Newsletter 2013
Newsletter 2013
Other Updates
Other Updates
Print Full ArticleLast Reviewed: Jan 2014
Last Modified: Jan 2014
For our 2013 filings the phase out rules for itemized deductions and personal exemptions are back. These apply to higher income taxpayers and are not too much of an adjustment, but will create more tax due.
We are seeing less forgiveness of debt income reporting issues as the great recession eases and fewer people are losing homes and/or defaulting on credit card debt. Unless Congress acts to extend the personal residence debt exclusion (perhaps as part of the budget legislation they are working on right now) the exclusion for personal residence debt will end. We feel this exclusion should be made permanent, as we have used it many times to help clients mitigate the devastating impact of losing a home through foreclosure.
We want to remind clients that some very good credits and deductions are available to assist with putting a son or daughter through college or even to pay for your own education as an adult. The workhorse in this category is the American Opportunity Credit available for up to $2,500 in tuition and related fees as well as books and equipment expenses. If you are saving for college don't forget about the 529 plans which allow a state tax deduction and tax free earnings.
For businesses, the reprieve from 1099-K reporting issues allowed last year is over. For 2013, businesses that used merchant services (credit cards, Paypal, etc.) to accept payments may receive a 1099-K from their merchant service provider that reports the total of these receipts. The 1099-K is required to be issued if total payments exceeded $20,000 and total number of transactions exceeded 200. Below these thresholds the form is optional. If you receive any 1099-K forms we will need them in order to reconcile your income figures with the data being reported to IRS. Form 1099-Misc is now used only for the reporting of business transactions exceeding $600 in cash or check. See our website for more information about 1099-Misc forms.
We are frequently asked if certain deductions or expenses increase audit risk. With a few exceptions, we feel the answer is generally no, but there are audit parameters IRS uses that may be triggered if a particular deduction is higher than the normal amount reported by other taxpayers. So, for instance, a higher than normal charitable deduction can trigger an audit and also claiming 100% of an automobile's use as a business deduction can get their attention (although many of our business clients legitimately have 100% business vehicle use). We feel the larger audit risk is not meeting the substantiation requirements for deductions and business expenses. You are responsible for maintaining records to justify your deductions and in an audit you are just about guaranteed to lose any deduction you claim on your return that is not supported by a receipt or record. Clients are particularly vulnerable in an audit when charitable deductions are not supported by an acknowledgment letter from the charity and vehicle mileage expenses are taken but no mileage log has been maintained. Maintain and keep these records!
IRS has announced the standard mileage rates for 2014. The business deduction will be $.56 per mile, the medical and moving deduction will be $.235 per mile and the charitable miles deduction will stay at $.14 per mile.
On the local tax front, for those of you who missed the Portland Arts Tax last year you are in good company. Compliance was iffy to say the least. But the Arts tax is still with us and is due when your regular tax returns are due with an extension available. The tax is $35 for every City resident 18 years or older earning $1,000 or more. The City will not send out forms to use to file and pay the tax. You will need to go to their website to pay the tax. By the way, this tax is deductible so please be sure to let us know if you paid it for 2012.
Estate and Gift Tax Planning
The annual gift tax exclusion amount was $14,000 for 2013 and is now indexed for inflation, so there will likely be an increase for 2014 but we do not know what it will be yet. This is an exclusion amount for each donee. Spouses can split gifts allowing them to double the amount given tax free to each donee. You can also include multiple family members in your gifting plans, each receiving $14,000 with no tax or reporting obligations. For large estates these gifting tools can help reduce or eliminate federal estate tax.
Oregon allows unlimited gifting for estate taxes. A common and effective Oregon estate tax avoidance technique involves life time gifting to bring the estate just below the $1 million exemption amount and filing requirement. Of course, gifting of this magnitude must be approached very carefully.
