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Tax Law Changes




Post Date:  4/12/2016
Last Updated:  4/12/2016

Summary
Cross References
• IR-2016-56, April 6, 2016

The Internal Revenue Service has announced a new payment option for individual taxpayers who need to pay their taxes with cash. In partnership with ACI Worldwide’s OfficialPayments.com and the PayNearMe Company, individuals can now make a payment without the need of a bank account or credit card at over 7,000 7-Eleven stores nationwide.

“We continue to look for new ways to provide services for our taxpayers. Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center,” said IRS Commissioner John Koskinen.

Individuals wishing to take advantage of this payment option should visit www.irs.gov payments page, select the cash option in the other ways you can pay section and follow the instructions:

  • Taxpayers will receive an email from OfficialPayments.com confirming their information.
  • Once the IRS has verified the information, PayNearMe sends the taxpayer an email with a link to the payment code and instructions.
  • Individuals may print the payment code provided or send it to their smart phone, along with a list of the closest 7-Eleven stores.
  • The retail store provides a receipt after accepting the cash and the payment usually posts to the taxpayer’s account within two business days.
  • There is a $1,000 payment limit per day and a $3.99 fee per payment.

Because PayNearMe involves a three-step process, the IRS urges taxpayers choosing this option to start the process well ahead of the tax deadline to avoid interest and penalty charges.

The IRS has been partnering with Official Payments since 1999 for taxpayers wanting to use a credit card to pay taxes.

In this new option, PayNearMe is currently available at participating 7-Eleven stores in 34 states. Most stores are open 24 hours a day, seven days a week. For details about PayNearMe, the IRS offers a list of frequently asked questions on www.irs.gov.

The IRS reminds individuals without the need to pay in cash that IRS Direct Pay offers the fastest and easiest way to pay the taxes they owe. Available at www.irs.gov/Payments/Direct-Pay, this free, secure online tool allows taxpayers to pay their income tax directly from a checking or savings account without any fees or pre-registration.

“Taxpayers should look into the payment option that works best for them,” Koskinen said.

Check www.irs.gov/Payments for the most current information about making a tax payment.

The IRS continues to remind taxpayers to watch out for email schemes. Taxpayers will only receive an email from OfficialPayments.com or PayNearMe if they have initiated the payment process. The IRS reminds taxpayers who haven’t taken this step to be watchful of any emails they receive saying there are tax issues involving the IRS or from others in the tax industry.

 




Post Date:  4/13/2016
Last Updated:  4/13/2016

Summary
Cross References
• Form 8829, Expenses for Business Use of Your Home
• IRS Pub 587, Business Use of Your Home
• IRC Section 280A
Curphey, 73 T.C. No. 766, February 4, 1980

The home office must meet the following tests:

  1.  Exclusive Use Test. The area of the home used for business must be used exclusively for business. Any personal use of that area will  disqualify the deduction. An exception to the exclusive use test applies for storage of inventory or product samples, and for day care facilities that use an area of the home for business.
  2.  Regular Use Test. The area of the home used for business must be used on a regular basis for business. Incidental or occasional business use is not regular use.
  3.  Trade or Business Use Test. The area of the home used for business must be used in connection with a trade or business. Any use that is for a profit-seeking activity that is not a trade or business will disqualify the deduction.
  4.  Principal Place of Business Test. A trade or business can have more than one location. To qualify for a business use of home deduction, the home must be the principal place of business for that trade or business. Administrative or management activities performed in the home office can satisfy this requirement if there is no other location to perform the administrative or management activities.

In addition to the above four requirements, an employee must meet the convenience of employer test in order to claim unreimbursed business expense deductions for an office in home.

Trade or business use test. The relevant test above that applies to rental activities is test number three, the trade or business use test. If a rental activity is not a trade or business, then the taxpayer fails test number three and no deduction is allowed for the business use of home, even if such use satisfies all of the other tests.

 




Post Date:  5/20/2016
Last Updated:  5/20/2016

Summary
Cross References
• IRS Pub. 503, Child and Dependent Care Expenses
• Form 2441, Child and Dependent Care Expenses
• IRC Section 129

This question has to do with whether or not a sole proprietor can deduct child and dependent care expenses directly on Schedule C as part of a dependent care benefit plan, rather than claim the dependent care credit on line 49 of Form 1040. Under a qualified dependent care benefit plan, an employee can exclude or deduct the following dependent care benefits:

  1. Amounts the employer paid directly to either the employee or the care provider for the care of the taxpayer’s qualifying person while the employee is at work,
  2. The fair market value of care in a daycare facility provided or sponsored by the taxpayer’s employer, and
  3. Pre-tax contributions the taxpayer made under a dependent care flexible spending arrangement.

The amount that can be excluded or deducted is limited to the smallest of:

  1. The total amount of dependent care benefits the taxpayer received during the year,
  2. The total amount of qualified expenses the taxpayer incurred during the year,
  3. The taxpayer’s earned income,
  4. The spouse’s earned income, or
  5. $5,000 ($2,500 if married filing separately).

An employee’s salary may have been reduced to pay for these benefits. However, IRS Pub. 503 makes the statement that if the taxpayer is self-employed and receives benefits from a qualified dependent care benefit plan, then the self-employed individual (sole proprietor or general partner in a partnership) is both the employer and the employee. In this case, the self-employed individual would not get an exclusion from wages. Instead, the taxpayer would get a deduction on Form 1040, Schedule C, line 14, Schedule E, line 19 or 28, or Schedule F, line 15. To claim the deduction, the self-employed individual uses Form 2441.

Neither IRS Pub. 503 or the instructions for Form 2441 say anything about the anti-discrimination or the 25% rules.

 




Post Date:  9/7/2016
Last Updated:  9/7/2016

Summary
Cross References
Gragg, U.S. Court of Appeals, Ninth Circuit, August 4, 2016

A taxpayer cannot deduct losses from passive activities in excess of income from passive activities in any given tax year. A passive activity is generally any business activity in which the taxpayer does not materially participate. Rental activities are generally automatically treated as passive activities even if the taxpayer materially participates in the activity. Real estate professional status is an exception to that rule. Rental activities conducted by real estate professionals are not automatically treated as passive activities.

This case deals with whether or not a rental loss is automatically treated as non-passive if the taxpayer is a real estate professional, or whether the taxpayer’s real estate professional status merely removes the automatic treatment that his or her rental losses are passive.

The taxpayer worked as a licensed real estate agent. The taxpayer also owned several rental properties that sustained losses for the years in question. The IRS disallowed the rental losses claiming that the taxpayer failed to show that she materially participated in the rental activities. The taxpayer argued that her status as a real estate professional automatically made her rental losses non-passive. Both the IRS and the taxpayer agreed that she was a real estate professional.

The court said the statute favors the IRS’s interpretation. IRC Section 469(c)(1) states the general rule that any activity in which a taxpayer does not materially participate is passive. Next, IRC Section 469(c)(2) states that a rental activity is passive, regardless of whether the taxpayer materially participates. Next, IRC Section 469(c)(7) states if the taxpayer is a real estate professional, paragraph (2) of Section 469(c) does not apply. The court said the effect of the (c)(7) exception is merely that paragraph (2) does not apply. If paragraph (2) does not apply, then the general rule under IRC Section 469(c)(1) applies, meaning the activity is passive unless the taxpayer materially participates.

The regulations also support this interpretation. Regulation Section 1.469-9(e)(1) states:

    “Section 469(c)(2) does not apply to any rental real estate activity of a taxpayer for a taxable year in which the taxpayer is a qualifying taxpayer under paragraph (c) of this section. Instead, a rental real estate activity of a qualifying taxpayer is a passive activity under Section 469 for the taxable year unless the taxpayer materially participates in the activity.”

The court ruled even though the taxpayer was a real estate professional, she could not deduct her rental activity losses because she did not materially participate in her rental activities.

Author’s Comment:

“The issue of whether or not the taxpayer had grouped her rental activities with her real estate agent activity was not addressed by the court. The regulation cited by the court goes on to state that if the election is made to group all activities together, all of the activities are treated as one activity. Without the grouping election, each activity must separately meet the material participation test to qualify as non-passive.”

 




Post Date:  12/16/2016
Last Updated:  12/16/2016

Summary
Cross References
• Rev. Proc. 2010-51
• Notice 2016-79

The IRS has released the 2017 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes.The following chart reflects the new 2017 standard mileage rates compared to the 2016 and 2015 tax year standard mileage rates.

2017
2016 2015
Business rate per mile 53.5¢ 54.0¢ 57.5¢
Medical and moving rate per mile 17.0¢ 19.0¢ 23.0¢
Charitable rate per mile 14.0¢ 14.0¢ 14.0¢
Depreciation rate per mile 25.0¢ 24.0¢ 24.0¢

Tax Refund Schedule

The new IRS Modernized Efile system does not work under the old “refund cycles” from the past, so it is not possible to pinpoint when your refund will be direct deposited.  Instead, the IRS wants the taxpayer to use there “Wheres my Refund” link that is listed here.  Follow the directions on the website and they will be able to tell you more up-to-date information on your refund.

Where’s My Refund? https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

FAQ

Please check back soon as the FAQ section will be updated.