Audits - Notices
If you receive an
audit notice from the IRS, you need to acknowledge it and
respond promptly. Contact your local Ultimate Tax &
Accounting Group office before you send any information or
additional money to the IRS. There may be an error in the
amount that the IRS claims you owe.
Ultimate Tax & Accounting Group offers
free audit assistance to all customers.
Audits - Red Flags
There are
circumstances that may be red flags. If a closed corporation
of which you are a shareholder has had its return examined,
you may also receive an audit notice. Are your business
expenses or charitable contributions high in relation to
your income? These circumstances may also prompt an audit.
Actual Expenses of Car -
When you use a car for business, you may deduct the mileage
expense by using either the standard mileage rate or the
actual expenses of maintaining the vehicle. If you take the
actual expenses, you can deduct the depreciation, gas, oil,
insurance, tires, licenses, repairs, etc. If you choose to
take actual expenses when you first start using the car for
business, you cannot change to the standard mileage rate
deduction.
Business Mileage -
If you use your car for business purposes, you may deduct
56.5 cents per mile in 2013 for un-reimbursed mileage. Be
sure to keep a written record of your total mileage and
business mileage.
Other Mileage -
In
addition to business mileage, did you know that other types
of mileage are deductible if you can itemize? If you are
involved in charity or volunteer work for a non-profit
organization, you can deduct your mileage at 14 cents per
mile. The mileage to and from a doctor or dentist's office
or for moving is deductible at 24 cents per mile.
Passenger Automobile Limits -
General The IRS defines a passenger automobile as any
four-wheeled vehicle made primarily for use on public roads
that has an unloaded gross vehicle weight of 6,000 pounds or
less. The depreciation limit for most passenger automobiles
placed in service in 2012 is $3,160. This limit must be
reduced if the business use is less than 100%.
Passenger Automobile Limits-
Trucks & Vans
The depreciation limit for
trucks and vans (including certain sport utility vehicles)
used as passenger automobiles that were placed in service in
2012 is $3,360. This limit must be reduced if the business
use is less than 100%
Section 179 Expensing - Sport
Utility Vehicles -
The maximum section 179
deduction is limited to $25,000 for certain sport utility
vehicles (SUVs) weighing more than 6,000 pounds, but not
more than 14,000 pounds.
Vehicle Credits -
The Alternative Motor Vehicle Credit includes nonrefundable
credits for the following: hybrid motor vehicles, advanced
lean-burn vehicles, fuel cell vehicles, and alternative fuel
vehicles. You must purchase the vehicle for your own use and
must be the original owner. Also, vehicles must be made by
a manufacturer. Passenger automobiles and light trucks are
covered. Different rules apply for heavier vehicles.
Fuel Cell Vehicles
The maximum credit for fuel cell passenger automobiles and
light trucks is $12,000 for tax years 2006 through 2009. It
is $8,000 for tax years 2010 through 2014.
Computer and Cellular Phone -
If you purchased a computer or cellular phone and use it for
business, you may be able to claim a depreciation deduction.
Your employer must require you to have the phone or computer
as a condition of employment, and you must use them for the
convenience of your employer. You must keep a record of the
personal and business use of the computer or phone to
determine the percentage of business use.
Entertainment -
If
you incur entertaining costs for business reasons, you may
be able to deduct 50% of the amount. The expense must be
considered ordinary or necessary to your profession.
Entertainment includes any activity generally considered to
provide entertainment, amusement, or recreation.
Job-Seeking Expenses -
If you are looking for a job in your current profession and
can itemize your deductions, certain expenses may qualify as
miscellaneous deductions. Employment agency fees, resume
printing, phone calls, and mailing expenses are examples of
deductible items.
Job-related Expenses -
Some of your job-related expenses that may be deducted
include union dues, job-related magazines and books, and
other related business expenses. Generally, you must
depreciate the cost of tools used in your work. If your
employer requires you to wear work clothes or uniforms that
are not suitable for everyday wear, you may deduct the cost
and upkeep.
Moving Expenses -
If you moved at least 50 miles in the last year and your
move was job-related, you may be able to deduct the cost of
moving your household good and your traveling expenses. The
standard mileage rate for moving is 24 cents per mile for
2013. Allowable expenses are deductible whether or not you
use Schedule A and itemize your deductions.
National Guard and Reserve
Members -
If you are a member of the National
Guard or Reserves and you must travel away from home to
perform your service (such as for a drill or a meeting) in a
location that is more than 100 miles away from your home,
you can take a deduction for related travel expenses as an
adjustment to income, even if you do not itemize your
deductions. Allowable expenses include expenses for
overnight transportation, meals, and lodging. The amount of
the allowable expenses cannot exceed the amount the federal
government pays its employees for travel expenses.
Section 179 Expensing -
General If you purchase certain qualifying
equipment, you may deduct all or part of the cost by
electing to take a section 179 expense deduction. The
maximum section 179 deduction for the year is $125,000.
Self-Employed health
Insurance -
If you are self-employed, you may
deduct up to 100% of your medical insurance costs that cover
yourself, your spouse, and your dependents as an adjustment
to income. To do this, you (and your spouse if filing
jointly) must not be eligible for coverage by an
employer-subsidized health plan.
Start-Up and Organizational
Costs -
You may be able to claim a deduction of up
to $5,000 for start-up and organizational costs. The
deduction is reduced by the amount by which the start-up
costs exceed $50,000. If you cannot deduct all your costs in
the first year the business begins, amortize the remaining
costs over 15 years.
Travel Expenses -
You may be able to deduct business travel expenses if you
must conduct business away from your tax home. The cost of
transportation, lodging, laundry, dry cleaning, and
telephone expenses are some of the deductible expenses.
Generally, meals are only 50% deductible. If you are subject
to the Department of Transportation hours of service limits,
you may be able to deduct 75% of your meal expenses.
Tip Income - Record of
Tips -
Do you receive tips as part of
your income? You must report all tips as wages on Form 1040.
If you receive tips of $20 or more in one month, you must
also keep a daily record of tips received and give your
employer a written report of your tips for that month by the
tenth day of the next month. Tip Income - Allocated Tips If
you receive tip income, and work for a large food or
beverage establishment, your employer may be required to
allocate an amount of tips to you on your Form W-2. Your
employer must allocate tips if the amount of tips you
reported to him is below the IRS required minimum percentage
of gross sales. The difference is called allocated tips and
is in box 8 of your Form W- 2. You will have to include
these allocated tips in your income and also pay Social
Security and Medicare tax on them.
Unemployment Compensation
-
Have you received unemployment
compensation during the year? You must report unemployment
compensation as income. State and federal unemployment
insurance benefits, and railroad unemployment compensation
benefits, are all considered taxable income. You can choose
to have income tax withheld from any unemployment
compensation you receive.
Casualty and Theft Loss -
Home -
Unfortunately, theft and natural
disasters such as floods, tornadoes, and hurricanes occur.
The good news is that you may get a tax break. Damage to
your home and possessions which occurs due to theft, fire,
storm, or another natural disaster is deductible if you
itemize your deductions. The loss must first be reduced by
any insurance or other type of reimbursement plus $100, and
then by 10% of your adjusted gross income.
Casualty and Theft Loss - Auto -
If you
have been involved in an automobile accident, the damage to
your car may be considered a casualty loss. This would apply
if the loss were not due to your negligence or the
negligence of someone driving your vehicle. The loss must
first be reduced by any insurance or other reimbursement
plus $100, and then by 10% of your adjusted gross income.
Casualty and Theft Loss - Proof of Casualty of Loss
-
To deduct a casualty or theft loss, you must
be able to prove that a casualty or theft loss occurred and
provide proof of the amount that you deduct. Each casualty
or theft loss is reduced by any reimbursement and by $100,
and is further reduced by 10% of your adjusted gross income.
Casualty and Theft Loss - Federal Disaster Area -
If the President of the United States declares your area a
federal disaster area, you have a choice of which tax year
to deduct a casualty loss. You may deduct the loss for the
year in which it occurred, or you may choose to amend your
previous year's return and deduct the loss in that previous
tax year for a faster refund.
Special Bonus Depreciation - Expired -
Special bonus depreciation is not available for most
property purchased after 2004. However, if you are located
within the Hurricane Katrina disaster area, you may still be
eligible for special depreciation.
Are you planning a move before the end of the year? The IRS
has its own official change-of-address form, Form 8822,
Change of Address. If you fill it out and mail it to the
appropriate IRS service center, you should receive your tax
booklet at your new address.
Charitable Contributions - Required Documents
-
If you contributed to a church or qualified
non-profit organization, these contributions can be deducted
as an itemized deduction on Schedule A. The IRS requires you
to keep a written acknowledgement from the church or
organization for any contribution. Contributions must be
substantiated either with a bank record or a written
communication from the organization.
Charitable Contributions - Disasters -
As you consider making charitable contributions to assist
natural disaster victims, keep in mind that you can deduct
your contributions only if you make them to a qualified
organization. You can ask any organization whether it is a
qualified organization, or you can investigate by calling
the IRS (toll-free) at 1-877-829-5500 or by checking the
online version of Publication 78, Cumulative List of
Organizations described in Section 170(c) of the Internal
Revenue Code of 1986 on the IRS Web site at http://apps.irs.gov/app/pub78.
Churches and governments are usually qualified organizations
even though they are not included in Publication 78.
Charitable Contributions - Vehicles -
If
you donate a vehicle that has a fair market value over $550,
your deduction depends on what the charity does with the
vehicle. For example, if the charity immediately sells the
vehicle, your deduction may be limited to the gross proceeds
from the sale. Also, substantiation requirements are
stricter than with other charitable contributions.
Charitable contributions are deducted on Schedule A.
Charitable Contributions - Fair Market Value -
Extra tax deductions may be as close as your closet. If you
donated clothing, toys, furniture, or other household items
to charity, you are allowed to deduct the fair market value
of your donated items. All goods donated must be in good
condition to be eligible for a tax deduction. The IRS does
not provide a guide to determine the fair market value. The
IRS suggests surveying thrift and consignment stores for
similar items to provide an indication of the fair market
value.
Charitable Contributions - Charity Benefit or Event
-
Have you attended a charity benefit or event
lately? You may be able to deduct the dollar amount that is
more than the fair market value of the event. For example,
you attend a dinner fundraiser for a qualified non-profit
organization and your ticket price is $65. If the regular
price of the meal would have been $10, your contribution
amount would be $55.
Charitable Contributions - Exchange Students -
If you have an American or foreign exchange student living
in your home, you may be able to deduct up to $50 per month
as a charitable deduction on Schedule A. You must have a
written agreement from a qualified organization that
provides the student program. The student must not be a
relative and must be a full-time student at the high school
level or below.
Charitable Contributions - Non-Qualified
Organizations -
Not every donation you make to a
worthy cause is deductible as a charitable contribution. If
you gave money to an individual in need or to an
organization and specified that the contribution was for an
individual, you are not allowed to deduct the amount given.
When you donate to non-qualified organizations such as civic
leagues or social clubs, you cannot take a tax deduction.
Charitable
Contributions - Date of Contribution -
You may usually deduct charitable contributions only in the
year that you actually make them. A check that you mail is
considered delivered on the date you mail it. A contribution
charged on a credit card is deductible in the year you make
the charge. The amount of your deduction may be limited
depending on the type of property given and the type of
organization to which it is given. Some contributions that
you are not able to deduct in the current year because of
adjusted gross income limits may be carried over to future
years.
Uniform Definition of a Child-
The Working Families Tax
Relief Act of 2004 created a Uniform Definition of a Child
effective starting with tax-year 2005. The definition of a
child is the same for the following tax benefits:
-
Dependency Exemptions
-
Head of Household filing status
-
Child and Dependent Care Credit
-
Child Tax Credit
-
Earned Income Credit
Under the uniform definition of a child a child is defined
as follows:
A child is the natural child, stepchild, adopted child, or
eligible foster child of a taxpayer. An adopted child and
eligible foster child are further defined:
-
A child legally adopted, or a child lawfully placed by
an authorized placement agency for legal adoption; this
child is treated as a child by blood.
- Eligible foster child - A child placed by an authorized
agency or by a judgment, decree, or other order of any
court of competent jurisdiction
Adoption Credit
If you pay for adoption expenses, you
may be able to take a credit for qualified adoption expenses
of up to $11,390 per child. If your modified adjusted gross
income is over $170,820, the credit begins to be phased out.
If your modified adjusted gross income is $210,820 or more,
you do not qualify for the credit.
Child and Dependent Care -
Child Care Expenses
If you
are a working parent, or you were working and are now
looking for work, you may be able to claim a credit for your
child care expenses. The credit may be as much as $1,250 for
the expenses for one qualifying child or $2,500 for more
than one child, depending on your adjusted gross income.
Child and Dependent Care
- Types of Provider Identification
If the care provider is a daycare center, the taxpayer
identification number (TIN) is their employer identification
number (EIN). If the provider is an individual, the TIN is
the Social Security number. If the provider is a church or
non-profit group and has no EIN, the words "tax exempt" can
be substituted for the TIN.
Child and Dependent Care -
In-Home
Child Care Do you pay someone to come into your home
and provide child care while you work? If you do, you may
actually be an employer who is required to pay employment
taxes. If the person you pay provides care in their home,
you would not be considered their employer.
Child and
Dependent Care Credit - Combat Pay
To calculate the earned
income amount for Form 2441, Child and Dependent Care
Expenses, you can elect whether or not to include combat pay
as earned income. This calculation may affect how much of
your dependent care benefit is excluded from your income.
You should calculate your return both ways (including and
not including combat pay as earned income on Form 2441) to
determine which gives you the more advantageous result.
Child Support
Do you pay child support? If you do, can that
child be claimed as a dependent on your tax return? Unless
dependency is specified in your divorce decree, the
custodial parent is generally entitled to claim the child as
a dependent. The custodial parent may sign IRS Form 8332,
allowing the noncustodial parent to claim the child as a
dependent. Child support is neither income to the recipient,
nor a deduction for the payer.
Child Tax Credit - Qualifying
Child
You may qualify for a credit of up to $1,000 for each
qualifying child under age 17 at the end of the year. A
Qualifying Child is your dependent who is your child,
stepchild, adopted child, eligible foster child or
descendent of such, or your sibling, stepsibling or
descendent of such. The individual must have lived with you
for more than half of the year and must not have provided
more than half of their own support. Generally, the child
must be a U.S. citizen or a U.S. national or resident for
some part of the year.
Child Tax Credit - Refundable Credit
If you receive less than the maximum $1,000 per qualifying
child for the Child Tax Credit because it is limited to your
tax liability, you may be entitled to receive all or part of
your remaining Child Tax Credit as a refundable Additional
Child Tax Credit.
Child Tax Credit - Combat Pay
Although
combat pay is not included in income for purposes of
calculating your federal income tax, combat pay is included
as earned income when calculating the Additional Child Tax
Credit. Because the amount of this credit is based in part
on earned income, this could mean a higher credit for those
with low taxable income.
Children's Investment Income
Does
your child under age 18 have investment income? If they do,
and the total amount is more than $1,700, part of the amount
may be taxed at the parent's rate. The child may file a tax
return, including Form 8615, Tax for Children Under Age 18
With Investment Income of More Than $1,700, or you may be
able to file Form 8814, Parents' Election To Report Child's
Interest and Dividends, and report your child's income on
your return.
Dependents
To qualify as a dependent an
individual must meet the following three tests: ile a
married filing jointly tax return Dependents fall into two
specific categories: they are either a qualifying child or a
qualifying relative.
Dependents - Qualifying Child
A
qualifying child is any child who meets the following rules:
-
Relationship Test - The individual must be a son, daughter, stepchild, foster
child, sibling or descendant of either
- Residency Test - The individual must
live with you for more than one half of the year
- Age Test - The
individual must be under 19 or a full time student under 24
-
Support Test - The individual must not provide more than one half of
their own support
An individual may not be a qualifying
child of another taxpayer if that taxpayer is not required
to file a tax return, and if they do file it is to receive a
refund of withholdings only.
Dependents - Qualifying
Relative
A qualifying relative is any individual who is not
a qualifying child and meets the certain tests. A qualifying
relative can be an individual who bears no family
relationship as long as they meet the following tests:
-
Relationship Test
- The individual must be related to you as a child,
stepchild, foster child, parent, stepparent, niece, nephew,
aunt, uncle, an in-law, or is an individual who lived with
you for the entire year and the relationship did not violate
state or local law.
-
Gross Income Test - The individual's gross income must be
less than the exemption amount for the year.
-
Support Test - You must
provide more than one half of the individual's total
support.
Qualifying Child for More than One Person
If you
and another taxpayer(s) can claim the same child as a
Qualifying Child, only one person can claim the following
tax benefits (unless the rules for Children of Divorced or
Separated Parents apply): the dependent exemption, the Head
of Household filing status, the Child and Dependent Care
Credit, the Child Tax Credit, or the Earned Income Credit.
If more than one person claims tax benefits using the same
Qualifying Child, the IRS will use the following tie-breaker
rule to determine who can claim the tax benefits with that
child:
-
If more than one taxpayer is a parent of the Qualifying
Child, the parent with whom the child lived longer during the year will be allowed to
claim the Qualifying Child for the benefit.
-
If the Qualifying Child lived with their parents an
equal amount of time, the parent with the highest AGI will
be allowed to claim the Qualifying Child for the benefit.
-
If only one of the taxpayers is a parent of the
Qualifying Child the parent will be allowed to claim the Qualifying Child for the benefit.
-
If neither of the taxpayers is a parent of the
Qualifying Child. the taxpayer with the highest AGI will be
allowed to claim the Qualifying Child for the benefit.
Standard Deduction - Dependent on Another's Return
The
standard deduction for an individual for whom an exemption
can be claimed on another person's tax return is generally
limited to the greater of (a) $850, or (b) the individual's
earned income for the year plus $300. In no case can the
deduction exceed the regular standard deduction amount,
generally $5,350 for this year.
|
