Category Archives: Uncategorized

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.

Major Tax Deadlines for February 2014

* February 18 – Deadline for brokers to provide 2013 Forms 1099-B and 1099-S to customers.

* February 28 – Payers must file 2013 information returns (such as 1099s) with the IRS. (Electronic filers have until March 31 to file.)

* February 28 – Employers must send 2013 W-2 copies to the Social Security Administration. (Electronic filers have until March 31 to file.)

Note: Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.

Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees’ pay and both the employer’s and employees’ share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.

* Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.

* Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.

For more information on tax deadlines that apply to you or your business, contact our office at (630) 665-4440.

The IRS Will Never Use eMail to Initiate Contact: Watch for Scams

Criminals are not only filing bogus tax returns using other people’s identification, they are also stealing the “look” of the IRS to phish for additional financial information from taxpayers.

The IRS has made numerous announcements in the past to help protect taxpayers from these scams. It repeats the message that it will never use an e-mail, text message, or social media to initiate a contact about your tax information.

If you receive what looks like an official IRS e-mail, you should forward it to phishing@irs.gov. Do not reply to the sender, and do not open any attachments.

Next Government Shutdown Dates

Early in the morning of October 17, President Obama signed a bill into law reopening the federal government and extending U.S. borrowing authority. But the law contains deadlines that could leave the country facing the same issues again. Here are the important dates in the law –

* December 13, 2013 – Report required from Congressional budget negotiators on how to solve long-term budget issues.

* January 15, 2014 – Date after which federal government funding runs out.

* February 7, 2014 – Debt limit extension expires.

“Tip” or “Service Charge” Rule

Restaurant owners and employees will be affected by an IRS rule going into effect this coming January. The “automatic gratuity” that many restaurants add to the bill for larger parties will be treated as a “service charge” rather than as a “tip.” Service charges are treated as regular wages subject to withholding by the employer. Tips, on the other hand, are reported as income by the restaurant employees receiving them. The ruling is likely to complicate bookkeeping and reporting for both restaurant employees and employers.