Archives for January 2017

Learn Why a Consultant Was Denied Auto and Legal Deductions by IRS

January 31, 2017 by Frank

If you ever asked yourself why your tax professional provides you with a tax organizer and requires certain documentation from you to prepare your income tax returns, the case of G.F. Roy (TC Summary Opinion 2016-77) provides a good glimpse of the importance of having the proper documentation to substantiate tax deductions.

A consultant was denied Schedule C deductions by the IRS for car and truck, depreciation and legal service expenses related to his business. In addition, he was found liable for an accuracy-related penalty. Why? He failed [Read more…] about Learn Why a Consultant Was Denied Auto and Legal Deductions by IRS

Contractor Denied Travel Expenses

January 24, 2017 by Frank

An independent contractor’s legitmiate travel costs were found by the IRS to be nondeductible commuting costs and not work-related, resulting in his self-prepared returns being very expensive.

The contractor lived in New Jersey and renovated properties in Philadelphia and the surrounding metropolitan area. He typically worked at the job site for several months. When the job was completed, he moved on to another jobsite. The taxpayer claimed deductions for transportation costs between his residence and the jobsites, including truck expenses, tolls, and insurance. The IRS disallowed the deductions, determining that they were nondeductible commuting expenses. The IRS found that the contractor was working within the metropolitan area and that he had no regular place of business.

The taxpayer decided to take his case to Tax Court. Unfortunately for the taxpayer, the Tax Court upheld the IRS’s denial of these expenses. Whereas the IRS does allow a taxpayer to deduct travel costs between the taxpayer’s residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works, [Read more…] about Contractor Denied Travel Expenses

How to Claim Charitable Deductions Without Itemizing Tax Deductions

January 17, 2017 by Frank

Since 2006, individuals age 70 ½ or older have had the opportunity to direct up to $100,000 of required minimum distributions (RMDs) from their IRAs to the charities of their choice. Unfortunately, this rule is not widely known. First, the $100,000 amount sounds as if this provision is only for the rich. That is not the case as explained below. Second, this is one of those tax rules that expired each year and Congress resurrected late in the tax year or the year following making it retroactive. Tax planning works all so much better when the tax laws are known before the tax year expires. The good news is that this tax provision has now been made permanent.

Let’s look at a very common scenario. [Read more…] about How to Claim Charitable Deductions Without Itemizing Tax Deductions

Social Security Insurance (SSI) Disability Payments Cause a Tax Nightmare

January 10, 2017 by Frank

We came across this article in the September 2016 issue of NATP Taxpro and felt compelled to share it with our readers. A male federal postal worker suffered an injury that required several surgeries. For over 4 years, he received workers’ compensation benefits under the Federal Employees Compensation Act.

During the period he was receiving workers comp benefits, he applied for SSI disability benefits. At first, his SSI claim was denied because he had too much income to be eligible for SSI. However, three months later his claim was approved. His notice of award cautioned him that when computing a Social Security benefit, workers’ compensation benefits must be taken into account. The Social Security Administration (SSA) also sent him a brochure entitled “How Workers’ Compensation and Other Disability Payments May Affect Your Social Security Benefit.” The pamphlet explained that the SSA reduces SSI disability payments if the SSI and workers’ compensation benefits add up to more than 80 percent of the claimant’s monthly average earnings. The letter further stated that 80% of the postal worker’s monthly earnings were $3,457.60 and that his workers’ compensation benefit was $3,794.60. Since the 80% threshold had been exceeded, the SSA letter further stated that “we are withholding the benefits you are due.”

John the postal worker was undoubtedly disappointed at the course of events. First he was denied SSI, then he was approved, and finally he was told that he made too much money and would not receive any SSI payments. Now matters really got worse! [Read more…] about Social Security Insurance (SSI) Disability Payments Cause a Tax Nightmare

Unemployment Compensation Rates – One Reason Why It Is So Important to Hire Good Employees

January 3, 2017 by Frank

When hiring new employees, it is very important that the employer do his/her due diligence in finding dependable employees who have the necessary skills and who will contribute to the company for many years. Hiring the “wrong employees” can result in the employer’s unemployment compensation (UC) rate significantly increasing resulting in a cash flow burden to the employer for multiple years.

Accordingly, it is important that employers understand how their UC rate is determined by PA (and many other states). Some employers are under the misconception that [Read more…] about Unemployment Compensation Rates – One Reason Why It Is So Important to Hire Good Employees