Moving Expenses Can Be Deductible

renting-vacation-home

Did you move due to a change in your job or business location? If so, you may be able to deduct your moving expenses, except for meals. Here are the top tax tips for moving expenses.

In order to deduct moving expenses, your move must meet three requirements:

  1. The move must closely relate to the start of work.  Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
  2. Your move must meet the distance test.  Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.
  3. You must meet the time test.  After the move, you must work full-time at your new job for at least 39 weeks in the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at your new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

See Publication 521, Moving Expenses, for more information about these rules. It’s available on IRS.gov/forms anytime.

If you can claim this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home. You cannot deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.
  • Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.
  • Address Change.  When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Premium Tax Credit – Changes in Circumstances. 

If you or anyone in your family purchased health coverage through the Marketplace and had advance payments of the premium tax credit paid in advance to your insurance company to lower your monthly premiums, it is important to report life changes to the Marketplace when they happen. Moving to a new address is one change you should report. Other things to report include changes in your income, employment, family size, and gaining or losing eligibility for other coverage. Reporting life changes as they happen allows the Marketplace to adjust your advance credit payments. This will help you avoid a smaller refund or unexpectedly owing taxes when you file your tax return.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-20”

Find Easy-to-Use Online Tools on IRS.gov

Don’t be afraid to visit IRS.gov, they won’t bite and they have some terrific tools to help you find your refund and the status of your return. Here’s a list of popular online, self-help tools offered for free use on IRS.gov:

  • IRS Free File.  Use IRS Free File to prepare and e-file your federal tax return at no cost. Free File will do much of the work for you with brand-name tax software or Fillable Forms. If you still need to file your 2015 tax return, Free File is available through Oct. 17. The only way to use IRS Free File is through IRS.gov.
  • Where’s My Refund?  Checking the status of your tax refund is easy with Where’s My Refund? You can also use this tool with the IRS2Go mobile app.
  • Direct Pay.  Use IRS Direct Pay to pay your taxes or pay your estimated tax directly from your checking or savings account. Direct Pay is safe, easy and free. This tool walks you through five simple steps to pay your tax in a single online session. You can also use Direct Pay with the IRS2Go mobile app.
  • Online Payment Agreement.  If you can’t pay your taxes in full, apply for an Online Payment Agreement. The Direct Debit payment plan option is a lower-cost, hassle-free way to make monthly payments.
  • Withholding Calculator.  Did you get a larger refund or owe more tax than you expected the last time you filed taxes? If so, you may want to change the amount of tax withheld from your paycheck. The Withholding Calculator tool can help you determine if you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate and provide information that will help you fill out the form too. Give the new Form W-4 to your employer to make the change.
  • Interactive Tax Assistant.  The ITA tool is a tax-law resource that takes you through a series of questions and provides you with responses to tax law questions. For instance, you can find out if you may need to make an individual shared responsibility payment or if you are eligible for an exemption, when you file your taxes. You can also use the tool to find out if you may be eligible for the premium tax credit.
  • IRS Select Check.  If you want to deduct your gift to charity, donate to a qualified organization. Use the IRS Select Check tool to see if a charity is qualified.
  • Tax Map.  The IRS Tax Map offers tax law information by subject. It integrates web links, tax forms, instructions and publications related to your topic into one search result.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-17”

Back to School? Learn about Tax Credits for Education

education

If you pay for college in 2016, you may receive some tax savings on your federal tax return, even if you’re studying outside of the U.S. Both the American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe, but only the AOTC is partially refundable. Here are a few things you should know about education credits:

  • American Opportunity Tax Credit ‒ The AOTC is worth up to $2,500 per year for an eligible student. This credit is available for the first four years of higher education. Forty percent of the AOTC is refundable. That means, if you’re eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any tax.
  • Lifetime Learning Credit ‒ The LLC is worth up to $2,000 per tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
  • Qualified expenses ‒ You may use only qualified expenses paid to figure your credit. These expenses include the costs you pay for tuition, fees and other related expenses for an eligible student to enroll at, or attend, an eligible educational institution.
  • Eligible educational institutions ‒ Eligible educational schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible:
    • Ask your school if it is an eligible educational institution, or
    • See if your school is on the U.S. Department of Education’s Accreditation database.
  • Form 1098-T ‒ In most cases, you should receive Form 1098-T, Tuition Statement, from your school by February 1. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be either:  (1) the amount you paid for qualified tuition and related expenses, or (2) the amount that your school billed for qualified tuition and related expenses; therefore, the amounts shown on the form may be different than the amounts you actually paid. Don’t forget that you can only claim an education credit for the qualified tuition and related expenses that you paid in the tax year and not just the amount that your school billed.
  • Income limits ‒ The education credits are subject to income limitations and may be reduced, or eliminated, based on your income.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-14”

Tax Breaks for the Military

Military

If you are in the U. S. Armed Forces, there are special tax breaks for you. For example, some types of pay are not taxable. Certain rules apply to deductions or credits that you may be able to claim that can lower your tax. In some cases, you may get more time to file your tax return. You may also get more time to pay your income tax. Here are some tips to keep in mind:

  1. Deadline Extensions.  Some members of the military, such as those who serve in a combat zone, can postpone some tax deadlines. If this applies to you, you can get automatic extensions of time to file your tax return and to pay your taxes.
  2. Combat Pay Exclusion.  If you serve in a combat zone, your combat pay is partially or fully tax-free. If you serve in support of a combat zone, you may also qualify for this exclusion.
  3. Moving Expense Deduction.  You may be able to deduct some of your unreimbursed moving costs on Form 3903. This normally applies if the move is due to a permanent change of station.
  4. Earned Income Tax Credit or EITC.  If you get nontaxable combat pay, you may choose to include it in your taxable income. Including it may boost your EITC, meaning you may owe less tax and could get a larger refund. In 2015, the maximum credit for taxpayers was $6,242. The average amount of EITC claimed was more than $2,400. Figure it both ways and choose the option that best benefits you.
  5. Signing Joint Returns.  Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse.  You may need a power of attorney to file a joint return. Your installation’s legal office may be able to help you.
  6. Reservists’ Travel Deduction.  Reservists whose reserve-related duties take them more than 100 miles away from home can deduct their unreimbursed travel expenses on Form 2106, even if they do not itemize their deductions.
  7. Uniform Deduction.  You can deduct the costs of certain uniforms that you can’t wear while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.
  8. ROTC Allowances.  Some amounts paid to ROTC students in advanced training are not taxable. This applies to allowances for education and subsistence. Active duty ROTC pay is taxable. For instance, pay for summer advanced camp is taxable.
  9. Civilian Life.  If you leave the military and look for work, you may be able to deduct some job search expenses. You may be able to include the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.
  10. Tax Help.  Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after the April deadline.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-06”

What Does it Mean to be a Limited Partner?

The rules associated with the nature of investments and the income generated have always been complex.  Subsequent to 2013 and the activation of the provision of the Affordable Care Act following those rules became more important.  The ACA put significance to the nature of income.  Passive income, such as interest, dividend, capital gain, and some business earned income, is now subject to a 3.8% tax (if you meet certain AGI targets).  The classification of income, passive or active, and its incumbent importance to the issuance of this new tax has now given the Internal Revenue Service a new reason to turn their computers and auditors loose on our returns.

There is a difference between passive and active income.  There is also a difference between types of active income.  The importance for the investor today is knowing up front what type of investment you’ve made and how it should be treated.

Limited Partnership:  In general, if you’ve made an investment in a partnership, and the most you can lose as a result of the failure of the partnership is the original investment, then you are a Limited Partner.  If that same investment has a guaranteed return on your investment, then the part of earnings, normally referred to as a Guaranteed Payment, is treated as passive income, or interest, and is taxed under the ACA for the additional 3.8% tax.  It is also important to note that these investments have only one type of expense that is deductible against the income from the investment-interest expense.

  1. Interest expenses as Investment Interest Expense-if you borrow money to purchase the investment the interest expense is Investment Interest Expense.
  2. Interest expense as a direct reduction of the earnings from the investment may be allowable, especially if your employer has arranged for an internally financed loan for you to acquire the investment.
  3. In most cases a down payment is still required, but if the down payment is funded by the company as well, then this amount of income to you is considered earned income and subject to social security and ordinary income tax.
  4. If you work for the partnership and in the ordinary course of your job you have expenses which are not reimbursed by the partnership, in no instance are these expenses deductible against the limited partnership earnings.These expenses must be deducted as an out of pocket business expense on Schedule A and are subject to a 2% of AGI threshold.
  5. Losses associated with the investment may not be deducted currently unless you have earnings from other passive investments.You do not lose the ability to take a deduction for the loss, it is tracked via Form 8582.  These losses may be deducted against certain other passive income.
  6. Losses in excess of basis are not allowed, but suspended until basis is restored regardless of losses from other investments.

General Partnership:  In general, if you’ve made an investment in a partnership and you may also have to guarantee loans of the partnership, then you are a General Partner. None of these earnings are subject to the ACA’s additional passive income because the investment is considered subject to self-employment tax.

  1. Interest expense associated with indebtedness to acquire the investment will normally be deductible against the ordinary income of the investment.Interest expense in excess of the earnings could result in a deductible loss for the year.
  2. If you receive the down payment to make the purchase from the entity either through a direct investment or through a reduction in the purchase price versus the fair value of the investment, this down payment is ordinary income to you and will also be subject to Self Employment Tax.
  3. You may deduct any annual loss created by the investment against other sources of income.The deduction may not exceed your basis in the investment, but you may now include the amount of recourse debt you’ve guaranteed as a portion of your overall basis.  Because it is possible that the loss from the business may still exceed the sum of your original investment and the amount of recourse debt, it is important to know the excess loss is suspended until your basis is restored.
  4. If you incur expense personally on behalf of the partnership, you may deduct any out of pocket expense against this type of partnership income, but the operating agreement should have provisions which explain and give a general outline that these would be considered ordinary and normal business expenses the partnership would have deducted had they paid for the expenditure.

General and Limited Partner:  It is possible to be a general and a limited partner.  In this instance you are considered a general partner for tax purposes.  Your earned income from the partnership is considered subject to self employment, even that earned from the limited partnership, because you are considered under the Internal Revenue Code to have influence over the recognition of income.  The rules of being a general partner therefore apply.

If you have any questions, do not hesitate to give us a call at the office, 314-993-4285.

Tax News for Georgia

Georgia Conservation Tax Credit Extended

Legislation has been enacted that extends the conservation tax credit available against Georgia corporate and personal income tax liabilities from December 31, 2016 to December 31, 2021. (Effective April 28, 2016).

Savings Trust Account Deduction Increased

Legislation has been enacted that increases the Georgia personal income tax deduction for contributions to savings trust accounts to $4,000 per beneficiary for contributors filing a joint return (previously $2,000), for taxable years beginning on or after January 1, 2016.

Property Tax: Bona Fide Conservation Use Property Provisions Amended

Legislation has been enacted relating to bona fide conservation use property for purposes of Georgia ad valorem taxes. Amendments provide clarification of an existing exception to a breach of covenant for bona fide conservation use property. Amendments provide for a new exception, for certain not for profit rodeo events, to a breach of covenant. (Effective April 28, 2016).

Property Tax: Exemption for All-Terrain Vehicles Enacted

Enacted legislation provides an exemption from Georgia ad valorem taxation for certain watercraft and all-terrain vehicles held in inventory for sale or resale. Previously the exemption applied to certain watercraft only. An all-terrain vehicle is any motorized vehicle designed for off-road use which is equipped with four low-pressure tires, a seat designed to be straddled by the operator, and handlebars for steering. (Effective May 3, 2016, applicable to all taxable years beginning on and after January 1, 2017).

If you have any questions, don’t hesitate to call us at the office, 314-993-4285.

*This information was received from CCH Federal Tax Weekly.*

Tax News for Arizona

Charitable Contribution Credit Amounts Increased

The amounts that may be claimed as Arizona personal income tax credits for voluntary cash contributions to qualifying charitable organizations and qualifying foster care charitable organizations are increased, applicable to taxable years beginning after December 31, 2015. The credit cap for contributions to qualifying charitable organizations is increased from $200 to $400 for individuals and from $400 to $800 for married couples. The credit cap for contributions to qualifying foster care charitable organizations is increased from $400 to $500 for individuals and from $800 to $1000 for married couples. A taxpayer may receive separate tax credits for voluntary cash contributions to a qualifying charitable organization and to a qualifying foster care charitable organization during the same taxable year.

Arizona House Approves IRC Conformity Date Update and Partnership Return Changes

The Arizona House of Representatives has approved a bill that would update the state’s conformity to the Internal Revenue Code (IRC) for corporate and personal income tax purposes for taxable years beginning after 2015. The Senate also approved the bill. References to the IRC would be updated to mean the IRC as in effect on January 1, 2016, including those provisions that became effective during 2015, with the specific adoption of all federal retroactive effective dates. The bill would clarify some of the federal provisions that are effective for prior taxable years.

For taxpayers that qualify for the federal exclusion from gross income for civil damages, restitution, or other monetary award for wrongful incarceration, the bill would specify a deadline for filing an amended state return claiming a refund due to the exclusion and a deadline for the Department of Revenue to review the amended return. The bill would also change the partnership return filing due date from the 15th day of the fourth month following the close of the tax year to the 15th day of the third month following the close of the tax year.

In addition, the bill would specify reporting and payment requirements for when a partnership is audited by the Internal Revenue Service and is assessed an imputed underpayment pursuant to IRC §6225, or when a partnership makes the election under IRC §6226 with respect to an imputed underpayment. (As passed by the Arizona House of Representatives on May 7, 2016).

If you have any questions, don’t hesitate to call us at the office, 314-993-4285.

*This information was received from CCH Federal Tax Weekly.*

Why Are We Afraid of Gift Tax Returns?

gift-taxGift tax returns are required when your gifts to family members, friends, and other non-qualified charities exceed your annual gift exclusion.  The annual exclusion for both 2014 and 2015 is $14,000.  There are a number of ways to give more by combining spousal gifts and making gifts within a family unit.  Beginning with 2015, the tax on a gift tax is not triggered until your combined lifetime gifts exceed $5.43 million.

So why are people reticent to file the return?  There are three primary reasons:

  1. Alerting the IRS to a gift
  2. A confusion about a penalty or tax if the annual exclusion is greater than the limit
  3. Filing another form.

Let’s consider each of these individually:

  1. Better to alert them now while you know exactly what and how much you gave than shift this to your heirs upon your death.
  2. There is no tax or penalty just because you gave more than $14,000 unless you hit the lifetime limit.  We should all aspire to hit the lifetime limit!
  3. The form can be detailed, but is normally not complex to complete.

So, lets get these filed and make sure the IRS doesn’t make your heirs do so!  Waiting until then could cause problems with your estate planning and cost lots of money.

If you have any questions or concerns regarding gift tax returns, please don’t hesitate to give us a call at 314-993-4285 or email us at office@hkaglobal.com

Cost Accounting: What Is It and Why Is It Important?

cost-accountingIf you are a small business owner, chances are that you depend on a timely set of financial statements (a balance sheet, income statement, and cash flow statement) prepared using generally accepted accounting principles, or GAAP, to provide you with a multidimensional view of the company’s financial health. That being said, there are most likely a series of other improvised reports that you run (probably on a spreadsheet) because the financial statements are not as useful when it comes to the day-to-day running of the business. By design, GAAP is continually being molded into a set of rules to report transactions in a way that fairly represent an entity’s business performance.  Lenders and investors have come to rely on this form of presentation so this has become the standard.  While there is no question of the value of financial statements prepared under GAAP, to more effectively manage your business you need different information to supplement those financial statements. That is where cost accounting comes in.

At the highest level, cost accounting is the branch of accounting that focuses on the assignment of costs. A critical component in the management of any business is developing the true cost of producing a product or delivering a service. By way of multiplication and division, it is relatively easy to assign direct costs (labor and supplies) to a product.  However, it becomes trickier when trying to apply costs that are indirectly related.  For example, what portion of the phone bill or administrative staff salary should be applied to a unit produced?  How do you factor in downtime due to routine maintenance? How should overhead be applied if multiple products use many of the same resources? The ability to properly apply indirect of a product or service creates an opportunity for you to see the true cost of operations as well as to objectively quantify profitability per product or service. Fortunately, methodologies have been developed to address these and countless other issues faced by business owners every day.

Cost accounting can provide you with data to supplement the information you are currently receiving from your financial statements; this allows for more effective budgeting and planning, and will improve your internal control.  If you have not yet implemented a cost accounting system into your business, we encourage you to consider doing so.

If you have any questions regarding cost accounting, please give us a call at 314-993-4285 or email us at office@hkaglobal.com

7 Most Forgotten Items

Don't Forget

As tax season nears a close, it’s important that you remember to send your tax preparers (that’d be us!) all necessary items. Making sure you are giving your CPA all of your information makes the process of preparing and completing your return go smoother and faster, and makes sure that nothing gets left out.

Below we’ve listed the top 7 items that get forgotten most:

  1. Cost basis for stock sales
  2. Estimated payment values and dates of contribution by municipality
  3. Non-cash charitable donation values
    *if you need help deciding the value of an item, head to www.itsdeductible.com
  4. Last pay stub
    *it has important information that your W-2 doesn’t have
  5. Long-term care insurance
  6. 529 plan contributions
  7. Deferred compensation or stock option pay-outs

If you have any questions or you realize that you forgot to give us some important information, please call us at 314-993-4285.