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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

January 2016

IRS ANNOUNCES LOWER STANDARD MILEAGE RATES FOR 2016

by Andrew D. Schwartz, CPA

The IRS announced that the standard mileage rate will decrease to 54 cents per business mile driven in 2016.  That is a decrease of approximately 6.1% from the 57.5 cents allowed in 2015.  According to the IRS, "The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile."

When you use your car for business, driving between job sites is deductible.  So is driving between your home and a temporary job site, job interviews, and conferences.  Commuting between your home and a regular place of business generally isn't tax deductible.

Standard Mileage Rates Versus Actual Expenses

There are two ways for you to calculate your automobile expenses.  You can either claim $.54 per business mile driven in 2016 (decreased from $.575 for 2015), or you can base your deduction on the percentage of miles your car was driven for business purposes multiplied by the actual costs incurred during the year.  Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.

Generally, unless you drive your car relatively few miles each year, with most of those miles being allowable business miles, you're often times better off over time by basing your deduction on the standard mileage rate.

For Example

Let's say you lease a car for $400 a month that you drive only 3,000 total miles during the year.  And of those miles, 2,000 qualify as deductible business miles.  By calculating your deduction based on the standard mileage rate, you'll end up with a deduction of just $1,080 (2,000 business miles * $.54 per mile).

What would your deduction be based on the actual expenses incurred, assuming you spend $1,200 on insurance, $.10 per mile driven for gas, and $1,200 on parking at home?  Based on $7,500 of total automobile expenses (including the lease payments), multiplied by two-thirds (2,000 business miles divided by 3,000 total miles), your allowable deduction for your automobile expenses jumps to $5,000 - almost five times the $1,080 allowed using the standard mileage rate.

Now let's see what happens if you drive 20,000 total miles during the year.   Assuming your allowable business miles remains at 2,000, you can either claim an automobile deduction of $1,080 based on the standard mileage rate, or $920 based on one-tenth (2,000 business miles divided by 20,000 total miles) of your actual automobile expenses incurred.

Expense 3,000
total miles
driven
20,000
total miles
driven
Lease payments $4,800 $4,800
Insurance $1,200 $1,200
Gas ($.10 per mile driven) $300 $2,000
Parking at home $1,200 $1,200
     
Total costs $7,500 $9,200
     
Business use % on 2,000
     business miles driven
66.67% 10%
     
Allowable deduction for
     auto expenses based
     on actual expenses
$5,000 $920

How to Claim The Deduction

Taxpayers who are compensated as employees generally will claim their deductible automobile expenses as an unreimbursed employee business expense. These type expenses are reported on a Form 2106 and are deducted as a miscellaneous itemized deduction on the Schedule A.  Keep in mind that miscellaneous itemized deductions are only allowable to the extent they exceed 2% of your income, and are not allowable when calculating the Alternative Minimum Tax (AMT).

Those taxpayers compensated as independent contractors will generally claim their allowable automobile expenses directly against their self-employment income. For these taxpayers, automobile expenses should be reported the Schedule C.

Other Deductible Miles

The use of an automobile in connection with a charitable activity is set by statute and is deductible at a rate of 14 cents per mile in 2016 and should be reported with other charitable contributions as an itemized deduction of the Schedule A. 

You'll deduct any mileage driven in connection with a qualified move at a rate of 19 cents per mile in 2016, down from 23 cents per mile in 2015, and should report that mileage along with your other allowable expenses on a Form 3903, Moving Expenses.

And don't forget that medical related mileage is also deductible.  For 2016, medical mileage is allowable at 19 cents per mile, and should be reported with all other medical expenses on the Schedule A.

Why lower rates for medical and charitable mileage? According to the IRS, "The rate for medical and moving purposes is based on the variable costs", but omits the fixed costs allowed when calculating the business standard mileage rate.

Additional info and links is available at IR-2015-137, Dec.17, 2015.

TOP


THE "PROTECTING AMERICANS FROM TAX HIKES (PATH) ACT OF 2015" IS SIGNED INTO LAW

by Andrew D. Schwartz, CPA

On December 18th, the President signed the PATH Act into law, extending certain tax breaks and making others permanent.  Here is a summary of some of the provisions of the PATH Act:

  • The American Opportunity Tax Credit that allows a tax credit of up to $2,500 per year for undergraduate tuition was made permanent.

  • Permanently extends the provision allowing business owners who do not own their commercial real estate to write off their leasehold improvements over 15 years (versus 39 years without this provision), and to also write off the full cost of improvements in one year.

  • Permanently extended the Section 179 deduction at $500k.  This allows small businesses to fully write off the first $500k of equipment purchased and put into business use during the year.

  • Extends Bonus Depreciation through 2019 in connection with new assets purchased by a business.  This allows taxpayers to write-off half the cost of eligible assets in the first year, even if the Section 179 deduction was not claimed. Purchases of used property are not eligible.

  • Permanently extends the reduced "built-in gains" period for C-Corporations that elect S-Status.  Previously, corporations were at risk for this tax for ten years. 

  • Extends through 2016 the credit for certain energy efficient improvements made to your primary residence, including doors, windows, and insulation, plus energy efficient heating systems, air conditioning, hot water heaters, and other eligible property.  The credit is limited to 10% of the cost, with a lifetime max of up to $500 per household.  More info is available at: www.energystar.gov.

A list of all the changes included in the PATH Act is available in this Ways and Means Committee report.

TOP


IRS APP ALLOWS YOU TO CHECK THE STATUS OF YOUR REFUND, MAKE A PAYMENT, AND MORE

IRS2Go Mobile App

 

IRS2Go is the official mobile app of the IRS

 

Check your refund status, make a payment, find free tax preparation assistance, sign up for helpful tax tips, and more!


IRS2Go is available in both English and Spanish.

Download IRS2Go for your mobile device


 

GET IT ON Google play button


 

Download on the App Store button


 

Available at amazon button

 

IRS2Go offers many features

Refund Status

Check the status of your federal income tax refund using IRS2Go. You can check your refund status within 24 hours after we receive your e-filed return, or about four (4) weeks after mailing your paper return.

Make a Payment

Get easy access to mobile-friendly payment options like IRS Direct Pay, offering you a free, secure way to pay directly from your bank account. You can also make a credit or debit card payment through an approved payment processor.

Free Tax Preparation Assistance

Find an IRS Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site near you and receive free tax help (VITA/TCE programs are available to taxpayers who qualify).

Stay Connected

Follow us on Twitter and Tumblr, watch helpful videos on YouTube, subscribe to receive IRS Tax Tips, and more.

TOP


TAX AND FINANCIAL PLANNING CALENDAR FOR JANUARY 2016

Month

Income Taxes

Saving and Investing

 

 

 

January

  • 4th quarter 2015 estimates due 1/15/16
  • Expect to receive W-2s and 1099s by January 31, 2016
  • Review your withholding for 2016, and, if necessary, file a new W-4 Form with your employer to adjust your withholding
  • Prepare a W-2 for your Nanny by January 31st
  • Establish a savings and debt reduction goals for the year
  • Try to increase your monthly contributions to your 401(k) or 403(b) plans.  The maximum annual contribution for 2016 is $18,000.  Anyone 50 or older can contribute an extra $6,000
  • Automatically transfer $458.33 per month from your checking account into a Roth or Traditional IRA, and $1,166.67 per month into a 529 Account and/or $166.67 per month into an Education Savings Account for each of your children

 TOP


2015 & 2016 TAX FACTS

  • For 2015, the standard deduction for a single individual is $6,300 and for a married couple is $12,600. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2015, the personal exemption is $4,000. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $118,500 for 2015 and 2016, up from $117,000 in 2014.
  • The standard mileage rate is $.54 per business mile as of January 1, 2016, down from $.575 for 2015.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015 and 2016, up from $17.5k in 2014.  And if you'll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,500 for 2015 and 2016.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2016 to make your 2015 IRA contributions.

TOP

Need Help With Your Nanny Payroll?
 

This Month's Topics

IRS Announces Lower Standard Mileage Rates For 2016

The "Protecting Americans from Tax Hikes (PATH) Act of 2015" Is Signed Into Law

IRS App Allows You To Check The Status Of Your Refund, Make A Payment, And More

The FICA Refund for Medical Residents 

2015 & 2016 Tax Facts

Tax and Financial Planning Calendar for January 2016

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

 

 
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