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Tag Archive for Tax Advisor

Clergy Tax Benefits Under Fire

Chuck Woodson, Clergy Benefits Under Fire

Section 107 of the Internal Revenue Code provides that a minister of the gospel’s gross income doesn’t include the rental value of a home (parsonage) provided; if the home itself isn’t provided, a rental allowance paid as part of compensation for ministerial services is excludable. The benefit is generally referred to as a parsonage allowance. Thus, a minister can exclude the fair rental value (FRV) of the parsonage from income under IRC Sec. 107(1), or the rental allowance under Sec. 107(2), for income tax purposes. The Sec. 107(2) rental allowance is excludable only to the extent that it is for expenses such as rent, mortgage payments, utilities, repairs, etc., used in providing the minister’s main home, and only up to the amount of the FRV of the home.

However, either type of parsonage allowance is only excludable for income tax purposes and is subject to self-employment taxes, although for years before 2018 and after 2025, the amount subject to self-employment tax can be reduced by the minister of the gospel’s employee business expenses.

Back in October 6, 2017, in the US District Court for the Western District of Wisconsin, Judge Barbara B. Crabb, in Gaylor v. Mnuchin (the treasury secretary), concluded that Section 107(2) of the Internal Revenue Code is unconstitutional. Specifically, she concluded that this code section violates the Establishment Clause of the First Amendment because it does not have a secular purpose or effect and because a reasonable observer would view the statute as being an endorsement of religion.

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College Education Tax Credits: Did You Know About These?

Charles Woodson, College Education Tax Credits

There are actually two higher-education tax credits. The American Opportunity Tax Credit (AOTC) provides up to $2,500 worth of credit for each student, 40% of which is refundable. The credit is equal to 100% of the first $2,000 of college tuition and qualified expenses and 25% of the next $2,000. The AOTC only applies to the first 4 years of post-secondary education.

The other credit is the Lifetime Learning Credit (LLC), which only provides a maximum $2,000 of credit (20% of up to $10,000 of eligible expenses) per family. None of it is refundable, meaning it can only be used to offset the taxpayer’s tax liability, and any additional credit amount is lost.

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Relocation To A New Employer: Moving Expense Deductions No Longer Allowed

Charles Woodson, Tax Advisor, Relocation Expense Deductions

Prior to the passage of tax reform, individuals who moved as the result of a job change or job relocation could deduct their unreimbursed moving expenses if the driving distance from their home to the new job location was at least 50 miles more than the driving distance from home to the old job location. There was also a requirement that the individual work in the new location for a specified minimum period of time after the move.

Unfortunately, tax reform effectively repealed that deduction after 2017, except for members of the Armed Forces on active duty who move pursuant to a military order. On top of that, if an employer reimburses the employee for the expenses—whether by paying a moving van company, airline, or other vendor directly, or by reimbursing the employee for their moving expenses—the reimbursement will be treated as taxable wages subject to withholding of income, Medicare, and Social Security taxes.

If a move is required by an employer, there is a possible workaround by having the employer include enough in the

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New Lease Accounting Standards – Steps For Compliance

Jim Marshall, Lease Accounting Standards

The new lease accounting standards will require some extra time and work for many companies as they race to satisfy the new requirements.

In these new rules, two leases (finance and operating) will be required on the balance sheets.

CFO sums it up this way:

Under the new guidance, an arrangement contains a lease only when the arrangement conveys the right to control the use of an identified asset. That’s a change from legacy guidance, under which an arrangement can contain a lease even without such a right if the customer takes substantially all of the output from the lease over the term of the arrangement.

In addition to the lack of bright lines used under legacy guidance, FASB added a new criterion that focuses on assets that have a specialized nature with no alternative use at the expiration of a lease. That’s important, as it may modify the lease’s legacy classification.

As 2018 progresses, your business will want to develop procedures for gathering and documenting the wide array of leases kept by your company. These procedures will need to be efficient, as technologically advanced as possible, and centralized in order to be sustainable and accurate.

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Are There Advantages To Owning A Second Home?

Jon Neal, Tax Advisor, Second Home Tax Advantages

Whatever the location, size, or value of a second home, certain tax advantages are built in. However, your opportunity to benefit from them depends on how you use the property.

Personal Use

Both property taxes and mortgage interest are as deductible for a second home as they are for your primary residence — and are subject to the same limitations. If you file a joint return, you cannot deduct interest on more than $1 million of acquisition debt ($500,000 for married persons filing separately) on one or two homes.

Two tax advantages of homeownership are not available for a second home — the immediate deduction of mortgage points when purchasing and the capital gain exemption when selling. Both tax breaks require the home to be your “principal residence.” However, you can deduct the points on your second home’s mortgage over the loan’s term.

Rental Use

More tax advantages become available if you forgo some of your personal use in favor of renting out your second home for part of the year. But there may be drawbacks as well.

If you rent out your home for 14 or fewer days during the year, you do not have to report rental income on your tax return, regardless of the amount, and there is no effect on your mortgage interest deduction. But you cannot deduct any rental expenses.

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Calculator To Determine If You Should Buy Or Lease A Car

TaxConnections Member Lisa Nason of Nason Accounting located in Greenville, South Carolina shares a valuable calculator that helps you determine whether you should buy or lease a car. Use this calculator to find out! It calculates your monthly payments and your total net cost. By comparing these amounts, you can determine which is the better value for you.

Prior to using this handy Lease Or Buy Car Calculator, you may appreciate knowing the following definitions:

Purchase Price

Total purchase price. Price should be after any manufacturer’s rebate.

Down Payment

Amount paid as a down payment, which for leases is often called a capital reduction.

Sales Tax Rate

Percentage sales tax to be charged on this purchase. Sales tax is included in each lease payment. Sales tax for buying is charged on the total sale amount.

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Self-Employment Tax Calculator (Tax Year 2018)

Self-Employment TaxCalculator

Use this calculator to estimate your self-employment taxes. Normally these taxes are withheld by your employer. However, if you are self-employed, operate a farm or are a church employee you may owe self-employment taxes. Please note that the self-employment tax is 12.4% for the FICA portion and 2.9% for Medicare.

Additional Medicare Tax

This calculator does not include any required amounts for the Additional Medicare Tax. This tax applies to a household and not an individual tax payer. Joint filers with over $250,000 in earned income, single filers with over $200,000 in earned income and married persons filing separately with over $125,000 in earned income will owe an additional 0.9% of the amount exceeding these thresholds. These thresholds are not index to inflation. This is paid only by the tax payer, there is no additional employer amount. This additional tax is calculated on your full tax return and while it is directly related to your earned income it is not calculated with your self-employment taxes.

Net Farm Income Or Loss

This is your net farm income or loss. This should include both the net farm profit or loss from Schedule F along with any income from farm partnerships. Please note that if your gross farm income is $2,400 or less and your net farm income is $1,733 or less there is a ‘Farm Optional Method’ for calculating income subject to self-employment taxes. If you qualify for this optional method it may produce a slightly lower income subject to self-employment taxes. This calculator assumes that you will not use the ‘Farm Optional Method’. For more information see IRS Schedule SE Part II, Optional Methods to Figure Net Earnings.

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How Do I Qualify For Foreign Earned Income Exclusion?

https://www.taxconnections.com/profile/12273815?name=Olivier-Wagner-EA-CPA

To claim the foreign earned income exclusion, you must meet all three of the following requirements:

  1. Your tax home must be in a foreign country
  2. You must have foreign earned income
  3. You must be one of the following:
  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect, and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

There are only two of the factors to be considered in determining whether you pass the bona fide residence test: the length of your stay and the nature of your job. You need to remember that you do not automatically acquire bona fide resident status just by living in a foreign country or countries for one year and your bona fide residence is not necessarily the same as your domicile. If you made a statement to local authorities in your residence country that you are not a resident of that country, and they determine you are not subject to their income tax laws as a resident, you can’t be considered a bona fide resident.

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It Matters In Determining If The Accuracy Penalty Applies – Negligence  VS. Disregard

It matters in determining if the accuracy penalty applies when negotiating with the IRS. Section 6662(c) and Reg. §1.6662-3(b) provide the following definitions and guidance.

Negligence includes any failure to make a reasonable attempt to comply with the rules or regulations or to exercise ordinary and reasonable care in the preparation of a tax return.

It also includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly.

Negligence Is Strongly Indicated Where:

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Is A Bitcoin Donation For Churches?

John Stancil, Tax Advisor, Florida

Bitcoin… Most likely you have heard of it. Maybe you have an idea about what it is. But what if a member of your church asks you, as Pastor or Treasurer, if they can contribute bitcoin to the church. How do you reply? Can it even be done? Most smaller churches are not set up to receive donations of stocks or other securities, much less something as new as bitcoin. Obviously, one does not want to turn away a legitimate contribution with no strings attached, but what is the process? To get the big question out of the way, yes, your church can accept bitcoin contributions, but it is not as simple as a member dropping a check in the offering plate or making an online contribution with a credit card.  The church must be prepared to receive such contributions.

But let’s take a step back and look at what bitcoin is. Bitcoin is the most well-known virtual currency now in existence. It is sometimes referred to as cryptocurrency. It not the province of any government, but is a virtual currency used in commerce. Since it is essentially a “private” currency the value of bitcoin changes much as the value of stocks or other securities change value. In fact, the IRS does not recognize bitcoin as cash for purposes of charitable contributions. Therefore, it must be treated as a noncash gift similar to the handling of contributions of other securities. Consequently, the church should not assign a value to the contribution but simply issue a letter acknowledging the contribution.

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Should You Use A Credit Card To Pay Your Taxes?

With tax filing season out of the way, paying off those tax bills that weren’t paid by April 18th is the next major concern for people. While there are a few options for payment agreements if you can’t afford to write a check for the full amount immediately, there’s also the option of paying your tax bill with a credit card. It can be less confusing than navigating IRS payment plans, and if your credit card has a nice rewards program, then it’s something to think about.

Depending on how much you owe in taxes and what terms your credit card offers, it may or may not be worth putting your tax bill on your credit card. Here are some of the pros and cons of using a credit card to pay your taxes and why you would or wouldn’t want to pursue this option.

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Delinquent Tax Debt Can Lead To Passport Revocation

Delinquent Tax Debt Can lead to Passport Revocation. The fixing America’s Service Transportation (FAST) Act of 2015 which was signed into law on December 2015 requires the Internal Revenue Service to notify the State Department of taxpayers who are certified as owing a seriously delinquent tax debt.

Seriously certified tax debt is $51,000 indexed yearly for inflation which includes interest and penalties. This tax debt remains unpaid and legally enforceable and all administrative remedies have been lapsed and exhausted.

The IRS is required to notify you at your last known address of their intent to notify the State Department.

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