Tax News

Lawsuits and attorney fees: Common mistakes.

Posted on by Craig Mathias

ESPECIALLY WORKPLACE DISCRIMINATION SUITS.

Ref: Internal Revenue Code Sec 62(e) and Publication 525. 

Also see: Abraham J George v Commissioner, TC Memo 2016-156 [Section C, “Deduction for Attorney’s Fees”]

Generally, attorneys fees are placed on the individual return as a miscellaneous itemized deduction. HOWEVER, in the case of the long list of civil rights violations in Sec 62(e) including age, race and disability discrimination suits, those costs are placed on the front of the return as a direct deduction against the lawsuit proceeds (not to exceed the taxable amount of the settlement). This is a significant benefit to the taxpayer. 

Please contact us if you have questions in this area.

Corporate debt Vs. stock: Important for S corporations

Posted on by Craig Mathias

Reference: Proposed Regs Sec 1.385-1 through 4.

For the first time, the IRS has issued regulations (proposed) for IRC Section 385.  The powers are extensive allowing, for example, the IRS to re-characterize a related party debt into partial debt and partial equity.

IMPORTANT FOR SMALL CORPORATIONS: It is imperative that small corporations, Subchapter S or C, do the following with respect to debt:

  1. Have a written note with reasonable interest.
  2. Follow the terms of the note as to payment.
  3. Timely report on interest paid to the related party on Form 1099-INT.

Reclassification of a debt instrument can have harmful tax effects on the corporation. These proposed regulations illustrate that the IRS is looking to expand their authority in this arena.

Please contact us if you have questions as to your own corporate situation.

IRS Exemption for Identity Theft Services

Posted on by Craig Mathias

Source: IRS Announcement 2016-2

Generally, gross income includes all income from all sources including property and services “given” to taxpayers (e.g., a car won on a game show). The IRS exempts certain items from the definition of income: They have now expanded their earlier Announcement 2015-22 to exempt free data protection services given at no cost to customers, employees or other individuals whose personal information may have been compromised to NOW INCLUDE such services BEFORE a data breach occurs. (This does not apply to cash provided in lieu of identity protection services).

HUGE NEWS for small business 2015 equipment acquisitions and “de minimis rule.”

Posted on by Craig Mathias

Reference: IRS Notice 2015-82 and Regulation Sec 1.263(a).

The IRS has conceded that their limit of $500 for immediate expense of equipment, leasehold improvements, etc was too low to be useful to small business. THEY HAVE INCREASED THAT LIMIT TO $2,500 PER ITEM, retroactive to 1/1/2015. Example: A business buys new computers for ten offices at a cost of $2,000 each. The entire $20,000 can be written off as purchased.

Section 179 application:  Because the assets are expensed as purchased and NOT capitalized as a fixed asset, they do not “use up” part of the Section 179 limit… currently set at the low-end of $25,000 for 2015. (We’re waiting for Congress to restore this to earlier larger limits).

Overall application example: During 2015, a contractor buys $60,000 of small equipment and a used work truck of $25,000.  No one item of the small equipment is over $2,500 of cost.  As long as the business has made the election under Regulation 1.263(a) and has a written accounting procedure in place at the beginning of the year stating the election, the business can expense the entire $60,000 of equipment (not treated as fixed assets) and then elect Section 179 treatment for the entire $25,000 of the truck.  Total equipment-related deduction in 2015 is $85,000.

Please call if you have questions.

Non-tax reimbursement of spouse’s health insurance payment.

Posted on by Craig Mathias

Ref: Chief Counsel Advice 201547006

Situation:  Employee A declines health insurance coverage at his work. His spouse, B, elects to cover both of them through her work and has to pay after-tax payment of $75 for her husband’s coverage. A’s employer can reimburse A $75 as a non-taxed payment to A.  IT GETS BETTER:  The CCA goes on to say that if B has to pay $175 our-of-pocket (after tax) each month, A’s employer can reimburse the full $175 tax free to A.

The CCA has seven examples of situations that the IRS has “blessed.” Please contact us if you want to discuss your own situation.

Section 179 forward movement!

Posted on by Craig Mathias

Ref: Senate Bill 1946 introduced Aug 2015 by Orin Hatch, UT, “Tax Relief Extension Act of 2015.”

This bill extends many of the expired pro-taxpayer deductions and credits.  Also, IF it becomes law, many of those provisions will continue through 2016.

As written, Section 179 will again limit at $500,000 and BONUS depreciation is restored.

We’ll all have to wait to see how the bill is amended and if it gets the President’s signature? Stay tuned.

Foreign Account Deadline Reminder

Posted on by Craig Mathias

The deadline for filing Form 114 with the Treasury has been moved to April 15 (from June).  If you have foreign accounts, be sure to check with your CPA as to your need to file.  Failure to file penalties are HUGE.

Note: A six month extension to file is available if filed prior to April 15, 2016.

2015 Section 179 “depreciation” update.

Posted on by Craig Mathias

Source: Farm Journal, June 22, 2015 “Expect Section 179 Update Soon”

The US farm industry lobby is one of the most powerful in Congress.  Last year, they predicted the Section 179 fix by Christmas. It arrived December 19.

In this recent article, they state that indicators point towards Labor Day for news on the 2015 year.   They also indicate that this might be a two-year fix.  If so, small business across the US would at least have stability for the 2016 tax year.

We will post news as soon as we hear it.  We strongly hope that this prediction is accurate.

Keep tuned…

New tax return deadlines coming!

Posted on by Craig Mathias

Reference: Surface Transportation and Veterans Health Care… Act of 2015.

This new law was signed by the President on July 31, 2015 and will change filing and extension deadlines for calendar year returns FILED IN 2017 (for the calendar year 2016), as follows:

Partnerships: Filing deadline will move to March 15 with possible extension to Sept 15.

S corporations: Same as partnerships.

C corporations: Filing deadline will move to April 15 with possible extension to Sept 15.

FinCEN reports of foreign accounts: Filing deadline will move to April 15 with possible extension to Oct 15. This extension must be filed-for on or before April 15.

Mortgage Forms 1098: GOOD NEWS! The government will require that banks and financial institutions show the address of the property securing the mortgage on the Form 1098. The new forms will also show the principal balance outstanding on the mortgage. (These new rules apply to Forms 1098 issued in 2017).

Section 83(b) election revised for stock options.

Posted on by Craig Mathias

Reference: Propesed Reg Sec 1.83-2

The IRS has removed the requirement that a copy of a taxpayer’s Section 83(b) election be attached to his/her individual tax return.  This was to remove a barrier to those taxpayers e-filing their individual returns.  All other requirements of Section 83(b) remain in place.  Taxpayers may rely on these proposed regs for property transferred on or after January 1, 2015.

The Section 83(b) election is often done when an individual receives stock options from an employer which are subject to a substantial risk of forfeiture over a period of time. Example: The options can’t be exercised until the business reaches $100 million gross sales and are forfeited if the employee leaves the business.