Archives for May 2017

In vitro fertilization (IVF) is an expensive medical procedure whereby an egg is fertilized by sperm in a test tube or elsewhere outside the body. An IVF procedure can be tax deductible as a medical expense subject to the same limitations as any other medical expense. The limitation is that such medical expenses are tax deductible to the extent they exceed 10 percent of the taxpayer’s adjusted gross income (AGI). By way of example, if a taxpayer’s adjusted gross income is $100,000 and the taxpayers incurs $12,000 of medical expenses, the taxpayer is allowed a tax deduction of $2,000 ($12,000 less a $10,000 limitation (10% times $100,000 equals $10,000, the limitation).

However, taxpayers have not been entitled to the IVF medical deduction when [Read more…] about Know the Tax Rules If Considering In Vitro Fertilization

It is important to learn from the mistakes of others. Detailed documentation of expenses is absolutely vital to sustain a tax deduction.

In a recent Tax Court case (Charles F. Schuetze, TC Memo 2017-74), an attorney formed an LLC with another person to purchase a bed & breakfast property located in Indiana in 2007. It was the former residence of Larry Bird. Due to mounting losses, the B&B was closed in 2010 and put up for sale. The LLC’s losses totaled more than $250,000 and included repairs and maintenance deductions.

The IRS contended that Schuetze used the B&B for personal use. The tax rule is that if a taxpayer uses a residence for more than the greater of 14 days or 10% of the number of days during the tax year that the property is rented at a fair rental value, it is used for personal use and tax deductions are limited. The court noted that a pass-through entity, such as the LLC, is considered to have made personal use of a dwelling unit on any day on which any beneficial owner made personal use of the dwelling.

The taxpayer argued that the days he spent at the B&B were mostly to perform repairs and maintain the property. If a taxpayer is engaged in repairs and maintenance of the dwelling unit substantially full time on any day, that day will not constitute personal use of the unit. When determining if a taxpayer can exclude the time spent at the dwelling as not constituting personal use, the IRS considers [Read more…] about Business Owner Denied Repair and Maintenance Expenses

In the Tax Court case of Edgar Brown, several claimed expenses were addressed by the court. We will look at two of them, unreimbursed employee expenses and the home office deductions that were claimed by the taxpayer. The court’s finding was that it agreed with the IRS’s disallowance of these deductions. Let’s look at why the taxpayer lost.

Mr. Brown was a financial services professional who claimed unreimbursed automobile, tolls, parking and publication expenses that were denied by the IRS. To claim unreimbursed employee expenses, the employee must have been [Read more…] about IRS Imposes Penalty for Claiming Home Office

As a new business owner, you may find that it takes a couple of years to become established in your market place and to make a profit. While you are operating at a loss and wondering if and when your business will eventually become profitable to pay your bills, you seemingly have the comfort of knowing that your losses are tax deductible and can offset other sources of income. Or do you?

Did you know that if a business fails to generate profits in at least two years in a five-year consecutive period, the IRS presumption is that [Read more…] about Legitimate Business Loss or Disallowed Hobby Loss

Do you want to reduce your PA personal income taxes?

As a PA resident, your contributions to a 529 account may be tax deductible from your PA state income tax. Notice the use of the word “may” versus “are” tax deductible. Many taxpayers are under the misconception [Read more…] about PA 529 Plan Contributions – Know the Rules