Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
Since many of our clients use a vehicle for both business and personal use, we thought a refresher on this topic would be useful as we approach year-end. It is quite acceptable to use a vehicle for both business and personal use but important to understand the deductibility of expenses associated with the vehicle.
Business use is determined by the number of miles traveled between two business locations. The business use percentage is simply the ratio of total business miles for the year to total miles for the year for the vehicle. As a reminder, commuting miles to and from your normal place of business are not considered to be business miles.
When you use a vehicle for business purposes, the business portion of depreciation and ordinary and necessary vehicle operating expenses are deductible. The tax regulations provide two methods for calculating the business portion of vehicle expenses which can be used by self-employed taxpayers and employees:
(1) the deduction may be computed using the standard mileage rate for the number of business miles driven during the year, or
(2) the business portion of actual vehicle expenses, including depreciation and the Section 179 deduction, may be deducted.
The standard mileage rate varies from year to year and is computed by the IRS to represent the cost of fuel, oil, insurance, repairs and maintenance and depreciation or lease payments for the vehicle. The standard mileage rate method is available regardless of the cost of the vehicle. For 2014, the standard mileage rate is $.56 per mile.
In addition to the standard mileage rate, the costs of business-related parking and tolls are 100 percent deductible. The standard mileage rate can only be used if this method was used to compute the business auto deduction for the first year the vehicle was placed in service and each subsequent year. If the standard mileage rate is used to calculate the vehicle expense deduction for a vehicle, straight-line depreciation must be used if there is a subsequent switch to the actual expense method.
To use the actual expense method, first determine the entire cost of operating the vehicle for the year, including vehicle depreciation and Section 179 expense, if any.
Taxpayers who use a vehicle more than 50% of the time for a qualified business use can deduct Section 179 expense and/or MACRS accelerated and bonus depreciation, as well as other ordinary and necessary expenses. If the vehicle is used less than 50% for qualified business use, straight line depreciation over a 5-year life must be used to compute depreciation on the vehicle and the Section 179 deduction is not available for the vehicle.
The above rules are subject to the limitations on luxury vehicles. Certain trucks, vans and sports utility vehicles with a gross loaded vehicle weight rating exceeding 6,000 pounds are not subject to the luxury auto depreciation limits.*** However, vehicles with a weight rating of 6,000 pounds or less are considered passenger autos and are subject to the luxury vehicle limitations.
To satisfy the more than 50% qualified business use test, only use in a trade or business can be considered. Investment use and other use in other activities conducted for the production of income are not included in the qualified business use test, although total business and investment use can be used for determining the deductible portion of vehicle expenses.
If qualified business use falls below 50% in subsequent years, then depreciation and Section 179 deductions in excess of the straight-line method and deducted in previous years must be recaptured in the year that qualified business use falls below 50%.
Of course, we recommend that you keep excellent vehicle expense documentation and contemporaneous usage records. We have included a vehicle mileage log (see side bar) that we recommend you keep to corroborate auto usage documentation from repair and maintenance records.
If you have questions regarding the information in this article or if you’re interested in special tax deductions related to the purchase of a truck, van or sports utility vehicle in 2014, please give a member of the SKR staff a call to learn more.
On May 15th, 2013 the Colorado Legislature signed a bill that has the potential to significantly boost the tax benefit of owning or leasing alternative fuel and/or electric vehicles. House Bill 13-1247 extends the availability of credits for certain “innovative” vehicles and simplifies the calculation of these credits. Purchasers and lessee’s are now potentially eligible for up to a $6,000 credit on their individual or business Colorado income tax return for purchases/lease agreements made during the 2013 tax year through tax year 2021. The bill expands the availability of this credit to include the purchase of both new and used plug-in electric and plug-in hybrid electric vehicles. Also, non-plug-in vehicles with a minimum fuel efficiency of 40 mpg or greater, may qualify for the credit, if purchased during 2013.
It is important to note, however, that used vehicles are only eligible if the Colorado credit has not been previously claimed on that vehicle. The amount of the credit is dependent upon the vehicle specifications and purchase price, adjusted for any eligible credits, grants, and/or rebates. Also, for taxpayers that have already purchased a vehicle relying on information from the prior law, if that law provides more favorable treatment, it may still be utilized.
For those of you considering the purchase of a fuel efficient vehicle, for business use or pleasure, we would be happy to assist you with determining the potential tax savings available as a result of the newly modified credit. Please call Jordan Empey, Tax Manager, at (719) 630-1186 or email him at jempey@skrco.com.
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Newsbits
A-133 audit threshold raised for small nonprofits
The Office of Management and Budget (OMB) has streamlined its guidance on grants management, including administrative requirements, cost principles and audit requirements for federal awards. Among other things, the new rules reduce the burden on smaller nonprofits by increasing the threshold that triggers compliance audits currently performed under OMB Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations (also known as single audits).
The federal threshold will jump to $750,000 from $500,000 — nonprofits will be required to undergo a single audit only if they spend $750,000 or more in federal awards in a fiscal year. Those that spend less are required only to make their records available for review or audit by the federal awarding agency, any pass-through agency and the U.S. Government Accountability Office. The new rules take effect for fiscal years beginning on or after Jan. 1, 2015.
Most organizations have room for improvement with online fundraising, according to a study of 151 national charities, conducted by the consulting group Dunham+Company and the fundraising think tank Next After. Researchers found that most organizations don’t do enough to persuade supporters to sign up for e-mails and that their messages don’t provide enough direction as far as actions recipients should take, such as donating or signing a petition.
Of those responding, 37% sent no e-mails within 30 days after visitors signed up to receive them, and 56% didn’t ask for a donation within 90 days. Additionally, 84% hadn’t made their donation websites easy to read on mobile devices. And 65% of their websites required visitors to click through three or more pages to give online. With contributions hard to come by, your organization should eliminate any of these shortcomings, if applicable.
The Foundation Center, a source of information about philanthropy, has launched Foundation Stats (http://data.foundationcenter.org), an online tool that provides free and open access to data on nearly 82,000 independent, corporate, community and grantmaking operating foundations. Users can explore foundations’ basic financial data by organization type, location and fiscal year. The grants section, based on giving by the top 1,000 U.S. foundations, allows users to filter data by recipients’ geographic location and by subject area or population group served.
Users also can generate their own tables, charts and graphs to show trends over time, and all custom results can be downloaded for use in spreadsheets. And the tool includes an application programming interface so Web developers can freely extract multiple years of aggregate-level statistics for their own use.
Summer is the time for sunshine, vacations, and often weddings! If you’re getting married this year, we know you’re probably focused on things like the dress, the venue, the food, etc.
As your accounting firm, we want to remind you of some things you should know considering your finances. Here are 5 important things newlyweds should know:
These are just a few things to think about when you come back from your honeymoon. If you have questions about how your new marriage will affect other financial matters, please contact us at (719) 630-1186. We’re glad to help!
– See more at: https://www.skrco.com/blogs/news-and-tax-alerts/2014/7/10/5-things-newlyweds-should-know-for-2014#sthash.4I9xBJzW.dpuf
To help you stay abreast of tax developments that might affect you, we’ve recently updated our online tax planning guide to cover the following timely topics:
Please let us know if you have any questions about the updates or how they might affect your tax planning strategies.
Summertime means cleaning out those often neglected spaces such as the garage, basement, and attic for many of us. Whether clothing, furniture, bikes, or gardening tools, you can write off the cost of items in good condition donated to a qualified charity. The deduction is based on the property's fair market value. Guides to help you determine this amount are available from many nonprofit charitable organizations.
Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year:
A vacation home can be a house, apartment, condominium, mobile home or boat. If you rent out a vacation home, you can generally use expenses to offset taxable income from the rental. However, you can't claim a loss from the activity if your personal use of the home exceeds the greater of fourteen days or 10% of the time the home is rented out. Watch out for this limit if taking an end-of summer vacation at your vacation home.
Two key tax incentives for acquiring qualified business property have either expired for property placed in service in 2014 or have been greatly reduced. The additional first year “bonus” depreciation provision for qualified property expired at the end of 2013 and is not currently available for business equipment purchased in 2014.
The election to expense the cost of qualifying property under Section 179 is still available for property placed in service in 2014, but the deduction is limited to $25,000 of qualifying property, as long as the qualifying property placed in service by the business during the year is $200,000 or less. The deduction is reduced dollar for dollar as the amount of qualifying property placed in service in 2014 exceeds $200,000 and is completely phased out if the amount of qualifying property placed in service during the year exceeds $225,000.
The Section 179 election to deduct the cost of equipment placed in service during a year has been one of the most useful tax deductions available for small business. The Senate Finance Committee approved the Expiring Provisions Improvement Reform and Efficiency Act of 2014 on April 3, 2014, which extends the $500,000 Section 179 limit of recent years for tax years 2014 and 2015. It also allows businesses to use Section 179 to deduct the cost of off-the-shelf software and the costs of improvements to certain leased business properties. At this time, it is unclear whether this bill will be passed by Congress and signed by the President before December 31, 2014.
When you travel away from home, you may deduct your travel expenses – including airfare, train, bus, taxi, meals (generally limited to 50%), lodging – as long as the primary purpose of the trip is business-related. You might have some downtiem relaxing, but spending more time on business activities is critical. Note that the cost of personal pursuits is not deductible.
If you treat a client to a round of golf at the local club or course, you may deduct qualified expenses – such as green fees, club rentals, and 50% of your meals and drinks at the nineteenth hole – as long as you hold a "substantial business meeting" with the client before or after the golf outing. The discussion could take place a day before or after the entertainment if the client is from out of state. For information on what does and does not qualify,please contact us.
Home office expenses are generally deductible if part of a business owner's personal residence is used regularly and exclusively as either the principal place of business or as a place to meet with patients, customers or clients. The IRS recently provided an optional safe-harbor method that makes it easier to determine the amount of deductible home office expenses. Starting in 2013, the new rules allow you to deduct $5 per square foot of home office space (up to 300 square feet). In addition, deductions such as interest and property taxes allocable to the home office are still permitted as an itemized deduction for taxpayers using the safe harbor.
It’s summertime! And although that means vacations and tans for many of us, it may also mean for students that it’s time to get a summer job. Whether your student finds work mowing lawns, babysitting or working in a restaurant, there are some things they should be aware of. If it’s their first job, it gives them a chance to learn about the working world – and that includes taxes!
The Internal Revenue Service has put together a list of eight things that students who take a summer job should know about taxes:
1. Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your taxes when you’re an employee. If you’re self-employed, you may have to pay estimated taxes directly to the IRS on certain dates during the year. This is how our pay-as-you-go tax system works.
2. As a new employee, you’ll need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use it to determine how much federal income tax to withhold from your pay.
3. Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
4. Money you earn doing work for others is taxable. Some work you do may count as self-employment. This can include jobs like baby-sitting and lawn mowing. Keep good records of expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction may help lower your taxes.
5. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.
6. You may not earn enough from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count toward your coverage under the Social Security system.
7. If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you’re considered self-employed. If you don’t meet those conditions and are under age 18, you are usually exempt from Social Security and Medicare taxes.
8. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded.
Contact your CPA or visit IRS.gov for more about the tax rules for students.
If you are a business owner who collects and pays Sales Tax or you are a consumer or business owner paying Use Tax to the state on your purchases that did not include Colorado sales tax, we want you to be aware that the service fee is changing.
The service fee (also known as the Vendor’s Fee or discount fee) has been restored to a rate of 3.33% for returns filed timely on or after July 1, 2014.
The service fee will be effective for:
• State Sales Tax
• State Retailer’s Use Tax
• Aviation Sales Tax
• RTD/CD (Denver metro area)special district taxes
The service fee rates for state-collected local jurisdictions are not part of this change, however they may change periodically.
If you have received pre-printed sales tax forms from the State, the rate of .0222 (2.22%) should be changed to the new rate of .0333 (3.33%) for timely filed returns. The new forms for the July 2014 to December 2014 period will have the new service fee rate printed on the return.
Please contact us with any questions at (719) 630-1186.
Summer should be a time for new adventures, but the excitement and energy surrounding this season can quickly turn south as working parents begin to wonder how they will ensure their child is cared for and entertained during the summer months. While many parents use
child care year-round, summertime can offer unique opportunities and challenges.
The costs can certainly add up, but you may qualify for a federal tax credit that can lower your taxes. The IRS has put together some facts you should know about the Child and Dependent Care Credit.
1. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.
2. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
3. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return.
4. As a rule, if you’re married you must file a joint return to take the credit. But this rule doesn’t apply if you’re legally separated or if you and your spouse live apart.
5. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
6. The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your expenses, depending on your income.
7. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
8. Some exclusions to note: Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.
9. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.
10. Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.
These tips are taken from IRS Special Edition Tax Tip 2014-16
