Tangible Property Safe Harbors

If your business has made repairs to tangible property, such as buildings, machinery, equipment and vehicles, you may be eligible for a deduction on your 2014 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”

Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted. Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. (A qualified small business is generally one with gross receipts of $10 million or less.)

Contact us to ensure that you’re taking all of the repair and maintenance deductions you’re entitled to.

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Deducting Investment Interest for 2014

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make the deduction less beneficial than you might think.

Your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included. However, any disallowed interest is carried forward, and you can deduct it in a later year if you have excess net investment income.

You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.

If you’re wondering whether you can claim the investment interest expense deduction on your 2014 return, please contact us. We can run the numbers to calculate your potential deduction — or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.

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Proper Substantiation for 2014  Charitable Donations

If you don’t meet IRS substantiation requirements, your deductions for charitable donations could be denied. To comply, generally you must obtain a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services.

If you haven’t yet received substantiation for all of your 2014 donations, you may still have time to obtain it: “Contemporaneous” means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. So as long as you haven’t filed your 2014 return, you can contact the charity and request a written acknowledgement — you’ll just need to wait to file your return until you receive it. (But don’t miss your filing deadline; consider filing for an extension if needed.)

Be aware that certain types of donations are subject to additional substantiation requirements. To learn what requirements apply to your charitable donations, please contact us.

Tax Tip: IRS Requires Accurate Records for Deductions

Are you looking for ways to lower your tax bill? Itemizing your deductions can potentially reduce what you owe. Common deductions include medical expenses, charitable donations or unreimbursed job-related expenses. If you decide to claim deductions, it’s very important that you keep accurate records and receipts to meet IRS requirements.

What Are Accurate Records?

According to IRS Publication 463, any evidence you use to support a deduction must be “documentary” and “adequate”, meaning it must be written and show the date, place, amount and nature of the expense. Examples of the types of documentary evidence you can use to support your deduction include mileage logs, itemized credit card receipts, bank statements, taxi and toll receipts, receipts for gifts, and receipts from gas stations, hotels and restaurants. NOTE: Credit card statements without itemized, supporting receipts are NOT adequate.

If you’re self-employed, keep the receipts for any business-related expense you incur, no matter how small. If you plan to claim the home office deduction, you’ll also need to keep detailed records regarding your home, including any costs you pay for property tax, rent, mortgages, utilities and repairs. You should also maintain detailed records if you’re paying out-of-pocket costs for your health insurance or other medical expenses.

Additional Guidelines

As a general rule, the IRS advises taxpayers to maintain records for at least three years following their tax filing. If you file early, the three-year limitations period begins on the annual filing deadline. No records are necessary if you claim the standard deduction but you could end up owing more in taxes. Even if you don’t plan on itemizing, it’s still a good idea to keep a paper trail so you can compare your deductions before you file.

If you would like to discuss your specific situation, please contact us.

Mileage Deduction: Are you deducting all of the mileage you’re entitled to?

You probably know that miles driven for business purposes can be deductible. But did you know that you might also be able to deduct miles driven for other purposes? The rates vary depending on the purpose and the year:

• Business: 56 cents (2014), 57.5 cents (2015)
• Medical: 23.5 cents (2014), 23 cents (2015)
• Moving: 23.5 cents (2014), 23 cents (2015)
• Charitable: 14 cents (2014 and 2015)

The rules surrounding the various mileage deductions are complex, however. Some are subject to floors and some require you to meet specific tests in order to qualify. There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.

So contact us to help ensure you deduct all the mileage you’re entitled to on your 2014 tax return — but not more. (You don’t want to risk back taxes and penalties later.) And if you drove potentially eligible miles in 2014 but can’t deduct them because you didn’t track them, then start tracking your miles now so you can potentially take advantage of the deduction when you file your 2015 return next year.

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Why you shouldn’t procrastinate on filing your 2014 income tax return

If you’re like many Americans, you may not start thinking about filing your tax return until the April 15 deadline is just a few weeks — or perhaps even just a few days — away. But there’s another date you should keep in mind: Jan. 20. That’s the date the IRS began accepting 2014 returns, and filing as close to that date as possible could protect you from tax return fraud.

In this increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

Tax return fraud can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the thief who’s filing the duplicate return, not you.

Of course you need to have your W-2s and 1099s to file. So another key date to be aware of is Feb. 2 — the deadline for employers to issue 2014 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2014 interest, dividend or reportable miscellaneous income payments.

Contact us if you have questions about tax return fraud or would like help filing your 2014 return early.

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2015 IRS Mileage Rates Announced

On December 10, 2014, the IRS announced the standard mileage rates for 2015. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on January 1, 2015 the standard mileage rates are:
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• For business use of an automobile, the rate increases to 57.5 cents per mile, up from 56 cents in 2014.
• For medical or moving expenses, it is 23 cents per mile, down half a cent from 2014.
• For services to charitable organizations, the rate stays the same at 14 cents per mile.

Remember, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Instead of using the standard mileage rates, taxpayers may deduct the actual costs of using their vehicle.

Regardless of which method is used, taxpayers must always substantiate and document actual expenses and mileage if they plan to utilize this deduction.

Please contact us with your questions.

Energy-Related Tax Extenders from the Tax Increase Prevention Act of 2014

In the recently enacted “Tax Increase Prevention Act of 2014,” Congress has once again extended a package of expired or expiring individual, business, and energy provisions known as “extenders.” The extenders are a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving laws which have been on the books for years but which technically are temporary because they have a specific end date. Congress has repeatedly temporarily extended the tax breaks for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.” The new legislation generally extends the tax breaks retroactively, most of which expired at the end of 2013, for one year through 2014.

The following energy provisions are retroactively extended through 2014 in the new law.

• The credit for nonbusiness energy property;
• The second generation biofuel producer credit (formerly cellulosic biofuels producer tax credit);
• The incentives for biodiesel and renewable diesel;
• The Indian country coal production tax credit;
• The renewable electricity production credit, and the election to claim the energy credit in lieu of the renewable electricity production credit;
• The credit for construction of energy efficient new homes;
• Second generation biofuels bonus depreciation;
• The energy efficient commercial buildings deduction;
• The special rule for sale or disposition to implement federal energy regulatory commission (FERC) or State electric restructuring policy for qualified electric utilities;
• The incentives for alternative fuel and alternative fuel mixtures; and
• The alternative fuel vehicle refueling property credit.

We hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please contact us.