Monday, June 29, 2009

Conventions and Seminars – How to Deduct

So you are heading to Las Vegas or Hawaii to attend a seminar or convention for your business. Of course, you also want to have some fun while you are there (all work and no play makes one a dull person!). Here are some tips to keep in mind so that you can claim a valid tax deduction while still enjoying the perks associated with this type of business travel (shows, sightseeing, gambling, recreation, beaches, fishing, etc.):

- Save as much information from the seminar or convention as you possibly can. For instance, make sure you keep a copy of the itinerary, program handouts, registration forms, course materials, business cards and any other information specific to the seminar or convention. This will assist if the IRS questions how or why this event was related to your business (i.e. why this was a “business” expense and not “personal”).

- Keep copies of all receipts, including those for your hotel (required no matter what the cost), meals, entertainment and the fees associated directly with the seminar (for registration, specific programs, books/tapes purchased, etc.). It is critical that you keep these, along with proof of payment (cash, check, credit card) so that you can prove that you really incurred the expenses. While receipts are not required for some travel expenses under $75, I still recommend that you obtain them if at all possible, as it makes these issues in an audit much easier to resolve.

- Make sure that you can prove how the seminar/convention helped your business. For instance, nearly any seminar on taxes, marketing, client satisfaction and the like can be deducted. Do not try to claim a business tax deduction for lifestyle or investment seminars unless that is also your specific business.

- Ensure that the seminar or convention is held in the “North American” area– this includes all of the U.S., the Caribbean, Mexico, Canada and Central America. It is much more difficult to claim valid tax deductions if the seminar is held outside of this geographic area.

- Make sure that you spend more than half of the day on “business” at the seminar or convention. This means that you should, at a minimum, spend at least 4 hours and 1 minute per day attending the event. Do not go to a seminar and then not participate and expect to be able to claim a valid business deduction. You will still have much time for socializing or sightseeing but you must work a bit in order to claim the favorable tax deductions.

Wednesday, June 10, 2009

President Obama’s Tax Plan Takes Shape

Much talk has been heard lately about the new tax hikes in the 2010-11 Federal budget. Here are the new proposals in a nutshell:

- The top tax rates will increase to 36% and 39.6%.

- The upper limit on the 28% tax bracket will increase about $20,000 (to $230,000 for married couples and $190,000 for single filers). This will result in a small tax decrease (about $1,000) for upper income taxpayers, but will not be enough to offset the tax increases.

- The tax on capital gains will rise from 15% to 20% for taxpayers in the two top tax brackets.

- A continued phase out of some itemized deductions and exemptions for those in the top two tax brackets (this was set to expire in 2010).

- Tax breaks for those in lower brackets for education and payroll tax credits will be made permanent (this was set to expire in 2011).

- New reporting requirements on the issuance of Forms 1099 would now include corporations (currently exempt) and landlords who pay contractors (such as plumbers) for services rendered.

- Continuing the estate tax exemption of $3.5 Million (this was set to go down to $1 Million in 2011).

- All small business stock sales would be exempt from capital gains and AMT if held more than 5 years

Monday, June 1, 2009

June: Greetings From the IRS

The IRS will begin to examine employment tax returns beginning this fall and will start with a sample size of 4,500. These audits will focus on worker classification rules (employee vs. independent contractor), along with wages for S corporation shareholders, fringe benefits and executive compensation (“reasonable compensation”) issues.

If you are retired, you should have received a check from the IRS in May for $250. This check represents a retirees’ stimulus payment and applies to those on Social Security, Railroad Retirement, veterans pension or SSI.

The IRS has announced that it is reducing the penalties associated with offshore accounts and the failure to report all earnings in the past. These reductions apply only if you come forward before the IRS notifies you of a potential problem. In order to take advantage of this offer, you must contact the IRS and enter into an agreement with the IRS to adjust your taxes (as needed) for the previous six years. If you do this, the maximum penalty will be an accuracy-related penalty, along with a penalty of 20% of the highest amount in the foreign bank account during these years. The 20% amount may be reduced to 5% if the taxpayer did not open the account, there was no activity on the account and all taxes have been paid regarding the account. These penalties, while potentially high, are still much less than a potential civil (or criminal) fraud situation. See IRS Document 2009-10280.

The IRS has corrected a previous announcement that audits of millionaires are on the rise by stating that they actually decreased in 2008. Previously, the IRS reported that had a 9.25% increase in the number of audits for those taxpayers making more than $1 Million per year. It turns out that this was actually a decrease. Oops!

If you use your credit card to pay your IRS tax bill, you are now permitted to claim a tax deduction for the processing fee the IRS charges to accept the payment. It can be claimed as a miscellaneous itemized deduction on Schedule A (subject to the 2% floor for miscellaneous deductions).

The IRS has privately ruled that a like-kind exchange under Section 1031 of the Internal Revenue Code will fail if the intermediary goes bankrupt. Even though this was not the seller’s fault, if the exchange is not completed within 180 days due to the bankruptcy, the sale will be considered a taxable event and will not qualify for tax deferral.

Continuing with like-kind exchanges, the IRS has also decided that certain intangible assets, such as trademarks, trade names, and customer-based intangibles that can be separated from goodwill, will now qualify for tax deferral under Section 1031.

The IRS has provided updated depreciation and leasing tables for 2009 (Revenue Procedure 2009-24). Any leased vehicle worth in excess of $18,500 will be subject to a “lease inclusion” amount that must be added back into taxable income. These amounts attempt to provide a way to equalize the tax advantages between leasing and purchasing a vehicle.

Finally, the IRS is now reviewing many refund claims from taxpayers claiming the first-time homebuyers credit, as nearly 10% of those claiming this credit have been determined to be not eligible.

June Tax Tip

If you are selling stocks or other securities to claim the tax loss, remember the wash sale rules. These rules require you to wait for more than 30 days before you buy back the stock or you will lose the loss deduction.

The wash sale rule does not apply to mutual funds as long as you buy a completely different fund (it can be similar as long as it is not the same). Also, these rules do not apply to gains (you can repurchase the same stock as long as you have a gain).