TMTW #442 – Can the IRS Require Odometer Readings with the Mileage Rate?

Tax and Money Tip of the Week:
Can the IRS Require Odometer Readings with the Mileage Rate?
July 17, 2019 | No. 442

Do you claim your business miles at the IRS optional rate?

If so, imagine you are now being audited by the IRS for your business mileage. The IRS has requested odometer readings for your vehicle. You might wonder if the IRS can do this.

The answer is yes. The tax code says that you must substantiate your business vehicle deductions by adequate records or by sufficient evidence corroborating your own statement, including the time and place of the travel and the business purpose.

The standard mileage rate does not reduce the need for vehicle mileage records. In other words, the need for the records that prove business mileage does not change when you use the IRS standard mileage rate. They are the same mileage records you need with the actual expense method.

Here’s what the IRS, in its Internal Revenue Manual, tells its examiners to do when looking at business miles:

To verify total miles for the year, the taxpayer should provide repair receipts, inspection slips or any other records showing total mileage at the beginning of the year as well as at the end of the year.

The bottom line here is that the burden of proof is on you to prove your business mileage as required by the law. Thus, make sure that you retain odometer readings at or near the beginning and end of the year from oil changes, vehicle inspections, or repairs.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next time

 

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TMTW#441- S Corp Owners: Avoid This S Corporation Health Insurance Deduction Mistake

Tax and Money Tip of the Week:
S Corp Owners: Avoid This S Corporation Health Insurance Deduction Mistake
July 10, 2019 | No. 441

If you own more than 2 percent of an S corporation, you have to do three things to claim a deduction for your health insurance:

  1. You must get the cost of the insurance on the S corporation’s books.

 

  1. Your S corporation must include the health insurance premiums on your W-2 form.

 

  1. You must (if eligible) claim the health insurance deduction as an above-the-line deduction on Form 1040.

The three-step health-insurance procedure also applies under attribution rules (and this could be a surprise) to your spouse, children, grandchildren, and parents if they work for your S corporation, even if they don’t own a single share of S corporation stock directly.

You need to get this S corporation health-insurance thing right. Without the W-2 treatment, the S corporation does not get a tax deduction.

With the correct W-2 treatment, the more than 2 percent shareholder who finds the health insurance premiums on his or her W-2 can claim the self-employed health insurance deduction on Form 1040, provided he or she is not eligible for employer-subsidized health insurance through another job or a spouse’s job.


Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next time

 

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TMTW #440 – Happy 4th of July!

Tax and Money Tip of the Week:
Happy 4th of July!
July 3, 2019 | No. 440

Wishing you and your family a Happy 4th of July!


Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next time

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TMTW#439 – Rental Property: Know These Tax Rules If Your Average Rental Is Seven Days or Less

Tax and Money Tip of the Week:
Rental Property: Know These Tax Rules If Your Average Rental Is Seven Days or Less
June 26, 2019 | No. 439

If you own a condominium, cottage, cabin, lake or beach home, ski lodge, or similar property that you rent for an “average” rental period of seven days or less for the year, you have a property with unique tax attributes. For example, it’s not a rental property under the tax law, but it does produce either taxable income or a tax-deductible loss.
Click Here to read more about these rental property tax rules.

 

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW#438 – Life Insurance Policy Loan: Can Be A Tax Nightmare

Tax and Money Tip of the Week:
Life Insurance Policy Loan: Can Be A Tax Nightmare
June 19, 2019 | No. 438

  • Do you have an insurance policy that has built up an internal cash value?
  • Are you taking loans from your policy, or letting the policy ride with premiums being paid from the cash value?

If the answers to these questions are “yes,” be very careful. You see, if you don’t handle things correctly, you can fall into the life insurance policy-loan trap. Allowing your life insurance policy cash-surrender value to pay your premiums could create nasty, unexpected surprise income taxes.

Read this article titled Life Insurance Policy Loan—A Tax Nightmare to help avoid serious problems.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW #437 – TCJA Allows Bonus Depreciation on Purchase of Leased Vehicle

Tax and Money Tip of the Week:
TCJA Allows Bonus Depreciation on Purchase of Leased Vehicle
June 12, 2019 | No. 437


Before the Tax Cuts and Jobs Act (TCJA), your purchase of the vehicle you were leasing did not qualify for either Section 179 expensing or bonus depreciation. But times have changed.

The TCJA made two changes that mean 100 percent bonus depreciation is available on the vehicle you lease and then purchase, regardless of whether you purchase it during the lease term or at the end of the lease. The two technical reasons you can do this are as follows:

  1. During the lease, you had no depreciable interest.

 

  1. Bonus depreciation is now available on used property.

Technically, the two changes work like this:

  • While you were leasing the vehicle, you had no depreciable interest in the vehicle. The lessor depreciated the vehicle. You, the lessee, paid rent.

 

  • Your purchase of the vehicle that you were leasing is the purchase of a vehicle that you had NOT used under the bonus depreciation law, because you did not have a depreciable interest in it at any time.

Example. You pay $32,000 for a pickup truck that you have been leasing for business purposes. The pickup truck has a gross vehicle weight rating of 6,531 pounds, and your mileage log proves 90 percent business use. You may use bonus depreciation to deduct the $28,800 business cost of the pickup ($32,000 x 90 percent).

Note the difference: As with prior law, with Section 179 expensing, you get no additional deductions. But with bonus depreciation, you can expense your entire business cost.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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TMTW #436 – Backdoor Roth IRA Opportunities Still Available After TCJA

Tax and Money Tip of the Week:
Backdoor Roth IRA Opportunities Still Available After TCJA
June 5, 2019 | No. 436

Good news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.

As you likely know, the Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes up front and then, with the proper holding period, pay no taxes after that.

But if you earn too much, you’re completely barred from contributing to a Roth IRA unless you can use the backdoor Roth technique, which involves making a nondeductible contribution to a traditional IRA and then rolling that money into a Roth.

The backdoor Roth strategy has been around for a good nine years, and it has experienced no trouble that we are aware of, so we think it’s a good strategy. We also like the recent notations in the legislative history and the comments from the IRS spokesperson that show approval of the strategy.

Keep in mind that with some planning, you can avoid any taxes on the rollover. For example, if you have an existing traditional IRA, you can move those monies to your qualified plan to avoid having the backdoor strategy trigger some taxes. And if you have no traditional IRA, the nondeductible contribution to the traditional IRA and the subsequent rollover to the Roth IRA triggers no taxes.

Questions or Comments?
You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week

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