Archive for Harold Goedde

IRS Issues Final Regs On Deductibility of Local Lodging Expenses

On September 30, 2014, the IRS issued final regulations in T.D. 9696, allowing employees to deduct expenses paid or incurred for local lodging as business expenses.

The general rule is that local lodging expenses for an individual are nondeductible personal expenses. The new regulations provide that local lodging expenses that meet certain criteria are deductible as ordinary and necessary business expenses under IRC 162.

The regulations state that local lodging expenses that meet either a facts and circumstances test or satisfy safe harbor requirements are deductible by an individual if incurred directly. Read More

Written by | Posted in International • IRS • Tax Deductions

Exclusion of Gains In Excess of Passive Losses On Sale of Rental Property

If a taxpayer converts a personal residence to rental property, he can deduct expenses against rental income. The basis for depreciation is the lesser of the adjusted basis or fair market value at the date it is converted to rental property. If the taxpayer does not materially participate in and actively manage the property, the losses from rentals are treated as passive losses and cannot be deducted in the current year. They are suspended and carried forward and can offset rental income of future years but any resulting loss is not deductible and is carried forward.

If a taxpayer continues to have non deductible passive losses, they accumulate and can be offset against the gain on the sale of the property. If the gain on the sale exceeds the cumulative non deductible losses, a question arises as to whether the gain is taxable and Read More

Written by | Posted in Real Estate • Tax Deductions

Preventing Fraud And Embezzlement

In the past year there have been numerous reports of fraud and embezzlement, mostly involving small businesses. These can be prevented by a few low cost controls.

One of the most important is separation of responsibilities of asset custody and record keeping for these assets. For example, someone other than the person who receives and disburses cash and writes checks should record these in the accounting records.

Other essential controls include, but are not limited to:

(1) approval of payments by the owner or other responsible person who does not write the checks, or authorize credit card payments and maintain the accounting records. Read More

Written by | Posted in Tax Fraud/Evasion/Crimes

Recent Important IRS And Court Rulings

1. If an employer offers both a FSA and a HSA, the IRS indicated that a participant covered by a health FSA during the year, solely as a result of a carryover, cannot make payments to a HSA during the year. This is the case even for months of the year after the balance of the FSA is fully liquidated.

2. Low income earners receive a refundable tax credit to purchase health insurance through an exchange. If the taxpayer is married, they must file a joint return to claim the credit. But the IRS said it will allow victims of domestic abuse to file separately if the victim is not living with his or her spouse at the time their return is filed.

3. To be able to deduct passive losses, the Tax Court previously ruled that real estate Read More

Written by | Posted in IRS • Real Estate • Tax Policy

Deduction Denied For Repayment of Medical Grant

While in medical school a student agreed to work after completing medical school for four years as a doctor in the medically underserved area of Murfreesboro, TN. In exchange for doing this the University of Tennessee College of Medicine agreed to pay his tuition and reasonable expenses. After completing his residency, he changed his mind and went into private practice. Because he didn’t live up to his agreement, the school required him to repay $121,440.

He took a deduction for the repayment on Schedule C as a ordinary and necessary business expense. The IRS disallowed the deduction and he sued the IRS in a U.S. District Court. The court upheld the IRS’s disallowance. He then appealed to the Sixth Circuit Court of Appeals. Read More

Written by | Posted in Individual • IRS • Tax Deductions

Investing In A Roth 401(K) And Tax Free Rollovers

Roth 401(K)

Employees should consider making contributions to a Roth 401(K) if their employer allows them to do so. The account is funded by after tax contributions. Since there are no income limitations on making contributions to a Roth 401(K), these provide a good way for high income taxpayers to invest in a Roth IRA without converting a traditional IRA. For 2014, you may contribute up to $17,500 to a Roth 401(K) a traditional 401(K), or a combination of the two. If you are 50 or older, the contribution limit is $23,000 annually If the employer matches the employee contribution, it goes into the traditional 401(K) as a pretax contribution.

Both withdrawals from a Roth IRA and a Roth 401(K) are tax-free if the account has been Read More

Written by | Posted in Individual

Bond Premium Carryforward

In TD. 9653, the IRS issued final regs on the tax treatment of bond premium carryforwards in the final accrual period. The final regs adopt ,without substantiative change, the proposed regs [Reg. 140437-12, January 2013] and withdrew the temporary reg-T.D. 9609.

The temporary reg was issued to answer a holder’s question concerning the treatment of a taxable zero-coupon debt instrument, including a Treasury bill, acquired at a premium but having a negative yield. Under prior regs, a holder who elected to amortize the bond premium, would have a capital loss if the security was retired or sold.

The IRS said this situation arose as a result of market conditions and was not contemplated when the prior regs were issued in 1997. The new regs deal with this issue by adding a Read More

Written by | Posted in IRS • Treasury Regulations

Deduction For Home Office Expenses

A home office must qualify as your principal place of business. This means it must be used:

(1) exclusively and regularly for administrative or management activities of your business or

(2) you have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Examples of administrative or management activities are:

[IRS Instructions for Form 8829, “Expenses for business use of your home”]. Read More

Written by | Posted in Tax Deductions

Condemnations of Business and Income Producing Property

This article will explain the tax rules for determining a gain or loss from condemnations, how much of the loss is deductible or amount of gain taxable, and in what tax year, deferring gains from condemnations, and basis of replacement property when a gain is deferred. Also, an important aspect of replacement property is what qualifies as like-kind property to be able to defer the gain.

A condemnation is the threat or imminence of or the actual taking of property without the owner’s consent for public domain by a governmental agency through its power of eminent domain. Depending on the amount received and the adjusted basis of the property, a gain or loss may result. Part or all of a gain may be recognized and/or deferred. Read More

Written by | Posted in Property Tax • Real Estate

Casualties Involving Law Violations

This article is a follow-up to my previous article “Casualties” on casualty loss deductions in which I set forth the nature of a casualty, qualifying events, how to determine the amount of the loss, and the allowable deduction.

[This case was reported in J.K. Lasser’s Monthly Tax Letter, February, 2014].

Taxpayers built two homes but did not obtain the necessary building permits because they wanted to live without government interference. Several years later, the homes were destroyed by a fire and the taxpayers claimed a casualty loss in the year of destruction. [Note: the article did not say when this occurred].

The IRS disallowed the loss on the grounds that the taxpayers did not comply with state Read More

Written by | Posted in Real Estate • Tax Policy

Changes Affecting 2013 Income Tax Returns

1. Standard deduction.

a. regular: $6,100 single and married filing separate; $8,950 head of household; $12,200 married filing joint and qualifying widow(er) [can use married joint tax rates for two years after year of spouse’s death but-must have dependent child living with you]. Taxpayer on their own return if claimed as a dependent by another taxpayer: greater of $1,000 or $350 plus earned income.

b. Additional (age 65 or over or blind): $1,500 single, married filing separate, and head of household; $1,200 married filing joint and qualifying widow(er).

2. Personal (taxpayer and spouse) and dependency exemptions: $3,900 each but Read More

Written by | Posted in Income Tax

Casualties

A casualty is a sudden unusual and unexpected event that damages or destroys your property. A sudden event is one that is swift. Unexpected is an event that is not anticipated and is unintended. An unusual event is one that is not-day-to day and is not typical of the activity for which the asset is normally used. To have a casualty, chance or a natural phenomenon must be present. Examples include fires, windstorms, tornadoes, hurricanes, floods, sudden landslides, vehicle accidents, theft, broken water pipes, and vandalism. Loses that are progressive and occur gradually over a period of time are not qualifying casualty losses. Examples are rust, erosion, drought, water damage from leaking windows or gutters, and termite damage. Lost items are also not casualties. Read More

Written by | Posted in Indirect Tax • IRS
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