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Alimony Under New Tax Cuts and Jobs Act (TCJA)

Posted by Patricia Jones Posted on Aug 01 2018

Alimony Under New Tax Cuts and Jobs Act (TCJA)

By Patricia Jones CPA/ABV/CFF CFE

 

There is a new tax law regarding alimony effective December 31, 2018.  For couples presently in a divorce proceeding they should plan to meet with their tax advisor to discuss the new divorce tax laws. 

 

Under a divorce agreement, a spouse may be legally obligated to make alimony payments to the other party.  Before the new Tax Cuts and Jobs Act(TCJA) payments that met the requirements  could be deducted by the payer on his/her tax return for federal income tax and the recipient spouse was required to include the payments on his/her tax return as taxable income. As long as the divorce is finalized on or before December 31, 2018 alimony is deductible in future years if the requirements are met listed below:

 

  1. Payment is to or for a spouse or a former spouse made under a written divorce or separation agreement.
  2. Payments in an agreement cannot state the payment in question is not alimony and not deductible by payer nor includable in the recipient’s gross income.
  3. Spouses or ex-spouses cannot live in same household or file a joint tax return.
  4. The payment is in cash (including checks or money orders).
  5. Cannot be child support.
  6. Must include the payee’s social security number on the payer tax return.
  7. There is no obligation to make payments after death of recipient spouse.

 

The old tax law is in effect until December 31, 2018. For payments under a divorce or separation agreement executed after that date the new law eliminates the deduction for alimony payments and the recipient no longer has to include payments as taxable income. 

 

Individuals presently in a divorce proceeding should meet with their tax advisor to discuss the new divorce tax laws or contact our office for a consultation at (727)845-4166.

Will I Get Audited?

Posted by Traci A. Malik Posted on Aug 01 2018

Will I Get Audited?

By Traci A. Malik, CPA/CFF CFE MAcc

 

People always want to know what is a red flag on their return and what are their chances of them getting audited. We have the information from tax year 2015 to try to answer those questions for you.

  1. For the 2015 tax year, IRS processed over 244 million tax returns.
  2. IRS audited nearly 1.2 million of the 2015 tax returns, which is only 0.5% of all returns.

 

Adjusted Gross Income

Percent of 2015 Returns Filed

Percent of Returns Audited in FY

2016

All Returns

100.00%

0.70%

No Adjusted Gross Income

1.70%

3.25%

$1 through $24,999

37.45%

0.80%

$25,000 through $49,999

23.21%

0.49%

$50,000 through $74,999

13.20%

0.41%

$75,000 through $99,999

8.52%

0.52%

$100,000 through $199,999

11.72%

0.62%

$200,000 through $499,999

3.38%

1.01%

$500,000 through $999,999

0.54%

2.06%

$1,000,000 through $4,999,999

0.25%

4.60%

$5,000,000 through $9,999,999

0.02%

10.46%

$10,000,000 or more

0.01%

18.79%

 

Causes for IRS to look at returns:

1.Information reported to IRS for income and not on tax return.

2.Matching issue of unreported alimony.

3.Large itemized or business deductions like charity, home office deduction, car and truck expenses, meals, and travel expenses.

4.Large cash purchases and suspicious activity.

5.Information referrals from angry former spouse, relative, co-worker, neighbor, etc.

 

Schedule C – Sole Proprietors and Single Member LLCs:

Audit risk increases as gross receipts rise

                        Under $25,000                        0.90%

                        Under $100,000                      1.70%

                        Under $200,000                      2.20%

IRS Audit Issues - Vehicle Expenses

Posted by Patricia Jones Posted on Mar 15 2018

IRS AUDIT ISSUES – Vehicles Expense
By Patricia Jones CPA/ABV/CFF CFE
 
IRS is known to audit small business owners for automobile expenses.  A business owner is usually extremely busy running the business and not paying attention to the recordkeeping requirement needed for the automobile deduction.  If you are self-employed, the deduction can save you thousands of dollars in taxes.  You can choose to either take the actual expenses of the vehicle or standard mileage allowance.  Whether you use the actual expenses of the vehicle or the standard mileage rate, you need to keep mileage records to claim the deduction. 

In order to audit proof yourself for this deduction you need to be tracking your mileage.  IRS will allow a Mileage Sampling.  The mileage log should indicate date, destination, business purpose, odometer start and stop, total miles. 
If you have not kept track of your business mileage, you might consider mileage sampling.  It involves maintaining a log for three (3) consecutive months.  IRS says you may use a three month selection if it is representative of the entire tax year and could be substantiated with your appointment calendar..   If you decide to use the mileage sampling, you will need the following four odometer readings -   beginning of year January 1,  beginning of three month log, ending of three month log, and reading on December 31 year end.   Remember in an audit situation, if you don’t have the substantiation to support your business deduction, the IRS will disallow them.  Always better to be prepared in an audit situation

 

Home Equity Indebtedness under New Bill

Posted by Traci A. Malik Posted on Mar 15 2018

Home Equity Indebtedness under New Bill
By Traci A. Malik, CPA/CFF CFE MAcc
 
With the passage of the new tax overhaul bill, came a change to the deductibility of home equity loans and lines of credit. The new law suspended the deduction for interest on home equity indebtedness. Period. So, everyone read that as all home equity indebtedness and were infuriated. But, the IRS has come out and clarified that the home equity indebtedness and lines of credit due to getting bombarded by questions from taxpayers and tax professionals. According to the IRS, the interest is still deductible as long as the funds were used to buy, build or substantially improve the taxpayer’s home that secures the loan. If the funds were used to pay off credit card debt or other personal living expenses, the interest is not deductible.

2017 Hurricane Irma Employee Retention Tax Credit

Posted by Patricia Jones Posted on Jan 23 2018

The Hurricane Relief – Employee Retention Tax Credit was part of the Disaster Tax Relief and Airport Extension Act of 2017 which was signed into law on September 29, 2017.  Many taxpayers are unaware of the tax credit available to business owners that were affected in a federally declared disaster zones by Hurricane Harvey (August 23, 2017), Hurricane Irma (September 4, 2017) or Hurricane Maria (September 16, 2017).  

Florida was hit hard by Hurricane Irma and many businesses were affected by the storm.  Every county in Florida was listed in the disaster zones.    

There is a credit equal to 40% of the “qualified” wages paid up to $6,000 per employee when the wages were paid during a time the business was inoperable as a result of damage sustained by the hurricane.  The maximum credit per employee is $2,400. Qualified wages include wages paid without regard to whether the employee performs no services, performs services at a different place of employment than such principal place of employment, or performs services at such principal place of employment before significant operations have resumed.

Illustration:  Employer X is an eligible employer in Florida.  There was a power outage at the business location for 10 days as a result of Hurricane Irma.  The business operation had to close due to the power outage.  The employer has 7 employees and the total wages paid to the employees for the 10 days the business closed were as follows:

Total wages $11,340 x 40% credit = $4,536

The owner is able to claim a tax credit of $4,536 on Form 5884-A filed with the employer’s tax return.  

Wages paid to owners, shareholders and partners are not considered “Qualified” wages and are not eligible.  However, shareholders of an S Corporation and Partners in a Partnership are entitled to the employee retention credit based on their respective share for the tax credit.

Many of our clients and friends were affected by Hurricanes and had to close operations for a period of time in preparation, during and after the storm.   If you are a qualified employer, you may be entitled to the employee retention credit.  Please contact us at Jones & Company CPAs P.A. 727.845.4166 if you have any questions regarding the credit.  

What You Need to Know About IRS Collections

Posted by Traci A. Malik Posted on Jan 23 2018

In the seminar we attended this month, one of the speakers was Special Agent in Charge Mary Hammond of the Tampa Field Office. She is part of the criminal investigation unit. She discussed several topics but one of them was about the 3rd party collection agencies contracted by the IRS. The IRS has turned over to outside collection agencies accounts that are outstanding inactive tax receivables. Taxpayers will be given written notice from the IRS as well as receive written correspondence from the agency assigned to them. They must still respect taxpayers’ rights and cannot accept payment over the phone or via prepaid debit cards, iTunes or gift cards. Payments will be through IRS.gov or via check directly mailed to the IRS not the collection agency. If the collection agencies treat the taxpayer wrongly, then the taxpayer can contact their Taxpayer Advocate for help, 727-318-6061. If taxpayers are not sure if the collection agency is legitimate, they can refuse to talk to them until they contact IRS directly to verify.  Also discussed at the seminar by Mrs. Hammond, was what you can do in certain situations where you are not sure if it is really IRS contacting you in person or via phone.

In Person – the criminal investigation unit will not contact you first if they are coming to ask you questions. But, they will have photo identification with them. If you are unsure about someone at your door, they suggest contacting local police to have an officer come out and verify the agent is with the IRS.

On Phone – if someone from the IRS calls you and threatens that they will come arrest you, this is NOT the IRS. The real IRS criminal investigation unit will not warn you that they are coming to arrest you. You can report this activity to https://www.treasury.gov/tigta/ with as much information as you can give them. The phone number that the phony IRS agent is asking you to call would be helpful. 

5 Ways Small Business Owners Can Limit Their Tax Liabilities

Posted by Traci A. Malik Posted on Oct 18 2017

As a small business owner, you’re aware that tax preparation can be a perpetual nightmare, particularly during the early stages. You need to manage all possible tax breaks to reduce tax liabilities for your business, without conflicting with the IRS. You could rack up even bigger savings than you might be aware of. Here are a few ways to do that.
 
1. Donate to charity - Year-end tax planning is crucial when it comes to managing exactly what you are expected to owe and strategically reducing it. One way to do this is to make philanthropy a big part of what you’re doing. Firms that are giving back to their community can take big tax write-offs. A good rule of thumb is 10 percent. Devote 10 percent of your total income to charitable causes, and this will help eliminate a lot of extra taxation. Note, this will only benefit you if you itemize your deductions.

 

2. Accelerate deductions and defer income -  The final quarter of 2017 is a great time of year to start deferring income and accelerating deductions. Despite the uncertainty and speculations about how any possible tax reforms will impact business owners, given the current political climate, it’s more likely that taxes on businesses will fall instead of increase. If you’re a sole proprietor, LLC, partnership or S-Corporation, it makes sense to accelerate your deductions in the current year and defer income into 2018 to maximize the anticipated lower tax rates.


3. Save for healthcare needs – One of the best ways to reduce small business taxes is by putting aside money for healthcare needs. Medical costs continue to increase and while you may be healthy now, saving money for unexpected or future healthcare needs is essential. You can accomplish this through a Health Savings Account (HSA) if you have an eligible high-deductible health plan. (For more, see: IRS 2017 HSA Deduction Limits.)

 

4. Set up a retirement savings plan - As a small business owner, you give up a 401(k) match. You may miss the free money available through the match though there are several retirement account options that maximize retirement savings and reap valuable tax benefits. For example, with the Individual 401(k), the IRS allows you to put away up to $53,000 for retirement. Some of those retirement planning vehicles are: (For more, see: Differences Between Traditional IRA vs. SEP Contribution)

SEP IRA

SIMPLE IRA

Independent 401(k)

It is important to point out, in the case of Independent 401(k)s, you must open them by December 31st to qualify for the current tax year.


5. Use tax-free ways to extract income from your business.

While salary, bonuses, and distributions of your share of business profits are taxable, there are ways in which you can possibly benefit from your business’ success without triggering tax. Consider talking to your accountant about:

  • Tax-free fringe benefits, including medical coverage and retirement plans.
  • Loans by the business to you on a low-interest basis. If the interest is below IRS-set rates, the business may have to report interest from this arrangement, but with interest rates low, this isn’t too costly these days.

                                               

 

If you’d like to talk with us more about your business taxes, contact us at 727-845-4166 or call for an appointment in our Trinity, Land O Lakes or Tampa offices. 

Jones & Company CPAs, P.A. Opens New Office in Tampa

Posted by Traci A. Malik Posted on Sept 19 2017

Jones & Company CPAs, P.A. recently opened their 3rd office located in the Bloomin Brands building at the corner of West Shore Blvd and W. Spruce St. in Tampa, at the entrance to the International Plaza.
The address is 2202 N. West Shore Blvd. Suite 200 Tampa, FL  33607.

"As our business grows, we will be more accessible to our clients in Tampa and Hillsborough County," says founder Patricia Jones. "We want to be certain that our clients know we are available and ready to help them with all of their professional accounting needs." 

This addition is the third office for the 30 year-old accounting firm, with the main office located in Trinity and a satellite office in Land O' Lakes. The Westshore location is by appointment only. 

Jones & Company CPAs P.A. is one of the leading firms in Hillsborough County and Pasco County, FL. By combining expertise, experience and the team mentality of our staff, they assure that every client receives the close analysis and attention they deserve. 

Jones & Company CPAs P.A. provides a wide range of services to individuals and businesses in a variety of industries. Professional services include accounting services, auditing and review services, certified fraud examiners, certified QuickBooks advisors, new entity formation, tax services, business valuations, collaborative divorce financial specialist, and estate planning.

For quality professional accounting services in the Trinity, New Port Richey, Land O Lakes, Lutz, Odessa or Tampa areas, contact Jones & Company CPAs P.A. at 727-845-4166 or visit online at www.jonescpas.com

Hurricane Irma: Can You Deduct Disaster Losses?

Posted by Traci A. Malik Posted on Sept 18 2017

In many areas of the country, almost everyone has incurred a loss at one time or another from a casualty disturbance of some sort. Tornadoes, earthquakes, fires, hurricanes and other natural disasters cost both taxpayers and insurance companies billions of dollars each year. As we know, Florida’s vulnerability to hurricanes is a major concern, and losses need to be accounted for properly. Here are circumstances under which casualty losses are tax-deductible.

The Sudden-Event Test

To be tax-deductible, a casualty loss must meet the criteria for the sudden-event test, which mandates the following:

  • The loss must occur as a result of a sudden and unpredictable or unusual event.
  • The event must be one that happens in a single instance, so to speak, such as a car accident, and cannot have happened over an extended period of time.
  • There must be an element of chance or some sort of natural force involved.

Under this definition, losses due to the following events would qualify for deduction:

  • Natural disasters, such as earthquakes, hurricanes, typhoons, tornadoes, floods, fires and avalanches.
  • Losses from civil disturbances, such as riots

However, there are several types of losses that would not qualify for deduction:

  • Those incurred due to long-term processes, such as erosion, drought, decomposition of wood or termite damage.
  • Any loss that arises from what the Internal Revenue Agency (IRS) considers to be a "foreseeable" event.
  • Losses that arise from negative public perception.

Who Can Deduct a Loss – and When?

Only the owner of the property that is lost can deduct the loss, within certain limitations, in the year that the loss was incurred. If you are leasing property that is lost or destroyed by a sudden and unforeseeable event that qualifies for deduction, then you may be able to deduct the payments that you make to the lessor that make up for the loss.

If, on the other hand, the taxpayer expects to be reimbursed in full for the loss in a later year, then the loss (or at least the amount of the loss for which the taxpayer reasonably expects remuneration) should not be deducted in the year the loss is incurred. If the reimbursement is never paid, then the loss must still be claimed in the year that it was incurred by filing an amended return for that year. For example, if a taxpayer's house is destroyed by fire in 2016, and the taxpayer expects to receive the insurance proceeds in 2017, then the taxpayer should not declare a loss on the 2016 return. However, if the insurance company denies the claim in 2017, then the taxpayer must file an amended return for 2016 in order to declare the loss.

Disaster Losses

Taxpayers who incur losses as a result of a disaster in a presidentially declared disaster area have the option of declaring their loss on their prior year's tax return, thus allowing them to amend the return and receive an immediate refund as a measure of relief. The Federal Emergency Management Agency keeps an updated list of all eligible disaster areas and the years for which they qualify. Those who do this will need to provide a statement outlining their choice to take the deduction the previous year and provide basic information on the time, place and nature of the disaster. The deadline for this election falls either on the standard filing deadline for the current tax year or the deadline with extensions for the previous tax year. Those who elect to report the loss in a previous year and then change their minds have 90 days to reverse the election and send back any refund that was paid. Victims in these areas do not have to meet the 10% AGI threshold rule if they sustained a net disaster loss (meaning that the loss exceeded any amount of insurance or other remuneration). They also do not have to itemize deductions; in this case, they would report the loss on Form 4684 of the standard deduction worksheet. Those who do itemize will report it in the normal fashion on Schedule A.

The Bottom Line

The IRS allows limited casualty and theft loss deductions as a measure of relief for those who are victimized by theft or natural disaster. There are many rules and regulations pertaining to casualty and theft losses that lie beyond the scope of this article. For more information on this subject, visit the IRS website or see IRS Publication 547.

The following link provides information to those affected by Hurrican Irma.

https://www.irs.gov/newsroom/irs-expands-tax-relief-to-victims-of-hurricane-irma-in-florida-extension-filers-have-until-jan-31-to-file

Self-Employed: Is a Solo 401K Plan an Option?

Posted by Traci A. Malik Posted on Aug 22 2017
Self-employed business owners have several choices when it comes to retirement plans.  They can set up a Simple IRA, SEP IRA or the one-participant Solo 401K plan.  Most owners opt for either the Simple IRA or the SEP IRA, but they should consider setting up a Solo 401K plan for more retirement and tax savings if they have no employees.  In a Solo 401K plan, the business owner is both employee and employer.  Contributions can be made to the plan in both capacities.    

Solo 401K plans are either elective or non-elective.  The "elective" plan means you do not have to contribute each year, you decide when to contribute.  The "non-elective" means you are required to contribute according the plan.  Traditional 401K plans have vesting, which means that the company makes contributions to the employees account, but the employee is not 100% vested or entitled to the funds until they have been with the company for a specific period of time according to the plan documents.  In a Solo 401K the self employed owner becomes 100% vested immediately.

For 2017 the maximum employee contribution to a Solo 401K plan is $18,000 and if over the age of 50 there is a catch-up contribution of $6,000 for a total of $24,000.   In addition to that, the employer can make a non-elective profit sharing contribution of up to 25% of your pay which is based on your W-2 or 20% based on sole proprietorship or single member LLC.  The combined maximum contribution for 2017 is $60,000 including catch-up contribution. 

Below is an example of Sole Proprietor, age 45, set up an single member LLC- no W2, reports business income on Schedule C 1040:
Business net income $150,000
Solo 401K contribution (owner/employee)  maximum    $ 18,000
Company non-elective profit sharing (20%)                  $ 30,000             
Total contribution                                                       $ 48,000
 
 
Example - Sole Shareholder, age 45, operating as an S Corporation, no other employees, payroll W-2 $100,000 and net income for the year $50,000:
Solo 401K contribution (owner/employee)  maximum   $18,000
Company non-elective profit sharing (25%)                 $25,000             
Total contribution                                                      $42,000

If the company has other employees, the Solo 401K plan is not an option and the business owner would need to consider other plans such as Simple IRA, SEP IRA or a traditional 401K plan. 
 
Jones & Company CPAs P.A. provides services in tax and retirement matters and have offices in the Trinity and New Port Richey area as well as Lutz and Land O Lakes.  Please feel free to contact us at 727.845.4166. 
 
 
 

What is a 1099 and Who Gets It?

Posted by Traci A. Malik Posted on Aug 03 2017

A 1099-Misc is an IRS tax reporting information form. There are various reasons to issue a 1099-Misc, but the most common use is for contract labor. It is used to report payments made in the course of a trade or business to a person who is not an employee or to an incorporated business. If you pay them $600 or more in a calendar year, a 1099 is required to be filed. You need to either purchase the forms prior to the end of the year for self-preparation, order them from the IRS for free, or have our firm prepare them for you. Below is a listing of some of the uses of the 1099-Misc form. For additional information please refer to IRS.gov and the instructions to the form.

 

  • Rents – Box 1: Report payments of rent to unincorporated recipients except to real estate agents.
  • Royalties – Box 2: Payment of royalties in the amount over $10 per year.
  • Other Income – Box 3: Prizes and awards that are not for services performed and any other income not reported in another box on form 1099.
  • Federal Income Tax Withheld – Box 4: Enter any backup withholding or regular withholding.
  • Fishing Boat Proceeds – Box 5: Proceeds from the sale of a catch or the fair market value of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members.
  • Medical and Health Care Payments – Box 6: Payments made in the course of your trade or business to each physician or other supplier or provider of medical or health care services.
  • Nonemployee Compensation – Box 7: Include fees, commissions, prizes and awards for services performed as a nonemployee including professional fees.
  • Gross Proceeds Paid to an Attorney – Box 14: Enter gross proceeds from a settlement of $600 or more paid to an attorney in connection with legal services regardless of whether the services are performed for the payer.

 

What is nonemployee compensation?

According to the IRS:

  • You made the payment to someone who is not your employee.
  • You made the payment for services in the course of your trade or business.
  • You made the payment to an individual, partnership, estate, or in some cases a corporation.
  • You made the payments to the payee of at least $600 during the year.

 

Do you ever issue a 1099-Misc to a corporation?

Yes, the following payments made to corporations generally must be reported on for 1099-Misc.

  • Medical and health care payments in box 6.
  • Fish purchases for cash in box 7.
  • Attorneys' fees in box 7.
  • Gross proceeds paid to an attorney in box 14.
  • Substitute payments in lieu of dividends or tax-exempt interest in box 8.
  • Payments by a federal executive agency for services in box 7.

 

How do I know if I should issue a 1099-Misc?

You need to request the recipient fill out Form W-9 before payment is made to them and return it to you. This form has them indicate the type of tax classification they are whether it is an individual, S corporation, partnership or Limited Liability Company, LLC. A LLC can be taxed several ways so it is important to pay attention to how the recipient filled out the form. If the LLC is anything but a C or S corporation, then they are required to receive a 1099-Misc. Keep the W-9 on file and provide a copy to us.

 

When is the 1099-Misc required to be filed?

If you are reporting payments in box 7, then you must provide the form to the recipient and file with the IRS by January 31st of the following year. Example: for 2017 the deadline is January 31, 2018. For 1099-Misc forms that are reporting amounts in boxes other than box 7, the recipient copy must be provided by January 31st and the IRS copy must be filed by February 28th.

 

What are the penalties for late or non filing?

 

Small Businesses with Gross Receipts $5 Million or Less

Government Entities and Large Businesses with Gross Receipts of More Than $5 Million

Time returns filed/furnished

Returns due 01-01-18 thru 12-31-2018

Returns due 01-01-18 thru 12-31-2018

Not more than 30 days late

$50 per return/

$50 per return/

(by March 30 if the due date is February 28)

$186,000* maximum

$532,000* maximum

31 days late – August 1

$100 per return/

$100 per return/

$532,000* maximum

$1,596,500* maximum

After August 1 or Not At All

$260 per return/

$260 per return/

$1,064,000* maximum

$3,193,000* maximum

Intentional Disregard

$530* per return/

$530* per return/

No limitation

No limitation

 

IRS 4883C Letter

Posted by Traci A. Malik Posted on July 11 2017

This important letter is sent by the IRS to the taxpayers and states that "We received your federal income tax return, but we need more information to verify your identity in order to process your tax return accurately." In the last year or two the IRS has gotten more aggressive trying to combat fraudulent returns from getting processed and losing millions of dollars to thieves.

What you must do:

·       Call the toll-free IRS Identity Verification telephone number at 800-830-5084.

·       Have a copy of the 4883C letter you received, a copy of your prior year tax return (if you filed one) and your most recently filed tax return (if you filed one), as well as any supporting documentation for each years return (such as W-2’s, 1099’s, Schedule C, Schedule F, etc.) when you call.

If you did file the return, it will take approximately 9 weeks to process it once you verify your identity.

 

What happens if you don't contact the IRS:

If you ignore the notice and do not contact the IRS with the required verification, they will suspend your tax return from processing. It will not be posted and will show that you have not filed a tax return on your account.

Miscellaneous Job Deductions

Posted by Traci A. Malik Posted on Apr 30 2017

Miscellaneous and job-related deductions allow taxpayers to deduct many expenses relating to job searches, employee expenses, and investment expenses. However, most of these deductions must be itemiscellaneous job deductionsmized and are limited to that amount that exceeds 2% of the adjusted gross income (AGI) of the taxpayer — what is commonly referred to as the 2% AGI floor. Adjusted gross income is gross income minus certain adjustments, such as retirement contributions and deductible alimony.

If a miscellaneous expense is subject to the 2% AGI floor, then all such expenses must exceed 2% of the taxpayer's adjusted gross income, and only that portion is deductible. 

Most of the miscellaneous expenses subject to the 2% AGI floor are those that can be claimed by jobseekers, employees, or investors, or they are personal expenses that would otherwise not be deductible, and includes such things as:

    •    unreimbursed travel, meals, entertainment expenses

    •    unreimbursed local transportation costs

    •    professional, business association, and union dues

    •    cost of uniforms and work clothes, including the cost of their cleaning, laundry, and repair

    •    cost of job searches and job agency fees

    •    employee home-office expenses

    •    small tools

    •    supplies

    •    subscriptions to professional journals

    •    electronic gadgets, such as mobile phones and tablets, and any associated telecommunication expenses

    •    work-related educational costs

    •    tax advice and preparation fees

    •    convenience fees charged for using a credit card to pay taxes

    •    appraisal fees for casualty losses and charitable contributions

    •   investment costs, including IRA custodial fees, investment advice, investment counselor fees, and safe-deposit rentals.

Travel costs that are generally not deductible include trips to investigate rental property and trips to conventions, seminars, or other types of meetings, including trips to attend stockholders meetings. Commuting to and from work is never deductible. The cost of traveling to investigate income-producing property or to confer with an attorney, accountant, trustee, or investment counselor about income is deductible but subject to the 2% AGI floor.

The cost of uniforms and work clothes, including the cost for cleaning, laundering, and repairing the clothes, are deductible if they are not suitable to wear elsewhere. However, if the clothes are suitable for wearing off the job, then they are not deductible, even if they are required for the job. So, for instance, television newscasters cannot deduct the cost of their clothing, since they can wear those clothes anywhere.

Computers purchased for work are deductible if it is for the convenience of the employer, and the employer requires it. The work done on the computer must be inextricably linked to the job. Depreciation claimed for computers used to manage investments are also subject to the 2% floor.

Cell phones are also deductible. Previous to 2010, cell phones were classified as listed property. However, the Small Business Jobs Act of 2010 removed cell phones from this list and the strict requirements for documenting the use of listed property.

Generally, the cost of preparing tax returns and audits is subject to the 2% AGI floor. Most of the fees that are deductible must be directly related to preparing a tax return or for help over a specific tax controversy.

Contact Jones and Company CPAs P.A. if you have questions about your taxes. We are here and ready to help. Call 727-845-4166, visit www.JonesCPAs.com, or email your question to us

Charitable Contributions

Posted by Traci A. Malik Posted on Mar 29 2017

Charitable donations are not only a chance to make a difference: They’re also a great way to reduce your tax burden for the year. 

charitable contributionsHowever, just because you're feeling generous doesn’t guarantee a tax deduction for charitable giving. As with everything in tax law, it's important to follow the rules. With that in mind, here are a few tips for making your charitable donation count.

Itemize - In order to claim a charitable deduction on your tax return, you must itemize your deductions. You report itemized deductions on Schedule A on your federal form 1040 using lines 16-19.

Choose carefully - Only donations to qualified charitable organizations are deductible. If you’re not sure whether an organization is qualified, ask to see their letter from the Internal Revenue Service (IRS).

Get a receipt - No matter what the amount, cash deductions must be substantiated by a bank record such as a canceled check or credit card receipt, or in writing from the organization. The receipt must include the date, the amount and the organization that received the donation.

Donate appreciated assets - Donating property that has appreciated in value, like stock, can result in a double benefit. Not only can you deduct the fair market value of the property (so long as you've owned it for at least one year), you avoid paying capital gains tax. Normally, appreciated property is subject to capital gains tax at disposition but there's an exception for donations to charitable organizations

You can't deduct volunteer hours. The IRS does not allow a charitable deduction for the value of your time if you are volunteering. The good news is that most out of pocket expenses relating to volunteering are deductible so long as they're not reimbursed or considered personal in nature. 

Watch the calendar - Contributions are deductible in the year made. To make it count during the tax year, gifts must be made by December 31. That doesn't always mean cash out of your account. For example, credit card charges - even if they're not paid off before the end of the year - are deductible so long as the charge is captured by year end.

If you have questions about your charitable deductions or about your taxes in general, feel free to call Jones & Company CPAs P.A. for help. We can be reached at 727-845-4166.

Medical Expenses and Schedule A

Posted by Traci A. Malik Posted on Mar 06 2017

To begin deducting your medical expenses, you first must know which expenses are deductible. The IRS lets you deduct medical costs on your tax return as long as they are more than 10% of your adjusted gross income. (Taxpayers who are 65 or older can still use the previous 7.5% threshold to claim itemized medical expenses through the 2016 tax year.) It may seem unattainable at first glance, but with a little digging you might just meet it.

 

Medical and dental bills for you, your spouse and your dependents count toward the allowable deduction limit, so keep a list of the medical expenses of everyone listed on your tax return.

 

Deductible Expenses

Here’s a partial list of deductible expenses:

 

    •    Equipment and supplies

    •    Dental services

    •    Co Pays

    •    Medical treatments and laboratory tests

    •    Nursing services

    •    Hospital services

    •    Insurance premiums

    •    Medically necessary home renovations prescribed by a doctor

 

Often-overlooked medical deductions:

    •    Travel expenses to and from medical treatments

    •    Insurance payments from already-taxed income

    •    Uninsured medical treatments

    •    Costs of alcohol or drug-abuse treatments

    •    Laser vision corrective surgery

    •    Medically necessary costs prescribed by a physician

    •    Some medical conference costs

    •    Long term care premiums

 

Nondeductible Expenses

These medical expenses are not deductible:

    •    Certain expenses for children – If your baby is healthy, you can’t deduct babysitting fees, even if the babysitting allows you or your spouse to receive medical treatment. Maternity clothes are also not deductible. If You or your child take dance or swim lessons to improve overall mental and physical wellbeing, you can’t deduct the cost of lessons and transportation.

    •    Cosmetic surgery and services – Any procedure that is deemed cosmetic is not deductible. This includes breast augmentations, liposuctions and “tummy tucks.” Both in office and at-home teeth whitening products and services are cosmetic and not deductible.

    •    Memberships – Memberships and dues to gyms, health clubs and other health programs are not deductible. If you join a weight loss program not prescribed by a physician, you can’t deduct registration or membership fees.

For more information about what the IRS will and won't allow you to count toward your medical deductions, check out Publication 502. You might find a few things there that apply to you -- maybe just enough to get you over that 10% deduction hurdle.

Identity Theft and Taxes

Posted by Traci A. Malik Posted on Feb 03 2017

Identity theft is the fraudulent acquisition and use of a person's private identifying information, usually for financial gain. Identity theft for purposes of filing fraudulent tax returns has been occurring for many years. According to Forbes, as of March 5, 2016 the IRS had identified 42,148 tax returns with $227 million claimed in fraudulent refunds. The IRS is working on methods to detect fraudulent returns before being processed. This coming tax season IRS has already warned that returns with Earned Income Credit and Additional Child Tax Credit will be held for additional scrutiny until February 15th. This will allow IRS to compare early filed returns with reported W-2s and 1099s. 

 

What can you do? Protect your SSN. Most of the reasons to provide your SSN to anyone would be to open bank accounts, apply for credit cards/loans, file tax returns, fill out W-4s and I-9s for employment, and fill out W-9s as a subcontractor. Others may ask for it, but be sure to find out why they need it. Many doctors offices ask for it in their paperwork, but find out why they need it. I only provide them with the last four digits of my SSN. 

There are many phishing scams trying to obtain your sensitive information. The current ones to watch out for according to the IRS are:

    1    Fake emails purporting to contain an IRS tax bill related to the Affordable Care Act. IRS does not email notices to you.

    2    IRS impersonation calling demanding payment for back owed taxes and wanting payment. IRS would have sent you many notices before any call would be made to you and would not ask for payment over the phone or for you to obtain prepaid cards.

    3    Fake emails citing tax fraud and trying to trick victims into verifying the last four digits of their SSN by clicking on the link provided.

    4    IRS impersonation call saying they have your tax return and just need to verify a few details to process your return. The scam tries to get you to give up personal information such as SSN or personal financial information, such as bank numbers or credit cards.

    5    Fake email phishing scheme to payroll and human resource professionals that purports to be from a company executives and requests personal information on employees.

Of course scams evolve all the time and you should be leery of anyone asking you for sensitive information or money. The best thing to do is take down their name and number and ask us about it. You can also call the IRS directly at 1-800-829-1040.

 

2016 Year End Tax Checklist

Posted by Traci A. Malik Posted on Nov 28 2016

As we are getting close to the end of the year, we have time to consider some year end planning tips.

  • - Be sure the addresses for employees are correct.
  • - Order or purchase W-2s and 1099 forms to submit to IRS and Social Security Administration.
  • - Pay real estate taxes by December 31st if you usually itemize on your taxes.
  • - Purchase any needed equipment by December 31st if you have net income and would like to reduce taxes.
  • - Set aside money for retirement funding if you are able to contribute to a traditional IRA, SEP IRA, Solo 401(k), etc. 
  • - Make donations to charity if you usually itemize.
  • - Max out your Health Savings Account.

If you have questions about your 2016 taxes, call Jones and Company CPAs PA at 727-845-4166 or visit online at www.jonescpas.com.

Tax Effects of Divorce or Separation

Posted by Traci A. Malik Posted on Sept 15 2016

Everyone knows that separations and divorces are hard on everyone involved. There is so much involved in separating assets and agreeing to financial terms. But, many do not consider the tax effects involved as well. Some to consider are:

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  • Child Support – payments made are not tax deductible and not income to the recipient.
  • Alimony Payments – payments made under a divorce or separation decree and made in the form of cash/check are tax deductible to the payer and income to the payee. The recipient's taxable income increases and should increase their federal withholding on their other income payments like wages or make estimated tax payments.
  • Retirement Accounts – the division of assets usually involve the division of retirement accounts between the parties. If you receive a distribution from the account as part of the settlement, then that is taxable income. If you are under 59 1/2, then that is also subject to a 10% penalty. Consider other options like a qualified domestic relations order if it applies or a transfer incident to divorce.
  • Health Insurance – if you lose your health insurance coverage due to divorce, you are still required to have coverage for every month. You can enroll in the Health Insurance Marketplace during a Special Enrollment Period if this applies to you. If you are already in the Marketplace, you should notify them of the change in your circumstances and income.
  • Shared Marketplace Policy – if you had a policy through the Marketplace and covered both spouses before the divorce, you have to allocate the policy amounts on your separate returns to figure your premium tax credit and reconcile any advance payments.

If you need help understanding the tax implications of your divorce, call Jones & Company CPAs, P.A. at 727-845-4166. 

Conversion of Residence into Rental Property

Posted by Traci A. Malik Posted on Sept 13 2016

We get a lot of questions about this topic. Some taxpayers decide to move and rather than sell their current home, they convert it into a rental property. There are special rules regarding this situation come tax time.

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Basis for Depreciation – you are allowed to take a deduction for the depreciation of the home once it is an placed into service as a rental property. The figure used for a converted property is the lower of either the fair market value of the property when converted or the adjusted basis of the purchase price. The adjusted basis is the amount you paid for the property plus any capital improvements.

Deductions – any expenses you pay for the property while a rental property are deductible. For example: association dues, repairs, mortgage interest, property taxes. 

Loss Limitations – there are limitations in place if you have rental losses. Rental activity is considered a passive activity. As such, the deductions are allowed up to the amount of income collected unless you actively participate in the activity. If you actively participate then up to $25,000 of losses can be claimed unless your modified adjusted gross income is above the phase-out limit of $150,000 (married filing jointly). These un-allowed losses are carried forward.

Sale of Property – a special rule is in place for converted properties. The figure used will depend if the sale is a loss or gain. If the converted property is sold at a gain, the basis used is the adjusted tax basis. If the sale results in a loss, the basis is the lower of the adjusted tax basis at the time of the conversion or the fair market value when converted.

 

For more help on converting your residence into a rental property, contact Jones and Company CPAs P.A. at 727-845-4166.

Year End Tax Planning Tips

Posted by Admin Posted on Feb 05 2016

Each year we must report to Uncle Sam whether we likei t or not. It is not enjoyable for anyone, but must be done. We put together a list of some end of the year ideas that might be able to save you some hard earned money on your taxes.

 

  1. If you itemize your deductions, pay your real estate taxes before December 31st. You have to pay them anyway, so might as well use the deduction this year.
  2. If you have already sold stock for a gain in value, consider selling some stocks you have losses in to offset the gains if you are in a higher tax bracket. But don't make the mistake of selling and then repurchasing right away as the IRS doesn't allow that loss.
  3. If you itemize your deductions, now is a great time to clean out your closets and give those old clothes to a charity. Get a receipt and itemize what you have to look up values. Or give money to your favorite charity by the end of the year. Just be sure to use a check and get a receipt. You can also give appreciated stock or mutual funds to a charity and the gain won't be taxable at all to you.
  4. If you are not at the maximum contribution amount allowed for your retirement plan, consider increasing it now. This will lessen your taxable income and put the money into your pocket and not Uncle Sam's.
  5. Consider contributing to a traditional IRA by April 15th of 2016. There are restrictions on income and if you already participate in a retirement plan.
  6. Add more to your Health Savings Account. This is a deduction from income for you.
  7. If you are a sole proprietor, partnership or S corporation, consider purchasing needed equipment by the end of the year.
  8. If you itemize or have a business, consider if you qualify for a home office deduction. The IRS has a new simplified $5 per square foot formula that allows up to a $1,500 deduction. Alleviates calculating all your home expenses and keeping track of depreciation on your home.
  9. If you are self employed, consider a Simplified Employee Pension plan, SEP. You are able to contribute up to 20% of your net income. If you have a S corporation, you can contribute up to 25% for all employees including yourself.
  10. Keep track of business miles with a log and take advantage of this simplified deduction of 57.5 cents per mile.
  11. If you itemize, you can deduct job hunting expenses for a job in the same field. This is subject to the 2% of adjusted gross income threshold.

 
There are some deductions that were not renewed and have yet to be signed into law to be in effect for the 2015 tax year. These include the sales tax deduction, mortgage insurance premium deduction, above the line deduction for qualified tuition, exclusion of income for discharge of qualified principal residence indebtedness, $250 deduction for school teachers.

 

For more information or to speak confidentially with us, contact us at www.jonescpas.com or call 727-845-4166.

Organizing for Personal Taxes

Posted by Admin Posted on Jan 25 2016

By Traci A. Malik, CPA CFE MAcc

 

Gathering your documents for your personal taxes can be daunting for some. When clients come into meet with us or drop off their tax documents, we tend to get asked about how to save money on tax preparation and what are the documents that we need. Hopefully, this will help serve as a guide for you.

What we need:

  • Tax documents received; 1099s, 1098s, W-2s, K-1s, etc.
  • Charity receipts for amounts getting claimed.
  • A total for medical expenses categorized by doctors, prescriptions, insurance premiums.
  • The new health insurance tax document; 1095-A, 1095-B or 1095-C.
  • Rental income and expenses summarized and categorized.
  • Self employment income and expenses summarized and categorized.
  • If deducting mileage, we need the total miles driven and the business miles driven.
  • If you are a retired public safety officer, we need to know if you receive qualified health insurance from the pension.
  • If you sold stock during the year and the cost information isn't provided on the tax document, we need the information from you as to what you paid for it and when it was purchased.
  • If you have a lot of receipts for deductions, we only need a summary to the total.
  • Dependent care information.
  • Alimony amount paid or received.

 

What we don't need or may cost you more:

  • A bag or box full of receipts that we need to total.
  • Statements during the year that do not affect taxes.
  • Your homestead exemption notification.
  • Documents or correspondence that is provided a little bit at a time.

 

If you would like a tax organizer to help with the planning of the documents needed, please feel free to contact us for one. We look forward to helping you with your taxes!