Monthly Archives: October 2015

Employee Travel: Preventing Tax Problems

employee travel, overnight, travel, business travel, Employee travel can signal tax problems. It can be a headache for the employer. It can be a headache for the employee to if the tax regulations are not followed. It is common practice for companies to send employees on business trips. If the rules are followed, the cost of employee travel will be fully deductible to the employer. The exception are meals, which are only 50% deductible, and are a tax-free reimbursement to the employee. In addition, the reimbursement is not subject to FICA or payroll withholding.

On the other hand, if the rules are not followed, the expenses are still deductible by the employer. However, the reimbursement must be added to the employee’s taxable wages. Those wages are subject to both FICA and payroll withholding.

Ordinary and Necessary Business Expenses

An employer is able to deduct ordinary and necessary business expenses. These expenses include employee travel and lodging expenses that are job-related. The expenses cannot be defined as lavish or extravagant by the IRS. Otherwise they are known as Working Condition Benefits or fringe benefit. Any such item that is deductible by the employer is not included in the employee’s salary. In addition, an advance or reimbursement made to an employee, under an Accountable Plan, which requires the employee to adequately account for the expenses and return any excess advances, is deductible by the employer. This type of plan is not subject to FICA or income tax withholding.

Reimbursements not made under an Accountable Plan are fully taxable to the employee. The only way for the employee to deduct the expenses is as a miscellaneous itemized deduction on his or her Form 1040. To do that, the employee must itemize the deductions on the Schedule A, instead of taking the standard deduction. The employee business expense category on Schedule A is subject to a 2% of AGI nondeductible threshold (Adjusted Gross Income). Often, this results in the employee deducting only a portion of the expenses or none of the expense at all.

With the exception noted below, to deduct the cost of lodging and meals, the taxpayer must be away from home overnight. Overnight is defined by the IRS as any trip that requires sleep or rest to enable the taxpayer to continue working.

Away-From-Home Rule Exception

Under an exception to the Away-From-Home Rule, the cost of local lodging is deductible. This deduction is restricted to the following:

  1. The lodging is necessary for the individual to participate fully in
  2. For the purpose for a bona fide business meeting, conference, training activity, or other business function.
  3. For the duration cannot exceed five calendar days, and
  4. Does not happen more frequently than once per calendar quarter.

For an employee, the employer must require:

  1. The employee to remain at the activity or function overnight
  2. The lodging must not be lavish or extravagant, and
  3. There can be no significant element of personal pleasure, recreation, or benefit.

Employee Travel for a Temporary Living Arrangement

A taxpayer’s home, for purposes of determining if he or she is away from home and can deduct lodging and meals, is generally where the taxpayer normally lives and works. However, that fact is sometimes difficult to determine, in which case the IRS has numerous special rules that apply.
An away-from-home assignment, at a single location, lasting for one year or less, is considered temporary, and the travel expenses are deductible. If the assignment is longer, there is a good chance the expenses will not be deductible based upon some complex rules.

Do You Need More Information?

The rules for the tax treatment of travel expenses and temporary away-from-home assignments can be complex. Please give Alex Franch, BS EA  at this office a call at 781-849-7200 for further details or assistance.

 

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9 Tax Tips for Disabled Taxpayers

disabled, disability, wheelchair, wheelchair race, disabled taxpayersDisabled Taxpayers may qualify for a number of tax credits and benefits. Parents of children with disabilities may also qualify. Listed below are several tax credits and other benefits that are available if you are disabled and listed on the federal tax return. This applies to any other dependent in your household who is listed on the tax return as well. Oh, and do not minimize any disability, as you may be surprised what qualifies an individual as a disabled taxpayer.

1. Increased Standard Deduction

If a tax return filer and/or spouse are legally blind, they are entitled to a higher standard deduction on their tax return.

2. Exclusions from Gross Income

Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.

3. Impairment-Related Work Expenses

Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.

4. Credit for the Elderly or Disabled

This credit is generally available to certain taxpayers who are 65 and older. It is also available to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.

5. Earned Income Tax Credit

EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits that were received under your employer’s disability retirement plan are considered earned income. This is until a minimum retirement age is reached. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund.

Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65, may qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund that is received because of the EITC will not be considered income when determining whether a taxpayer is eligible for benefit programs, such as Supplemental Security Income and Medicaid.

6. Child or Dependent Care Credit

Taxpayers who pay someone to come to their home and care for their dependent or disabled spouse may be entitled to claim this credit. For children this credit is usually limited to the care expenses paid only until age 13. However, there is no age limit if the child is unable to care for him or herself.

7. Special Medical Deductions

In addition to conventional medical deductions, the tax code provides special medical deductions related to disabled taxpayers and dependents. They include:

– Impairment-Related Expenses

Amounts paid for special equipment installed in the home, or for improvements, may be included in medical expenses. However, their main purpose must be for medical care for the taxpayer, the spouse, or a dependent. The cost of permanent improvements that increase the value of the property may only be partly included as a medical expense.

– Learning Disability

Tuition fees paid to a special school for a child who has severe learning disabilities caused by mental or physical impairments. These include nervous system disorders, and can be included in medical expenses. A doctor must recommend that the child attend the school. Tutoring fees recommended by a doctor for the child’s tutoring by a teacher who is specially trained and qualified to work with children who have severe learning disabilities may also be included.

– Drug Addiction

Amounts paid by a taxpayer to maintain a dependent in a therapeutic center for drug addicts. This includes the cost of the dependent’s meals and lodging, and are considered medical expenses.

8. Exclusion Of Qualified Medicaid Waiver Payments

Payments made to care providers caring for related individuals in the provider’s home are excluded from the care provider’s income. Qualified foster care payments are amounts paid under the foster care program of a state (or political subdivision of a state or a qualified foster care placement agency). You may want to call Alex Franch, BS EA at our office, 781-849-7200 for more details regarding this waiver, as it does get complicated.

9. ABLE Accounts

Qualified ABLE programs provide the means for individuals and families to contribute and save for the purpose of supporting individuals with disabilities in maintaining their health, independence, and quality of life.

Federal law enacted in 2014 authorizes the States to establish and operate an ABLE program. ABLE is an acronym for Achieving a Better Life Experience. Under the ABLE program, an ABLE account may be set up for any eligible state resident, which would generally be the only person who could take distributions from the account. ABLE accounts are very similar in function to Sec 529 plans. However, they should not be considered as estate planning devices, as is sometimes the case with 529 plans. The main purpose of ABLE accounts is to shelter assets from means testing required by government benefit programs. Individuals can contribute to ABLE accounts subject to Gift Tax limitations. Distributions to the disabled individual are tax free if the funds are used for qualified expenses of the disabled individual. These accounts are new and must be established at the state level before taxpayers can start making contributions to them. Call Alex Franch, BS EA, at 781-849-7200 for more information. For more information, you can read the March 23, 2015 letter about the Qualified Able Program published here.

Would You Like More Information About Disabled Taxpayers?

For more information on tax credits and benefits available to disabled taxpayers, please call Alex Franch, BS EA at 781-849-7200. Or you may visit one of our locations.

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2016 Insurance Subsidy: Did you file your 2014 Tax Return?

money in hand, obamacare, insurance subsidy, acaDo not lose your insurance subsidy in 2016 just because you have not filed your 2014 tax return! If you are one of the over 1 million individuals who received an Obamacare health insurance premium subsidy last year and you have yet to file your 2014 tax return, you are risking your opportunity to receive the insurance subsidy in 2016.

Insurance Subsidy and the Preliminary Tax Credit

The insurance subsidy is paid by the government to your insurer to reduce the premiums you owe. It is actually an advance payment of the premium tax credit (PTC) based upon your “estimated” income for the year. Your actual PTC is based on your “actual” income as determined on your tax return. If the advance PTC (subsidy) was less than the actual PTC as determined on your tax return, you are entitled to the difference. On the other hand, if your actual PTC is less than the advance amount, you may owe Uncle Sam some or all of the difference.

Whether you are entitled to additional PTC or owe some back cannot be determined without filing your return. The IRS estimates that 710,000 individuals who received an advance PTC have yet to file a 2014 return or did not file an extension. Add that to the approximately 360,000 taxpayers who received an advance PTC and have filed an extension, and there are over 1 million individuals who need to reconcile their 2014 PTC who have not yet filed.

The Marketplace will determine eligibility for advance PTC for the 2016 coverage year during the fall of 2015. If you have not filed your 2014 return yet, you can substantially increase your chances of avoiding a gap in receiving this help if you file your 2014 tax return as soon as possible. This is true even if you have an extension until October 15th.

Obamacare Forms are not Easy

Navigating the complicated Obamacare forms developed by the IRS is difficult for many taxpayers. Most taxpayers seek professional assistance, and they should because accuracy is key. The IRS is currently sending letters to individuals who received advance PTC subsidies and have yet to file. The letter encourages taxpayers to file within 30 days of the date of the letter. This is to avoid a gap in receiving advance payments of the PTC in 2016.

It is Never a Good Ideal Not to File

Always file your returns, even if you owe and cannot pay. The IRS just gets more aggressive as time goes on. So whether you:

  1. Do not feel you can do your own return
  2. Are afraid you may owe some of the PTC back, or
  3. Think you may be subject to penalties for failing to have health insurance coverage

We encourage you to give Alex Franch, BS EA a call at 781-849-7200. There are penalty exceptions for being uninsured. If you owe a Premium Tax Credit repayment there is a possibility it can be reduced, and it may all work out in the end. Procrastinating is not going to change the outcome, but it could put your 2016 advance Premium Tax Credit at risk. Who knows, you may even be entitled to more PTC and a refund.

You can read more about the Premium Tax Credit here.

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