Author Archives: Brett Flickinger

179D Federal Energy Tax Deductions

If you own a building you may be overlooking a very important tax deduction that can, if applicable, can provide substantial tax savings for your business.

What is this little known tax break? Section 179D. This is the section of the tax code that provides a benefit for businesses when they build or renovate a building (or design a government building in the case of an architect, engineering or contracting firm) that is energy efficient. The deduction can be up to $1.80 per square ft.

New Buildings

Most states now require that new buildings surpass 2001 ASHRAE standards. If the building does, it will qualify or partially qualify for 179D.

Building Improvements

As building owners, you know that many systems in the building require periodic replacement long before they are fully depreciated such as HVAC/hot water systems, interior lighting systems, etc. There are a number of ways that these building improvement can qualify or partially qualify for the 179D tax deduction.

Attention Architects, Engineers and Contractors

The tax law provides that a government agency (federal, state or local) can allocate the 179D tax benefits to the architect/engineer/contractor engaged in designing and building government buildings. The architect, engineer or contractor is assigned the tax benefit from the government agency. In fact, you can go back three years and obtain this benefit. Meaning that you can review government buildings you helped design or build that were placed in service in the last three years — receive an allocation letter from the government and amend your tax returns and obtain the 179D benefits.

Building Owners & Tenants

The owner of the building or improvement can go back to buildings put in service or improvements made in the last six years – – and they will qualify for 179D. The building owner takes the deduction in the current year and reduces the basis in the building or improvement. For building owners, 179D provides a potentially significant timing benefit in paying taxes.
Tenants can also qualify if the tenant paid for and owns the improvement.

What qualifies?
• Commercial buildings (any size).
• Apartments, four+ stories, for lease.
• Commercial energy renovations.

What is the time frame for eligibility?
Units must be completed or renovated after December 31, 2005 but before December 31, 2014.

 

For more information, contact your Dugan & Lopatka CPA at (630) 665-4440.

Will the New “Repair Regulations” Affect Your Business?

After years of work, the IRS has finally issued regulations clarifying for the business community when costs related to fixed assets must be capitalized and when they can be expensed.

To Expense or Capitalize? What’s the Difference?

Generally, the cost to acquire, produce, or improve tangible property must be capitalized and depreciated over a number of years. On the other hand, the cost of repairing and maintaining fixed assets is deductible in the year of the expense.

The difficulty has been distinguishing between the two kinds of costs. Is the expense a “repair or ordinary maintenance” that can be deducted on the current year’s tax return, or is it an “improvement” that must be capitalized and depreciated over the life of the asset?

If you buy, build, or repair business assets, you might have questions when trying to decide whether your costs are currently deductible on your federal income tax return or whether they are capital improvements.

Since deductions for capital improvements are typically spread over the life of an asset, the answer can be important even when accelerated depreciation methods are available.

The new “repair regulations” are the IRS’s attempt to clarify when costs may be currently deducted and when they must be capitalized. The newly issued tax rules can make the expense-or-capitalize decision easier for your company. These repair regulations provide guidelines and safe harbors to help you determine when certain purchases and expenditures are considered repairs, maintenance, improvements, materials, or supplies that can be deducted in the year of purchase.

Safe Harbors in the New Rules

Here’s an overview of safe harbor rules that may affect the way you classify expenses.

  • De minimis purchases
    In general, you can deduct the cost of tangible property purchased during a taxable year if the amount you pay for the property is less than $500 per invoice, or per item. This is an all-or-nothing rule, meaning if an asset costs more than $500, you cannot take a partial deduction.

To take the deduction, you’ll need a written accounting policy in place by the beginning of your tax year, and you’re required to file an annual statement with your federal tax return.

Note: This safe harbor does not apply to intangible assets such as computer software.

  • Repairs and maintenance
    You can expense costs for routine maintenance of buildings and other property. For buildings, “routine” means maintenance you expect to perform more than once in a ten-year period. The costs for material additions or defects or for adapting your property to a new or different use are not considered routine maintenance, and they should be capitalized.

For other assets, “routine” is defined as maintenance you expect to undertake more than once during the asset’s depreciable class life.

  • Improvements
    Generally, improvements you make to your business building are capitalized and depreciated over the life of the building. Under the new rules, if your business’s gross receipts are ten million dollars or less and the unadjusted basis of your building is one million dollars or less, you may choose to write off the cost of improvements.

You can make the election annually on a building-by-building basis for property you own or lease by filing a statement with your tax return. To qualify, the total amount you pay during the year for repairs, maintenance, and improvements cannot be greater than $10,000 or 2% of the unadjusted basis of the building, whichever is less.

Note: The total includes amounts you deduct under the “repairs and maintenance” and “de minimis” safe harbors.

  • Materials and supplies
    Incidental materials and supplies (supplies for which you do not maintain an inventory) costing less than $200 can be expensed in the year of purchase.

Note: This safe harbor does not affect prior rules for deducting materials and supplies, such as restaurant smallwares.
The repair regulations are effective for tax years beginning after 2013, so they will apply to your 2014 federal income tax return. In some cases, you can apply the new rules to prior years.

The repair regulations are more than 200 pages long. Filled with various effective dates, requirements, definitions, exceptions, and safe harbors, they are anything but concise and clear. As with any part of the tax law, these regulations contain numerous complex provisions that could result in tax savings or additional costs for your business. If your company owns or leases fixed assets, contact your Dugan & Lopatka CPA at (630) 665-4440 for assistance in applying the rules to your business.

If You Take Care of Your Parents, You May Get Tax Breaks

When you’re focused on the rewards and stresses of taking care of a parent or family member who can no longer manage on their own, it’s likely you’re not thinking of tax benefits. Yet you might qualify for breaks that can reduce your year-end bill.

Here are three benefits to keep in mind as you gather information for your 2014 federal income tax return.

* Dependency exemption. Did you provide over half the support for a loved one during 2014? If so, and that person’s income is less than $3,950, you may be able to claim a dependency exemption. Remember that tax-exempt social security is not included when figuring your loved one’s income.

Tip: This break is also available even if the dependent parent lived in a nursing home during the year.

For 2014, the amount you can claim for each dependent is $3,950. More than one family member can qualify as a dependent as long as the income and support tests are met.

* Medical expense deduction. When you itemize, you can claim expenses you paid for a dependent relative. If you provide over 50% of the support for your relative, the expenses may be deductible even when that person is not a dependent.

What happens if you can’t meet the 50% threshold? When medical expenses are paid by multiple family members, you can choose who gets the deduction by completing a multiple support agreement (Form 2120).

* Dependent care credit. You may be eligible for the dependent care credit when you pay for home care or daycare for a physically or mentally disabled person who lives with you. You must have earned income to claim the credit, which can be as much as $1,050 in 2014.

Please give us a call if you would like details about tax benefits available to caregivers.

Self-Employment Tax Breaks

When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.

  • Save for retirement. When you’re self-employed, you’re allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. We recommend that you take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
  • Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That’s because your child’s earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
  • Deduct insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an “above the line” deduction, subject to certain restrictions.
  • Take business-use deductions. Self-employed individuals can also deduct “mixed-use” items directly against their business income. Use your car for business and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.

Please give us a call to find out more about the tax breaks available to self-employed individuals.

Get a Tax Break from Selling Vacant Land

You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.

To qualify, the land you sell must be adjacent to the parcel on which your house sits. Also, the land sale must occur within two years before or after the residence is sold. You must meet the other usual requirements for claiming the exclusion. If you qualify, you can apply your $250,000 or $500,000 exclusion to both sales combined.

Example: You own and live in a house which sits on four acres. You decide to sell the house on a one-acre lot and sell the other three acres of empty land to a developer. Provided the land sale occurs within two years before or after you sell the house, you can exclude up to $250,000 ($500,000 if you file jointly) of the combined gain from both sales.

Tax Tips for Your Child’s Summer Job

Is your child taking a job this summer? If so, you both may have questions about taxes. The following information may be helpful.

For 2014, your child can earn as much as $6,200 and not pay a dime in federal income taxes. If your child’s earnings won’t exceed this amount, consider having the child claim “student – exempt” when completing the federal withholding allowance certificate (Form W-4). If this is the child’s only income and the total doesn’t exceed the $6,200 limit, he or she then won’t have to file a 2014 tax return.

Don’t overlook the fact that there will still be withholding from your child’s paycheck for social security and Medicare taxes. But those payments are not income taxes, and they cannot be refunded to the child.

Keep in mind that self-employment income, tips, and interest, dividends, and stock sales can affect your child’s tax return filing requirement.

Realize also that as long as you provide more than half of your child’s support, you can continue to claim the child as an exemption on your tax return. Your child will lose his or her exemption, but that exemption deduction is typically more valuable to you than to your child.

If you need more details about the tax implications of your child’s summer job, give us a call. We’re happy to help.

IRS Issues Repair Regulations

To expense or to capitalize? If you buy, build, or repair business assets, you might ask that question when deciding whether your costs are currently deductible on your federal income tax return or whether they’re considered capital improvements. Since deductions for capital improvements are typically spread over the life of an asset, the answer can be important even when accelerated depreciation methods are available.

New tax rules can make the expense-or-capitalize decision easier. These “repair regulations” provide guidelines and safe harbors to help you determine when certain purchases and expenditures are considered repairs, maintenance, improvements, materials, or supplies that can be deducted in the year of purchase. Here’s an overview of safe harbor rules that may affect the way you classify expenses.

* De minimis purchases. In general, you can deduct the cost of tangible property purchased during a taxable year if the amount you pay for the property is less than $500 per invoice, or per item. This is an all-or-nothing rule, meaning if an asset costs more than $500, you cannot take a partial deduction.

To take the deduction, you’ll need a written accounting policy in place by the beginning of your tax year, and you’re required to file an annual statement with your federal tax return.

Note: This safe harbor does not apply to intangible assets such as computer software.

* Repairs and maintenance. You can expense costs for routine maintenance of buildings and other property. For buildings, “routine” means maintenance you expect to perform more than once in a ten-year period. The costs for material additions or defects or for adapting your property to a new or different use are not considered routine maintenance, and they should be capitalized.

For other assets, “routine” is defined as maintenance you expect to undertake more than once during the asset’s depreciable class life.

* Improvements. Generally, improvements you make to your business building are capitalized and depreciated over the life of the building. Under the new rules, if your business’s gross receipts are $10 million or less and the unadjusted basis of your building is $1 million or less, you may choose to write off the cost of improvements.

You can make the election annually on a building-by-building basis for property you own or lease by filing a statement with your tax return. To qualify, the total amount you pay during the year for repairs, maintenance, and improvements cannot be greater than $10,000 or 2% of the unadjusted basis of the building, whichever is less.

Note: The total includes amounts you deduct under the “repairs and maintenance” and “de minimis” safe harbors.

* Materials and supplies. Incidental materials and supplies – supplies for which you do not maintain an inventory – costing less than $200 can be expensed in the year of purchase.

Note: This safe harbor does not affect prior rules for deducting materials and supplies, such as restaurant smallwares.

The repair regulations will affect your 2014 federal income tax return. In some cases, you can apply the new rules to prior years. Please call us for additional information.

IRS Inflation Adjustments for 2014

Each year the IRS adjusts certain tax numbers for inflation and tax law changes. Here are some of the adjusted numbers you’ll need for your 2014 tax planning.

* Standard mileage rate for business driving decreases to 56¢ a mile. Rate for medical and moving mileage decreases to 23.5¢ a mile. Rate for charitable driving remains at 14¢ a mile.

* Section 179 maximum first-year expensing deduction decreases to $25,000, with a phase-out threshold of $200,000.

* Social security taxable wage limit increases to $117,000. Retirees under full retirement age can earn up to $15,480 without losing benefits.

* Kiddie tax threshold remains at $2,000 and applies up to age 19 (up to age 24 for full-time students).

* Nanny tax threshold increases to $1,900.

* Health savings account (HSA) contribution limit increases to $3,300 for individuals and to $6,550 for families. An additional $1,000 may be contributed by those 55 or older.

* 401(k) maximum salary deferral remains at $17,500 ($23,000 for 50 and older).

* SIMPLE maximum salary deferral remains at $12,000 ($14,500 for 50 and older).

* IRA contribution limit remains at $5,500 ($6,500 for 50 and older).

* Estate tax top rate remains at 40%, and the exemption amount increases to $5,340,000.

* The annual gift tax exclusion remains at $14,000.

* Tax credit for adopting a child is $13,190 for 2014.

* Alternative minimum tax exemption amounts increase to $52,800 for single taxpayers and $82,100 for married couples filing a joint return.

* Limit on transportation fringe benefit is $130 for vehicle/transit passes and $250 for qualified parking.

Chicago area businesses can receive a free copy of our Handy Tax Guide which contains all of the tax numbers you need (while supplies last). To receive your copy, contact us via our contact form at website http://www.duganlopatka.com/contact-us

IRS Issues Phone Scam Alert

he IRS has issued a warning about the latest phone scam. The caller claims to be from the IRS and tells the intended victims they owe taxes which must be paid immediately with a pre-paid debit card or wire transfer. Individuals who don’t pay up are threatened with arrest or loss of their business or driver’s license.

Watch for these signs that the call is a scam:

* Use of fake IRS badge numbers.

* Caller knows the last four digits of your social security number.

* Caller ID appears as if IRS is calling.

* Bogus IRS e-mail is sent as follow-up.

* Second call claims to be from police or DMV, again supported by fraudulent caller ID.

Don’t respond in any way to these scams; instead forward the scam e-mail to phishing@irs.gov, or file a complaint at FTC.gov.