get a tax credit for doing so is a bonus!

Posted by Terranova & Associates LLC in Credit, deduction, Tax Tips, taxdeductions, 0 comments

Entertainment expense deduction & substantiation

Business entertainment

Many business owners and associates meet with clients at a restaurant or other entertainment venues with the purpose of conducting business. These entertainment expenses are generally allowed as deductions (limited to 50%), and are governed by the following Internal Revenue Code Sections (Prior to the New Tax Cuts and Jobs Act):

  • IRC 162(a): requiring that an item needed to be both ordinary and necessary in order to be deducted as a business expense
  • IRC 274: requiring that this entertainment item is properly substantiated
  • IRC 132(e): provides a De Minimis Fringe Exception for entertainment expenses incurred for the convenience of the employer to be consumed on the premises

In order to provide substantiation that entertainment expense is both ordinary and necessary, one must follow the rules outlines in IRC 274. Each entertainment item over $75 must have the following substantiation information in writing:

  • Amount and proof of payment
  • Time and place
  • Business purpose and benefit
  • Attendee(s) and their business relationship to the business

IRC 274 further provides an exception to the proof of payment requirement should entertainment expense be less than $75. However, all other elements of substantiation must still be maintained.

With regards to entertainment expenses incurred while travelling, IRC 274-5(j) allows the use of a “per diem method” for substantiation purposes. This is commonly known as the “Conus rates”, and the list of expenses for each major location within and without the United States is published and maintained by the U.S. General Services Administration. Proof of travel is required to use this substantiation method.

IRC 132(e) allows a 100% deduction for “any property or service, the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employers’ employees) so small as to make accounting for it unreasonably or administratively impracticable.

While full written substantiation is the best defense in the case of an audit, one should weigh both the costs of benefits of doing so.

In the event your substantiation documentation is unavailable through no fault of your own (acceptable examples of these circumstances include fire, flood or natural disaster), you have the right to “substantiate claimed deductions by reasonable construction of the expenditures or use” – this is otherwise known as the Cohan rule.

The use of the De Minimis Fringe Benefit rule (IRC 274(n)(2)(B)) was successful in a June 26, 2017 Tax Court Case brought by the owners of the Boston Bruins against the IRS. (GO BRUINS!!) This case revolved around deducting the entire cost of pregame meals for players and personnel at away games. While I won’t bore you the with details, suffice to say that the IRS closely examines the entertainment deduction and it behooves you to adhere to the substantiation requirements.

Enjoy your Entertainment Deduction!

 

 

Thomas D. Terranova, Jr., CPA, PFS, CITP is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Jit Lee Billings, CPA is managing member of Terranova & Associates, LLC and member of the AICPA and MA Society of CPA’s.

Terranova & Associates, LLC is located in Danvers and contact be contact at 978-774-7700 for consultations.

Posted by Terranova & Associates LLC in deduction, Tax Tips, taxdeductions, 0 comments

How An LLC Is Taxed

How an LLC is taxed

Many clients are referred to our office with questions about Limited Liability Company’s taxation. What is an LLC? The Massachusetts LLC law became effective January 1, 1996 with the creation of the Limited Liability Act. An LLC is a form of business organization that is an unincorporated organization having one or more members formed pursuant to Massachusetts General Law chapter 156C. The various tax treatments available to LLC is Schedule C, Corporation, S Corporation, and Partnership. These options can be daunting.

Now that we have all of the legal jargon out of the way, let’s talk tax!

How is an LLC taxed and how will that affect you? I will start with explaining the automatic tax treatment by the IRS and then Tax Elections that are available. An LLC can have one or several members, based upon the number of member(s) the IRS automatically taxes the LLC as a Sole Proprietor if one member; and a Partnership if two members. Therefore, you must be extremely careful when applying for a tax identification number as that is the Form that you inform the IRS as to the number of members in the LLC and in turn the IRS issues a notice with the LLC tax identification number and specific tax return that needs to be filed. In both situations the profit of the Organization is taxed with your individual tax return subject to federal income tax and self-employment tax (subject to IRC limitations), along with Massachusetts income tax.

There are Tax Elections available for a LLC member or members to make with the IRS to have the Organization taxed as a Corporation or S Corporation. You might be thinking at this point how I make it through the maze of IRS Forms to complete this task. To be treated as a Corporation you must file an Entity Classification Election Form with the IRS. To be treated as an S Corporation you must file an Entity Classification Election Form along with Election by a Small Business Corporation (pursuant to Code section 1362). I recommend mailing the executed Forms to the IRS certified and return receipt to prove timely mailing and IRS receipt of the Form. You are correct, it is a long and precise process that you must go through, so please move through it with extreme care.

This process appears confusing on its face. However, if think of the process in terms of how you want to be taxed and what Form you desire the LLC to file, that will provide you with the road map of Forms you must file with the IRS to accomplish your goal. Remember, choosing the correct tax treatment of your LLC will cost you thousands of dollars or save you thousands of dollars.

 

Thomas D. Terranova, Jr., CPA, PFS, CITP

Terranova & Associates, LLC.

978-774-7700

Posted by Terranova & Associates LLC in Tax Tips, 0 comments

The Home Office Tax Deduction – Is It For You?

Let’s get things straight about home office deductions.

In this day and age, many individuals are starting and operating their own small businesses out of their homes and apartments. Against a backdrop of cost cutting and footprint reduction by Corporate America, many employees are required to maintain home offices in order to accommodate flexible work schedules and telecommuting. Per Code Section 280A(c)(5), those who use part of their residence to conduct business have the ability to take a tax deduction for associated expenses incurred for the exclusive business use of their home. These expenses are reported on Form 8829 – Expenses for Business Use of Your Home.

There are a few requirements you have to adhere to in order to qualify for this deduction. First and foremost, the home office must be used regularly for conducting business exclusively. For example, if you converted one of your bedrooms into an office that is used exclusively for business, all of the facets of that room must be used for business purposes. For example, if there is a closet in the room, that closet must also be used for business purposes.

Your home office must also be one of your primary business locations. The code states that your home office does not have to be your only business location, only that it has to be one of your primary business locations. For example, you may have a deduction for a home office in addition to an independent office that you rent.

To further qualify for tax reimbursement, your employer must require that you maintain a home office in order for you to perform your duties as an employee of

their company. Furthermore, your employer may not be reimbursing you for any expenses incurred in using part of your home as a home office, whether in the form of rent or expense reimbursement.

There are two methods of calculating home office deductions: the regular method and the simplified ‘Safe Harbor’ method.

The regular method of claiming the home office deduction requires that you to come up with a list of expenses incurred in maintaining your home. These expenses must be supported by financial records. A portion of these expenses can be determined by calculating the square footage of your home office vs. the total living square footage of your home. For example, if it costs you $10,000 to maintain your home, and the square footage of your home office is 10% of the total living area of your home, then you may deduct $1,000 as a home office deduction. The costs of maintaining your home includes, but is not limited to, mortgage interest, insurance, taxes, repairs, utilities and other expenses.

As a side note, any depreciation taken as a deduction reduces the cost basis of your home. While this might not matter on a day to day basis, it might affect you when you sell your home. The deduction, as computed under the regular method, also has gross and net income limitations, and excess deductions not taken may be carried forward to future years.

As you can see, claiming the home office deduction involves quite a bit of work: gathering the financial documents, computing the total expenses for each category, calculating the square footage of your home office vs. your home. As a remedy, the IRS introduced the ‘Simplified Safe Harbor method’ in 2013 pursuant to Revenue Procedure 2013-13. The goal of this method is to simplify the calculation of the home office deduction and also to streamline the documentation requirements related thereto. Using a prescribed rate of $5, taxpayers can compute their home office deduction by using the set rate and applying it to the allowable square footage of your home office (up to 300 square feet). For example, the maximum home office deduction using this method is $5 x 300 or $1,500. By using this method, taxpayers are released from the documentation requirements of the regular method. It is important to note that this deduction cannot exceed the net profit of the business, and cannot be carried forward. You may also not deduce depreciation.

Once you determine the best method to compute your home office deduction, you may use your selected method on your timely filed, original federal income tax return for that tax year. Once you have used either method, you may not make a change for that same tax year. You may change methods from year to year, however.

A special allocation rule exists for home based daycare businesses that do not exclusively use a specific area of the home for business purposes. In this case, the Internal Revenue Service allows you to use the total number of business hours to allocate and compute a home office deduction.

Contact us for further details on how to claim this deduction. As more and more people start their own small business, and as Corporate America keeps cutting costs and reducing their footprint, this deduction will be used more and more often. We can help you sort through the complex Internal Revenue Code and apply the best deduction for you.

Posted by Terranova & Associates LLC in Home Office, smallbusiness, 0 comments