Tax Update October 2015

I was fortunate to recently attend a two day tax conference sponsored by The National Association of Tax Professionals (NATP). I am a long time member of this great organization that supports tax professionals through education, research assistance, and professional fellowship.  After two days of tax lectures (and yes, surviving!), here’s a list that of items that I culled from the vast topics discussed which may be applicable to you, my clients and friends.

Strict Substantiation

Business Mileage

The word on the street is the IRS may require some third party verification for business mileage. The IRS wants to connect the dots between your mileage log and the mileage readings on your automobile. If you create a mileage log (even retroactively, which is allowable) but guess at your odometer reading, you could be in trouble. How?  Well, the IRS is now asking for third party verification in some cases (but not all!!!).  This third party verification can come in the form of something like an oil change receipt. So, if your mileage log states your end-of-year mileage reading on the car was 39,401 but the oil change receipt from Nov 5th says 35,104, your mileage may be disallowed.  The IRS just wants to match your numbers with some form of substantiation.

Bottom line: pay attention and keep up to date with your mileage log. Do the work required (which is minimal), and you shouldn’t have any problems.

Charitable Giving

I’ve always stated that giving to charity is something we do because we are compelled to help others…the ancillary benefit is we get a tax deduction. Well, the IRS may question your tax deduction, especially if you don’t have the correct receipt.  Say you give $500 to the church at the end of the year and forget to get the receipt.  If you take the tax deduction and don’t have a receipt dated IN THE YEAR OF THE GIFT, you deduction may be disallowed.  Also, the IRS wants to see this language on every charitable receipt: “No goods or services were provided in exchange for this donation.”

Bottom line: before year end review your charitable giving and make sure you have receipts that show the date of the donation (and dated in the donation year) and include applicable language stating you received nothing in return.

Education Credits

While the IRS is cracking down on many of the refundable credits, such as earned income credit and premium tax credit (which are not applicable to most all of you), education credits are also on their radar screen. Education credits are applicable to those with dependents in college.  Here are a couple items of interest. First, the IRS will not allow any credits if the taxpayer does not have a 1098-T.  The 1098-T is the statement you receive from the college or university and states the amount billed for tuition and fees.  If this document is mailed to your son or daughter, please tell them to keep an eye out for it.  We need it! I would also encourage you to cross check the 1098-T with your payments.  These documents can be incorrect, so please double check. Qualifying expenses are those you actually paid…not necessarily what is shown on the 1098-T as billed!

Bottom line: If you have a child in college, make sure to get a copy of the 1098-T and double check the numbers!

 

TN Law

Billy Trout, with the TN Department of Revenue, spoke in regards to some of the changes to the TN tax laws.  The most relevant was the switch to the calendar year basis for business licenses, which includes business and personality taxes.   Also, please note that you may not receive a notice from the county in regards to your business taxes, which effectively renews your business license.  Review your business license and make sure it’s up to date.  If not, get those taxes filed.

Bottom Line: the state may not remind you of the expiration of your business license, so double check and make sure you are up to date with all applicable taxes paid.

Misc Items

Depending on the amount of student loan interest you paid, you may no longer receive a 1098-E statement from your lender. If you don’t receive a 1098-E and you are paying on a student loan, it doesn’t mean you don’t have deductible interest. You should be able to print the form via your online account.  If not, you will need to contact the provider directly and request one.

If you participate in any form on online gambling, you must be aware of Foreign Bank Account Reporting (FBAR) rules. If you have a foreign account, or signature authority on a foreign account with a balance at any point during the year of $10,000.00 or greater you must file an informational return.  The FINCEN form 114 is not difficult, but, if you don’t properly report, you can be hit with substantial fines.  Since most gambling sites are outside of the US, please be mindful of your requirements and discuss this with your preparer.

Once again we are waiting for congress to work on tax extenders.  The good news is the indexing of AMT (Alternative Minimum Tax) is permanent, so we no longer need to worry about that issue.  But, there are a couple other issues up in the air and possibly impactful to you: sales tax deduction, $250 above the line expense deduction for teachers, and extending the limits of allowable 179 expenses….plus many more.  The general consensus is this will get done, but political civility and gridlock could slow things down or possibly derail these items.

Bottom line: make sure you have a copy of your 1098-E for your student loan interest at tax time, talk to your tax preparer if you participate in online gambling, and keep your fingers crossed that congress can reach across the aisle and get something done with tax extenders!

As a fee-only, comprehensive advisor I strongly believe in the importance of managing our single largest expense: TAXES, so it’s always wise for us to stay one step ahead. I hope this information will put you on the right path to a successful 2015.

 

 

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