In Volume 1 of our 2015 newsletter, we highlight:
2014 Tax Prevention Act:
- Identity Protection Number
- Business Credit Cards
- Mortgage Insurance Premiums
- State and Local Sales Tax
- Tuition and Fees
- Teacher Classroom Expenses
- Charitable Distributions from IRA
- Social Security Benefits
Depreciation by Jerrold D. Rosen, CPA
Towards the end of December, Congress enacted the Tax Increase Prevention Act of 2014 (2014 Tax Prevention Act), which provides a one-year extension of popular business and individual tax provisions. These incentives include an extension of bonus depreciation provisions and temporary increases in the deductible amount and investment limitation under Code Sec. 179.
The 2014 Tax Prevention Act extends the 50% first-year bonus depreciation allowance for one year to apply to qualifying new property acquired after December 31, 2007 and placed in service before January 1, 2015. There is no limit on the total amount of bonus depreciation that may be claimed in any given tax year, and the bonus depreciation allowance rate of 50% remains unchanged.
Bonus depreciation also relates to the dollar limitations on the depreciation deduction for the year in which a taxpayer places a passenger automobile in service within a business, and for each succeeding year. If bonus depreciation had not been extended, 2013 would have been the final year in which substantial first-year write-offs for the purchase of a business automobile were available.
To be eligible for bonus depreciation, qualified property must be depreciable under the Modified Accelerated Cost Recovery System (MACRS) and have a recovery period of 20 years or less. These requirements encompass a wide variety of assets. The property must be new and placed in service before January 1, 2015.
In addition to the bonus depreciation changes, the 2014 Tax Prevention Act retroactively extends the increased deduction and investment limits under Code Sec. 179. Generally, Code Sec. 179 permits a business that satisfies limitations on annual investment to elect to deduct (or expense) the cost of qualifying property rather than depreciate the cost over time.
For tax years beginning after 2009 and before 2015, taxpayers are permitted to expense up to $500,000 of the cost of qualifying property under Code Sec. 179, reduced by the amount by which the qualified investment exceeds $2,000,000. Qualifying property includes depreciable tangible personal property purchased for use in the active conduct of a trade or business. Off-the-shelf computer software placed in service in tax years beginning after 2002 and before 2015 is treated as qualifying property.
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Identity Protection Number
The Internal Revenue Service (IRS) is assigning six-digit numbers called identity protection personal identification numbers (IP PIN) to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. The IP PIN helps to verify your identity and accept your return. The number can be used whether you electronically or paper file your return.
Eligible individuals include:
- Victims of identity theft whose case has been resolved
- Individuals who were a resident of Florida, Georgia, or Washington, DC in the prior year
- Taxpayers who receive a notice asking if they want to voluntarily “opt in” the program
The IP PIN prevents the filing of a fraudulent tax return with your Social Security number or your spouse’s. A different IP PIN will be issued to you every December. If you receive an IP PIN for one of your dependents, do not use it on your return. You cannot use your IP PIN on your state return.
If you E-file your return with an incorrect or missing IP PIN, it will be rejected. You will have to correct the IP PIN or paper file the return. A return that is paper filed without the correct IP PIN will be delayed in processing to determine your identity.
You are not required to use your IP PIN when filing an amended return, your extension, or when submitting estimated taxes. The six-digit number is only used to file Forms 1040, 1040A, and 1040EZ.
Participation in this program is strictly voluntary. A taxpayer who elects not to use the IP PIN will be required to paper file their return. Once a taxpayer opts in, they cannot opt out. Using the IP PIN is a lifetime obligation.
Business Credit Cards
Business credit cards are useful and convenient but can also create security and management issues. A business credit card can provide a new business the opportunity to build credit. You can provide certain employees with a card with a preset limit to avoid overspending. Most cards have established rewards and discount programs for using the card. Taking advantage of these rewards can help lower your costs.
You must avoid charging personal items with the company credit card. Mixing your personal and business expenses can be a real management problem. Signing up for several cards to take advantage of deals can actually cause your credit rating to drop.
When providing company cards to your employees, it is important to have a credit card policy. This holds the employee responsible for the card. It limits the use of the card. It specifies the proper documentation of the business purposes of the expenditure. It also states what needs to be done if the card is lost or stolen. Putting all of this in writing gives the employee a resource to refer to.
Taking cash advances and paying late can cost you fees and high interest rates. The extra costs can more than offset any benefits the cards may provide. With prudent use and management, your small business credit card can provide you with benefits.
Individuals by Lee Z. Snyder, CPA
Some of the provisions affecting individuals which were part of the 2014 Tax Prevention Act are listed below. These one-year retroactive extensions allow you to claim many popular tax incentives that expired on December 31, 2013 on your 2014 tax return.
Mortgage Insurance Premiums
Homebuyers who lack sufficient funds to make a full down payment on a home may be required to purchase or obtain mortgage premium insurance, which guarantees repayment of the acquisition loan in the case of the death or disability of the mortgagor. This provision treats mortgage insurance premiums as deductible interest that is qualified residence interest. Your principal residence and one other property that you use for personal purposes may qualify for this deduction.
State and Local Sales Tax
Since the 2004 tax year, there has been an option to deduct state and local general sales taxes instead of state and local income taxes. Many individuals benefit by doing comparison calculations to determine whether the sales tax or income tax deduction provides the highest deduction. If you made a big-ticket purchase such as a car before year-end, you may be able to increase your deductions and qualify to itemize your deductions by claiming the sales tax instead of the income tax deduction.
Tuition and Fees
Qualified tuition and related expenses are tuition and fees required for your enrollment or attendance at an eligible educational institution for courses of instruction. The maximum deduction is $4,000 for taxpayers with adjusted gross income (AGI) not exceeding $65,000 ($130,000 for married joint filers), $2,000 for AGI from $65,000 to $80,000 ($130,000 to $160,000 for joint filers), and $0 for other taxpayers. Expenses paid this year for an academic term starting on or before March 31, 2015 qualify for the higher education deduction in 2014.
Teacher Classroom Expenses
If you are a primary or secondary education professional, you are permitted an above-the-line deduction of up to $250 per year for unreimbursed teacher classroom expenses, which include books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services), other equipment, and supplementary materials used in your classroom. If your expenses exceed the $250 per teacher limit, or are non-classroom supplies, they may be deductible as employment-related miscellaneous itemized deductions (subject to a 2% of AGI floor).
Charitable Distributions From IRA
You must begin taking required minimum distributions (RMDs) from your traditional IRA by April 1 of the calendar year following the year in which you attain age 70½. If your IRA trustee makes a distribution from your IRA directly to a charitable organization on or after you attain age 70½, the distribution, referred to as a “qualified charitable distribution,” is excluded from gross income. A qualified charitable distribution (QCD) also counts towards satisfying your RMD from a traditional IRA.
The total amount of QCDs from all of your IRAs cannot exceed $100,000 for the year ($200,000 for married joint filers). The QCDs cannot be claimed as itemized deductions, but the tax-free treatment reduces your AGI, which in turn lowers the floor for deducting medical expenses and miscellaneous deductions.
These are just some of the individual provisions which were extended. If you have any questions about these or any other extenders, please give us a call.
Social Security Benefits by Thomas W. Buescher, CPA
Ten thousand people reach retirement age daily and many are unprepared. Social Security encourages you to plan now. Someday, we would all like to relax and enjoy retirement. Most do not have pensions and must rely on Social Security for most of their income.
Social Security has once again started mailing out benefit statements. They will now be mailed out once every five years starting at age 25 unless you are receiving benefits or have registered for a “My Social Security” account online. After age 60 people will receive a statement every year.
The Social Security statement helps people plan for their financial future. The statement gives a complete earnings history, allowing you to verify the accuracy of your earnings. An individual’s future benefits are deter-mined by the amount of earnings over their lifetime. Currently full retirement age is 66. If you choose to retire at age 62, you will receive reduced benefits, and if you wait until age 70, your benefit payments will be higher.
Always check the accuracy of your statement, your future benefits rely upon it.