Yang & Associates, Ltd. Tax Tips for filing a 2020 Return and preparing for tax year 2019.
Audits - Notices - If you receive an audit notice from the IRS, you need to acknowledge it and respond promptly. Contact your local Yang & Associates, Ltd office before you send any information or additional money to the IRS. There may be an error in the amount that the IRS claims you owe. Yang & Associates, Ltd offers free audit assistance to all customers.
Audits - Red Flags - There are circumstances that may be red flags. If a closed corporation of which you are a shareholder has had its return examined, you may also receive an audit notice. Are your business expenses or charitable contributions high in relation to your income? These circumstances may also prompt an audit.
Actual Expenses of Car - When you use a car for business, you may deduct the mileage expense by using either the standard mileage rate or the actual expenses of maintaining the vehicle. If you take the actual expenses, you can deduct the depreciation, gas, oil, insurance, tires, licenses, repairs, etc. If you choose to take actual expenses when you first start using the car for business, you cannot change to the standard mileage rate deduction.
Business Mileage - If you use your car for business purposes, you may deduct 56.5 cents per mile in 2019 for un-reimbursed mileage. Be sure to keep a written record of your total mileage and business mileage.
Other Mileage - In addition to business mileage, did you know that other types of mileage are deductible if you can itemize? If you are involved in charity or volunteer work for a non-profit organization, you can deduct your mileage at 14 cents per mile. The mileage to and from a doctor or dentist's office or for moving is deductible at 24 cents per mile.
Passenger Automobile Limits - General The IRS defines a passenger automobile as any four-wheeled vehicle made primarily for use on public roads that has an unloaded gross vehicle weight of 6,000 pounds or less. The depreciation limit for most passenger automobiles placed in service in 2012 is $3,160. This limit must be reduced if the business use is less than 100%.
Passenger Automobile Limits- Trucks & Vans
The depreciation limit for trucks and vans (including certain sport utility vehicles) used as passenger automobiles that were placed in service in 2012 is $3,360. This limit must be reduced if the business use is less than 100%
Section 179 Expense - Sport Utility Vehicles - The maximum section 179 deduction is limited to $25,000 for certain sport utility vehicles (SUVs) weighing more than 6,000 pounds, but not more than 14,000 pounds.
Vehicle Credits - The Alternative Motor Vehicle Credit includes nonrefundable credits for the following: hybrid motor vehicles, advanced lean-burn vehicles, fuel cell vehicles, and alternative fuel vehicles. You must purchase the vehicle for your own use and must be the original owner. Also, vehicles must be made by a manufacturer. Passenger automobiles and light trucks are covered. Different rules apply for heavier vehicles.
Fuel Cell Vehicles - The maximum credit for fuel cell passenger automobiles and light trucks is $12,000 for tax years 2006 through 2009. It is $8,000 for tax years 2010 through 2014.
Computer and Cellular Phone - If you purchased a computer or cellular phone and use it for business, you may be able to claim a depreciation deduction. Your employer must require you to have the phone or computer as a condition of employment, and you must use them for the convenience of your employer. You must keep a record of the personal and business use of the computer or phone to determine the percentage of business use.
Entertainment - If you incur entertaining costs for business reasons, you may be able to deduct 50% of the amount. The expense must be considered ordinary or necessary to your profession. Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation.
Job-Seeking Expenses - If you are looking for a job in your current profession and can itemize your deductions, certain expenses may qualify as miscellaneous deductions. Employment agency fees, resume printing, phone calls, and mailing expenses are examples of deductible items.
Job-related Expenses - Some of your job-related expenses that may be deducted include union dues, job-related magazines and books, and other related business expenses. Generally, you must depreciate the cost of tools used in your work. If your employer requires you to wear work clothes or uniforms that are not suitable for everyday wear, you may deduct the cost and upkeep.
Moving Expenses - If you moved at least 50 miles in the last year and your move was job-related, you may be able to deduct the cost of moving your household good and your traveling expenses. The standard mileage rate for moving is 24 cents per mile for 2013. Allowable expenses are deductible whether or not you use Schedule A and itemize your deductions.
National Guard and Reserve Members - If you are a member of the National Guard or Reserves and you must travel away from home to perform your service (such as for a drill or a meeting) in a location that is more than 100 miles away from your home, you can take a deduction for related travel expenses as an adjustment to income, even if you do not itemize your deductions. Allowable expenses include expenses for overnight transportation, meals, and lodging. The amount of the allowable expenses cannot exceed the amount the federal government pays its employees for travel expenses.
Section 179 Expense - General If you purchase certain qualifying equipment, you may deduct all or part of the cost by electing to take a section 179 expense deduction. The maximum section 179 deduction for the year is $125,000.
Self-Employed health Insurance - If you are self-employed, you may deduct up to 100% of your medical insurance costs that cover yourself, your spouse, and your dependents as an adjustment to income. To do this, you (and your spouse if filing jointly) must not be eligible for coverage by an employer-subsidized health plan.
Start-Up and Organizational Costs - You may be able to claim a deduction of up to $5,000 for start-up and organizational costs. The deduction is reduced by the amount by which the start-up costs exceed $50,000. If you cannot deduct all your costs in the first year the business begins, amortize the remaining costs over 15 years.
Travel Expenses - You may be able to deduct business travel expenses if you must conduct business away from your tax home. The cost of transportation, lodging, laundry, dry cleaning, and telephone expenses are some of the deductible expenses. Generally, meals are only 50% deductible. If you are subject to the Department of Transportation hours of service limits, you may be able to deduct 75% of your meal expenses.
Tip Income - Record of Tips - Do you receive tips as part of your income? You must report all tips as wages on Form 1040. If you receive tips of $20 or more in one month, you must also keep a daily record of tips received and give your employer a written report of your tips for that month by the tenth day of the next month. Tip Income - Allocated Tips If you receive tip income, and work for a large food or beverage establishment, your employer may be required to allocate an amount of tips to you on your Form W-2. Your employer must allocate tips if the amount of tips you reported to him is below the IRS required minimum percentage of gross sales. The difference is called allocated tips and is in box 8 of your Form W- 2. You will have to include these allocated tips in your income and also pay Social Security and Medicare tax on them.
Unemployment Compensation - Have you received unemployment compensation during the year? You must report unemployment compensation as income. State and federal unemployment insurance benefits, and railroad unemployment compensation benefits, are all considered taxable income. You can choose to have income tax withheld from any unemployment compensation you receive.
CASUALTY AND THEFT LOSS
Casualty and Theft Loss - Home - Unfortunately, theft and natural disasters such as floods, tornadoes, and hurricanes occur. The good news is that you may get a tax break. Damage to your home and possessions which occurs due to theft, fire, storm, or another natural disaster is deductible if you itemize your deductions. The loss must first be reduced by any insurance or other type of reimbursement plus $100, and then by 10% of your adjusted gross income.
Casualty and Theft Loss - Auto - If you have been involved in an automobile accident, the damage to your car may be considered a casualty loss. This would apply if the loss were not due to your negligence or the negligence of someone driving your vehicle. The loss must first be reduced by any insurance or other reimbursement plus $100, and then by 10% of your adjusted gross income.
Casualty and Theft Loss - To deduct a casualty or theft loss, you must be able to prove that a casualty or theft loss occurred and provide proof of the amount that you deduct. Each casualty or theft loss is reduced by any reimbursement and by $100, and is further reduced by 10% of your adjusted gross income.
Casualty and Theft Loss - Federal Disaster Area - If the President of the United States declares your area a federal disaster area, you have a choice of which tax year to deduct a casualty loss. You may deduct the loss for the year in which it occurred, or you may choose to amend your previous year's return and deduct the loss in that previous tax year for a faster refund.
Special Bonus Depreciation - Expired - Special bonus depreciation is not available for most property purchased after 2004. However, if you are located within the Hurricane Katrina disaster area, you may still be eligible for special depreciation.
CHANGE OF ADDRESS
Are you planning a move before the end of the year? The IRS has its own official change-of-address form, Form 8822, Change of Address. If you fill it out and mail it to the appropriate IRS service center, you should receive your tax booklet at your new address.
Charitable Contributions - Required Documents - If you contributed to a church or qualified non-profit organization, these contributions can be deducted as an itemized deduction on Schedule A. The IRS requires you to keep a written acknowledgement from the church or organization for any contribution. Contributions must be substantiated either with a bank record or a written communication from the organization.
Charitable Contributions - Disasters - As you consider making charitable contributions to assist natural disaster victims, keep in mind that you can deduct your contributions only if you make them to a qualified organization. You can ask any organization whether it is a qualified organization, or you can investigate by calling the IRS (toll-free) at 1-877-829-5500 or by checking the online version of Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986 on the IRS Web site at http://apps.irs.gov/app/pub78. Churches and governments are usually qualified organizations even though they are not included in Publication 78.
Charitable Contributions - Vehicles - If you donate a vehicle that has a fair market value over $550, your deduction depends on what the charity does with the vehicle. For example, if the charity immediately sells the vehicle, your deduction may be limited to the gross proceeds from the sale. Also, substantiation requirements are stricter than with other charitable contributions. Charitable contributions are deducted on Schedule A.
Charitable Contributions - Fair Market Value - Extra tax deductions may be as close as your closet. If you donated clothing, toys, furniture, or other household items to charity, you are allowed to deduct the fair market value of your donated items. All goods donated must be in good condition to be eligible for a tax deduction. The IRS does not provide a guide to determine the fair market value. The IRS suggests surveying thrift and consignment stores for similar items to provide an indication of the fair market value.
Charitable Contributions - Charity Benefit or Event - Have you attended a charity benefit or event lately? You may be able to deduct the dollar amount that is more than the fair market value of the event. For example, you attend a dinner fundraiser for a qualified non-profit organization and your ticket price is $65. If the regular price of the meal would have been $10, your contribution amount would be $55.
Charitable Contributions - Exchange Students - If you have an American or foreign exchange student living in your home, you may be able to deduct up to $50 per month as a charitable deduction on Schedule A. You must have a written agreement from a qualified organization that provides the student program. The student must not be a relative and must be a full-time student at the high school level or below.
Charitable Contributions - Non-Qualified Organizations - Not every donation you make to a worthy cause is deductible as a charitable contribution. If you gave money to an individual in need or to an organization and specified that the contribution was for an individual, you are not allowed to deduct the amount given. When you donate to non-qualified organizations such as civic leagues or social clubs, you cannot take a tax deduction. Charitable
Contributions - Date of Contribution - You may usually deduct charitable contributions only in the year that you actually make them. A check that you mail is considered delivered on the date you mail it. A contribution charged on a credit card is deductible in the year you make the charge. The amount of your deduction may be limited depending on the type of property given and the type of organization to which it is given. Some contributions that you are not able to deduct in the current year because of adjusted gross income limits may be carried over to future years.