The IRS has released the 2024-2025 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:
The IRS has released the 2024-2025 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:
- the special transportation industry meal and incidental expenses (M&IE) rates,
- the rate for the incidental expenses only deduction,
- and the rates and list of high-cost localities for purposes of the high-low substantiation method.
Transportation Industry Special Per Diem Rates
The special M&IE rates for taxpayers in the transportation industry are:
- $80 for any locality of travel in the continental United States (CONUS), and
- $86 for any locality of travel outside the continental United States (OCONUS).
Incidental Expenses Only Rate
The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.
High-Low Substantiation Method
For purposes of the high-low substantiation method, the 2024-2025 special per diem rates are:
- $319 for travel to any high-cost locality, and
- $225 for travel to any other locality within CONUS.
The amount treated as paid for meals is:
- $86 for travel to any high-cost locality, and
- $74 for travel to any other locality within CONUS.
Instead of the meal and incidental expenses only substantiation method, taxpayers may use:
- $86 for travel to any high-cost locality, and
- $74 for travel to any other locality within CONUS.
Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1392. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.
Notice 2023-68, I.R.B. 2023-41 is superseded.
Notice 2024-68
The U.S. Department of the Treasury announced it has recovered $172 million from 21,000 wealthy taxpayers who have not filed returns since 2017.
The U.S. Department of the Treasury announced it has recovered $172 million from 21,000 wealthy taxpayers who have not filed returns since 2017.
The Internal Revenue Service began pursuing 125,000 high-wealth, high-income taxpayers who have not filed taxes since 2017 in February 2024 based on Form W-2 and Form 1099 information showing these individuals received more than $400,000 in income but failed to file taxes.
"The IRS had not had the resources to pursue these wealthy non-filers," Treasury Secretary Janet Yellen said in prepared remarks for a speech in Austin, Texas. Now it does [with the supplemental funding provided by the Inflation Reduction Act], and we’re making significant progress. … This is just the first milestone, and we look forward to more progress ahead.
This builds on a separate initiative that began in the fall of 2023 that targeted about 1,600 high-wealth, high-income individuals who failed to pay a recognized debt, with the agency reporting that nearly 80 percent of those with a delinquent tax debt have made a payment and leading to more than $1.1 billion recovered, including $100 million since July 2024.
By Gregory Twachtman, Washington News Editor
The Internal Revenue Service has made limited progress in developing a methodology that would help the agency meet the directive not to increase audit rates for those making less than $400,000 per year, the Treasury Inspector General for Tax Administration reported.
The Internal Revenue Service has made limited progress in developing a methodology that would help the agency meet the directive not to increase audit rates for those making less than $400,000 per year, the Treasury Inspector General for Tax Administration reported.
In an August 26, 2024, report, TIGTA stated that while the IRS has stated it will use 2018 as the base year to compare audit rates against, the agency "has yet to calculate the audit coverage for Tax Year 2018 because it has not finalized its methodology for the audit coverage calculation."
The Treasury Department watchdog added that while the agency "routinely calculates audit coverage rates, the IRS and the Treasury Department have been exploring a range of options to develop a different methodology for purposes of determining compliance with the Directive" to not increase audit rates for those making less than $400,000, which was announced in a memorandum issued in August 2022.
The Directive followed the passage of the Inflation Reduction Act, which provided supplemental funding to the IRS that, in part, would be used for compliance activities primarily targeted toward high wealth individuals and corporations. Of the now nearly $60 billion in supplemental funding, $24 billion will be directed towards compliance activities.
TIGTA reported that the IRS initially proposed to exclude certain types of examinations from the coverage rate as well "waive" audits from the calculation when it was determined that there was an intentional exclusion of income so that the taxpayer to not exceed the $400,000 threshold.
The watchdog reported that it had expressed concerns that the waiver criteria "had not been clearly articulated and that such a broad authority may erode trust in the IRS’s compliance with the Directive."
It was also reported that the IRS is not currently considering the impact of the marriage penalty as part of determining the audit rates of those making less than $400,000.
"When asked if this would be unfair to those married taxpayers, the IRS stated that the 2022 Treasury Directive made no distinction between married filing jointly and single households, so neither will the IRS," TIGTA reported.
By Gregory Twachtman, Washington News Editor
National Taxpayer Advocate Erin Collins is working to address deficiencies highlighted by the Treasury Inspector General for Tax Administration regarding the speed of service offered by the Taxpayer Advocate Service.
National Taxpayer Advocate Erin Collins is working to address deficiencies highlighted by the Treasury Inspector General for Tax Administration regarding the speed of service offered by the Taxpayer Advocate Service.
Collins noted in a September 19, 2024, blog post that TAS, as highlighted by the TIGTA audit, is “not starting to work cases and we are not returning telephone calls as quickly as we would like.”
She noted that while overall satisfaction with TAS is high, Collins is hearing "more complaints than I would like of unreturned phone calls, delays in providing updates, and delays in resolving cases." She identified three core challenges in case advocacy:
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The increasing number of cases;
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An increase in new hires that need proper training before they can effectively assist taxpayers; and
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A case management system that is more than two decades old that causes inefficiencies and delays.
Collins noted that there has been an 18 percent increase in cases in fiscal year 2024 and advocates have inventories of more than 100 cases at a time. According to the blog post, in each of FY 2022 and 2023, there were about 220,000 cases. TAS is on track to receive nearly 260,000 in FY 2024.
"Our case advocates are doing their best to advocate for you," Collins wrote in the blog. "But when we experience a year like this in which case receipts have jumped by 18 percent, something must give. Since we don’t turn away taxpayers who are eligible for our assistance, the tradeoff is that we’re taking longer to assign new cases to be worked, longer to return telephone calls, and sometimes longer to resolve cases even after we’ve begun to work them."
Collins added that while the employment ranks continue to rise, about 30 percent of the case advocates "have less than one year of experience, and about 50 percent have less than two years of experience," meaning "nearly one-third of our case advocate workforce is still receiving training and working limited caseloads or have no caseloads yet, and half are likely to require extra support for complex cases."
She said TAS is revieing its training protocols, including focusing new hires on high volume cases so "they can begin to work those cases more quickly, while continuing to receive comprehensive training that will enable them to become effective all-around advocates over time."
TAS is also deploying a new case management system next year that will better integrate with the Internal Revenue Service’s electronic data offerings.
"My commitment is to continue to be transparent about our progress as we work toward becoming a more effective and responsive organization, and I ask for your understanding and patience as our case advocates work to resolve your issues with the IRS," Collins said.
By Gregory Twachtman, Washington News Editor
The IRS has highlighted important tax guidelines for taxpayers who are involved in making contributions and receiving distributions from online crowdfunding. The crowdfunding website or its payment processor may be required to report distributions of money raised, if the amount distributed meets certain reporting thresholds, by filing Form 1099-K, Payment Card and Third Party Network Transactions, with the IRS.
The IRS has highlighted important tax guidelines for taxpayers who are involved in making contributions and receiving distributions from online crowdfunding. The crowdfunding website or its payment processor may be required to report distributions of money raised, if the amount distributed meets certain reporting thresholds, by filing Form 1099-K, Payment Card and Third Party Network Transactions, with the IRS.
The reporting thresholds for a crowdfunding website or payment processor to file and furnish Form 1099-K are:
- Calendar years 2023 and prior – Form 1099-K is required if the total of all payments distributed to a person exceeded $20,000 and resulted from more than 200 transactions; and
- Calendar year 2024 – The IRS announced a plan for the threshold to be reduced to $5,000 as a phase-in for the lower threshold provided under the ARPA.
Alternatively, if non-taxable distributions are reported on Form 1099-K and the recipient does not report the transaction on their tax return, the IRS may contact the recipient for more information.
If crowdfunding contributions are made as a result of the contributor’s detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includible in the gross income of those for whom the campaign was organized. Additionally, contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee are generally includible in the employee’s gross income. If a crowdfunding organizer solicits contributions on behalf of others, distributions of the money raised to the organizer may not be includible in the organizer’s gross income if the organizer further distributes the money raised to those for whom the crowdfunding campaign was organized. More information is available to help taxpayers determine what their tax obligations are in connection with their Form 1099-K at Understanding Your Form 1099-K.
The IRS has significantly improved its online tools, using funding from the Inflation Reduction Act (IRA), to facilitate taxpayers in accessing clean energy tax credits. These modernized tools are designed to streamline processes, improve compliance, and mitigate fraud. A key development is the IRS Energy Credits Online (ECO) platform, a free, secure, and user-friendly service available to businesses of all sizes. It allows taxpayers to register, submit necessary information, and file for clean energy tax credits without requiring any specialized software. The platform also features validation checks and real-time monitoring to detect potential fraud and enhance customer service.
The IRS has significantly improved its online tools, using funding from the Inflation Reduction Act (IRA), to facilitate taxpayers in accessing clean energy tax credits. These modernized tools are designed to streamline processes, improve compliance, and mitigate fraud. A key development is the IRS Energy Credits Online (ECO) platform, a free, secure, and user-friendly service available to businesses of all sizes. It allows taxpayers to register, submit necessary information, and file for clean energy tax credits without requiring any specialized software. The platform also features validation checks and real-time monitoring to detect potential fraud and enhance customer service.
In November 2023, the IRS announced a significant enhancement to the ECO platform. Qualified manufacturers could submit clean vehicle identification numbers (VINs), while sellers and dealers were enabled to file time-of-sale reports completely online. Additionally, the platform facilitates advance payments to sellers and dealers within 72 hours of the clean vehicle credit transfer, significantly reducing processing time and enhancing the overall user experience.
In December 2023, the IRS expanded the ECO platform’s capabilities to accommodate qualifying businesses, tax-exempt organizations, and entities such as state, local, and tribal governments. These entities can now take advantage of elective payments or transfer their clean energy credits through the ECO system. This feature allows taxpayers who may not have sufficient tax liabilities to offset to still benefit from the available tax credits under the IRA and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act.
The IRS’s move towards digital transformation also led to the creation of an online application portal for the Qualifying Advanced Energy Project Credit and Wind and Solar Low-Income Communities Bonus Credit programs in partnership with the Department of Energy. The portal, which launched in June 2023, simplifies the submission and review processes for clean energy projects, lowering barriers for taxpayers to participate in these incentives.
These advancements reflect the IRS’s commitment to modernizing taxpayer services, focusing on efficiency, and enhancing the overall user experience. Looking ahead, the IRS is poised to continue leveraging technology to further improve processes and support taxpayers in utilizing clean energy tax incentives.
Final regulations on consistent basis reporting have been issued under Code Secs. 1014 and 6035.
Final regulations on consistent basis reporting have been issued under Code Secs. 1014 and 6035.
Consistent Basis Requirement
The general rule is that a taxpayer's initial basis in certain property acquired from a decedent cannot exceed the property's final value for estate tax purposes or, if no final value has been determined, the basis is the property's reported value for federal estate tax purposes. The consistent basis requirement applies until the entire property is sold, exchanged, or otherwise disposed of in a recognition transaction for income tax purposes or the property becomes includible in another gross estate.
"Final value" is defined as: (1) the value reported on the federal estate tax return once the period of limitations on assessment has expired without that value being adjusted by the IRS; (2) the value determined by the IRS once that value can no longer be contested by the estate; (3) the value determined in an agreement binding on all parties; or (4) the value determined by a court once the court’s determination is final.
Property subject to the consistent basis requirement is property the inclusion of which in the gross estate increases the federal estate tax payable by the decedent’s estate. Property excepted from this requirement is identified in Reg. §1.1014-10(c)(2). The zero-basis rule applicable to unreported property described in the proposed regulations was not adopted. The consistent basis requirement is clarified to apply only to "included property."
Required Information Returns and Statements
An executor of an estate who is required to file an estate tax return under Code Sec. 6018, which is filed after July 31, 2015, is subject to the reporting requirements of Code Sec. 6035. Executors who file estate tax returns to make a generation-skipping transfer tax exemption or allocation, a portability election, or a protective election to avoid a penalty are not subject to the reporting requirements. An executor is required to file Form 8971 (the Information Return) and all required Statements. In general, the Information Return and Statements are due to the IRS and beneficiaries on or before the earlier of 30 days after the due date of the estate tax return or the date that is 30 days after the date on which the estate tax return is filed with the IRS. If a beneficiary acquires property after the due date of the estate tax return, the Statement must be furnished to the beneficiary by January 31 of the year following the acquisition of that property. Also, by January 31, the executor must attach a copy of the Statement to a supplement to the Information Return. An executor has the option of furnishing a Statement before the acquisition of property by a beneficiary.
Executors have a duty to supplement the Information Return or Statements upon the receipt, discovery, or acquisition of information that causes the information to be incorrect or incomplete. Reg. §1.6035-1(d)(2) provides a nonexhaustive list of changes that require supplemental reporting. The duty to supplement applies until the later of a beneficiary's acquisition of the property or the determination of the final value of the property under Reg. §1.1014-10(b)(1). With the exception of property identified for limited reporting in Reg. §1.6035-1(f), the property subject to reporting is included property and property the basis of which is determined, wholly or partially, by reference to the basis of the included property.
Penalties
Penalties may be imposed under Reg. §301.6721-1(h)(2)(xii) for filing an incorrect Information Return, and Reg. §301.6722-1(e)(2)(xxxv) for filing incorrect Statements. In addition, an accuracy-related penalty can be imposed under Reg. §1.6662-9 on the portion of the underpayment of tax relating to property subject to the consistent basis requirement that is attributable to an inconsistent basis.
Applicability Dates
Reg. §1.1014-10 applies to property described in Reg. §1.1014-10(c)(1) that is acquired from a decedent or by reason of the death of a decedent if the decedent's estate tax return is filed after September 17, 2024. Reg. §1.6035-1 applies to executors of the estate of a decedent who are required to file a federal estate tax return under Code Sec. 6018 if that return is filed after September 17, 2024, and to trustees receiving certain property included in the gross estate of such a decedent. Reg. §1.6662-9 applies to property described in Reg. §1.1014-10(c)(1) that is reported on an estate tax return required under Code Sec. 6018 if that return is filed after September 17, 2024.
The IRS has released the 2017 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2017, and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2017.
The IRS has released the 2017 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2017, and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2017.
Business mileage rate
Beginning on January 1, 2017, the standard mileage rates for the use of a car, van, pickup or panel truck used in a business is:
- 53.5 cents per mile for business miles driven (down from 54 cents in 2016);
- 17 cents per mile for medical and moving expenses (down from 19 cents in 2016); and
- 14 cents per mile for miles driven for charitable purposes (permanently set by statute at 14 cents).
- Comment. The business rate had increased by 1.5 cents in 2015 and then dropped 4 cents in 2016, while the medical and moving rates dropped slightly (by 0.5 cents) in 2015 and then more significantly by four cents in 2016. With gas prices dropping and vehicle prices holding steady in 2016, when statistics for the 2017 rates are gathered, the optional mileage rates for business expenses for 2017 dropped to their lowest levels over five years.
Comment. As an alternative to the optional mileage rates, taxpayers can use the actual expense method. Actual expenses include expenditures for gas, oil, repairs, tires, insurance, registration fees, licenses, and other qualified costs, including depreciation. Other items, however, such as parking fees and tolls may also be deductible. A taxpayer may not use the business standard mileage rate after using a depreciation method under Code Sec. 168 or after claiming the Code Sec. 179 first-year expensing deduction for that vehicle. A taxpayer also may not use the business rate for more than four vehicles at a time.
Other amounts
For automobiles used for business, a taxpayer must use 23 cents per mile as the portion of the standard mileage rate treated as depreciation for 2017 for purposes of later determining any gain or loss on a subsequent sale. For prior years, these amounts are 24 cents for 2016 and 2015; 22 cents for 2014; and 23 cents for both 2012 and 2013.
To compute the allowance under a fixed and variable rate (FAVR) plan for 2017, the standard automobile cost may not exceed $27,900 for cars or $31,300 for trucks and vans (down from $28,000 for cars for 2016 but up slightly for trucks and vans from $31,000 for 2016).
The Surface Transportation Act of 2015: Tax Provisions (enacted on Jul. 31, 2015) provided for major changes in certain tax return deadlines. To allow for a transition period for taxpayers to adjust to the new due dates, the new filing deadlines carried a delayed effective date: for tax returns for tax years starting on or after January 1, 2016. As a result, the upcoming 2017 filing season is the first year these changes will take place.
The Surface Transportation Act of 2015: Tax Provisions (enacted on Jul. 31, 2015) provided for major changes in certain tax return deadlines. To allow for a transition period for taxpayers to adjust to the new due dates, the new filing deadlines carried a delayed effective date: for tax returns for tax years starting on or after January 1, 2016. As a result, the upcoming 2017 filing season is the first year these changes will take place.
Partnerships
The due date for partnerships to file Form 1065, U.S. Return of Partnership Income and Schedule K-1s, Partner's Share of Income, is moving this year from April 15 to March 15 (or to the 2½ months after the close of its tax year). This will be the same filing deadline now in place for S corporations.
The shift to a March 15 deadline will better enable partners, like current S corporation shareholders, to receive their Schedules K-1 in time to report that information on their Form 1040 before its April 15 due date. Many partners in the past had been forced to file for a six-month extension to file their Form 1040s.
Note: The traditional April 15, 2017 deadline falls on a Saturday and because Washington, D.C., will celebrate Emancipation Day the following Monday, April 17, 2017, the filing deadline has been pushed to Tuesday, April 18, 2017.
C Corporations
The filing deadline for regular C corporations is moving this year from March 15 (or the 15th day of the 3rd month after the end of its tax year) to April 15 (or the 15th day of the 4th month after the end of its tax year). One exception: For C corporations with tax years ending on June 30, the filing deadline will remain at September 15 until tax years beginning after December 31, 2025, when it will become October 15.
Further, an automatic six-month extension will be available for C corporations, except for calendar-year C corporations through 2025, during which an automatic five-month extension until September 15 will generally apply. The stop-gap bill also instructs the IRS to modify regulations to provide for a variety of extensions-to-file rules, including, among others, a 6-month extension of Form 1065 to September 15 for calendar-year partnerships; and 5½ months ending September 30 for calendar-year trusts filing Form 1041.
FBARs
The new law also aligns the FBAR (Report of Foreign Bank and Financial Accounts) due date with the due date for individual returns, moving it from June 30 to April 15.
A new year may find a number of individuals with the pressing urge to take stock, clean house and become a bit more organized. With such a desire to declutter, a taxpayer may want to undergo a housecleaning of documents, receipts and papers that he or she may have stored over the years in the event of an IRS audit. Year to year, fears of an audit for claims for tax deductions, allowances and credits may have led to the accumulation of a number of tax related documents—many of which may no longer need to be kept.
A new year may find a number of individuals with the pressing urge to take stock, clean house and become a bit more organized. With such a desire to declutter, a taxpayer may want to undergo a housecleaning of documents, receipts and papers that he or she may have stored over the years in the event of an IRS audit. Year to year, fears of an audit for claims for tax deductions, allowances and credits may have led to the accumulation of a number of tax related documents—many of which may no longer need to be kept.
However, it is of extreme importance for tax records to support the income, deductions and credits claimed on returns. Therefore, taxpayers must keep such records in the event the IRS inquires about a return or amended return.
Return-related documents
Generally, the IRS recommended that a taxpayer keep copies of tax returns and supporting documents at least three years. However, the IRS noted, there are some documents that should be kept for up to seven years, for those instances where a taxpayer needs to file an amended return or if questions may arise. As a rule of thumb, taxpayers should keep real estate related records for up to seven years following the disposition of property.
Health care related documents
Although health care information statements should be kept with other tax records, taxpayers are to remember that such statements do not need to be sent to the IRS as proof of health coverage. Records that taxpayers are strongly encouraged to keep include records of employer-provided coverage, premiums paid, advance payments of the premium tax credit received and the type of coverage held. As with other tax records, the IRS recommended that taxpayers keep such information for three years from the time of filing the associated tax return.
Last year’s return
Taxpayers are encouraged to keep a copy of last year’s return. The IRS, in efforts to thwart tax related identity theft and refund fraud, continues to make changes to authenticate and protect taxpayer identity in online return-related interactions. Beginning in 2017, some taxpayers who e-file will need to enter either the prior-year adjusted gross income or the prior-year self-select PIN and date of birth—information associated with the prior year’s return—to authenticate their identity.
Good recordkeeping is essential for individuals and businesses before, during, and after the upcoming tax filing season.
Good recordkeeping is essential for individuals and businesses before, during, and after the upcoming tax filing season.
First, the law actually requires taxpayers to retain certain records for a specified number of years, for example tax returns or employment tax records (for employers).
Second, good recordkeeping is essential for taxpayers while preparing their tax returns. The Tax Code frequently requires taxpayers to substantiate their income and claims for deductions and credits by providing records of various profits, expenses and transactions.
Third, if a taxpayer is ever audited by the IRS, good recordkeeping can facilitate what could be a long and invasive process, and it can often mean the difference between a no change and a hefty adjustment.
Finally, business taxpayers should maintain good records that will enable them to track the trajectory of their success over the years.
Here you will find a sample list of various types of records it would be wise to retain for tax and other purposes (not an exhaustive list; see this office for further customization to your particular situation):
Individuals
Filing status:
Marriage licenses or divorce decrees – Among other things, such records are important for determining filing status.
Determining/Substantiating income:
State and federal income tax returns – Tax records should be retained for at least three years, the length of the statute of limitations for audits and amending returns. However, in cases where the IRS determines a substantial understatement of tax or fraud, the statute of limitations is longer or can remain open indefinitely.
Paystubs, Forms W-2 and 1099, Pension Statements, Social Security Statements – These statements are essential for taxpayers determining their earned income on their tax returns. Taxpayers should also cross reference their wage and income reports with their final pay stubs to verify that their employer has reported the correct amount of income to the IRS.
Tip diary or other daily tip record – Taxpayers that receive some of their income from tips should keep a daily record of their tip income. Under the best circumstances, taxpayers would have already accurately reported their tip income to their employers, who would then report that amount to the IRS. However, mistakes can occur, and good recordkeeping can eliminate confusion when tax season arrives.
Military records – Some members of the military are exempt from state and/or federal tax; combat pay is exempt from taxation, as are veteran’s benefits. (In many cases, a record of military service is necessary to obtain veteran’s benefits in the first place.)
Copies of real estate purchase documents – Up to $500,000 of gain from the sale of a personal residence may be excludable from income (generally up to $250,000 if you are single). But if you own a home that sold for an amount that produces a greater amount of gain, or if you own real estate that is not used as your personal residence, you will need these records to prove your tax basis in your home; the greater your basis, the lower the amount of gain that must be recognized.
Individual Retirement Account (IRA) records – Funds contributed to Roth IRAs and traditional IRAs and the earnings thereon receive different tax treatments upon distribution, depending in part on when the distribution was made, what amount of the contributions were tax deferred when made, and other factors that make good recordkeeping desirable.
Investment purchase confirmation records – Long-term capital gains receive more favorable tax treatment than short-term capital gains. In addition, basis (generally the cost of certain investments when purchased) can be subtracted from gain from any sale. For these reasons, taxpayers should keep records of their investment purchase confirmations.
Substantiating deductions:
Acknowledgments of charitable donations – Cash contributions to charity cannot be deducted without a bank record, receipt, or other means. Charitable contributions of $250 or more must be substantiated by a contemporaneous written acknowledgment from the qualified organization that also meets the IRS requirements.
Cash payments of alimony – Payments of alimony may be deductible from the gross income of the paying spouse . . . if the spouse can substantiate the payments and certain other criteria are met.
Medical records – Disabled taxpayers under the age of 65 should keep a written statement from a qualified physician certifying they were totally disabled on the date of retirement.
Records of medical expenses – Certain unreimbursed medical expenses in excess of 10 percent of adjusted gross income may be deductible. Caution: a pending tax-reform proposal may change the deductibility of these expenses.
Mortgage statements and mortgage insurance – Mortgage interest and real estate taxes have generally deductible for taxpayers who itemize rather than claim the standard deduction. Caution: a pending tax-reform proposal may change the deductibility of these expenses.
Receipts for any improvements to real estate – Part or all of the expense of certain energy efficient real estate improvements can qualify taxpayers for one or more tax credits.
Keeping so many records can be tedious, but come tax-filing season it can result in large tax savings. And in the case of an audit, evidence of good recordkeeping can get you off to a good start with the IRS examiner handling the case, can save time, and can also save money. For more information on recordkeeping for individuals, please contact our offices.
Businesses
Taxpayers are required by law to keep permanent books of account or records that sufficiently substantiate the amount of gross income, deductions, credits and other amounts reported and claimed on any their tax returns and information returns.
Although, neither the Tax Code nor its regulations specify exactly what kinds of records satisfy the record-keeping requirements, here are a few suggestions:
State and federal income tax returns – These and any supporting documents should be kept for at least the period of limitations for each return. As with individual taxpayers, the limitations period for business tax returns may be extended in the event of a substantial understatement or fraud.
Employment taxes – The Tax Code requires employers to keep all records of employment taxes for at least four years after filing for the 4th quarter for the year. Generally these records would include wage payments and other payroll-related records, the amount of employment taxes withheld, reported tip income, identification information for employees and other payees; employees’ dates of employment; income tax withholding allowance certificates (Forms W-4, for example), fringe benefit payments, and more.
Business income – These would go toward substantiating income, and could include cash register tapes, bank deposit slips, a cash receipts journal, annual financial statements, Forms 1099, and more.
Inventory costs – Businesses should keep records of inventory purchases. For example, if an electronics company purchases a certain number of widgets for resale or a manufacturer purchases a certain number of ball bearings for use in the production of industrial equipment that it manufactures and sells. The costs of these goods, parts, or other materials can be deducted from sales income to significantly reduce tax liability.
Business expenses – Ordinary and necessary expenses for carrying on business, such as the cost of rental office space, are also generally deductible from business income. Such expenses can be substantiated through bank statements, canceled checks, credit card receipts or other such records. The cost of making certain improvements to a business, such as through buying equipment or renovating property, can also be deductible.
Electronic back-up
Paper records can take up a great deal of storage space, and they are also vulnerable to destruction in fires, floods, earthquakes, or other natural phenomena. Because records are required to substantiate most income, deductions, property values and more—even when they no longer exist—taxpayers (and especially business taxpayers) should digitize their records on an electronic storage system and keep a back-up copy in a secure location.
Business taxation can be extremely complicated, and the requirements for recordkeeping vary greatly depending on the size of the business, the form of organization chosen, and the type of industry in which the business operates. For more details on your specific situation, please call our offices.
You may have done some spring cleaning and found that you have a lot of clothes that you no longer wear or want, and would like to donate to charity. Used clothing that you want to donate to charity and take a charitable deduction for, however, is subject to a few rules and requirements.
You may have done some spring cleaning and found that you have a lot of clothes that you no longer wear or want, and would like to donate to charity. Used clothing that you want to donate to charity and take a charitable deduction for, however, is subject to a few rules and requirements.
Under IRS guidelines, clothing, furniture, and other household items must be in good used condition or better, to be deductible. Shirts with stains or pants with frayed hems just won't cut it. Furthermore, if the item(s) of used clothing are not in good used condition or better, and you wish to deduct more than $500 for a single piece of clothing, the IRS requires a professional appraisal.
For donations of less than $250, you must obtain a receipt from the charity, reflecting the donor's name, date and location of the contribution, and a reasonably detailed description of the donation. It is your responsibility to obtain this written acknowledgement of your donation.
Used clothing contributions worth more than $500
If you are deducting more than $500 with respect to one piece of used clothing you donate, you must file Form 8283, Noncash Charitable Contributions, with the IRS. For donated items of used clothing worth more than $500 each, you must attach a qualified appraisal report is to your tax return. The Form 8283 asks you to include information such as the date you acquired the item(s) and how you acquired the item(s) (for example, were the clothes a holiday gift or did you buy the items at the store).
Determining the fair market value of used clothing
You may also need to include the method you used to determine the value of the used clothing. According to the IRS, the valuation of used clothing does not necessarily lend itself to the use of fixed formulas or methods. Typically, the value of used clothing that you donate, is going to be much less than you when first paid for the item. A rule of thumb, is that for items such as used clothing, fair market value is generally the price at which buyers of used items pay for used clothing in consignment or thrift stores, such as the Salvation Army.
To substantiate your deduction, ask for a receipt from the donor that attests to the fact that the clothing you donated with in good, used condition, or better. Moreover, you may want to take pictures of the clothing.
If you need have questions about valuing and substantiating your charitable donations, please contact our office.
The IRS allows taxpayers with a charitable inclination to take a deduction for a wide range of donated items. However, the IRS does provide specific guidelines for those taxpayers contributing non-cash items, from the type of charity you can donate to in order to take a deduction to the quality of the goods you contribute and how to value them for deduction purposes. If your summer cleaning has led, or may lead, you to set aside clothes and other items for charity, and you would like to know how to value these items for tax purposes, read on.
The IRS allows taxpayers with a charitable inclination to take a deduction for a wide range of donated items. However, the IRS does provide specific guidelines for those taxpayers contributing non-cash items, from the type of charity you can donate to in order to take a deduction to the quality of the goods you contribute and how to value them for deduction purposes. If your summer cleaning has led, or may lead, you to set aside clothes and other items for charity, and you would like to know how to value these items for tax purposes, read on.
Household items that can be donated to charitable, and for which a deduction is allowed, include:
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Furniture;
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Furnishings;
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Electronics;
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Appliances;
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Linens; and
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Similar items.
The following are not considered household items for charitable deduction purposes:
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Food;
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Paintings, antiques, and other art objects;
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Jewelry; and
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Collections.
Valuing clothing and household items
Many people give clothing, household goods and other items they no longer need to charity. If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value (FMV) of the property at the time of the contribution. However, if the property has increased in value since you purchased it, you may have to make some adjustments to the amount of your deduction.
You can not deduct donations of used clothing and used household goods unless you can prove the items are in "good," or better, condition; and in the case of equipment, working. However, the IRS has not specifically set out what qualifies as "good" condition.
Fair market value is the amount that the item could be sold for now; what you originally paid for the clothing or household item is completely irrelevant. For example, if you paid $500 for a sofa that would only get you $50 at a yard sale, your deduction for charitable donation purposes is $50 (the sofa's current FMV). You cannot claim a deduction for the difference in the price you paid for the item and its current FMV.
To determine the FMV of used clothing, you should generally claim as the value the price that a buyer of used clothes would pay at a thrift shop or consignment store.
Comment. In the rare event that the household item (or items) you are donating to charity has actually increased in value, you will need to make adjustments to the value of the item in order to calculate the correct deductible amount. You may have to reduce the FMV of the item by the amount of appreciation (increase in value) when calculating your deduction.
Good faith estimate
All non-cash donations require a receipt from the charitable organization to which they are donated, and it is your responsibility as the taxpayer, not the charity's, to make a good faith estimate of the item's (or items') FMV at the time of donation. The emphasis on valuation should be on "good faith." The IRS recognizes some abuse in this area, yet needs to balance its public ire with its duty to encourage legitimate donations. While the audit rate on charitable deductions is not high, it also is not non-existent. You must be prepared with reasonable estimates for used clothing and household goods, high enough so as not to shortchange yourself, yet low enough to prevent an IRS auditor from threatening a penalty.
In any event, if the FMV of any item is more than $5,000, you will need to obtain an appraisal by a qualified appraiser to accompany your tax form (which is Form 8283, Noncash Charitable Contributions). When dealing with valuables, an appraisal helps protect you as well as the IRS.
If you have questions about the types of items that you can donate to charity, limits on deductibility, or other general inquiries about charitable donations and deductions, please contact out office.
If you've made, or are planning to make, a big gift before the end of 2009, you may be wondering what your gift tax liability, if any, may be. You may have to file a federal tax return even if you do not owe any gift tax. Read on to learn more about when to file a federal gift tax return.
If you've made, or are planning to make, a big gift before the end of 2009, you may be wondering what your gift tax liability, if any, may be. You may have to file a federal tax return even if you do not owe any gift tax. Read on to learn more about when to file a federal gift tax return.
When you must file
Most gifts you make are not subject to the gift tax. Generally, you must file a gift tax return, Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply to gifts you have made, or will make, in 2009:
- Gifts you give to another person (other than your spouse) exceed the $13,000 annual gift tax exclusion for 2009.
- You and your spouse are splitting a gift.
- You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy or receive income from until some time in the future.
Remember, filing a gift tax return does not necessarily mean you will owe gift tax.
Gifts that do not require a tax return
You do not have to file a gift tax return to report three types of gifts: (1) transfers to political organizations, (2) gift payments that qualify for the educational exclusion, or (3) gift payments that qualify for the medical payment exclusion. Although medical expenses and tuition paid for another person are considered gifts for federal gift tax purposes, if you make the gift directly to the medical or educational institution, the payment will be non-taxable. This applies to any amount you directly transfer to the provider as long as the payments go directly to them, not to the person on whose behalf the gift is made.
Unified credit
Even if the gift tax applies to your gifts, it may be completely eliminated by the unified credit, also referred to as the applicable credit amount, which can eliminate or reduce your gift (as well as estate) taxes. You must subtract the unified credit from any gift tax you owe; any unified credit you use against your gift tax in one year will reduce the amount of the credit you can apply against your gift tax liability in a later year. Keep in mind that the total credit amount that you use against your gift tax liability during your life reduces the credit available to use against your estate tax.
Let's take a look at an example:
In 2009, you give your nephew Ben a cash gift of $8,000. You also pay the $20,000 college tuition of your friend, Sam. You give your 30-year-old daughter, Mary, $25,000. You also give your 27-year-old son, Michael, $25,000. Before 2009, you had never given a taxable gift. You apply the exceptions to the gift tax and the unified credit as follows:
- The qualified education tuition exclusion applies to the gift to Sam, as payment of tuition expenses is not subject to the gift tax. Therefore, the gift to Sam is not a taxable gift.
- The 2009 annual exclusion applies to the first $13,000 of your gift to Ben, Mary and Michael, since the first $13,000 of your gift to any one individual in 2009 is not taxable. Therefore, your $8,000 gift to Ben, the first $13,000 of your gift to Mary, and the first $13,000 of your gift to Michael are not taxable gifts.
- Finally, apply the unified credit. The gift tax will apply to $24,000 of the above transfers ($12,000 remaining from your gift to Mary, plus $12,000 remaining from your gift to Michael). The amount of the tax on the $24,000 is computed using IRS tables for computing the gift tax, which is located in the Instructions for Form 709. You would subtract the tax owe on these gifts from your unified credit of $345,800 for 2009. The unified credit that you can use against the gift tax in a later year (and against any estate tax) will thus be reduced. If you apply the unified credit to the amount of gift tax owe in 2009, you may not have to pay any gift tax for the year. Nevertheless, you will have to file a Form 709.
Filing a gift tax return
You must report the amount of a taxable gift on Form 709. For gifts made in 2009, the maximum gift tax rate is 45 percent. You can make an unlimited number of tax-free gifts in 2009, as long as the gifts are not more than $13,000 to each person or entity in 2009 (or $26,000 if you and your spouse make a gift jointly), without having to pay gift taxes on the transfers.
If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses, you may be able to write-off a larger percentage of your business-related automobile costs.
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If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses, you may be able to write-off a larger percentage of your business-related automobile costs.
Regardless of the type of record keeper you consider yourself to be, there are numerous ways to simplify the burden of logging your automobile expenses for tax purposes. This article explains the types of expenses you need to track and the methods you can use to properly and accurately track your car expenses, thereby maximizing your deduction and saving taxes.
Expense methods
The two general methods allowed by the IRS to calculate expenses associated with the business use of a car include the standard mileage rate method or the actual expense method. The standard mileage rate for 2017 is 53.5 cents per mile. In addition, you can deduct parking expenses and tolls paid for business. Personal property taxes are also deductible, either as a personal or a business expense. While you are not required to substantiate expense amounts under the standard mileage rate method, you must still substantiate the amount, time, place and business purpose of the travel.
The actual expense method requires the tracking of all your vehicle-related expenses. Actual car expenses that may be deducted under this method include: oil, gas, depreciation, principal lease payments (but not interest), tolls, parking fees, garage rent, registration fees, licenses, insurance, maintenance and repairs, supplies and equipment, and tires. These are the operating costs that the IRS permits you to write-off. For newly-purchased vehicles in years in which bonus depreciation is available, opting for the actual expense method may make particularly good sense since the standard mileage rate only builds in a modest amount of depreciation each year. For example, for 2017, when 50 percent bonus depreciation is allowed, maximum first year depreciation is capped at $11,160 (as compared to $3,160 for vehicles that do not qualify). In general, the actual expense method usually results in a greater deduction amount than the standard mileage rate. However, this must be balanced against the increased substantiation burden associated with tracking actual expenses. If you qualify for both methods, estimate your deductions under each to determine which method provides you with a larger deduction.
Substantiation requirements
Taxpayers who deduct automobile expenses associated with the business use of their car should keep an account book, diary, statement of expenses, or similar record. This is not only recommended by the IRS, but essential to accurate expense tracking. Moreover, if you use your car for both business and personal errands, allocations must be made between the personal and business use of the automobile. In general, adequate substantiation for deduction purposes requires that you record the following:
- The amount of the expense;
- The amount of use (i.e. the number of miles driven for business purposes);
- The date of the expenditure or use; and
- The business purpose of the expenditure or use.
Suggested recordkeeping: Actual expense method
An expense log is a necessity for taxpayers who choose to use the actual expense method for deducting their car expenses. First and foremost, always keep your receipts, copies of cancelled checks and bills paid. Maintaining receipts, bills paid and copies of cancelled checks is imperative (even receipts from toll booths). These receipts and documents show the date and amount of the purchase and can support your expenditures if the IRS comes knocking. Moreover, if you fail to log these expenses on the day you incurred them, you can look back at the receipt for all the essentials (i.e. time, date, and amount of the expense).
Types of Logs. Where you decide to record your expenses depends in large part on your personal preferences. While an expense log is a necessity, there are a variety of options available to track your car expenditures - from a simple notebook, expense log or diary for those less technologically inclined (and which can be easily stored in your glove compartment) - to the use of a smartphone or computer. Apps specifically designed to help track your car expenses can be easily downloaded onto your iPhone or Android device.
Timeliness. Although maintaining a daily log of your expenses is ideal - since it cuts down on the time you may later have to spend sorting through your receipts and organizing your expenses - this may not always be the case for many taxpayers. According to the IRS, however, you do not need to record your expenses on the very day they are incurred. If you maintain a log on a weekly basis and it accounts for your use of the automobile and expenses during the week, the log is considered a timely-kept record. Moreover, the IRS also allows taxpayers to maintain records of expenses for only a portion of the tax year, and then use those records to substantiate expenses for the entire year if he or she can show that the records are representative of the entire year. This is referred to as the sampling method of substantiation. For example, if you keep a record of your expenses over a 90-day period, this is considered an adequate representation of the entire year.
Suggested Recordkeeping: Standard mileage rate method
If you loathe recordkeeping and cannot see yourself adequately maintaining records and tracking your expenses (even on a weekly basis), strongly consider using the standard mileage rate method. However, taking the standard mileage rate does not mean that you are given a pass by the IRS to maintaining any sort of records. To claim the standard mileage rate, appropriate records would include a daily log showing miles traveled, destination and business purpose. If you incur mileage on one day that includes both personal and business, allocate the miles between the two uses. A mileage record log, whether recorded in a notebook, log or handheld device, is a necessity if you choose to use the standard mileage rate.
If you have any questions about how to properly track your automobile expenses for tax purposes, please call our office. We would be happy to explain your responsibilities and the tax consequences and benefits of adequately logging your car expenses.
No, taxpayers may destroy the original hardcopy of books and records and the original computerized records detailing the expenses of a business if they use an electronic storage system.
No, taxpayers may destroy the original hardcopy of books and records and the original computerized records detailing the expenses of a business if they use an electronic storage system.
Business often maintain their books and records by scanning hardcopies of their documents onto a computer hard drive, burning them onto compact disc, or saving them to a portable storage device. The IRS classifies records stored in this manner as an "electronic storage system." Businesses using an electronic storage system are considered to have fulfilled IRS records requirements for all taxpayers, should they meet certain requirements. And, they have the freedom to reduce the amount of paperwork their enterprise must manage.
Record-keeping requirements
Code Sec. 6001 requires all persons liable for tax to keep records as the IRS requires. In addition to persons liable for tax, those who file informational returns must file such returns and make use of their records to prove their gross income, deductions, credits, and other matters. For example, businesses must substantiate deductions for business expenses with appropriate records and they must file informational returns showing salaries and benefits paid to employees.
It is possible for businesses using an electronic storage system to satisfy these requirements under Code Sec. 6001. However, they must fulfill certain obligations.
Paperwork reduction
In addition, using an electronic storage system may allow businesses to destroy the original hardcopy of their books and records, as well as the original computerized records used to fulfill the record-keeping requirements of code Sec. 6001. To take advantage of this option, taxpayers must:
(1) Test their electronic storage system to establish that hardcopy and computerized books and records are being reproduced according to certain requirements, and
(2) Implement procedures to assure that its electronic storage system is compliant with IRS requirements into the future.
Our firm would be glad to work with you to meet the IRS's specifications, should you want to establish a computerized recordkeeping system for your business. The time spent now can be worth considerable time and money saved by a streamlined and organized system of receipts and records.