Menu
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please note: Our offices will be closed on July 16 and 17 for Employee Appreciation Days.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please note: Our offices will be closed on July 16 and 17 for Employee Appreciation Days.
Money can be a sensitive family topic. A recent survey by the American Institute of CPAs found that while more than three in five parents provide an allowance — usually, starting when their children are about 8, and at an average of $65 per month — they’re uncomfortable talking to them about finances. In fact, Mom and Pop are more likely to talk about the importance of courtesy, healthy eating habits and good grades than they are about managing money. Fortunately, parents can take a number of steps to help their kids learn sound money management.
Although it might seem like jumping the gun, even 3- and 4-year-olds can begin grasping concepts such as needs and wants, as well as the idea that most people can’t buy everything they want. So it’s important to start explaining to these tots about the relationship between work and money.
An example: A trip to the grocery store can be a great learning experience. Show your kids how different products cost different amounts, and explain when you feel it’s worth spending more and when a lower-cost version will suffice.
Grade school often is the time when parents introduce allowances as a way to help their children live within a budget. Before handing over the cash, however, talk with your child about the purchases you expect the allowance to cover, such as video games. Otherwise, you may get ongoing “requests” to handle expenses your offspring believes shouldn’t come from his or her allowance.
Also introduce “values” to the discussion. Younger children are quite capable of grasping the concept of using their money and other resources to help those who don’t have as much, and to save for longer-term goals.
Moreover, it’s important to think through the relationship between your child’s allowance and the chores he or she is expected to handle. Some parents view an allowance as strictly a money management tool, and that, as members of the family, the kids should have chores that they’re expected to handle without compensation. Of course, this isn’t to say that a child can’t receive extra payment for handling certain chores that go above and beyond day-to-day tasks.
As your children gain experience handling small amounts of money, ask for their input on their larger financial decisions. Before heading out to buy new school clothes, for example, discuss what items your child needs the most, and whether it makes sense to buy several, less expensive items, or one pricier item.
Given how tuned-in many “tweens” are, discuss with them how advertisements are designed to prompt consumers’ desire for a specific brand or product. As an example, point out that a popular brand of shoes costs significantly more than a store brand, and ask your child if the difference in cost is worth it.
Middle-school years are also a perfect time to open a bank account in your child’s name. Use this opportunity to explain how to record deposits and withdrawals, and provide a simple calculation to demonstrate the compounding effect of interest.
High schoolers can be expected to take on even greater responsibility for their own expenses, including clothes, entertainment, cell phone use and transportation costs, to name a few.
When practical, bring your teenager into the discussion when you’re researching major purchases, such as a new appliance. He or she can read product reviews and descriptions, and compare prices of different models. Of course, make it clear at the outset that you’ll have the final decision.
If you believe your child is ready to handle a credit card, a safe way to start is with a secured credit card. As its name suggests, this line of credit is secured by cash deposited in the account. Once a teen has proven to be capable of handling the line of credit, consider allowing him or her to open a regular credit card. Of course, make sure you review the rules of responsible credit card use and the speed with which interest expense can add up.
Instilling sound money management skills in your children requires discipline, common sense and consistency. The payoff? Kids who can intelligently manage their finances are less likely to expect help from their parents. And that’s a good thing.
You might have heard about the “Taxpayer Bill of Rights” recently released by the IRS. What’s that all about? The current IRS Commissioner, John Koskinen, and the National Taxpayer Advocate, Nina Olson, announced the Taxpayer Bill of Rights at a news conference in Washington, D.C., in June 2014. The new Taxpayer Bill of Rights is intended to better communicate to taxpayers their existing statutory and administrative protections. Like the U.S. Constitution’s Bill of Rights, there are 10 broad provisions in the Taxpayer Bill of Rights. They are:
The IRS acknowledged that as an institution, it needed to do a better job of communicating to taxpayers the rights that do exist for taxpayers and that the IRS respects those rights and has a responsibility to treat taxpayers fairly.
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.
|
A recent U.S. Tax Court decision has challenged a long-accepted understanding of how the 60-day IRA rollover rules work. In Bobrow v. Commissioner, the court ruled that the once-per-year rollover rule applies in aggregate to all of a taxpayer’s IRA accounts and not on an account by account basis. This position is inconsistent with the IRS’ own Publication 590 and proposed regulations written better than 30 years ago. Due to the significance of this decision, we felt it important to highlight the key points you need to know to steer clear of problem areas with IRA rollovers going forward.
Withdrawals from IRA accounts are normally taxable but the standard rollover rule of IRC Sec. 408(d)(3)(A) stipulates that as long as the funds are rolled over within 60 days, the distribution will not be taxable. To prevent abuse, IRC Sec. 408(d)(3)(B) applies a limitation whereby the 60-day rollover rule cannot be utilized more than once in a one-year period (measured as 365 days from the date that the first distribution occurred).
Historically, this rollover rule has been applied on an account-by-account basis. For example, if an individual has two IRA accounts and takes a distribution from IRA # 1 that is rolled over into a new IRA account (IRA # 3), then no further rollovers can occur from IRA # 1 or IRA # 3 during the next year since both accounts have already participated in one rollover in a one-year period. The rollover from IRA # 1 into IRA # 3, however, has never prevented a taxpayer from making a tax-free rollover from IRA # 2 into any other traditional IRA, during this same one-year period – at least until the Bobrow decision.
The IRS issues Publication 590 annually to assist taxpayers in preparing their individual income tax returns. The example cited above has been in Publication 590 for better than 20 years and is based on language in IRS proposed regulations introduced in 1981. Soon after the court’s decision, the IRS issued Announcement 2014-15 which adopted this less taxpayer-friendly interpretation of the IRA rollover rules. The IRS also announced that they plan to revise Publication 590 in the near future.
The IRS has acknowledged that because this was a significant departure from the standard view on the IRC Sec. 408(d)(3)(B) rollover limitation – including the IRS’ own position – no new regulations will take effect before January 1, 2015. In addition, the IRS has declared that it will not pursue the Bobrow interpretation for any rollover that involves an IRA distribution occurring before January 1, 2015.
Why did the tax court decide the Bobrow case the way it did? Most likely, it was to prevent taxpayers from using IRA funds as a form of temporary loan – one that could be chained together through a sequence of IRA rollovers. The prior interpretation of the IRA rollover rules could have provided taxpayers with several different IRA accounts the ability to stretch their IRA loans out over extended periods of time. Tax-free use of a taxpayer’s IRA funds was certainly not the original intent of Congress when IRA accounts were first introduced back in 1974. It is likely the IRS felt the rollover limitation rule of IRC Sec. 408(d)(3)(B) was being abused by the taxpayers in the Bobrow case enabling them to use their various IRA accounts for multiple short-term loans. The taxpayers were, in essence, attempting to “game” the system.
The bottom line for taxpayers is that beginning on January 1, 2015 the IRA rollover rule will now apply aggregated across all IRA accounts of the taxpayer. This means the once-per-year rollover limitation is not just a per-IRA limitation but a per-taxpayer limitation (i.e., a taxpayer can only do one rollover across any/all of his IRA accounts during a 365-day period).
If a taxpayer attempts to make more that one IRA-to-IRA rollover within a 365-day period, the consequences could be severe. The second (third, fourth, etc.) rollover within the 365-day period will be considered a distribution which, for traditional IRAs, will generally be subject to income tax and, if the IRA owner is under 59 ½ years of age, the 10% penalty. For Roth IRAs, the distribution may be subject to income tax and/or the 10% penalty. And if that’s not bad enough, subsequent distributions erroneously “rolled over” during the 365-day period could result in excess contributions in the receiving account, subject to the 6% excess contribution penalty for each year they remain in the account.
a) Trustee-to-Trustee IRA Transfers – This is the best way for IRA money to be moved from one IRA to another. The funds go directly from one custodian to another without the account owner having an opportunity to use the funds while they are outside the IRA. When IRA funds are moved this way, there is no 60-day deadline and the once-per-year rule does not apply. IRA owners may make as many trustee-to-trustee transfers as they desire, and at any time.
b) Plan-to-IRA Rollovers – The once-per-year rollover rule is an IRA-to-IRA and Roth IRA-to-Roth IRA rule. So, if a taxpayer makes a rollover that is not between two IRAs or two Roth IRAs, it does not count as a rollover for purposes of the once-per-year rule. For example, if a taxpayer rolls over money from their 401(k) to an IRA on January 25th of year 1 and then rolls that money via a 60-day rollover to another IRA on March 10th of the same year, the once-per-year rule has not been violated.
c) IRA-to-Qualified Plan Rollovers – Similar to the Plan-to-IRA rollover exclusion outlined above, IRA-to-Qualified Plan rollovers also do not count as rollovers for purposes of the once-per-year rollover rule.
d) Roth IRA Conversions – If money is converted from an IRA or employer plan to a Roth IRA, the conversion – which is technically a rollover – does not count as a rollover for purposes of the once-per-year rule.
If you are considering an IRA rollover, make sure it will meet the applicable rules and survive IRS scrutiny. We are here to assist you in determining the best course of action and to answer any questions. Contact us at (719) 630-1186.
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.
