Repairs vs Improvements

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2016 Repairs vs Improvements

Repairs vs. Improvements

Internal Revenue Code section 162 generally allows a current business deduction for the cost of repairs and maintenance incurred during the year. On the other hand, Internal Revenue Code section 263 requires the capitalization of amounts paid to acquire, produce, or improve tangible property. Since repairs and improvements often have very similar characteristics, it can be tricky to classify the expenditures. However, correct classification is important because the cost of repairs can generally be deducted in the year paid, while improvements must be capitalized and the deduction taken over several years through depreciation.

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An improvement requiring capitalization occurs with an addition to or partial replacement of property that results in a betterment of the unit of property, restores the unit of property, or adapts the unit of property to a new use. The cost of an improvement must be capitalized and depreciated over a certain number of years as if the improvement were separate property.

Example: Nina has a truck she uses for her contracting business. Her truck was damaged and the cost to repair it is considered a deductible repair cost. Routine maintenance on the truck such as engine tune-ups and oil changes are also currently deductible expenses. In 2015, Nina added a hydraulic lift to her truck, which improved its functionality. The expense of adding the lift is an improvement that must be capitalized and depreciated over the truck’s remaining useful life.

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Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

“Empowering clients through education, a stress free transaction and an excellent service experience.”

IRS Audits

Audit picture

Representation

Individual taxpayers who are under audit by the IRS may attend the audit in person without any assistance from a tax professional. However, this can be a dangerous
mistake. Although not officially stated, it is the job of an IRS Revenue Agent to conduct an audit with an eye toward finding additional tax owed.

With so many gray areas in tax law, and considering the tax code’s complexity, an individual who chooses to go it alone is a sitting duck. Without extensive tax education and experience, the examiner can (and sometimes will) say anything to find additional tax due on the return. Without the necessary knowledge, the taxpayer is powerless to refute the agent’s rationale.

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Selection of Returns for Examination

Search for Unreported Income
The IRS performs matching functions to reconcile information reported on Forms 1099 and W-2 with information reported on the taxpayer’s return. If income reported by the taxpayer does not meet or exceed amounts reported to the IRS, the taxpayer will receive either a bill for tax on the difference or an audit notice.

Worker Reclassification Efforts
The IRS conducts joint employment audits with state tax agencies to determine whether workers classified as independent contractors are in fact employees. One initiative
looks at employers who issue both Forms 1099 and W-2 to the same employee in the same year, while a second examines employers issuing more than five 1099-MISC forms exceeding $25,000 each to contractors with no other source of income.

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Education Tax Benefits

Educational Benefits

Education Tax Benefits

If you pay tuition, fees, and other costs for attendance at an eligible educational institution for yourself, your spouse, or your dependent, you may be able to take advantage of one or more of the education tax benefits.

You can claim more than one education benefit in a tax year as long as you do not use the same expenses for more than one benefit.

Exception: Qualified expenses used to claim education benefits can also be used to eliminate the 10% penalty on premature IRA distributions.

You may claim only one of the following education tax benefits for the same student per year: tuition and fees deduction, American Opportunity Credit, or Lifetime Learning Credit.

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Education Deductions.
Deductions reduce the amount of income subject to income tax. Deductions for education expenses include:

Tuition and fees deduction up to $4,000 from gross income. Income limitations apply.
The provision for deducting tuition and fees expires for tax years after 2016.
Student loan interest deduction up to $2,500 from gross income. Income limitations apply.
Business deduction on Schedule C or F. You can deduct the cost of education related to the business or farm activity.
Miscellaneous itemized deduction on Schedule A, subject to the 2% AGI limitation. You can deduct the unreimbursed cost of education required to keep your current job or maintain and improve skills needed for your job. You cannot deduct the cost of education that qualifies you for a new trade or business.

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Education Tax Credits
Tax credits reduce the amount of income tax you may have to pay. Income limitations apply. The education credits are claimed on Form 8863, Education Credits
(American Opportunity and Lifetime Learning Credits).

American Opportunity Credit, $2,500 maximum per student per year.
Lifetime Learning Credit, $2,000 maximum per tax return per year.

Note: The Hope Credit applied to 2008 and earlier years. It was replaced by the more generous American Opportunity Credit for the 2009 – 2017 tax years.

Penalty-Free IRA Distributions
If you withdraw money from your IRA before you are age 59½, you are generally subject to a penalty of 10% of the distribution, in addition to any tax that may be due on the distribution.

The 10% penalty does not apply to traditional IRA or Roth IRA withdrawals, if you use the money to pay qualified education expenses for yourself, spouse, or for any child or grandchild of yourself or your spouse.
Qualified education expenses include tuition, fees, books, supplies, equipment, and special needs services required for enrollment or attendance at an eligible
educational institution. Room and board for students enrolled at least half-time in a degree or certificate program may also qualify.
Reduce qualified expenses by scholarships and other tax-free assistance the student receives, but not by gifts or inheritances.

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Dependent Support Worksheet

Dependent Support Worksheet

Support and the Dependency Exemption
The support test is one of the factors used to determine whether you may claim the dependency exemption for another person. The person may be a qualifying child or
a qualifying relative. You must consider the support test each tax year for which you wish to claim a dependency exemption.

Support Test
Qualifying Child	The child cannot have provided more than half of his or her own support during the tax year.
Qualifying Relative	You must have provided more than half of the relative’s support during the tax year.

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What is Support?
Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, health insurance, recreation, transportation, and similar
necessities.

In general, the amount of an item of support is the expense incurred in providing that item.
The amount of support for lodging is the fair rental value of the lodging, including a reasonable allowance for the use of furniture and appliances and for utilities provided.
Expenses not directly allocable to any one member of
the household, such as the cost of food for the household,
must be divided among the household members.
Property provided as support is measured by its fair market value.

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Social Security and Medicare

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Baldwin NY Tax Preparation service Pat Tax Inc. and Patrick White, Enrolled Agent . Please feel free to contact us with any questions or concerns.

Social Security

Full Retirement Age
If you were born in 1942 or earlier, you are already eligible for full Social Security benefits. The following chart will guide you in determining your full retirement age.

Year of Birth	Full Retirement Age
1943-1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 or later	67

Note: Although the full retirement age is rising, you should still apply for Medicare benefits three months before your 65th birthday. If you wait longer, your Medicare
insurance (Part B) and prescription drug coverage (Part D) may cost you more money.

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Delayed Retirement
If you choose to delay receiving benefits beyond your full retirement age, your benefits will be increased by a certain percentage, depending on the year you were born. The increase will be added in automatically from the time you reach full retirement age until you start
taking benefits or reach age 70, whichever comes first.
Early Retirement
You may start receiving benefits as early as age 62. However, if you start your benefits early, your benefits are reduced approximately one-half of 1% for each month you
start your Social Security before your full retirement age.

Read Social Security and Medicare Here

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College Financial Aid Planning

Individuals who want to attend college but cannot afford the costs outright must find alternative funding through various types of financial aid. Many factors affect eligibility for federal financial aid; therefore, all students should apply for financial aid every year even if they think they do not otherwise qualify.

Read College Financial Aid Planning Here

FAFSA
The Free Application for Federal Student Aid (FAFSA) is the first step in the financial aid process. Students use the FAFSA to apply for federal student aid, such as grants, loans, and work-study. The FAFSA must be submitted for each year the student wants financial aid.

Income Tax Return
If the student (or parents) needs to file a 2015 income tax return with the IRS, it is recommended that it is completed before filling out the FAFSA.

Expected Family Contribution
The questions on the FAFSA are required to calculate the student’s Expected Family Contribution (EFC). The EFC measures the student’s family’s financial strength and is used to determine the student’s eligibility for federal student aid. The EFC is split between an expected amount contributed from the student (usually more) and an expected amount
being contributed from the parents.

Read College Financial Aid Planning Here

Student Aid Report
A student’s EFC will be listed on their Student Aid Report (SAR). The SAR summarizes the information submitted on the student’s FAFSA.

Financial Need
Financial need is the difference between the EFC and the college’s cost of attendance (which can include living expenses), as determined by the college. The college will use the student’s EFC to prepare a financial aid package to help meet financial need.

Read College Financial Aid Planning Here

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Begin With The End In Mind-Tax Planning 2016 and Beyond

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“Begin with the End in Mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.”

Steven Covey Habit 2: The 7 Habits of Highly Effective People

In educator and successful businessman Dr. Steven Covey’s seminal work on self-empowerment, “The Seven Habits of Highly Effective People”, he points out in Habit 2 the importance of creating your Personal Mission Statement. The Mission Statement focuses on what you want to be and do. It is your plan for success. It puts your goals in focus, and moves your ideas into the real world.

The mission of tax planning should serve a similar purpose. Tax planning with your tax professional should reflect short and long term goals of you, your family and/or business. It should serve as a roadmap on reaching your goals based on a firm educational foundation and tools to monitor plan progress. Tools to avoid pitfalls and minimize surprises.

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It was with this in mind that the Tax E Man Blog compiled a category on Tax Planning. Tools and topics include

Financial Planning Guide
College Financial Aid Planning
Saving for College
Moving Out Worksheet
Saving for Retirement
Early Retirement Distributions
Newlywed Tax Tips
Pension Income Planning
Social Security and Medicare
Estate Planning, Wills, Probate, and Transfer of Assets

Pat Tax Inc. and Enrolled Agent Patrick White are available to answer questions or concerns and to help in customizing your Tax Plan. Tax Planning Tool and Topic blogs will appear beginning May 1, 2016 and will remain available under the Tax Planning category.

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The Tax E Man Blog, along with our website http://www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

High-Income Taxpayers

High-Income Taxpayers

In addition to being subject to higher federal tax rates, taxpayers whose income exceeds certain levels have tax deductions and credits that are reduced or eliminated. The provisions listed may have additional qualifications and restrictions.

Other provisions of the tax code, such as fringe benefit limitations and taxation on the sale of a principal residence, may further restrict a taxpayer’s ability to take deductions or cause the taxpayer to pay additional tax. Ask your tax professional for more details.

Read the entire article here on High-Income Taxpayers

Any accounting, business or tax advice contained in the Tax E Man Blog or http://www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

Electronic filing of all Federal and State returns with direct deposit of refunds
Scheduled electronic payment of balance due
Income Tax Consulting
IRS Tax Representation
Unified Tax Returns
Amended Tax Returns

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Recordkeeping for Tax Purposes

Which records should you keep? You should keep information that you and the IRS need to determine your correct tax. Everyone should keep the following records.

Copies of tax returns. Keep copies of your tax returns as part of your tax records.

• Your tax returns can help you prepare future returns and amended returns.

• After you die, copies of your tax returns and other records can be helpful to your survivors or the executor or administrator of your estate.

Proof of income and expenses. Listed below are examples of income and expense documents you should keep. The list is not all inclusive. Read the article Recordkeeping for Tax Purposes here

Services We Provide Include

Income Tax Preparation for individuals and small businesses
Electronic filing of all Federal and State returns with direct deposit of refunds
Scheduled electronic payment of balance due
Income Tax Consulting
IRS Tax Representation
Unified Tax Returns
Amended Tax Returns

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Taxpayer Bill of Rights

Happy New Year and welcome to the Tax E Man Blog. As we enter tax preparation season, it is important to know what your rights as a tax payer are. It is for this reason that this issue provides recent revisions to these rights as well as other important updates.

In this issue content from the tax letter “Tax News and Industry Updates” will be provided. Among the subjects covered is the “Taxpayer Bill of Rights”. The Taxpayer Bill of Rights is 10 provisions compiled by the Internal Revenue Service that “take the multiple existing rights embedded in the tax code and groups them into 10 broad categories making them more visible and easier for taxpayers to find.”.

Press 2014 Tax News and Industry Updates to read.

The 10 Taxpayer Rights are

The Right to Be Informed
The Right to Quality Service
The Right to Pay No More than the Correct Amount of Tax
The Right to Challenge the IRS’ Position and Be Heard
The Right to Appeal an IRS Decision in an Independent Forum
The Right to Finality
The Right to Privacy
The Right to Confidentiality
the Right to Retain Representation
The Right to a Fair and Just Tax System

The Taxpayer Bill of Rights has been incorporated into IRS Publication 1, “Your Rights as a Taxpayer”, revised in 2014.

Services We Provide

Income Tax Preparation for individuals and small businesses
Multiple Year Non-filer Income Tax Preparation
Electronic Filing of all Federal and State Returns with direct deposit of refunds
Scheduled Electronic payment of balance due
Income Tax Consulting
IRS Tax Representation
Unified Tax Returns
Amended Tax Returns

“Empowering clients thru education, a stress free transaction and an excellent service experience.”
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