Employers can start preparing for year-end.

Before you know it, the year will be over.  If you are a business owner with employees, your to-do list is quickly growing.  

If you issue any of your employees a holiday or year-end bonus, be sure that you are still withholding the appropriate income and FICA (social security and medicare) taxes.  Any bonus monies given must be included in the total wages on your year-end payroll forms and the employee’s W-2.

The IRS will be looking for your W-2s and 1099s a little earlier this year, whether you file them electronically or on paper.  The filing deadline has been moved up to January 31, 2017 for both forms.  If you are using a software program for your payroll, the IRS will now accept most computer generated laser copies.  But you should check with your software manufacturer to be sure. You may also file your company W-2s directly through the ssa.gov website using the Business Online Services.  There is a registration process for the service, but the filing process is fairly simple.  In years past, employers had until the end of February to paper file these, and even longer if you were filing them electronically.  The deadline to issue the forms to employees and subcontractors will remain January 31st, as it has been in previous years.  It is always good practice to have your employees verify their personal information on their W-2s for any errors before submitting them, so you can make any necessary changes. The SSA/IRS receive thousands of forms with incorrect information each year, which prompt notices to be sent and refunds to be held back. The IRS is hoping to curb fraud and pick up errors by receiving these forms earlier.  This will hopefully allow the IRS to verify information quicker and issue refunds sooner.  Although, the law states any refunds that include the Earned Income Tax Credit or the Additional Child Tax Credit cannot be issued until February 15th.  

It is recommended that you have your employees review their current W-4 on file or fill out a new one for 2017.  As their personal or financial situations change, they may need to reevaluate how little or how much they are having withheld from their paychecks.  W-4s can be printed directly from irs.gov.

Review your records to see who should be issued 1099s.  The most common recipients of 1099s are individuals and unincorporated businesses who performed services and were paid $600 or more during the year.  Amounts should be listed as nonemployee compensation in box 7.   Rents of $600 or more paid must be reported in box 1.  You are not required to issue 1099s to incorporated businesses.  You should already have any subcontractor’s tax information in your files before issuing any payments, but if not, now is a good time to have them complete a W-9, also available at irs.gov.  It is good practice to obtain this information from your subcontractors before sending any payments to them, which will increase your odds of obtaining the information and avoiding any unnecessary scrutiny from the IRS.

Cheryl is an Enrolled Agent at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356.  Cheryl welcomes any article feedback or questions for future article consideration.  

Cybersecurity and You

We hear of a new threat, scam or hack every day. As overwhelming as this subject is, there are things that you can do that will reduce the risk of your personal and financial information from being compromised.
The IRS, which has issued many communications in this area, has released these security awareness tips:

  1. Protect your wireless network. Set strong password and encryption protections for your wireless network. If your home or business Wi-Fi is unsecured, it allows any computer within range to access your wireless network and steal information from your computer. Do not share sensitive data when using public Wi-Fi. If a public Wi-Fi hotspot does not require a password, it probably is not secure.
  2. Use Security Software. Security software will help protect your computer and your data from numerous threats posed by malicious programs, also known as malware. Many computers come pre-installed with firewall and anti-virus protections. Make sure these are turned on. Set your anti-virus program for automatic updates to allow for protection against emerging anti-malware threats. Make sure you add security to all your digital devices (no matter which brand), including your laptop, tablet and mobile phone. Never download “security” software from a pop-up ad. A pervasive ploy is a pop-up ad that indicates it has detected a virus on your computer. It urges you to download a security software package. Don’t fall for it. It most likely will install some type of malware. Reputable security software companies do not advertise in this manner.
  3. Use encryption software to protect sensitive data. If you keep sensitive financial data such as prior-year tax returns or important records on your hard drive, consider investing in encryption software to prevent unauthorized access by hackers or identity thieves.
  4. Set password protections for all devices and online accounts. Whether it’s your computer, tablet or mobile phone, always set a password requirement for accessing the device. If it is lost or stolen, your device is still protected from access. You should use strong passwords with 10 or more digits that include letters, numbers and special characters. Do not use the same password for all your accounts, especially your financial accounts. Change your passwords every few months.
  5. Avoid Phishing Emails. Never reply to emails, texts or pop-up messages asking for your personal, tax or financial information. Do not open a PDF document or picture attached in an email from an unknown source. It may contain malware. A favorite tactic of cybercriminals is to pose as businesses, credit card companies, or even the IRS and ask to update your account or divulge your Social Security number. Reputable companies never ask for sensitive data over unsecured channels. Additionally, the IRS doesn’t initiate contact by email, text messages or social media to request personal or financial information.
  6. Back up your Data. Periodically back up all the data on your computer via your protected cloud storage or a separate disk. If your data gets stolen or you suffer a disk failure, recovery is easy if you have routinely backed up your information.
  7. Protect your children. If children use any internet enabled device, make sure to have parental control options to protect them from malicious websites. Educate your children about the threats of opening suspicious web pages, emails or documents.

To learn more about this topic: https://www.irs.gov/individuals/taxes-security-together

It is also advisable to seek out a computer professional to assess your computer/device security needs in order to help implement any necessary changes.

The internet has made our lives easier but, unfortunately, it has also made it easier for unscrupulous people to steal others identities. Just like any other crime, there are no ways to protect yourself wholly, but vigilance is the best way to lessen the chances of having a fraudulent attack happen to you.

Patricia is the IT and Office Manager at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Patricia welcomes any article feedback or questions for future article consideration.

Mileage Substantiation

How do you keep track of your business mileage and could you lose that deduction in an audit?

If you are a business owner, keeping track of your business travel and mileage can provide a great benefit on your tax return, but properly recording your mileage is vital. Mileage expenses for taxpayers are vulnerable to Internal Revenue Service (IRS) examinations and audits due to the higher substantiation requirements that are needed to prove mileage expenses. The substantiation requirement applies to all business, whether they are operated as sole proprietors, partnerships, or corporations.

Adequate records need to be kept to prove any business expenses that you are claiming. According to the IRS, a written record or log is considered an adequate record. Documentation or a log kept on a computer is also considered an adequate record. For business mileage, an owner needs to record four details for each trip that is taken, amount of mileage, the date of your trip, the location you drove to and the business purpose of your trip. These items should be recorded in your written register at least weekly, if not daily, in order to be considered a timely-kept record of expenses. Recording your expenses regularly is a best practice, as the IRS will not allow any deduction that is estimated or approximated. If you are using a personal vehicle for business, you should also document what percentage of time you are using the vehicle for business use versus personal use. You can achieve this by making entries in your mileage log for commuting and personal mileage. Also, the IRS allows for sampling techniques to be utilized under certain limited circumstances. Generally, you will need to keep your records that support your deduction for three years from the due date of the income tax return.

Business owners also have the option to record actual vehicle expenses instead of mileage. However, recording actual expenses requires much more substation and receipts will need to be kept for all fuel purchases and repairs and maintenance expenses. Using the standard mileage option is recommended for most business owners because it is much simpler. The standard mileage rate is also high enough to cover fuel and repairs and maintenance expenses for most business vehicles. For 2016, the standard rate for business mileage is 54 cents per mile, which is down from the 2015 rate of 57.5 cents per mile.

Businesses have a greater audit risk because they are responsible for self-reporting their income and expenses to the IRS. Usually, the IRS knows exactly how much a wage earner is receiving for income through W-2 and 1099 filings and thus knows what to expect on their tax return. Since income reporting for businesses is not as structured, the IRS tends to audit business tax returns at a higher rate.

Keeping adequate records of mileage may seem like a very time consuming task, but thanks to technology, there are multiple apps for your phone or software that easily allows you to track your mileage. One of the more user friendly and accurate apps is MileIQ. This app automatically detects when you are driving and begins to record your trip. Each trip can then be classified as business, personal, charitable or any custom category you choose with the simple swipe of your finger. It also allows you to add additional details, such as parking and tolls fees and your business purpose. Reports can then be created that include all of the details needed for the IRS substantiation requirements. Another mileage tracker is TripLog, which has very similar features as MileIQ and can also be integrated with your QuickBooks software. Of course for those not-so-tech-savvy people, simple paper and pencil still suffices.

Properly keeping track of business mileage is crucial when you are taking a deduction on your business income tax return and can prevent you from losing your deduction. With a little time and effort or assistance from technology, you can rest assured that you should not lose your deduction if under an IRS audit as long as you follow the simple rules that are identified above.

If you have any questions regarding these requirements, it is recommended you contact your financial and tax advisers about your specific situation.

Amanda Dubs is practicing as a Certified Public Accountant at Gamwell, Caputo, Kelsch and Co., PLLC in Conway. She can be reached at (603) 447-3356.

The Home Office Deduction

If you regularly use your home to conduct business, you may be eligible for the home office deduction. Contrary to what some people may think, the home office deduction does not set off red flags with the IRS or make an individual more prone to being audited. This deduction allows a taxpayer to deduct home related expenses based on the amount of area in the home that is dedicated to operating a business. These expenses include mortgage interest or rent, real estate taxes, utilities, maintenance costs, home owners or renters insurance, and maintenance expenses. Other types of expenses including alarm systems and casualty losses can be deducted as well. Depreciation of your home is allowed based on the business use.

In order to qualify for the deduction the space in the home or apartment must be used both exclusively and regularly for conducting a trade or business. In essence this means the space cannot be comingled with nonbusiness personal use. However, two or more separate business activities can be conducted in the space and all qualify for the deduction. For example, an architect or lawyer regularly meeting clients in their home and conducting other aspects of their job would qualify for the deduction. The deduction is most often used by self-employed individuals, but employees can claim the deduction if they regularly work from home as a convenience to their employer, though there are other limitations that many times makes the employee’s home office deduction meaningless.

There are two methods used to calculate the amount of allowable deduction. The first method uses actual expenses and the business use percentage to calculate the deduction. The percentage is based on the amount of square footage used in the home. For example, if the total area of the home is 2000 square feet and the area used exclusively for business is 300 square feet, the business use percentage is 15%. The total amount of the deduction will be 15% of the allowable expenses mentioned above. Under this method, the portion of the home related expenses used for the home office deduction cannot also be used as part of the itemized deductions on Schedule A. Itemized deductions such as property taxes and mortgage interest should be reduced by the amount claimed as home office use. It should be noted that the home office deduction reduces both the taxpayer’s income tax and self-employment tax while itemized deductions only reduce the taxpayer’s income tax.

The second method was introduced in 2013 and is called the simplified method. This method allows a $5 per square foot deduction up to 300 square feet without the need to track and maintain a record of actual expenses. The total amount that can be claimed as a deduction is $1500. While the actual expense method may create a larger deduction in some cases, the simplified method lessens the recordkeeping burden and there is no reduction to the Schedule A deductions. The two methods can be interchanged so that a taxpayer can choose to use the actual expenses method in one year and use the simplified method the next.

Using the home office deduction can help offset personal expenses needed to operate your business. If the home office deduction seems like something that might benefit your specific tax situation, please contact your trusted financial or tax advisor to discuss your options.

Michelle is a Staff Accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Michelle welcomes any article feedback or questions for future article consideration.

New Business Return Filing Due Dates and Penalty Changes on the Horizon

The Fourth of July has come and gone and for many business owners the mid-summer season is an excellent time to start to look ahead and begin making decisions in preparation of the end of the tax year.  Part of this process should include a review of how any recent legislation may impact the business.  Many such tax code changes are passed and signed into law during this time and can be overlooked when included in seemingly unrelated legislation.

One of these such changes, The Surface Transportation and Veteran’s Health Care Choice Improvement Act of 2015, passed last summer and contained many changes to the filing due dates of many business tax return filings. The estate and fiduciary returns, Employee benefit plan returns, and report of foreign account returns are also impacted by the changes. These changes go into effect for 2016 tax returns and will impact the due dates for the upcoming 2017 filing season. The changes are as follows:
Late arrival of Schedules K-1 from partnership returns has created the need for many individuals to file a personal tax return extension. The change in the Form 1065 filing date is expected to help alleviate this need by pushing the due date back by one full month. Both flow through entities, Partnerships and S Corporations, are now due on March 15th. The extended due date remains unchanged for both Forms 1065 and 1120S. C Corporations filing Form 1120 now have until April 15th to file as they do not impact the filing of individual tax returns. These changes should help to relieve some filing season stress for both taxpayers and tax professionals alike.

The bill also included changes to a few other return filings as listed above. Fiduciary returns, Form 1041, now have an additional 2 weeks of extension time and Form 5500 now has an additional month of extension period. The foreign account reporting returns formally due in June are now due with the filing of the individual return and can now be extended for 6 months along with the Form 1040.

The Trade Preferences Extension Act of 2015, also passed last summer, included updates to penalties related to filing Forms 1099.  The act increased the penalty for filing a late or incorrect form from $30 per form to $50 per form if the error or omission is corrected within 30 days of the due date and doubled the maximum penalty to $500 for intentional disregard.  The penalty for 1099 forms more than 30 days late increased to $100 per form and for those corrected after August 1st to $250.  For late and incorrect filings of form W-2 the penalties range from $50 to $260 per W-2 and can even mount to $530 per W-2 for intentional disregard.  Timely filing of these forms is essential to avoid these penalties.  It should be noted that 2016 forms W-2 as well as form 1099’s reporting  non-employee compensation (box 7) need to be filed by January 31, 2017 even if they are electronically filed. This is an earlier filing deadline than in previous years.  The IRS has also ramped up its efforts to encourage businesses to comply with their form 1099 filing requirements in order to lessen the occurrence of under-reporting and help close the “tax-gap” which is the difference between what is owed in taxes and what is actually reported by taxpayers.

If you have any questions regarding how these changes may impact you or your business it is recommended you contact your trusted financial and tax advisors about your individual  situation.

Michelle is a Staff Accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Michelle welcomes any article feedback or questions for future article consideration.

Understanding Charitable Contributions

The IRS allows a deduction for charitable contributions made during the tax year to qualified charitable organizations. However, understanding how and when a charitable contribution is deductible can be confusing. Commonly asked questions include such topics as what is deductible as a contribution, how are the deductions claimed, and what documentation is required.

Cash and certain noncash donations made to qualified charitable organizations are deductible. Cash donations include cash or check payments made directly to the organization as well as online donations made by credit card. Donations made by text message and payroll deduction are also deductible. Non cash donations include items such as clothing and household items donated to organizations like Goodwill and Saint Vincent De Paul etc. Shares of stock, vehicles, and real estate are additional examples of noncash contributions. An allowance of .14 cents per mile is deductible for travel related to charitable organizations. However, the value of your time spent volunteering for a charity is not deductible. Items the donor benefits from such as the cost of raffle tickets, event tickets, and lobbying are not deductible. Contributions made to individuals are also not deductible.

Charitable donations are only available to those taxpayers who itemize their deductions rather than utilize the standard deduction. The amounts must be deducted in the year contributed but can be carried over to future years if the total contributions are more than the annual deductible limit. The amount deductible in any given year cannot exceed 50% of the taxpayer’s gross adjusted income and begins to phase out once a certain adjusted gross income is reached. For 2015 the phase out amount was $309,900 for married filing jointly and $258,250 for singles. There are some additional restrictions on certain non-cash donations and donations to private foundations.

Documentation for all contributions must be kept to substantiate all deductions. The type of documentation varies depending on the type and amount of the contribution. For cash donations under $250 a receipt detailing the charitable organization and the date and amount of donation is acceptable documentation. This can include a bank or credit card statement, a receipt from the charitable organization, payroll deduction records, or phone bill for text donations. For cash contributions of $250 or more a written letter of acknowledgement from the charitable organization is required. The letter should detail the amount of the contribution(s) and include whether or not any goods or services were received as a result of the contribution such as raffle tickets, memberships, etc. Without this letter the contribution will be denied by the IRS in the event of an IRS review even if you can otherwise prove the donation was made. A record of items donated as a noncash contribution should be kept including a description and estimated fair market value at time of donation. Noncash contributions of $500 or more are reported on a separate schedule and additional details related to when and how the items were originally obtained as well as the cost basis are required. Noncash donations of $5000 or more require a written acknowledgement and a qualified written appraisal of the property value. There are also additional requirements and rules with regards to donations of vehicles.

This is only a brief overview of how and when contributions can be deducted. Other rules apply and vary for each tax payer. As always, if you have questions or concerns we recommend you contact your trusted financial and tax advisors about your individual situation.

Michelle is a Staff Accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Michelle welcomes any article feedback or questions for future article consideration.

Small Business Retirement Plans

Deciding which retirement plan is best for you and your business can be challenging. There are many different factors to weigh depending on your overall financial position. It is important to consider, how to start the plan, who the plan will cover, how much if any you plan to contribute, any tax advantages, and what additional recordkeeping or administrative cost is involved. Three of the most common plan types are, SEP IRA, SIMPLE IRA, and 401(k) plans.

The Simplified Employee Pension Plan, otherwise known as SEP plans , are available to sole proprietors, partnerships, S corporations, and C corporations alike. The plans are typically easy to set up and there are normally no maintenance fees or annual tax return filing for the plan. A maximum of 25% of annual compensation or $53,000 (whichever is less) is allowed for deferral in 2016. If the business has employees the same percentage of contribution must be made into any eligible employee accounts. Contributions can only be made by the employer and contributions are not required to be made every year. Contributions are 100% vested when made. The contributions are tax deductible by the employer and an additional tax credit up to $500 is available to small businesses to help offset any startup costs and is available for the first 3 years the plan is in place. The plan must be made available to all employees age 21 and older who have been employed by the organization for 3 out of the last 5 years and have had at least $600 in earnings. Withdrawals can be made at any time subject to early withdraw penalties and income taxes for individuals who have not yet reached 59 and ½ years of age.

The Savings Incentive Match Plan for Employees, Simple IRA, are available to all employers that do not offer any other type of retirement plan and with no more than 100 employees. The plan usually does have both participant and plan administration fees but these costs are minimal. Like the SEP, no annual tax return filing is required for this plan. Both the employer and employee can contribute to A Simple IRA. This type of plan must be offered to all employees with $5000 or more in earnings in any previous 2 year period and the current period. The employees decide how much to contribute through payroll deduction and can contribute a maximum of $12,500 to the plan for 2016 with a $3000 catch up amount for those who are 50 or older. Employers must make either a matching contribution of 100% of the first 3% of employee contributions or make a 2% contribution to all employees eligible for the plan even if they don’t participate. Employers cannot make any other discretionary contributions outside these two options. As with the SEP, contributions are 100% vested when made. Employer contributions are tax deductible and the startup and administrative costs are also eligible for the small employer tax credit mentioned above. Similar to the SEP, withdrawals can be made at any time subject to early withdraw penalties.

If an IRA based retirement plan is not for you, a 401(k) plan may better meet the needs of your business. There are three types of 401(k) plans and are available to all employers with at least one employee, including the business owner. The types are Safe Harbor 401(k), Automatic Enrollment 401(k), and Traditional 401(k) plans. The startup costs and administration fees are higher for 401(k) plans compared to IRA plans and an annual tax filing of form 5500 is required. It is recommended to seek advice from a financial advisor when setting up a 401(k) plan as they are much more complex than the SEP or SIMPLE plans. The contribution rules are slightly different for the 3 types. Not all require employer contributions, however all three types have a combined annual employee and employer contribution limit of $53,000. Employee contributions cannot exceed $18,000 for 2016 with an additional $6000 catch up amount allowed for those 50 or older. Employees 21 and older with at least 1000 hours of service in the prior year must be allowed to participate in these plans. Employee contributions are 100% vested but employer contributions typically vest over time. Withdrawals can only be made when certain events occur such as job or plan termination, certain hardship circumstances, and retirement. 401(k) plans allow employee loans against the plans that are paid back over a specified time with a pre-determined interest rate.

This is only a brief overview of the options available. If you are in need of a retirement plan for yourself or your employees, please contact your financial advisors for help in deciding which plan is best suited for your needs.

Michelle is a Staff Accountant at Gamwell, Caputo, Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Michelle welcomes any article feedback or questions for future article consideration.

Obamacare and You


As many of you are now painfully aware through the media, The Affordable Care Act will bring some changes to the preparation of your 2014 individual tax return.  These changes will come in one of three ways.  Individuals will need to provide additional information when they file their 2014 federal income tax return, may have to complete one or two new tax forms, and may be liable to pay a fee with their tax return or obtain a health care coverage exemption.

For many individuals, the act will not impact their return greatly.  If you had health coverage from your job, Medicare, Medicaid or from a plan purchased outside the government’s Health Insurance Marketplace you’ll simply report this by checking a box on your federal income tax return and won’t need to file any additional forms.  If this isn’t the case, then your return will be more complex than in the past.

If you enrolled in a plan through the government’s Health Insurance Marketplace, you will receive a form 1095-A.  That information will be put on form 8962 that will be filed with your 2014 federal income tax return. The Premium Tax Credit based on your income and family size for the year will then be compared to the advance credit payments that were received during the year.  A taxpayer’s premium tax credit for the year typically will differ from the advanced credit payment amount that was estimated by the Marketplace because the taxpayer’s household income and/or family size were estimated at the time of enrollment.   If the calculated Premium Tax Credit is more than the advance credit payments, this will result in an additional refund or a lower tax due with the return.  Alternatively, if the advanced credit payment exceeds the calculated Premium Tax Credit, the result will be a lower tax refund or an additional amount due with the return.

For those that didn’t have health coverage for 2014, they will either have to claim a health coverage exemption or pay a fee with the return.  The IRS has issued a partial list of exemptions that are available including not having any affordable health insurance plans available to you, having only a short gap in coverage, having household income less than the tax return filing threshold, and experiencing a hardship in obtaining insurance.  There are also other less common exemptions.  Anyone claiming an exemption will need to file form 8965.  If an individual doesn’t qualify for an exemption, they will be required to pay a fee referred to as the individual shared responsibility payment.  This fee will be the higher of $95 per person (with a maximum of $285 per family) or an amount that is generally 1% of their annual household income above the filing threshold ($10,500 for an individuals and $20,300 for a married couple filing jointly).  The individual shared responsibility payment will increase significantly in 2015 to the higher of $325 per person (with a maximum of $975 per family) or an amount that is generally 2% of their annual household income above the filing threshold

For those that prepare their own returns, you should expect a bit more complexity if you purchased health coverage from the Marketplace or didn’t have coverage.  For those that utilize a tax preparer, you should expect some additional questions with regards to your 2014 health insurance coverage and will need to provide your preparer a copy of any form 1095-A, B, or C that you may have received.  You can also assume a higher tax preparation fee if you purchased health coverage from the Marketplace or didn’t have coverage, since this will require some additional time to prepare the necessary tax forms.

Dave is a CPA at Gamwell, Caputo, Kelsch & Co., PLCC in Conway, NH and can be reached at 603-447-3356. Dave welcomes any article feedback or questions for future article consideration.

Small Business gets a Break on Start Up Expenses

Small Business gets  a Break on Start Up Expenses

When and how do I deduct expense incurred before I opened my business?

Most new business and rental property owners will pay or incur expenses for investigating the viability of a business and expenses before actually opening the business or renting the property.  These expenditures are known as startup costs and examples include analysis of potential markets and products, advertisements for the opening of the business, salaries and wages for training and education, and other expenditures that would normally be deductible if the business were open. These costs are covered in Internal Revenue Code 195 expenditures and have specific rules on when and how a tax deduction is elected.

The law requires these costs to be capitalized and not automatically deductible in the current year as a periodic cost.  However, an election may be made to expense up to $5,000 of these costs in the year in which the business opens.  This $5,000 deduction is reduced dollar for dollar once startup costs exceed $50,000. Thus if start up expenditures exceed $55,000 no deduction is allowed. The election is made on Part IV of Form 4562 and is due by the date of the return including extensions.  The remaining balance of startup expenses must be amortized over 15 years or 180 months. If the trade or business is disposed of before startup expenses are fully amortized the remaining g costs may be deductible in the year the business closes.

The organization costs of business entities are often confused with startup expenses. Although there are similarities in how they are treated by the IRS they should be segregated.  The IRS considers these expenses a separate cost and consequently a separate election is made for organizational costs.

Electing to deduct all or portion of startup expenses depends on the particular situation of the business, the owners of the business, and future operations. You should always speak with your trusted advisors about your particular situation.

Brian is a CPA at Gamwell Caputo Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Brian welcomes any article feedback or questions for future article consideration.

Will these tax breaks be extended?

As of December 9, 2014 there are more than 50 temporary tax provisions that have not been extended for 2014. This normally would not be an issue as tax laws change frequently. The problem is that many taxpayers are expecting them to be extended for 2014, but without Congressional action they will not be part of your 2014 tax return. If they do get extended the Internal Revenue Service will have to change hundreds of tax forms and related instructions, and update computer coding to accept, process, and calculate returns. Congress wants the IRS to be ready to accept 2014 returns in January when laws effecting 2014 still have not been finalized. Do not expect the IRS to be capable of pulling this off. The likely scenario is that 2014 returns will begin to be accepted in late February at best.

While it is frustrating to try to plan and project your taxes when laws may be made retroactively, here are a few credits and deductions that may impact your return:

  • Educator expense – This $250 deduction for eligible educators spending money on qualified expenses is not currently available for 2014. For purposes of the deduction, eligible educators were defined as teachers, instructors, counselors, principals or aides for kindergarten through grade 12 who put in at least 900 hours during the school year in a school that provides elementary or secondary education.
  • Sales tax deduction – Congress allowed taxpayers to deduct sales taxes paid in lieu of state income taxes paid. This was a valuable deduction for those that did not have significant income taxes and itemized deductions on their personal tax return.
  • Section 179 depreciation – Prior to 2014 many small business owners were able to fully deduct the purchase of equipment used in their business. This was limited to $500,000 for 2013, but for 2014 this deduction will only be $25,000 unless the temporary tax law is extended.
  • Energy efficient improvements – Currently, there is no tax credit available for installation of energy efficient doors, windows, insulation, or roofs. For 2013 the maximum credit was $500.
  • Tuition and fees deduction – The tuition and fees deduction of $4,000 expired at the end of 2013. This was an “above the line” deduction (meaning it was available for those that took the standard deduction). Qualified education expenses are tuition and related expenses at an eligible educational institution.

Brian is a CPA at Gamwell Caputo Kelsch & Co., PLLC in Conway, NH and can be reached at 603-447-3356. Brian welcomes any article feedback or questions for future article consideration.