Category Archives: Tax Law

Losing the Home Office Space Means Losing the Tax Deduction, Too

Overtime2A recent article in Bloomberg reported that dedicated space for a home office is “less of a selling point” than it once was for home sellers. It’s appearing less often in real estate ads and marketing, and new-home developers are shifting toward open-floor plans containing flexible spaces, workspace nooks, and lots of handy electrical outlets.

That’s all very well as a reflection of how modern connectivity allows many people to work from their sofa, in their pajamas, or at just about any time and place in their home. But if you’re operating some sort of business principally from your home, it’s worth also considering what you might lose out on when tax time rolls around if you don’t have a dedicated home office space.

The home office tax deduction lets people who meet various legal requirements deduct a percentage of their home-related costs, such as utilities, rent, insurance, depreciation, mortgage interest, real estate taxes, and certain casualty losses, repairs, and improvements.

But here’s the key thing to remember: the deduction applies only if you regularly use part of your home exclusively for your trade or business. The IRS can be a stickler on this point–if, for instance, your office is also the family TV room, an auditor who notices that might not allow the deduction.

Any shared use of a room or equipment can be problematic. So if it gets to the point where you can’t point to ANY part of your home that’s solely used to run your business, say bye bye to the deduction.

Check out Nolo’s articles on Home Deductions for more on the exact rules and benefits of the home office tax deduction.

 

Trump Plan to Cap Itemized Deductions a Concern for Nonprofits

As has been widely reported, President-Elect Donald Trump’s plan to change the U.S. tax system includes placing a cap on itemized deductions–$100,000 for a single person, and $200,000 for a married couple.

Sound like plenty to cover your deductions? (It sure is for mine.)

But we all have cause for concern about the impact on U.S. nonprofit organizations, because charitable donations are on the list of potential U.S. tax deductions.

Suddenly, the wealthiest of donors will have less incentive to give. And there’s no question that tax deductions form a part, though not all, of donors’ motivations to give (witness the end-of-year donation rush).

This is especially troubling news when issued around the same time as a report from the Institute for Policy Studies, finding that recent growth in philanthropic giving is concentrated among a handful of high-income, high-wealth donors, while giving by lower- and middle-income donors is steadily declining–mirroring the increasing concentration of societal wealth.

If I were in charge of a nonprofit right now, I’d work extra hard on that end-of-year 2016 campaign to my wealthiest donors!

Forty Cent Difference Between 2016 Business and Charity Mileage Deductions

The IRS actually lowered the amount per mile that a business owner can deduct for vehicle use in 2016. (See 2016 Standard Mileage Rates for Business, Medical and Moving Announced.) The standard mileage deduction went from 57.5 cents for 2015 to 54 cents.

The amount that a volunteer using a car for charity can deduct in 2016 stayed right where it’s been for years, at 14 cents per mile. So relatively speaking, the volunteers are a little better off than they were last year. After driving hither and yon to set up a charity auction, visit shelter dogs and cats (and birds, and reptiles . . . ), clean up a shoreline, and so on, they’re only an even 40 cents worse off per mile than had they been driving the car for business purposes.

Does the IRS hate charitable work? No, the difference is based on a technicality. The charitable mileage deduction is set by federal statute, which would take an act of Congress to change. Congress never seems to get around to that particular fix.

The standard mileage rate for business, by contrast, is within the IRS’s power to change. The agency announces a new rate annually, based on the latest fixed and variable costs of operating an automobile.

If you’re volunteering for charity and using your car to get you to the facility and back, or for other purposes related to your volunteer work, and you want the maximum deduction, you might want to do it the more laborious way: keep track of your miles, and figure out the per-mile cost of gas and oil, as directly related, variable expenses. (General wear and tear can’t be included for the charitable mileage deduction.) See IRS Publication 526, Charitable Contributions, for details (under “Out-of-Pocket Expenses in Giving Services”).

And if you’re a leader or manager of a charitable or nonprofit organization, be sure to remind your volunteers about the tax deductions they can take for expenses they incur. Not only mileage, but other expenses they pay for out of pocket (aprons, treats for kids, pets, or other clients, art supplies, and so forth) can be deducted.

DEDUCTIBLE JOB HUNTING EXPENSES

In this difficult economy, don’t forget that many “job hunting” expenses may be deductible, assuming you’re looking for new work in the same line of business in which you’re presently employed.  Some deductible items are:

  • Resume production costs
  • Travel expenses
  • Placement agency fees

IRS has some good publications with more info:  Pubs 529, 463 and 4128.

 

 

IMPROPER GIFT TAX RETURN DISCLOSURE CARRIES RISK

Recent word from IRS Field attorneys suggests that improper disclosures on a gift tax return equates to an indefinite period of limitations, rather than the usual three years.  Failure of a taxpayer to properly disclose gifts (transfer of interests in two partnerships) to his daughter, including the identity of one of the partnerships, and failure to provide an adequate description of the valuation methodology tripped up the taxpayer in question.

A transfer will be considered adequately disclosed only when:

  • The transferred property is described and any consideration received by the transferor is disclosed;
  • IRS is apprised of the identity of, and any relationship between, the transferor and each transferee;
  • The tax identification number of any property transferred in trust is disclosed, as well as a brief description of the trust terms is provided;
  • A detailed description of the method used to determine the fair market value of property transferred is properly disclosed; and
  • A statement describing any position taken that is contrary to any proposed, temporary or final Treasury regulation or revenue ruling is attached.