Lawmakers from both parties spent much of June debating and discussing tax reform, but without giving many details of what a comprehensive tax reform package could look like before year-end. At the same time, several bipartisan tax bills have been introduced in Congress, which could see their way to passage.

Lawmakers from both parties spent much of June debating and discussing tax reform, but without giving many details of what a comprehensive tax reform package could look like before year-end. At the same time, several bipartisan tax bills have been introduced in Congress, which could see their way to passage.

Tax reform

House Speaker Paul Ryan, R-Wisc., predicted that tax reform would be accomplished in 2017. “Transformational tax reform can be done, and we are moving forward," Ryan said in June. We need to get this done in 2017. We cannot let this once-in-a-generation moment slip by.” Last year, House Republicans unveiled their “Better Way Blueprint,” which sets principles for tax reform, including lower individual tax rates, a reduced corporate tax rate, and a border adjustment tax, among other measures.

“Republicans have been afraid to expose their Blueprint to scrutiny,” Rep. Lloyd Doggett, D-Texas, a senior member of the House Ways and Means Committee, said. “The Republican Blueprint is both the wrong way for tax policy and the wrong way to legislate tax reform,” Doggett said.

In the Senate, the chair of the Senate Finance Committee (SFC), Orrin Hatch, R-Utah, asked stakeholders for input on tax reform. Hatch requested recommendations on individual, business and international tax reform. "After years of committee hearings, public statements, working groups, and conceptual exercises, Congress is poised to make significant steps toward comprehensive tax reform," Hatch said. “As we work to achieve those goals, it is essential that Congress has the best possible advice and insight from experts and stakeholders," he added.

Sen. Ron Wyden, D-Oregon, is ranking member of the SFC and urged lawmakers to take a bipartisan approach to tax reform. "The only way to pass lasting, job-creating tax reform that’s more than an economic sugar-high is for it to be bipartisan," Wyden said. "Tax reform takes a lot of careful consideration to write a bipartisan tax reform bill, and I know because I’ve written two of them."

Small business

The Senate Small Business Committee explored tax reform at a hearing in June. “Tax compliance costs are 67 percent higher for small businesses," Committee Chair James Risch, R-Idaho, said. Ranking member Jeanne Shaheen, D-N.H., said that “small businesses spend 2.5-billion hours complying with IRS rules.”

Mark Mazur, former Treasury assistant secretary for tax policy, was one of the experts who testified before the committee. Mazur said that small businesses generally have a larger per-unit cost of tax compliance than larger businesses. “One particular area that adds to the complexity of complying with the tax code is accrual accounting,” he said.

Other tax legislation

In June, the House passed HR 1551, a bipartisan bill. The legislation generally modifies the tax credit for advanced nuclear power facilities.

A number of bipartisan stand-alone tax bills have been introduced in Congress recently. They include:

• The Invent and Manufacture in America Bill, a bipartisan bill that would enhance the research tax credit. Generally, the bill would increase the value of the credit by up to 25 percent for qualified research activities.
• The Graduate Student Savings Bill, introduced by a group of Senate Democrats and Republicans. The bill would generally allow funds from a graduate student’s stipend or fellowship to be deposited into an individual retirement account (IRA).
• The Adoption Tax Credit Refundability Act is another bipartisan bill. The measure generally would enhance the adoption tax credit.
• Another bipartisan proposal would treat bicycle sharing systems as mass transit facilities for purposes of qualified transportation fringe benefits.

Additionally, a group of House Democrats and Republicans wrote to Treasury Secretary Steven Mnuchin in June. The bipartisan group of lawmakers asked Mnuchin to preserve the state and local sales tax deduction in any tax reform plan.

If you have any questions about tax reform, please contact our office.

With the release of regulations on centralized partnership audits, many taxpayers hope that it will signal the re-start of a regular flow of much-needed guidance from the Treasury Department and the IRS that has been virtually stopped dead in its tracks since January 20. Others caution that the floodgates have not been opened and that the impact of several Executive Orders in discouraging guidance will be felt well into next year. Also bearing upon the recent lack of guidance are the critical vacancies within Treasury’s Office of Tax Policy that have been taking longer than usual to fill.

With the release of regulations on centralized partnership audits, many taxpayers hope that it will signal the re-start of a regular flow of much-needed guidance from the Treasury Department and the IRS that has been virtually stopped dead in its tracks since January 20. Others caution that the floodgates have not been opened and that the impact of several Executive Orders in discouraging guidance will be felt well into next year. Also bearing upon the recent lack of guidance are the critical vacancies within Treasury’s Office of Tax Policy that have been taking longer than usual to fill.

Reports are that Treasury officials have been working behind-the-scenes in drafting a new guidance plan. The plan not only includes prospects for new guidance but also a fresh look at recent guidance that may need to be withdrawn or streamlined. A June 21 deadline set by Executive Order 13777, for Treasury, among other federal agencies, to show progress in "identifying regulations for repeal, replacement or modification," reportedly has been met but details will not be made public.

Likewise, a 60-day deadline within Executive Order 13789 also ended June 21 for Treasury to review all significant tax regulations issued since January 1, 2016. That latter report consists of an interim report to the President that identifies those regulations that (i) impose an undue financial burden on United States taxpayers; (ii) add undue complexity to the federal tax laws; or (iii) exceed the statutory authority of the Internal Revenue Service. No indication has been made regarding whether that report will be made public. A full report is due in another three months.

In the meantime, Treasury on June 12 requested public comments and recommendations for Treasury, pursuant to Executive Order 13777, on regulations "that can be eliminated, modified, or streamlined in order to reduce burdens," carrying a 45-day deadline. Based on the Executive Orders, consensus is also that the IRS’s next "Priority Guidance Plan" will carry significant amendments from the last one.

What’s on the chopping block?

In an effort to preview what recommendations and action may result from the EOs, here is a list of some of the regulations that are most likely to be amended or withdrawn, based upon feedback from a variety of stakeholders that have weighed in so far with public comments: .

Comment. Stakeholder responses have not always been negative, with the recognition that complexity is inherent in certain rules that are the result of complex legislative provisions that only Congress can change.

Debt/Equity: TD 9790. Final regulations under Code Sec. 385 address the recharacterization of debt as equity in certain situations with the purpose of minimizing erosion of the federal income tax base. These regs are at the top of many stakeholders’ lists of those rules that should be withdrawn. Complaints focus on both the scope of the regulations being too broad and the documentation and analysis requirements that begin in 2018 as being too burdensome for intercompany debt issuance.

Serial inverters: TD 9761. Final and temporary regulations under Code Sec. 7874 are designed, in particular, to prevent "serial inverters" in which a foreign entity completes a number of U.S. domestic acquisitions in a manner that circumvents the application of Code Sec. 7874. Some taxpayers complain that the rules are overly complex and present risks and burdens on taxpayers engaged in “run-of-the-mill” cross border mergers and acquisitions.

Spin-offs: REG-134016-15. These proposed regulations would tighten the requirements for corporations to spin off controlled corporations tax-free to their shareholders, along with providing new bright-line standards for triggering the device test and for satisfying the active trade or business test. These regs are criticized as being susceptible to being applied too broadly by the IRS. In addition, asset valuation rules set forth in those regs have not been drafted to reflect other legitimate concerns, according to critics.

Estate tax valuation: REG-163113-02. These regulations would change the valuation of interests in family-owned business for estate, gift and generating-skipping transfer tax purposes. Many stakeholders report that these regs under Code Sec. 2704 go too far in preventing abuse of existing rules by being too broad and preventing valuation discounts for lack of control and marketability.

Consistent basis for estates/beneficiaries: REG-127923-15. These regulations under Code Secs. 1014(f) and 6035 require consistent basis reporting between estates and the person acquiring property from the descendent by requiring basis reporting. Complaints lodged against these proposed regs include overreaching on the zero basis rule and supplemental filings that can span over many years.

Leveraged partnership/disguised sales: TDs 9787 and 9788. These regulations address disguised sales and allocation of liabilities and introduce restrictions on leveraged partnership transactions. Criticism of these regs focuses primarily on the fact the rules no longer allow a partner full basis on guaranteed debt for purposes of determining if there has been a taxable event when debt is transferred to the partnership, even when that guarantee meets the requirements of the new final rules concerning debt guarantees.

Foreign partner transfers: TD 9814, REG-127203-15. Temporary and proposed regulations under Code Sec. 721 address transfers of appreciated property by U.S. persons to partnerships with foreign partners related to the transferor. Complaints against these regs include their overly-broad reach when anti-abuse rules would suffice, their retroactive application, and their required use of the remedial method under Code Sec. 704(c).

Withholding on foreign investors: TD 9815. Effective January 1, 2018, regulations would impose withholding tax on what critics have characterized as a broad universe of transactions that have generally been viewed as non-abusive. Critics have said that these prospective dividend equivalent rules are costly for the financial industry, making U.S.-issued stocks and securities much less attractive to international investors.

Tax-exempt bonds: REG-129067-15. These proposed reliance regulations provide a new definition of a political subdivision for tax-exempt bonds. Critics say the rules impose overly broad restrictions that may limit infrastructure projects.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of July 2017.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of July 2017.

July 6
Employers. Semi-weekly depositors must deposit employment taxes for Jun 28, 29 and 30.

July 7
Employers. Semi-weekly depositors must deposit employment taxes for Jul 1, 2, 3 and 4.

July 10
Employees who work for tips. Employees who received $20 or more in tips during June must report them to their employer using Form 4070.

July 12
Employers. Semi-weekly depositors must deposit employment taxes for Jul 5, 6 and 7.

July 14
Employers. Semi-weekly depositors must deposit employment taxes for Jul 8, 9, 10 and 11.

July 17
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in June.

July 19
Employers. Semi-weekly depositors must deposit employment taxes for Jul 12, 13 and 14.

July 21
Employers. Semi-weekly depositors must deposit employment taxes for Jul 15, 16, 17 and 18.

July 26
Employers. Semi-weekly depositors must deposit employment taxes for Jul 19, 20 and 21.

July 28
Employers. Semi-weekly depositors must deposit employment taxes for Jul 22, 23, 24 and 25.

July 31
Employers. Form 941, Employer’s Quarterly Federal Tax Return, due for the second quarter of 2017.

Deposit FUTA owed through June if more than $500.

File Form 5500 or 5500-EZ for calendar year 2017 employee benefit plan.

August 2
Employers. Semi-weekly depositors must deposit employment taxes for Jul 26, 27 and 28.

August 4
Employers. Semi-weekly depositors must deposit employment taxes for Jul 29–Aug 1.

In a case that provides a lesson to anyone donating property to charity for which a deduction of more than $500 is claimed – get proof in writing and get it at the time you donate the property. After-the-fact substantiation, no matter how convincing, is not acceptable under the tax law to support a deduction.

In a case that provides a lesson to anyone donating property to charity for which a deduction of more than $500 is claimed – get proof in writing and get it at the time you donate the property. After-the-fact substantiation, no matter how convincing, is not acceptable under the tax law to support a deduction.

Case in point: The Tax Court, in Izen, Jr. v. Commissioner, 148 TC No. 5, found that a failure to follow the substantiation rules for donation of an aircraft precluded a taxpayer from claiming a deductions. The taxpayer’s evidence of donation did not satisfy the substantiation requirements, which are heightened for donations of vehicles, including aircrafts.

The taxpayer was assessed a deficiency on his federal income tax return for the year at issue. He then filed an amended return on which he claimed that he had donated a 50 percent interest in an aircraft to a tax-exempt historical society. His interest in the plane was appraised at $340,000, and he claimed a charitable contribution deduction in that amount.

The Tax Court observed that under Code Sec. 170(f)(12), contributions of used vehicles, including airplanes, whose claimed value exceeds $500, must satisfy special substantiation requirements. A taxpayer must obtain a contemporaneous written acknowledgment and include the acknowledgment with his or her return. Further, if the donee has not sold the vehicle or aircraft, the donee must certify the intended use or improvement to the property, among other requirements. Additionally, the donee must provide the IRS with a copy of the acknowledgment. The IRS developed Form 1098-C for this purpose.

The court found that the taxpayer did not include the requisite copy of Form 1098-C with his amended return, nor did the IRS receive the form from the historical society related to the taxpayer’s donation of the aircraft.

Although the taxpayer did include a copy of a letter to the IRS that was from the historical society thanking him for the donation, the court found that the letter failed to satisfy the contemporaneous written acknowledgement requirements. The letter failed to include the name and taxpayer identification number of the donor, among other items.

The court also rejected the taxpayer’s purported deed of a gift as satisfying the contemporaneous written acknowledgment requirement. The “aircraft donation agreement” did not meet the statutory requirements for a contemporaneous written acknowledgment. Like the letter, the deed failed to include the taxpayer identification number of the donor. The deed also did not include a certification of intended use.

Congress ended 2016 passing a few targeted tax bills and lawmakers focused on the incoming Trump administration and tax reform in 2017. President-elect Donald Trump campaigned on tax cuts for individuals and businesses. Already, lawmakers from both sides of the aisle are preparing for what is expected to be spirited debate over tax cuts in 2017.

Congress ended 2016 passing a few targeted tax bills and lawmakers focused on the incoming Trump administration and tax reform in 2017. President-elect Donald Trump campaigned on tax cuts for individuals and businesses. Already, lawmakers from both sides of the aisle are preparing for what is expected to be spirited debate over tax cuts in 2017.

Year-end legislation

In December, President Obama signed the 21st Century Cures Act and the Combat-Injured Veterans Tax Fairness Act. Under the 21st Century Cures Act, eligible small employers may adopt qualified small employer health reimbursement arrangements (QSEHRAs) to reimburse employees for the cost of premiums for individual or family health coverage without being subject to group-health plan requirements. The new law also extends transition relief for small employers. Without the new law, small employers ran the risk of a costly excise tax. The Combat-Injured Veterans Tax Fairness Act will refund money that was improperly withheld for tax purposes from severance payments to certain veterans of the U.S. Armed Forces. Both bills enjoyed bipartisan support in the House and Senate.

Unlike past years, Congress did not take up the so-called tax extenders in December. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended or made permanent many extenders but left out some incentives for energy efficiency and production, along with a few incentives for individuals. These remaining extenders could be taken up in 2017 as part of tax reform.

New administration

On the campaign trail, President-elect Donald Trump called for reducing the tax rates on individuals, lowering the corporate tax rate, repealing the federal estate tax, and creating new incentives for families. President-elect Trump also called for eliminating some unspecified tax preferences and taxing carried interest as ordinary income. More details are expected to be unveiled after President-elect Trump’s takes office on January 20.

House Republicans in June 2016 put forth a tax reform package that has many similar features to President-elect Trump’s proposals. The House GOP plan calls for individual and business rate cuts. However, there are differences. One difference is the House GOP’s so-called border adjustability; another difference is the GOP’s elimination of the IRS Oversight Board. These and other provisions are certain to generate debate in the early part of 2017.

Any tax reform package will need not only to pass the House but also the Senate before reaching the White House. While Republicans have a majority in the Senate, the chamber’s rules generally require a super-majority to pass tax bills. Republicans could use a process known as reconciliation to pass a tax reform bill with a simple majority. Any move to use reconciliation will also likely spark debate among lawmakers.

If you have any questions about year-end 2016 tax legislation or the prospects for tax reform in 2017, please contact our office.

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).

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.

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires certain U.S. taxpayers to report their interests in specified foreign financial assets.  The reporting requirement may apply if the assets have an aggregate value exceeding certain thresholds. The IRS has released Form 8938, Statement of Specified Foreign Financial Assets, for this reporting requirement under FATCA.

Reporting

For now, only specified individuals are required to file Form 8938, but specified U.S. entities will eventually also have to file the form. Taxpayers who do not file a federal income tax return for the year do not have to File Form 8938, even if the value of their foreign assets exceeds the normal reporting threshold.

Individuals who have to file Form 8938 include U.S. citizens, resident aliens for any part of the year, and nonresident aliens living in Puerto Rico or American Samoa.

Reporting applies to specified foreign financial assets. Specified foreign financial assets include:

• A financial account maintained by a foreign financial institution;
• Other foreign financial assets, such as stock or securities issued by a non-U.S. person, or an interest in a foreign entity.

The aggregate value of the individual’s specified foreign financial assets must exceed specified reporting thresholds, as follows:

• Unmarried U.S. taxpayers, and married U.S. taxpayers filing a separate return – more than $50,000 on the last day of the year, or more than $75,000 at any time during the year;
• U.S. married taxpayers filing a joint return – more than $100,000 on the last day of the year, or more than $150,000 at any time during the year; or
• Taxpayers living abroad: if filing a joint return, more than $400,000 on the last day of the year, or more than $600,000 during the year; other taxpayers, more than $200,000 on the last day of the year, or more than $300,000 at any time during the year.

Taxpayers who report assets on other forms, such as Form 3520, do not have to report the asset on Form 8938, but must use Form 8938 to identify other forms on which they report.

Filing

Reporting applies for tax years beginning after March 18, 2010, the date that FATCA was enacted. Most taxpayers, such as those who report their taxes for the calendar year, must start filing Form 8938 with their 2011 income tax return.

If you have any questions about Form 8938, please contact our office.

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.

.

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.

Click Here

How can an EA help me?

Enrolled agents advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and any entities with tax-reporting requirements. The expertise of EAs in the continuously changing field of taxation enables them to effectively represent taxpayers audited by the IRS.

Privilege and the Enrolled Agent

The IRS Restructuring and Reform Act of 1998 allow federally authorized practitioners (those bound by U.S. Department of the Treasury Circular 230 regulations) a limited client privilege. This privilege allows confidentiality between the taxpayer and the enrolled agent under certain conditions. The privilege applies to situations in which the taxpayer is being represented in cases involving audits and collection matters. It is not applicable to the preparation and filing of a tax return. This privilege does not apply to state tax matters, although a number of states have an accountant-client privilege.

Are enrolled agents required to take continuing professional education?

In addition to the stringent testing and application process, the IRS requires enrolled agents to complete 72 hours of continuing professional education, reported every three years, to maintain their EA status. NAEA members are obligated to complete 90 hours per three-year reporting period. Because of the knowledge necessary to become an EA and the requirements to maintain the license, there are only about 40,000 practicing EAs.

What are the differences between enrolled agents and other tax professionals?

Only EAs are required to demonstrate to the IRS their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all EAs specialize in taxation. EAs are the only taxpayer representatives who receive their right to practice from the U.S. government (CPAs and attorneys are licensed by the states).

Are enrolled agents bound by standards?

Enrolled agents are required to abide by the provisions of U.S. Department of the Treasury Circular 230, which provides the regulations governing the practice of EAs before the IRS. National Association of Enrolled Agents (NAEA) members also are bound by the NAEA Code of Ethics and Rules of Professional Conduct.

Why should I choose an enrolled agent who is a member of the National Association of Enrolled Agents?

The principal mission of the National Association of Enrolled Agents and its members is qualified, accurate, and ethical representation of the financial positions of taxpayers before governmental agencies. Members of NAEA must fulfill continuing professional education requirements that exceed the IRS required minimum. NAEA members comprise a strong network of experienced, well-trained tax professionals who effectively represent their clients and work to make the tax code fair and reasonably enforced.

How can I hire an enrolled agent?

The fastest way to locate an enrolled agent in your area is to visit www.naea.org. The ‘Find an EA’ function located on the home page will allow you to search instantly by locality or specialty. You also can reference your local phone book under the ‘Tax Preparation’ category and look for the phrase ‘Enrolled Agent,’ ‘Enrolled to Represent Taxpayers before the IRS,’ or the ‘EA’ credential following the name of the tax professional.

Rita Lewis will highlight issues that have been of concern to her clients.  Rita's Blog:  2017 Update on tax laws...  

BREAKING NEWS:

Refunds are much, much slower as the IRS battles tax return fraud.  And, even slower if you take education, child tax, or earned income credits.

Remember that the IRS contacts you via US Mail and not electronically. There are a lot of very aggressive telephone scams out there.  Do NOT pay anyone who claims to be from the IRS without calling me first.  Newer scams target employees in human resource departments and request W-2 information.

IRS budget cuts by Congress brought reductions in IRS Customer Service and even longer hold times!

Congress continues to look to foreign investments and assets and ALL investments to help fund the Affordable Care Act. 

The Affordable Healthcare Act added new taxes to our income tax returns:  0.9% on earned income above certain limits and 3.8% on unearned income.

And, the expanded Obamacare reporting added to the backlog at the IRS.  Yes, the IRS is even slower.  Congress has NOT voted on any major changes to or repeal of the Affordable Healthcare Act yet.  Maybe this summer....

You do NOT need your Forms 1095-B &/or 1095-C to file your taxes IF you tell your preparer about your healthcare coverage for EVERYONE on your return.  You DO need your Form 1095-A IF you have Marketplace insurance.

You DO need your Form 1098-T as well as a transcript from the bursor's office AND what YOU paid to qualify for any educational credits or deductions.

Also, expect your tax preparer to ask a LOT more due diligence questions if you want to take the American Opportunity, child tax, &/or earned income credits.  NEW questionaires are part of your tax return if claiming any of those credits.

Expect new tax law proposals from our new president and Congress, so check back here monthly to see the latest news for 2017 and for planning for 2018.

CONNECTICUT

CT also jumped on the problem of fraudulent tax returns, so don't be surprised if CT contacts you to prove your identity.  This also means slower refunds.

CT's Dept. of Labor is taking a hard look at self-employed vs. employee issues.

And the CT Dept. of Revenue Services frequently demands proof of eligibility for it's fairly new Earned Income Credit.

NEW TAX LAWS

Expect Many, Many Changed Tax Laws!  My crystal ball is hazy, but effective dates are likely to be 2018.  But, it's only June, so 2017 is still in play.

As usual, Congress gives and it takes away. Before you rely on any new law to change your tax position, call us at 203-557-0909 to learn if the law has been voted, passed, and signed, or was extended or modified or expired or if income phase-outs reduce the law's application to your specific situation or if the built-in income offsets will apply to you.

CAUTION:  Any and all laws could change during 2017 for 2017 tax returns.  We expect some updates for both the Affordable Care Act and the even more complex Repairs vs. Capitalization Regulations and other small business regulations.  And, then a series of "technical corrections" acts as new laws go into effect.