Providing personalized tax, accounting and consulting services to Evergreen, Conifer and the greater metro area since 1992


Timing on the Deposit of Employee 401(k) Contributions

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Cash Basis Business Taxpayers

Maximize deductions and credits for 2016 by making payments of expenses giving rise to the deduction or credit by December 31.

  • Business expenses purchased with a credit card are deductible in the year purchased, regardless of when the credit card bill is paid.
  • Delay sending late in the year invoices so that payment is not received until 2017.
  • Make sure that any new equipment purchased in 2016 is placed in service before the end of the year to qualify for a Sec. 179 or depreciation deduction.

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Claiming Exemptions for Children of Divorce – Form 8332 is the Key

When parents divorce, issues can arise as to which parent is entitled to the dependency exemption and related tax benefits from supporting their children.

The dependency exemption is governed by Code Section 152 and includes what seems like a simple rule. Basically, when parents of a child do not file a joint return, the child is the “qualifying child” or dependent, of the parent with whom the child resided for the longest period of time during the year.

In the case of divorce, there is an exception to the above if the custodial parent releases his/her claim to the dependency exemption. A written declaration is required for the custodial parent to release his/her claim.

If the divorce documents were executed in 2009 or after, the noncustodial parent must attach Form 8332, “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent” signed by the custodial parent to his/her tax return. The custodial parent can either release his/her claim to the dependency exemption for the current year or for future years on the Form 8332. The form can also be used to revoke the release of the custodial parent’s claim to the dependency exemption for future years.

Based on the above, the divorce agreement should be clear about how parents intend to claim their children as dependents. If the intent is for the custodial parent to release the claim for all future years, the noncustodial parent will prefer to have a signed Form 8832 that says “all future years”. However, the custodial parent does have the ability to revoke the release of the exemption for future years or may instead just prefer to execute a new Form 8332 each year.

If the parents divorced before 2009, certain pages from the divorce agreement can be attached to the tax return in lieu of Form 8332. Form 8332 does not apply after a child turns 19.

The dependency rules for divorced parents can be complex and the outcome affects not only the dependency exemption but also the child credit and other child-related provisions.


 

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Excessive Salaries Paid to Your Children are not Tax Deductible

Salaries paid to your children from your business for work they performed are not deductible if excessive in amount. Salaries are deductible by a business for amounts that are reasonable for the personal services actually rendered to the business. When an amount deducted as wages involves a familial relationship, particularly a parent-child relationship, the I.R.S. may scrutinize the wages paid to determine if there is a bona fide employer-employee relationship and whether the payments were made for services actually performed for the business and reasonable in amount.

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Exclusion from Gain on Sale of Home for Unforeseen Circumstances

Taxpayers who have owned and used a home as their principal residence for at least two of the five years leading up to the sale can exclude up to $250,000 ($500,000 if married filing jointly) of the gain when they sell the home. Taxpayers who don’t meet these conditions can qualify for a reduced exclusion if the sale is because of a change in place of employment, health, or unforeseen circumstances.

Unforeseen circumstances are events the taxpayer could not reasonably have anticipated before purchasing and occupying the residence. The regulations define several specific-event safe harbors as unforeseen circumstances, and include:

  1. multiple births
  2. divorce or legal separation
  3. eligibility for unemployment compensation
  4. death of the taxpayer, spouse or co-owner, or a member of the household
  5. destruction or condemnation of residence
  6. casualty loss due to a natural or man-made disaster or an act of terrorism

Unforeseen circumstances, outside of the specific-event safe harbors listed above, depend on the facts and circumstances. In general such circumstances include an increase in the number of dependents living under one roof, environmental factors such as crime or noise, or job-related factors.

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IRS Raises Tangible Property Expensing Threshold to $2,500 for Small Businesses

The I.R.S. has raised the safe-harbor threshold for small businesses for deducting certain tangible expenditures. The threshold has increased from $500 to $2,500, effective for the 2016 tax year and forward. It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item as long as the cost is substantiated by an invoice. As a result, many assets that were traditionally capitalized, such as computers, tablets, smart-phones and high-end office furniture, can now simply be categorized as "supplies" on the income statement.
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Employer Provided Clothing can Qualify as a Tax-free Perk

Many municipalities provide polo shirts, caps and similar casual clothing that have the city or county logo on them to firefighters and police officers to wear while on duty. The clothes are tax-free de minimis fringes if the government employer requires the public safety officers to wear the apparel as a condition of employment, and prohibits then from wearing the items while off duty.  Read full post...


New Tax Return Due Dates for Many Types of Returns

Effective for Tax Years Beginning After December 31, 2015:  Read full post...


Wash Sale Rule with Respect to Donated Stock

The wash sale rule prohibits you from deducting a loss on the disposition of securities if substantially identical securities are reacquired within 30 days. However, this rule does not apply to the reacquisition of stock donated to a charity.  Read full post...


IRS’s Top Ten Identity Theft Prosecutions; Part of Ongoing Efforts to Protect Taxpayers, Prevent Refund Fraud

IRS YouTube Videos Read full post...



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