Wednesday, August 02, 2017

Uber houses and tax consequenses!

Short-term rentals, often called vacation rentals, have exploded onto the travel scene, becoming hugely popular with homeowners and travelers alike. With the help of technology, it is incredibly simple for a property owner to broadcast their rental across the world.
Millions of people in the U.S. are currently renting their homes or apartments on Web sites such as HomeAway, VRBO and Airbnb. With this level of activity, it is vital that accountants and tax professionals have an understanding of property rentals and income tax implications. Though sometimes overlooked, sales and lodging taxes are an entire class of taxes that expose clients to a significant liability.

A significant liability
Short-term rental property owners are required to collect and remit sales and lodging taxes on the gross rent collected from guests – the same taxes a hotel is required to collect. Short-term in most states is less than 30 days, but there are a handful of states that have 90-day definitions and a few, such as the popular travel states of Hawaii and Florida, where short-term is defined as up to six months.
The property owner or host is required to collect lodging taxes from the guest on any short-term stays. These taxes are typically 10 percent to 15 percent of the gross rent collected – overnight accommodations are heavily taxed. Sales and lodging taxes are a type of gross receipts tax and there are no deductions.
The average short-term rental will generate $20,000 to $30,000 per year in rent, thus amounting to $2,000 to $5,000 in sales and lodging taxes that must be collected and paid. This is a significant liability if your client is not compliant, especially if they are audited for three to five years of history. These lodging taxes can build into a huge hidden liability for unsuspecting or unknowing clients renting their primary or second homes.

Bloomberg News
Income tax vs. lodging tax
It is well understood that income tax treatment is completely different from sales and lodging taxes. For income taxes, a client may deduct operating expenses from the rental property such as mortgage interest, utilities, maintenance, property taxes and even depreciation. In fact, most short-term rentals do not have taxable income after expense deductions – they operate at a net loss position. Even if there is net taxable income, after expense deductions, it is often a small amount, especially when compared to 10-15 percent lodging tax on gross rent.
As a result, most short-term rental properties have a significantly greater sales and lodging tax liability compared to income tax. Income tax is typically minimal or zero, whereas lodging taxes average several thousand dollars or more per year in taxes to be collected from the guest and remitted to the proper agencies.

Lodging taxes are often overlooked
Lodging tax can be easily overlooked because a large number of owners are often unaware of these requirements. Most homeowners or hosts have never heard of or dealt with these taxes before, and the rental activities are to simply generate additional income. Long-term rentals are typically defined as greater than 30 days (this definition varies by state), and are usually not required to collect lodging or any other transaction taxes.
Further complicating lodging taxes is the fact that there are often different city, county and state taxes that apply to reach rental. Essentially, there are multiple levels of government that are potentially each applying a separate tax. The state department of revenue may only handle a portion of the required taxes, and the remaining portion will need to be remitted directly to city or county tax agencies.
How to be compliant
Lodging taxes function similarly to sales taxes and many accountants and tax professionals who deal with state and local taxes will be familiar with the ways to ensure compliance. A note of caution – rarely are lodging taxes solely collected by the state revenue agency. There are usually additional city or county taxes (sometimes both) that the state will not be aware of. This is one major difference from sales taxes where, in most states, the state revenue agency collects 100 percent of sales taxes.
Below are the basic steps in order to be compliant:
  1. Determine the tax rate. Start with the state revenue agency and search for hotel or transient room taxes. Once you find hotel tax requirements, this also applies to vacation rentals. Based on what you learn from the state, check with the city and county where the rental property is located. It is important to confirm that the property address is within city and county boundaries, as you can’t always rely on ZIP codes or mailing address.
  2. Register. Once you determine the applicable tax rate, your client will need to register with city, county and state agencies that administer the taxes. This may include obtaining a business license or rental permit. You should find the forms required when you are researching the taxes and tax rates with each agency.
  3. File and remit. The tax agency determines the frequency of remittance, though sometimes the tax agency will allow you to request a frequency when completing the application forms. These taxes are almost always required to be remitted monthly or quarterly, and most vacation rentals will be required to remit taxes to two different agencies, such as the city and state. Like all sales taxes, returns are usually due by the 20th of the month and there are stiff penalties for not filing on time or missing a filing.
Many of your clients are already engaging in this activity, or will be soon. They will need help and guidance, and will likely expect you to know about these requirements and to aid in the management. Be on the lookout for your client’s short-term renting and make sure that they, and you, are not missing these taxes that are required for each rental transaction.
Thanks to Rob Stevens of Accounting Today for this information!

Wednesday, July 26, 2017

How to get IRS Transcripts

How to Get Tax Transcripts and Copies of Tax Returns from the IRS
Taxpayers should keep copies of their tax returns for at least three years. Those who need a copy of their tax return should check with their software provider or tax preparer. Prior year tax returns are available from IRS for a fee.
For those that need tax transcripts, however, IRS can help. Transcripts are free.
Tax Transcripts
A transcript summarizes return information and includes Adjusted Gross Income (AGI). They are available for the most current tax year after the IRS has processed the return. People can also get them for the past three years.
When applying for home mortgages or college financial aid, transcripts are often necessary. Mortgage companies, however, normally arrange to get one for a homeowner or potential homeowner. For people applying for college financial aid, see IRS Offers Help to Students, Families to Get Tax Information for Student Financial Aid Applications on for the latest options.
Taxpayers can get two types of transcripts from the IRS:
  • Tax Return Transcript.  A tax return transcript shows most line items including AGI from an original tax return (Form 1040, 1040A or 1040EZ) as filed, along with any forms and schedules. It doesn’t show changes made after the filing of the original return. This transcript is only available for the current tax year and returns processed during the prior three years. A tax return transcript usually meets the needs of lending institutions offering mortgages and student loans.
  • Tax Account Transcript.  A tax account transcript shows basic data such as return type, marital status, adjusted gross income, taxable income and all payment types. It also shows changes made after the filing of the original return.
To get a transcript, people can:
  • Order online. Use the ‘Get Transcript’ tool available on There is a link to it under the red TOOLS bar on the front page. Those who use it must authenticate their identity using the Secure Access process.
  • Order by phone. The number to call is 800-908-9946.
  • Order by mail.  Complete and send either Form 4506-T or Form 4506T-EZ to the IRS to get one by mail. Use Form 4506-T to request other tax records: tax account transcript, record of account, wage and income and verification of non-filing. These forms are available on the Forms & Pubs page on
Those who need an actual copy of a tax return can get one for the current tax year and as far back as six years. The fee per copy is $50. Complete and mail Form 4506 to request a copy of a tax return. Mail the request to the appropriate IRS office listed on the form. People who live in a federally declared disaster area can get a free copy. More disaster relief information is available on
Plan ahead. Delivery times for online and phone orders typically take five to 10 days from the time the IRS receives the request. You should allow 30 days to receive a transcript ordered by mail and 75 days for copies of your tax return.
Avoid scams. The IRS will never initiate contact using social media or text message. First contact generally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on to find out.
Additional IRS Resources:
IRS YouTube Videos: 

Monday, July 17, 2017

Fixed assets and 5 common failures associated with these assets

The 5 Common Failures of Fixed Asset Management
There are common failures that often occur with fixed asset management, largely due to ineffective systems or policies.  However, the common mistakes that many organizations experience don’t need to be a consistent force in your management.  Each of these problems has a solution that can easily remedy the situation.
This whitepaper will reveal the top five failures that can occur when managing fixed assets and offer resolutions for each.

Failure # 1: Using Spreadsheets
Nearly all spreadsheets contain errors, which is to be expected with information entered without effective controls.   Spreadsheets allow for several different types of errors to occur, thereby making it difficult to ensure precision.  Additionally, several people within one accounting department will often access, manage and edit the same spreadsheet, which can compound the likelihood of errors. 

Not only does access by more than one person cause potential for additional errors, but it also removes the ability to maintain an audit trail and overall security.  With spreadsheets, you are unable to track actions made by users.  Besides the probability of being error prone and lacking security, spreadsheets are also:

  Unable to accommodate ‘parent/child’ relationships, making it difficult to accurately track and manage these important hierarchical dependencies.   8 Ineffective in meeting historical reporting and forecasting environments, because of the complexity required by these reports and the inability to rely on the data. 8 “Unable to export information directly into government forms, requiring them to be filled out manually and risking incorrect transcription.

A specialist fixed asset system can eliminate many of the errors that the use of spreadsheets causes.  For example, depreciation formulas and asset lives can be defaulted for each book, based on any defined asset category, which will help remove depreciation errors.  Processing depreciation in a specialist system, rather than spreadsheets, is faster and easier.  It can be completed with just one click of a button.  A specialist system will also provide the structure to link ‘parent/child’ assets, set up security for all users, and offer the ability to run standard and customizable reports.

Failure #2: Not completing a proper physical audit
The credibility of an organization’s data (the existence of assets and its Net Book Values) will be in question if it cannot be verified.  Verifying what an organization owns and the whereabouts is essential for credibility and complying with US GAAP and SOX audit is also an effective asset management procedure that can help ensure assets are insured at the correct level, maintenance is accurately budgeted for and unexpected ‘write-offs’ are avoided.

Physical audits are essential to clean up the variances between what is being financially accounted for on the asset register and what is actually present.  The potential risks of not conducting a physical audit include:

Inaccurate physical verification of assets can render the asset register unreliable. Depreciation could be allocated to the wrong company/cost center/department/division.  Depreciation could be misstated resulting in over or under payment of taxes.  Missing assets (potential theft problem) could go undetected 9 The audit trail of transferred assets can be lost. Assets could be under or over insured 9 Exposure to accounting audit write-up

An organization can avoid these risks by implementing formal physical audit policies and procedures along with a supported asset tracking system which will help control and manage the fixed asset register.  Barcode tracking technology can help reduce the time and money spent managing assets, making proper physical audits quick and simple to carry out.

Failure #3: Unauthorized changes are occurring
There are two ways in which unauthorized changes can occur and cause problems.  The first is unauthorized access to the system and the second is not having the correct procedure in place for changes to asset events.

Security of data is critical to compliance for corporate governance regulations including Sarbanes-Oxley, IFRS, IAS and GAAP. In order to avoid unauthorized changes occurring in your organization’s fixed asset register, security should be defined at user level to ensure that confidential information can be viewed only by those who need to see it.  Individual or group access rights should be designated according to an organization’s specific requirements.  This cannot take place with
spreadsheets so a specialist system is essential for this security.

A well planned transfer and disposal process plays a key role in effective asset management.   An automated procedure that allows multiuser approval can help streamline processes and afford time and costs savings while ensuring the accuracy and accountability of the asset register.  Using a specialist system with event request authorization functionality allows users to create a transfer or disposal request which is then sent to a pre-determined supervisor for approval, thereby allowing organizations to ensure all changes made to the asset register are authorized.

Failure #4: Non adherence to compliance issues
Corporate tax regulations implemented by the IRS and the U.S. Department of the Treasury are constantly requiring enhanced levels of accountability from finance executives.  Various tax forms can be difficult to manage and complete.
You may experience problems with different regulations for the various states your organization may conduct business in or have the inability to regularly review US tax rules nationwide and regularly update your practices to accommodate the changes.

If your organization does not properly adhere to compliance issues you may:
Get audited by the IRS ! Affect your earnings statements and stock prices if your company is public ! Be subject to forfeiture of grant money or tax exemptions
A well planned transfer and disposal process plays a key role in effective asset management.   An automated procedure that allows multiuser approval can help streamline processes and afford time and costs savings while ensuring the accuracy and accountability of the asset register.  Using a specialist system with event request authorization functionality allows users to create a transfer or disposal request which is then sent to a pre-determined supervisor for approval, thereby allowing organizations to ensure all changes made to the asset register are authorized.

Failure #5: Poor reporting or lack of reporting
Composing reports and forecasts can be a lengthy, arduous and costly process that is often subject to human error if conducted by hand.  Bad reporting can affect organizations by:
 Misinforming management of information that is critical to business decisions ! Causing non-adherence with compliance issues, resulting in the consequences mentioned above
In order to avoid unreliable reports for your fixed assets, it is best to use a reporting tool in a specialist fixed asset system.  Typical reports available in specialist systems that will help your organization include:
 A fixed asset balance sheet.  This report consolidates starting points and ending points of the month and shows all of the month’s activities. ! Events.  The reports shows all transfers, disposals, relifes, and revaluations that have occurred in the given time period.  ! Audit history.

This paper was prepared and presented by Real Asset Management group out of Des Moines, Iowa.

Tuesday, June 27, 2017

Meals aren't always ONLY 50% deductible!

Pregame Away Day Meals Were Fully Deductible De Minimis Fringe Benef

A professional hockey team, organized as an S corporation, was entitled to deduct the entire cost of pregame meals for players and personnel at away games. The meals qualified as de minimis fringe benefits.
Although the contracts between the team and the hotels were not titled “leases,” the team paid consideration “to use and occupy” the hotel rooms where the meals were served. While the team did not pay separate consideration for the rental of the meal rooms, those rooms were essential to the team’s away game operations; in addition to meals, the team used the rooms to conduct team business. Further, the facility was operated by the team because the team contracted with the hotels to operate eating facilities for its employees.
The pregame meals were mandatory and the players used the time to meet with coaches and review game film and with public relations staff to prepare for interviews. In addition, the coaches, trainers and management used meal time to meet among themselves and make roster adjustments. The evidence also established that the team could not perform all of these activities at the opponent’s arena because of limited access and insufficient space and facilities. Moreover, without the preparatory activities that occurred at the hotels the team’s performance during games would likely be adversely affected. Thus, the hotels were vital to the team’s business objective (winning hockey games) and were where a significant portion of the traveling employees’ responsibilities and team business were conducted.
Finally, the pregame meals were provided to the traveling employees for substantial noncompensatory business reasons, including for nutritional and performance reasons, and were provided before, during or after the employees’ workday. Therefore, the meals qualified as de minimis fringe benefits and were not subject to the 50-percent limit on business meals.
Thanks to CCH for pulling this info together.

Tuesday, June 20, 2017

How to get IRS transcripts online

Issue Number:    How to Use Get Transcript Online

Inside This Issue

Here is a video tax tip from the IRS:
How to Use Get Transcript Online   English | Spanish | ASL
Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL.

Wednesday, June 07, 2017

Employers, your workforce expects to get raises!

Payroll problems may be the fastest way to send top talent to the exits. According to a new survey from The Workforce Institute at Kronos Incorporated, about half of the American workforce (49 percent) will begin searching for a new job after experiencing just two issues with their paycheck, an alarming rate that highlights the fragility of a carefully cultivated employee experience if organizations can’t first deliver on core business processes.

Part two of the “Engaging Employees through Payroll” series surveyed more than 1,000 U.S. employees to examine the hidden costs of payroll errors and explore the vital role payroll professionals serve in building an engaging employee experience. Part one revealed payroll problems affect 82 million U.S. employees, which is more than half (54 percent) of the American workforce.


Little patience for problems: nearly half of American workers (49 percent) will seek new employment after just two payroll mistakes, such as being paid late or incorrectly.
    Approximately one in four employees – 24 percent – will look for a new job after the first payroll mistake, while another 25 percent will seek new employment after the second issue.

    Salaried employees are more likely than hourly workers to start looking for a new job after the first problem (29 percent versus 19 percent.)

    Nearly a third of parents (30 percent) will kick off a job search after the first error (compared to 16 percent of non-parents), while men (29 percent) are more likely than women (17 percent) to do the same after just one issue.

Effective managers are vital: employees look to their direct supervisor before anyone else for help, making this a critical role to resolve pay issues through effective guidance.

    More than one in four employees (26 percent) say they would first turn to their manager, direct supervisor, or boss for help fixing a mistake.

    About one-fifth of employees (19 percent) would report their payroll problem directly to their human resources department, while 14 percent would turn to their payroll department.

    Surprisingly, seven percent of employees say they would not report a payroll error to anyone. Just four percent are not sure who they would turn to for help correcting a paycheck error.

Generational differences exist: Baby Boomers are most forgiving of payroll errors and have the deepest understanding of their paychecks.

   Nearly half (44 percent) of American employees aged 55 and older say they would stay at their job as long as they are eventually paid correctly. That’s in stark contrast to their colleagues aged 18-29 (13 percent,) 30-39 (17 percent,) and 40-54 (27 percent,) who are much less willing to stay even if they’re eventually paid correctly.

    Just 19 percent of Baby Boomers find the taxes and deductions on their paycheck confusing to read and understand. They once again outperformed other generations, as 45 percent of employees aged 18-29 found their paychecks confusing, while more than half (53 percent) of employees aged 30-39 were confused, along with 38 percent of those aged 40-54.

    While 43 percent of employees aged 18-29 and more than half (52 percent) of employees aged 30-39 have been forced to make a late payment on a bill such as a credit card, car loan, or home/apartment due to a payroll problem, just one in ten (11 percent) Baby Boomers report having ever encountered a similar situation.

Everyone wants a raise: an overwhelming majority of U.S. workers feel they deserve an annual pay raise.
    According to the survey, 84 percent of all employees expect a pay raise each year they stay with their organization, with hourly (85 percent), salaried (83 percent), young employees aged 18-29 (81 percent), Baby Boomers 55+ (81 percent), female (88 percent), and male (80 percent) respondents in nearly universal agreement.
Thanks to ADP for pulling this information together.

FATCA registration gets revamped

The Internal Revenue Service has updated its online registration system for the Foreign Account Tax Compliance Act to allow foreign financial institutions to renew their agreement with the IRS.

FATCA was included as part of the HIRE Act of 2010, requiring foreign banks and other financial institutions such as hedge funds to report on the holdings of U.S. citizens to the IRS, or else face stiff penalties of up to 30 percent on their income from U.S. sources. The controversial law led to the Treasury Department signing intergovernmental agreements with the tax authorities of other countries, in most cases allowing foreign banks to first send the information to their own country’s tax authorities, who in turn forward it to the IRS. The IRS had to delay the rollout of the initial online registration system in 2013, but now the FATCA FFI Registration system has been updated to allow foreign financial institutions to renew their agreement with the IRS.

From the home page link of “Renew FFI Agreement,” the financial institution will first need to determine whether it must renew its FFI agreement. The IRS is providing a table of guidelines to help them make this determination. Once they decide, the system allows a financial institution to review and edit its registration form. The financial institution will need to verify and update its registration information and submit to renew the FFI agreement.

Those institutions who are required to renew their FFI agreement and don’t do so by July 31, 2017, will be treated as having terminated their FFI agreement as of Jan. 1, 2017, the IRS warned Tuesday, and they may be removed from the FFI List. The IRS said all financial institutions should login to the system for this determination. For help logging in, see the FATCA FFI Registration system FAQ's.

The system update includes several new fields for renewing the FFI agreement, such as the renewal date and submitted date, along with information on account home pages. The IRS said the new system will notify all approved financial institutions of the renewal open period and due date to renew the FFI agreement. The due date for all renewals is July 31, 2017.

The system instructions and online help have been updated for the Renewal of FFI Agreement. The FATCA Registration User Guide has also been updated to include the necessary steps for financial institutions to renew their FFI agreement.

Along with system fixes, the update within the registration application includes the removal of the classification of “limited” for FIs and FI branches, as that classification option won’t be available anymore for new FI applicants or for renewing FIs. Two other changes in the new release are the inclusion of a warning banner, and the number of attempts to unsuccessfully login have now been reduced to three.
Thanks to Mike Cohn for this information!

Thursday, June 01, 2017

Sales tax holidays!

  • Alabama (July 21-23) Exemptions apply to purchases of clothing ($100 or less per item), computers (single purchase up to $750), school supplies, art supplies or school instructional materials ($50 or less per item) and books ($30 or less per item). Not all counties and municipalities are participating - so check the state link for a list of participating locations.
  • Arkansas (August 5-6) Exemptions apply to purchases of clothing and footwear ($100 or less, per item), clothing accessories ($50 or less per item), school supplies, art supplies and school supplies. All retailers are required to participate and may not charge tax on items that are legally tax-exempt during the Sales Tax Holiday.
  • Connecticut (August 20-26) Exemptions apply to purchases of clothing and footwear ($100 or less per item), excluding clothing accessories, protective or athletic clothing, and certain shoes including ballet, bicycle, bowling, cleats, football, golf, track, jazz, tap, and turf (but note that aerobic, basketball, boat, and running shoes are exempt).
  • Florida (June 2-4) Exemptions apply to items for disaster preparedness including reusable ice (reusable ice packs) selling for $10 or less; any portable self-powered light source (powered by battery, solar, hand-crank, or gas) including flashlights, lanterns and candles, selling for $20 or less; any gas or diesel fuel container, including LP gas and kerosene containers selling for $25 or less; Batteries, including rechargeable batteries (but excluding automobile and boat batteries) and coolers selling for $30 or less; tarps, radios and tie-down kits selling for $50 or less; and portable generators used to provide light or communications, or to preserve food in the event of a power outage selling for $750 or less.
  • Florida (August 4-6)  Exemptions include clothing, shoes, wallets, handbags and backpacks that cost $60 or less. Computers that cost less than $750 and school supplies, such as pens, pencils, binders and lunch boxes that cost less than $15 are also included.
  • Louisiana (August 4-5) Provides a 2% exemption from the state sales tax, meaning eligible purchases are subject to only 3% state sales tax.
  • Missouri (August 4-5) Exemptions apply to purchases of clothing ($100 or less per item), school supplies ($50 or less per purchase), computer software ($350 or less), personal computers or computer peripheral devices ($1,500 or less) and graphing calculators ($150 or less). Some cities have opted not to participate (check the website for specifics) although in those circumstances, the state's portion of the tax rate (4.225%) will remain exempt.
  • New Mexico (August 4-5) Exemptions apply to purchases of footwear and clothing, excluding accessories ($100 or less per item); school supplies ($30 or less per item); computers ($1,000 or less per item); computer peripherals ($500 or less per item); and book bags and backpacks ($100 or less per item).
  • Ohio (August 7-9) Exemptions apply to purchases of clothing ($75 or less per item). Note that the exemption applies to clothing selling for $75 or less: if an item of clothing sells for more than $75, tax is due on the entire selling price. Exemptions also apply to school supplies ($20 or less per item) and instructional materials ($20 or less, per item). 
  • Oklahoma (August 5-7) Exemptions apply to purchases of clothing and footwear ($100 or less per item). The exemption does not apply to the sale of any accessories, special clothing or footwear primarily designed for athletic activity or protective use that is not normally worn except when used for athletic activity or protective use, or to the rental of clothing or footwear. Qualified items are exempt from state, city, county and local municipality sales taxes.
  • South Carolina (August 4-6) Exemptions apply to purchases of clothing, clothing accessories and footwear (excluding rentals), school supplies and computers.
  • Tennessee (July 28-30) Exemptions apply to purchases of clothing ($100 or less per item), computers ($1,500 or less) and school and art supplies ($100 or less per item). Apparel that costs more than $100 remains taxable, as do items such as jewelry, handbags, or sports and recreational equipment.
  • Texas (August 11-13) Exemptions apply to most clothing, footwear, school supplies and backpacks priced less than $100.
  • Virginia (August 4-6) Exemptions apply to purchases of clothing and footwear ($100 or less per item) and school supplies ($20 or less per item). Sports or recreational items are not exempt from tax. The holiday also applies to hurricane and emergency preparedness items, and Energy Star™ and WaterSense™ products. 

  • The following states (marked with an *) are expected to offer a sales tax holiday this year but the information has not been confirmed:
  • Iowa* (August 4-5) Exemptions apply to purchases of clothing or footwear (up to $100 per item); for any item that costs $100 or more, sales tax applies to the entire price of that item.
  • Maryland* (August 13-19) Exemptions apply to purchases of clothing and footwear ($100 or less per item) including sweaters, shirts, slacks, jeans, dresses, robes, underwear, belts, shoes, and boots priced at $100 or less. Accessories, including jewelry, watches, watchbands, handbags, handkerchiefs, umbrellas, scarves, ties, headbands, belt buckles, and backpacks will remain taxable, as will special clothing or footwear designed primarily for protective use and not for normal wear, such as football pads.
  • Mississippi* (July 28-29) Exemptions apply to purchases of clothing and footwear ($100 or less per item regardless of how many items are sold at the same time); accessory items such as jewelry, handbags, wallets, watches, backpacks, and similar items are not included. Footwear does not include cleats and items worn in conjunction with an athletic or recreational activity.
* Updated to reflect that Georgia did not renew their sales tax holiday for 2017.
Just ended:
  • Louisiana (May 27-28) A 2% state sales tax exemption applies to the first $1,500 of the purchase price of hurricane preparedness items, including portable self-powered light source, including candles, flashlights and other articles of property designed to provide light; any portable self-powered radio, two-way radio, or weather band radio; any tarpaulin or other flexible waterproof sheeting; any ground anchor system or tie-down kit; any gas or diesel fuel tank; any package of AAA-cell, AA-cell, C-cell, D-cell, 6 volt, or 9-volt batteries, excluding automobile and boat batteries; any cell phone battery and any cell phone charger; any nonelectric food storage cooler; any portable generator used to provide light or communications or preserve food in the event of a power outage; any storm shutter device; any carbon monoxide detector; and any reusable freezer pack such as "blue ice."
  • Texas (May 27-29) Exemptions apply to purchases of energy star products. You can buy, rent or lease only the following ENERGY STAR-labeled items tax free: air conditioners (with a sales price of $6,000 or less); refrigerators (with a sales price of $2,000 or less); ceiling fans; incandescent and fluorescent light bulbs; clothes washers; dishwashers; dehumidifiers; and programmable thermostats.
This list is meant to provide general guidelines for state sales tax holidays. Some states are pretty specific about what you can exempt so be sure to click on the links to your individual state's revenue announcement for more details. Also keep in mind that some states offer counties and towns the option not to participate so again, check with your state if you have questions.

Friday, May 19, 2017

Filing Status MUST be agreed on!

Mrs. Moss filed a 2008 return as married filing separately on which she claimed a loss due to the Bernard Madoff fraud scheme, although she had no investments affected by the fraud. Peter Moss believed his wife was delusional, and although she had been hospitalized for mental illness in 2005 and 2006 and had been released from the hospital in 2006 under the condition that she live with him, he was not her conservator or guardian. In 2013, a Connecticut probate court appointed her daughters as conservators.
The IRS changed the filing status of Peter Moss's return to married filing separately and issued him a notice of deficiency. He petitioned the Tax Court to challenge the IRS's determination, asking the court to invalidate his wife's return and accept his joint return.
Issues: Generally, a joint return must be signed by both spouses. However, a joint return may be signed by only one spouse where the signing taxpayer acts as an authorized agent for the spouse or where there is sufficient evidence that the nonsigning spouse consented to filing jointly.
Sec. 6012(b)(2) provides that if a person is unable to make a return, a duly authorized agent, among others, may make a return on his or her behalf. Regs. Sec. 1.6012-1(a)(5) provides that a person may be unable to file due to disease or illness and sets forth filing provisions, which must be complied with by the agent even when representing a disabled spouse. Under these provisions, the return must be accompanied by either (1) Form 2848, Power of Attorney and Declaration of Representative, or other power of attorney authorizing the agent to represent the person in making, executing, or filing the return; (2) a signed statement containing specified information and confirming that the incapacitated spouse consents to the signing of the return; or (3) a request by the taxpayer for a determination by the IRS that good cause exists for permitting the agent to submit the return.
Peter Moss contended that his wife was unable to file a return due to her mental illness and that the Tax Court should accept the original return he filed showing married-filing-jointly status.
Holding: The Tax Court held that Peter Moss was not entitled to married-filing-jointly status, as he failed to show that his wife was unable to file a return. It found that her hospital commitments for mental illness, his assertion of her mental illness, and the conservatorship order issued in 2013 did not establish that Mrs. Moss was incapable of filing her own 2008 return.
The court further found that even if it concluded that Mrs. Moss was unable to file a return, Peter Moss was not her agent, as he had no power of attorney or Form 2848 to attach to the return and did not file a statement confirming that Mrs. Moss consented to the signing of the return. The court ruled that although the couple had a long history of filing jointly, the evidence showed that she intended not to file a 2008 joint return.
Since Peter Moss had to file married filing separately, he could not claim an exemption for his wife. The court did allow him to apply the full overpayment of tax from the couple's 2007 joint return to his return.
Thanks to Mark Aquillo, CPA for pulling this info together.

Wednesday, May 17, 2017

Trump's tax plan would eliminate the home mortgage interest deduction for many!

U.S. Treasury Secretary Steven Mnuchin has taken pains to stress that the Trump administration isn’t out to kill Americans’ beloved mortgage-interest tax deduction—but a side effect of the plan could turn it into a perk for only the wealthy.
President Donald Trump has proposed rewriting the tax code to raise the standard federal deduction to a level where about 25 million homeowners would no longer take advantage of the century-old break. A married couple would need a home-loan balance of about $608,000—almost triple the mortgage on a median-priced U.S. home—before using it would make sense, according to a new analysis by property-data provider Trulia. That would be up from about $322,000 today.
Without the incentives, along with a proposed end to local property-tax deductions, home sales may be hurt in cities where prices are rising quickly and buyers are stretching to afford their purchases, from Denver and Portland, Oregon, to Boston and Washington. Reduced demand would weigh on values, causing price declines nationwide, according to the National Association of Realtors, which opposes the change.
Homes in an aerial photograph taken above New Jersey
Homes in an aerial photograph taken above New JerseyCraig Warga/Bloomberg
The proposal “is a backdoor way of rendering the mortgage interest deduction close to worthless,” said Mark Zandi, chief economist for Moody’s Analytics Inc.
Americans filing their taxes can either subtract a fixed amount from their incomes, called the standard deduction, or itemize write-offs, including mortgage interest as well as state and local taxes. The administration wants to raise the standard allowance—to $24,000 from $12,700 for a married couple filing jointly—and allow deductions for only home loans and charitable donations, greatly reducing the chances that itemizing would pay off for average taxpayers.
‘Apple Pie’
A White House spokeswoman, Natalie Strom, said average families would be better off under the proposal. Low- and middle-income households would effectively get a tax cut, “putting more disposable income in their pockets for them to invest in a home, purchase a car, save for their children’s college—any other expense,” she said in an email.
Trump’s plan, outlined last month in a one-page proposal with few details and no provisions for how it might be paid for, amounts to a wish list. House Republicans came up with their own plan last June, which includes several controversial measures that have gotten a cool reception from the Senate as well as the White House.
Mnuchin called the mortgage break, which will cost the government an estimated $63.6 billion this year, “kind of like apple pie” and reiterated that Trump’s tax reforms wouldn’t touch it.
“Owning a home is something that’s been part of the American dream, and we want to keep it that way,” he said on May 1 at the Milken Institute Global Conference in Beverly Hills, California.
Fewer Itemizers
While Trump may not technically change the deduction, he would probably eliminate its usefulness for all but the most wealthy homeowners, said Joseph Rosenberg, a senior research associate for the nonpartisan Tax Policy Center.
The share of households that itemize would plunge to about 5 percent from about 30 percent now, according to a National Association of Realtors estimate. About 8 million families would itemize under Trump’s plan, a reduction of about 25 million.
The administration is “selling it as a sort of simplification,” said Rosenberg, noting that Americans who switch to the standard write-off wouldn’t pay more in taxes. “In some respects, they are embracing the fact that there would be fewer people who itemize and take these deductions.”
Taxpayers, however, would lose an incentive to take on mortgage debt, and buyers in expensive markets who are stretching to afford fast-rising home prices may start to re-evaluate how much they’re willing to spend. In Denver and Portland, Oregon, for example, potential buyers for about half the listings would no longer be able to justify itemizing because of mortgage interest alone, according to a Trulia analysis. The share is about double the national average of 22 percent in areas including Dallas, Seattle, Boston, Washington and Sacramento, California.
The impact of the switch would be greatest for middle-income renters who are thinking about making the jump to homeownership, according to Ralph McLaughlin, Trulia’s chief economist.
Price Declines
Prices may fall 10 percent on average nationwide, taking into account the lack of deduction for state and local property taxes, according to a preliminary estimate prepared by a consultant for the National Association of Realtors. Zandi of Moody’s said the proposed deduction changes would reduce prices by about 4 percent nationally, including the property-tax impact, with bigger decreases in pricier parts of the country.
If the government’s tax policy no longer favors homeownership, some renters may decide buying isn’t worth the hassle or expense. While buying a house for $517,000 is now cheaper than renting in all 100 markets measured by Trulia, that calculation would change under the Trump plan in 12 areas, including New York City; Portland, Oregon; and Madison, Wisconsin.
Reducing incentives to buy could benefit large publicly traded landlords, including Equity Residential and Avalon Bay Communities Inc., and single-family rental companies such as Blackstone Group LP’s Invitation Homes Inc. and Colony Starwood Homes, whose co-chairman, Tom Barrack, was a key Trump supporter.
Economists’ View
Economists have long been critical of the mortgage-interest deduction because it disproportionately benefits people with more-expensive properties, including many who would have purchased even without the break. It also inflates home prices because buyers often overestimate their tax savings when they’re budgeting for a purchase, said Dennis Ventry, a professor at University of California, Davis, School of Law who has studied the program’s history.
Trump’s plan might end up boosting homeownership rates over time because a drop in prices would improve affordability and the standard deduction would give buyers more money to spend on a house, Ventry said.
The real estate industry is lining up against the proposal, including the powerful National Association of Realtors, which spent $10.2 million lobbying Congress in the first quarter, more than any other organization except the U.S. Chamber of Commerce, according to the Center for Responsive Politics. William E. Brown, the association’s president, said his group isn’t just fighting for its members.
“If values fall, it’s not just going to impact people who just bought houses, but all current homeowners,” Brown said.
Fighting Back
Trump’s plan also targets tax deductions for state and local taxes paid—a provision that would especially hurt homeowners in states where property taxes are high. Coldwell Banker Realtor Kevin Cascone, who’s based in Westfield, New Jersey, took to Facebook on May 3 to persuade his followers to fight back by contacting their legislators: “NEW JERSEY HOMEOWNERS! This should concern you deeply,” Cascone wrote. “Regardless of your politics, the terms of this policy could SIGNIFICANTLY affect your wallets come tax season next year.”
“One of the big reasons for homeownership is the ability to deduct property taxes,” Cascone said. “If that’s eliminated, what’s the difference between renting and buying?”
Thanks to Joe Light and Phasant Gophal for pulling much of this information together!

Tuesday, May 16, 2017

Debt extinguished before it's maturity

Governmental Accounting Standards Board has issued guidance for state and local governments to use when they extinguish debt before it matures.
GASB’s Statement No. 86, Certain Debt Extinguishment Issues, provides guidance on accounting for transactions in which cash and other monetary assets that have been acquired with only a government body’s existing resources are put in an irrevocable trust only for the purpose of extinguishing debt.
The current GASB standards already offer guidance on how to account for and report when cash and other monetary assets that have been acquired with the proceeds of refunding bonds are placed in a trust for the future repayment of outstanding debt. However, GASB decided that more guidance was needed when only the existing resources (in other words, other than bond proceeds) are used to acquire cash and other monetary assets placed in a trust for the future repayment of outstanding debt.

The new GASB statement also includes guidance on prepaid insurance on debt that is extinguished and notes to the financial statements for defeased debt.When debt is defeased in substance, GASB noted, the debt and the cash and other monetary assets put in trust are not reported in the financial statements anymore. State and local governments are required, though, to disclose information in the notes to the financial statements about debt that has been defeased in substance.
The new requirements take effect for reporting periods beginning after June 15, 2017, although GASB is encouraging them to be applied earlier.

Tuesday, May 02, 2017

Opportunity Tax Credit can help!

Small Business Week Reminder: Work Opportunity Tax Credit can Help Employers Hiring New Workers; Key Certification Requirement Applies
WASHINGTON –The Internal Revenue Service today reminded employers planning to hire new workers that there’s a valuable tax credit available to those who hire long-term unemployment recipients and others certified by their state workforce agency. During National Small Business Week—April 30 to May 6—the IRS is highlighting tax benefits and resources designed to help new and existing small businesses.
The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. The credit, usually claimed on Form 5884, is generally based on wages paid to eligible workers during the first two years of employment.
To qualify for the credit, an employer must first request certification by filing IRS Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.
There are now 10 categories of WOTC-eligible workers. The newest category, added effective Jan. 1, 2016, is for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time. The other categories include certain veterans and recipients of various kinds of public assistance, among others.
The 10 categories are:
  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Ex-felons
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Food stamp (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Qualified long-term unemployment recipients.
Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.
Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C. Visit the WOTC page on for more information.