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.
Donating a car or vehicle to charity can be a great way for taxpayers to get a large deduction on their income tax returns. Prior to January 2005, the IRS allowed taxpayers to take a tax deduction based solely on their vehicle's market value. Determining the market value of a donated vehicle was often quite difficult and time-consuming, which made determination of the amount of the tax deduction confusing.
Fortunately, as a result of the tax law that went into effect in January 2005, the IRS has taken the guesswork out of determining the value of your donated car, truck, RV, boat or other vehicle. Generally, if the charity sells your vehicle, your deduction is limited to the gross proceeds the charity receives from its sale.
If the charity intends to make significant intervening use of the vehicle, a material improvement to the vehicle, or intends to give or sell the vehicle to a needy individual at a price significantly below fair market value, you will need to determine your vehicle's fair market value as of the date of the contribution.
Fair market value is the price a willing buyer would pay and a willing seller would accept for the vehicle when neither party is compelled to buy or sell nor has reasonable knowledge of the relevant facts.
If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is
Moreover, the fair market value of a vehicle cannot exceed the price listed for a private-party sale.
State charity officials recommend that the donor take responsibility for transfer of title to ensure termination of liability for the vehicle. In most states, this involves filing a form with the state motor vehicle department which states that the vehicle has been donated. A taxpayer donating a vehicle in Colorado need only complete a vehicle title transfer with their local Department of Motor Vehicles.
If you are considering donating a vehicle to charity and have further questions on the tax deduction you will be receiving, don't hesitate to reach out to us with any questions or concerns.
Year-end tax planning this year will be just as complicated as it was last year because of uncertainty surrounding many expired tax breaks for individuals. While Congress mulls legislation to extend (or even make permanent) some expired tax provisions, it’s difficult to predict what will be included in the final bill. Rather than waiting to act until potential legislation is passed, implement these year-end tax planning strategies today because most steps to reduce your 2015 tax bill must be taken before year end.
Individuals often can reduce their tax bills by deferring income to the next year and accelerating deductible expenses into the current year. To defer income, for example, you might ask your employer to pay your year-end bonus in early 2016 rather than in 2015.
And to accelerate deductions, you might pay certain property taxes early or increase your IRA or qualified retirement plan contributions to the extent that they’ll be deductible. Such contributions also provide some planning flexibility because you can make 2015 contributions to IRAs, and certain other retirement plans, after the end of the year.
Remember that, when you use a credit card to pay expenses or make charitable contributions this year, you can deduct them on your 2015 return even if you don’t pay your bill until next year.
Other year-end tax planning strategies to consider include:
Offsetting capital gains. If you’ve sold stocks or other investments at a gain this year — or plan to do so — consider offsetting those gains by selling some poorly performing investments at a loss.
Reducing capital gains is particularly important if you’re subject to the net investment income tax (NIIT), which applies to taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for married couples filing jointly). The NIIT is an additional 3.8% tax on the lesser of 1) your net income from capital gains, dividends, taxable interest and certain other sources, or 2) the amount by which your MAGI exceeds the threshold.
In addition to reducing your net investment income by generating capital losses, you may have opportunities to bring your MAGI below the applicable NIIT threshold by deferring income or accelerating certain deductions.
Charitable giving. If you plan to make charitable donations, consider donating highly appreciated stock or other assets rather than cash. This strategy is particularly effective if you own appreciated stock you’d like to sell but you don’t have any losses to offset the gains.
Donating stock to charity allows you to dispose of the stock without triggering capital gains taxes, while still claiming a charitable deduction. Then you can take the cash you’d planned to donate and reinvest it in other securities.
Monitoring expired tax breaks. Keep an eye on Congress. If certain expired tax breaks are extended before the end of the year, you may have some last-minute planning opportunities. Expired provisions include tax-free IRA distributions to charity for taxpayers age 70½ and older, the deduction for state and local sales taxes, and the above-the-line deduction for qualified tuition and related expenses.
Although not new, uncertainty over expired tax breaks certainly creates some challenges. We can help you to implement the strategies available today and to be in a position to act quickly when tax legislation is signed into law. Call us today to set up a time to begin your year-end tax planning.
First in a series.Many dentists and physicians just entering professional practice face a mountain of debt. The Medscape Resident Salary & Debt Report 2014 notes that 36 percent of residents had more than $200,000 of education debt.
Add in a mortgage, a car loan, credit card debt and financing to start or buy into a practice, and you could easily find yourself burdened by more than $1 million of debt — debt that will impact your finances for years to come.
With this in mind, it’s critical to establish a plan for managing debt — and to develop some sound financial habits for the future.
Consider a recent dental school grad with $200,000 in student loans. At a fixed rate of 3.8 percent over 15 years, our new dentist would be writing a check for $1,459 every month, and wind up paying $62,694 in interest over the life of the loan. But if she decided to pay down this debt by increasing payments to $2,500 a month, the loan would be paid off in nearly half the time — seven years and eight months — and save $31,697 in interest.
If paying down debt is a priority for you, consider these two popular methods for tackling repayment:
1. The Snowball Method — Start by paying off the debt with the lowest principle balance. To the extent that your budget allows, begin making extra loan payments. At the same time, make the minimum payment on other debts. Once the target debt is paid off, take the amount you were paying on that debt and apply all of it to your debt with the next lowest principle balance. Keep doing this until all debts are paid. This debt reduction method is popular because it provides “quick wins” and encouragement and momentum to borrowers.
2. The Avalanche Method — Here, you pick the highest-interest-rate debt to pay off first — again, making the minimum payment on other debts. Once done, you then apply those payments to the next debt in line. Work your way downhill like an avalanche to the lowest-rate debt. Note that you’ll want to prioritize debt reduction so that the highest rate non-deductible interest is paid off earliest (e.g., student loans or credit card debt versus a loan for practice acquisition). The avalanche method is the preferable method because this method reduces interest expense on the highest interest rate loans first.
Medical and dental professionals with good credit scores and professional incomes are desirable customers for private lenders who may be willing to consolidate student or other loans at lower interest rates than federal loans. Just be sure to compare lenders’ origination and closing fees with the same diligence that you compare interest rates and loan terms.
Consider following the tried-and-true rule of thumb: Keep your monthly debt commitments below 35 percent of your monthly income before taxes and other deductions (maybe even shoot for 25 or 30 percent). It’s helpful to perform a regular review of your personal finances, including income tax planning, with a qualified CPA.
Next up: Smart Moves for Newly Employed Physicians and Dentists
Your practice has grown to the point that same-day appointment slots have all but disappeared. Your established patients are requiring more time and attention than you can comfortably provide, and new patients are being turned away. Big picture: you're losing revenue and risking the loss of patients to other practices.
If you’ve recently sought new employment, you may be able to offset some of the expenses related to the search. Expenses related to job hunting may qualify for a deduction on your individual income tax return. If you move for business or employment purposes you may be able to deduct many of the expenses incurred. Potential deductions include the cost of travel and moving your household goods and personal effects.
If you are seeking a new job in your same occupation, you may be able to deduct the following expenses incurred in your search:
It is important to remember that these deductions are only available to taxpayers seeking new employment in their current occupation, not to individuals seeking a first job in a new line of work.
When you move for business or employment purposes, many of the following expenses incurred may qualify for tax deductions:
In order to deduct moving expenses, the IRS requires that three basic tests are met. These tests are the distance test, the time test, and that your move closely relates to the start of work. These can be met as follows:
A great resource for information on the deductibility of moving expenses is IRS Publication 521.
If you have any questions on deduction, don’t hesitate to reach out to us.
E-Commerce and internet sales taxation is one of the most contentious areas in sales tax today. There have been many arguments for and against the taxation of internet sales. Some states contend they’re losing billions in sales tax revenues as a result of uncollected sales tax on internet sales, while many on-line retailers maintain that a 1992 Supreme Court decision prohibits states from imposing a sales tax collection requirement.
According to the Small Business Administration:
In legal terms, this physical presence is known as a "nexus." Each state defines nexus differently, but most agree that if you have a store or office of some sort, a nexus exists. If you are uncertain whether or not your business qualifies as a physical presence, contact your state's revenue agency. If you do not have a physical presence in a state, you are not required to collect sales taxes from customers in that state. This rule is based on the 1992 Supreme Court ruling, also known as the Quill case, in which the justices ruled that states cannot require mail-order businesses – and by extension, online retailers – to collect sales tax unless they have a physical presence in the state.
Effective March 1, 2010 through June 30, 2012, standardized software was subject to sales and use tax in Colorado, regardless of how the software was acquired by the purchaser or downloaded to the purchaser’s computer. Effective July 1, 2012, the tangible personal property definition excludes standardized software that is not delivered via a tangible medium. Software provided through an application service provider, delivered by electronic software delivery, or transferred by a load-and-leave software delivery is not considered delivered to the customer in a tangible medium. The legislation effectively reinstates an exemption for electronically delivered software that was in effect prior to March 1, 2010.
Additionally, there has been some uncertainty about how Colorado taxed SaaS during the brief period that electronically delivered software was subject to tax. This is a perfect illustration of how difficult it is for taxpayers to track the numerous changes in the sales tax treatment of these items, even changes that happen in a single state. It should be noted that, although Colorado does not tax SaaS at the state level, this may not be true locally.
Determining which sales tax to charge can be a challenge. Many online retailers use online shopping-cart software services to handle their sales transactions. Several of these services are programmed to calculate sales tax rates for you.
Keep in mind that not every state and locality has a sales tax. Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not have a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you are charging sales tax, you need be familiar with applicable rates.
If you have any questions on sales taxes, don’t hesitate to reach out to us. While we work more in the realm of income taxes we have the research tools and competency to assist with any sales tax issue that may come up in your business.
As professional advisors, one of our greatest concerns is employee theft in the practice. Medical and dental practices may be more vulnerable to theft because, understandably, the owners are so focused on treating patients rather than managing the business. That’s why they often delegate management responsibilities to practice managers, making the practice manager responsible for implementing proper safeguards and internal controls.
Because many of our clients use a vehicle for both business and personal use, we thought a refresher on this topic would be useful. 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 2015, the standard mileage rate is $.575 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 (click here) 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 2015, please give us a call at (719) 630-1186 to learn more.