This month I’m going to explore vacation home rentals. Vacation rentals have different rules for short-term or long-term and whether or not other services are included in the rental of the property. First, you need to consider whether you use it as a dwelling unit or not. Did you use the dwelling residence for personal purposes, during the tax year, for a number of days, that’s more than the greater of 14 days or 10% of the total days and you rented it to others at a fair rental price? With this in mind, we need to understand the definition of personal use of the dwelling. It is any day you use it, or any other person uses it, and who has an interest in it, a member of your family or of a family of any other person who has an interest in it, and anytime the unit is used at a less than fair rental price, whether they are related or not. So, let’s take a look at the 14-day basic rental rules. If you receive rental income and the usage is less than or equal to 14 days, you don’t have pay income tax on the income and you are not permitted to write off any relevant expenses when it’s your personal residence. However, if the personal usage is more than 14 days, then all or some of the expenses may be deducted, based on the amount of usage and further review of the rules is required. If you receive rental income and it’s not your personal residence, all income is reported and all the expenses are deducted against the income. What if you have someone living in your house and they are giving you money towards the utilities, cable, etc. The question is it really rental or not? It is rental income, if you have a rental contract, detailing the monthly payment, and you’ll then follow the rules previously discussed. If there isn’t a rental contract and they are just paying their share of the expenses, I don’t see it as rental income. But, remember, if there isn’t a contract, this will considered their living abode and eviction may be a real legal issue, if it becomes necessary. So, be careful when you decide to do this. Next, I want to discuss whether you have an independent contractor or an employee and you run a business. This subject is always being revaluated and there isn’t a black and white answer. The present, generally accepted decision making categories are: Behavior Control, Financial Control, and Relationship to the Parties. Behavior Control, in short, does the company control or have the right to control what the worker does and how it’s done. Financial Control, in short, does the business direct or control the financial and business aspects of the worker’s job. Things like, how the worker is paid, expenses are reimbursed, and/or who provides the tools, supplies, and materials. And, Relationship, in short, is there a written contract between the company and the worker providing the need, is the worker required to be present any defined period of time, are they evaluated on production, are they paid by the hour, etc. All three of these, working together, determine if the individual is an employee or not. Misclassifying workers as independent contractors may subject the company to be liable for employment taxes for that worker (plus a 100% penalty), both at the Federal and State level, disallowed deductions for the payments to the employee, failure to file W-2’s penalties, and audit. It’s not worth it. Play the game right and you’ll be way ahead in the long run. On another note, any worker who believes they have been improperly classified can file the Form 8919, Uncollected Social Security and Medicare Tax on Wages, to properly pay their taxes. This is a brief overview. Additional details and specific assistance in applying the general information in this article may be attained by contacting your tax advisor or our office. Provided by Tracey C. Higginbotham, E.A., (321) 632-5726, a member of the National Society of Accountants.
This month I’m going back to basics. There is a batch of tax extenders that expired as of December 31, 2021. They include the residential energy credits for energy efficient windows and doors, tax incentives for qualified fuel-cell motor vehicles, no more charitable deductions without itemizing, and the maximum child and dependent care tax credit falls back to $1,050, for one child, and $2,100, for two or more children. This is down from the top 2021, credit of $4,000, for one child and $8,000, for two or more. The child tax credit reverts back to pre-2021 rules. This means no more advance monthly payments and the maximum credit is $2,000, per child, under 17, with a maximum of $1,500, per child, under the additional child tax for some lower income parents. Standard deductions increase to $25,900, plus $1,000 for each spouse, 65 or older when filing married filing jointly. $12,950, for singles and if over 65 it goes to $14,700. Head of Household standard deduction is $19,400, plus $1,750 if over 65. Tax rates on long-term capital gains and qualified dividends did not change and remains at 0%, 15%, or 20%, based on your taxable income. Teachers are permitted to deduct $300 per year for books, supplies, and materials which is up from $250. The income tax brackets for individuals are wider for 2022 and the tax rates remain unchanged. Contributions to your qualified retirement plans (employer plans) maximum is increased to $20,500 annually. Maximum traditional and Roth individual arrangements is a combined $6,000 with an additional $1,000, catch-up contribution, for individuals over 65. Now, how about retirement Required Minimum Distribution (RMD) requirements. If you are 70½, or older, you are already under distribution rules. You now need to become aware of the new life expectancy table for calculating your RMDs for 2022 and beyond. Also, under these new rules and you haven’t started your RMD’s, you’re now not required to take RMDs until the year of 72 years of age. These new revised tables allow distributions to be spread out over more years resulting in smaller annual payout requirements. However, you still need to evaluate your tax circumstances and give consideration to your beneficiary tax circumstances to determine what your best tax advantage option will be. A couple of business items. Standard mileage rate is 58.5¢ for 2022 and don’t forget you are required to keep a mileage log substantiating the mileage. There is still a 100% restaurant meal deduction permitted for 2022. And, one last thought, the market volatility provides a perfect opportunity to fund your Traditional, Roth IRA, maybe start a Self Employed Pension plan. In closing, to our clients, THANK YOU!!!. Because of you, our office had another successful tax season. Also, to the many of you who read my articles, THANK YOU. I hope it helps. God Bless you and the United States of America!!! For additional details and specific assistance in applying the general information in this article, contact your tax advisor or call us at your earliest convenience. Provided by Tracey C. Higginbotham, E.A., (321) 632-5726, a member of the National Society of Accountants.
This month, the Internal Revenue Service Center (IRS) has become aware of a substantial increase in several impersonation, fraud, and scam schemes compared to previous years. Be aware, IRS will not call you, text you, or email you to obtain any personal information or inform you of any collection or filing requirements. They always communicate by printed and mailed correspondence. Next, it has been confusion for taxpayers this year when dealing with the child tax credit and receiving an advance payments last year. You should receive the Letter 6419, or maybe two of them, reflecting the total child tax credit paid. You need the amount to properly complete the Form 8812, when filing your tax return. In my December, 2021, article, I detailed the procedure for you to establish your portal access to obtain information from your tax account with IRS. You can review again by going to our website, higginbothamcosinc.com and clicking on the “Monthly News Article” tab IRS, Get a IP PIN for Your Security (December-2021) or go to IRS.gov website and create your account. You will need an email, drivers’ license, and your cell phone for the authorization process. Oh, this should be the only time you will receive an e-mail from IRS and this will only confirm your identity for the website. Another alert for you, watch for scammers who are sending emails, with links, to create your account and are actually phishing to your information. Never click on any link to access IRS.gov. Now some good news, there’s nothing bad to getting extra money. For 2021, the Earned Income Credit (EIC) will be available for taxpayers from ages of 19, not a dependent of another taxpayer, and even taxpayers over 65, are permitted to claim this tax credit. This will help some young independent parents’, under the age of 25 years old, and taxpayers over 65 years old or older, who have some part time jobs. Please review the instructions for the EIC to see if your situation permits you this credit. Another reminder, Form 8867, is a due diligence form everyone has to include with their tax return if claiming the EIC, Child Tax Credit, Additional Child Tax Credit, Other Dependent Tax Credit, American Opportunity Education Tax Credit, or Head of Household. Not including this form could result in a penalty of $520 or more. This is very important. In addition, another due diligence form, now required for sole proprietors when filing Schedule C for small businesses. The Form 11652, Questionnaire and Supporting Documentation Form 1040 Schedule C, is now being required for all tax preparers who prepare the Schedule C for taxpayers. It specifically reflects all income records and expenses are now requiring documents to support the information on the Schedule. This means bank statements, account records, ledgers, invoices, receipts, mileage logs, credit card statements, electronic payment records or any other records to substantiate the amounts reflected. And, for S-Corporations, the Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, is required to claim losses from any S-Corporation you have an interest in. Wow, IRS has went overboard on forcing due diligence substantiation on taxpayers and taxpreparers. Again, this is important. That’s it for this month. More good tax stuff next month. Remember, this is a very brief overview. It is your responsibility to discuss any tax and financial changes with your professional advisor for assistance in evaluating your situation. For details and specific assistance in applying the general information in this article, you may contact our office at your earliest convenience or contact your advisor. Provided by Tracey C. Higginbotham, E.A., (321) 632-5726, a member of the National Society of Accountants.
Next, let’s talk about who prepares your taxes. Did you know, anyone can be a paid tax return preparer, as long as they have an IRS Preparer Tax Identification Number (PTIN). However, these PTIN preparers have differing levels of skills, education and expertise. Also, they may prepare your tax return, but they can’t represent you in audit or any inquiry by IRS, unless they prepared the return. You may pay more for an Enrolled Agent, CPA, or an Attorney, but it’s worth it in the long run. Their continuing education requirements can be invaluable. If you want, at irs.gov, there is a “Directory of Federal Tax Return Preparers with Credentials and Select Qualifications” where it can help you find preparers in our area who currently hold professional credentials recognized by the IRS, or who hold an Annual Filing Season Program Record Completion. You can also check with professional organizations where many tax preparers are members. It is your best interest to learn about your tax preparer’s credentials and qualifications before your appointment and make sure you’re comfortable to trust them to prepare your tax return. Remember, you are ultimately responsible for the return, not your preparer or friend. This is a very brief overview. For details and specific assistance in applying the general information in this article, call us at your earliest convenience or contact your tax advisor. Provided by Tracey C. Higginbotham, E.A., (321) 632-5726, a member of the National Society of Accountants.
This month I want to bring your attention to a way for you to protect fraudulent filing of your tax return. The IRS has a procedure enabling you to acquire a Personal Identification Number (PIN).
The procedure is simple, and you use it while you file your return so that your identity can be confirmed. The IP PIN is a six-digit number known only to you and IRS. After you apply, the IRS will send you a new IP PIN each year.
From IRS.gov use the “Get an IP Pin” tool. If you don’t have an account on IRS.com you will need to register first. The IP PIN tool is generally available starting in mid-January through mid-November, so you may want to set a reminder on your calendar. You can also obtain an IP PIN for your spouse and dependents. In the event you lose it, you will be able to retrieve it by signing back and follow the instructions under “retrieve your IP now.”
Also, as we close out the year, you may need to evaluate Required Minimum Distributions from inheritance, contributions to your retirement arrangements, review your investments to evaluate capital gain tax laws, and review recent legislation. I wish everyone a happy and safe Holiday Season, with success and love in the New Year. God Bless!
This month I’m going to address your mileage log. Your mileage log is to support the miles driven for business reasons. Sole proprietors, filing on Schedule C, and other business entities are still eligible for a business deduction for the use of their automobile. What do you need to pass an audit of your mileage, which by the way, is a hot spot for examination. Once your audit examination begins, the examiner likes to see this record. If the record is missing or lacking, the IRS examiner knows your other records are probably lacking, too. This is one record everyone hates to maintain and the auditor knows this. A taxpayer’s failure to keep a mileage log on vehicles indicates that the activity under examination is not being conducted in a businesslike manner. I’m not sure if you know this, but as a one-owner or husband-and-wife-owned business, regardless of whether it is a corporation, a partnership, or a proprietorship, you file are required to file Form 4562. This form asks you for the following information about your vehicle(s) mileage: Do you have evidence to support the business/investment use claimed? (If “yes,” is the evidence written?); List your total business/investment miles on each vehicle; List your total commuting miles on each vehicle; and List your total personal miles on each vehicle. You also have to disclose whether the vehicles are used by either a sole proprietor or an owner of more than 5 percent of a corporation, a partnership, or another entity for up to six vehicles and you have to do an attachment if more than six. This mileage log is the record to substantiate the proof you need to use for the tax form questions. If you lucky enough to receive the inquiry as a correspondence audit, then it requires you to provide the following information to support our deduction: Copies of repair receipts, inspection slips, and other records reflecting the vehicle mileage on that date; Copies of logbooks and other records to support the business mileage claimed; A copy of your appointment book or calendar of business activities for the year; and if you are claiming actual expenses, copies of paid bills, invoices, and canceled checks for automobile expenses. These would include gas, oil, tires, repairs, insurance, interest, tags, taxes, parking fees, and tolls with a copy of the bill of sale or other verification to establish your basis in the vehicle, including the trade-in of another vehicle. This information provides the auditor the opportunity to match the repair bill odometer reading with the mileage in your logbook; the inspection slip odometer reading with the mileage in your logbook; the mileage between repair stops, to see whether that ties in with your claimed mileage; and establishes the business purpose that ties in with your appointment book or other calendar of business activities. Each record should support the other and vice versa. If you want to avoid your mileage deduction from being disallowed, keep a good mileage log. This includes not only the beginning and ending mileage, but who you went to see and the purpose of the trip. The mileage log is often one of the first records that an IRS examiner will look at. A good mileage log shows that you know the rules and you respect them. Many IRS audits end favorably and quickly upon presentation of a good mileage log. I’m also want to express how thankful I am to provide my monthly article for you. Our office hopes you have a wonderful Thanksgiving and grateful for what you have. Happy Thanksgiving!!! This is a very brief overview. For details and specific assistance in applying the general information in this article, call us at your earliest convenience or contact your tax advisor. Provided by Tracey C. Higginbotham, E.A., (321) 632-5726, a member of the National Society of Accountants.
On September 14, 2021, Chuck Rettig, IRS 49th Commissioner released this statement I thought was worthy for all of us: The IRS plays an important role in serving our country. We interact with more Americans than any other U.S. government agency – virtually every individual and business in the country. We process 96 percent of the funding for our nation’s vital programs, but our agency and our people have had to really step up in the past year and a half to provide even more support to Americans in need. And just like businesses and other agencies around the country, we had to pause or modify some operations during the pandemic until we had safe and secure remote options in place to enable our employees to perform their work and serve taxpayers. I am extremely proud of the dedication of our workforce toward helping American taxpayers fulfill their tax responsibilities and resolve tax issues while they dealt with the COVID-19 situation. While we had to temporarily scale back operations, important economic relief measures passed by Congress during the pandemic gave us many new responsibilities, and we have proudly worked to deliver Economic Impact Payments, advance payments of the Child Tax Credit (CTC) and many other critical initiatives in 2020 and 2021. We appreciate and understand the frustration caused by the high volume of manually processed returns, the limited information available to taxpayers about the status of the return processing, the refund delays, and the difficulty reaching IRS employees. We also understand that complex tax issues, recent legislation and the pandemic have record numbers of taxpayers looking for help. At every turn, our employees have gone above and beyond during the pandemic to keep our operations going, and through it all, we have appreciated the patience and understanding of taxpayers and the tax community. Even so, and despite our best efforts, pandemic-related issues are still causing us to experience record levels of activity that continue to affect operations across the agency, including the processing of tax returns and refunds. To put this in perspective, the IRS has received 199 million phone calls the first six months of this year – five times the normal annual volume – and we have manuallyreviewed 11 times more tax returns this year (11 million) to correct errors and gather missing information from taxpayers. I am committed to ensuring the IRS will continue to do all we can to serve taxpayers. During the pandemic, we have had to find new ways to pursue our mission. As we faced enormous challenges, we didn’t always get it right, but we worked hard, often with limited resources. Where possible, we have redeployed resources to accommodate the increased demand. Our goal is to provide the quality of assistance taxpayers deserve, but we have been unable to satisfy this goal despite recent efforts to overcome significant challenges. On behalf of the entire IRS workforce, I want to assure you we will continue making progress, working together with Congress, the Administration and our partners inside and outside the tax community. We know this has been and continues to be a frustrating time for many taxpayers and tax professionals – and it’s been a challenging time for all of us at the IRS as well. We have done the best we could under the circumstances, and we will continue to do our best as we face the current challenges. Our response to the unprecedented COVID challenges – including issuing almost $1.5 trillion in combined historic economic relief and individual refunds – illustrates the importance of every American to the IRS and the importance of the IRS to every American. I want to give you a glimpse of what we’re facing inside the IRS, and what we’re doing – to help struggling taxpayers and to get caught up during this unprecedented time. This is only brief overview. It is your responsibility to discuss anything in this article, prior to making any changes, with your professional advisor to assist you in evaluating your situation. For details and specific assistance in applying the general information in this article, call us at your earliest convenience or contact your professional advisor. Provided by Tracey C. Higginbotham, E.A., (321) 632-5726, a member of the National Society of Accountants.