IRS

Can you claim a home office deduction for business use?

You might be able to claim a deduction for the business use of a home office. If you qualify, you can deduct a portion of expenses, including rent or mortgage interest, depreciation, utilities, insurance, and repairs. The exact amount that can be deducted depends on how much of your home is used for business.

Basic rules for claiming deductions

The part of your home claimed for business use must be used:

  • Exclusively and regularly as your principal place of business,
  • As a place where you meet or deal with patients, clients, or customers in the normal course of business,
  • In connection with your trade or business in the case of a separate structure that’s not attached to your home, and
  • On a regular basis for the storage of inventory or samples.

A strict interpretation

The words “exclusively” and “regularly” are strictly interpreted by the IRS. Regularly means on a consistent basis. You can’t qualify a room in your home as an office if you use it only a couple of times a year to meet with customers. Exclusively means the specific area is used solely for business. The area can be a room or other separately identifiable space. A room that’s used for both business and personal purposes doesn’t meet the test.

The exclusive use rule doesn’t apply to a daycare facility in your home.

What if you’re audited?

Home office deductions can be an audit target. If you’re audited by the IRS, it shouldn’t result in additional taxes if you follow the rules, keep records of expenses and file an accurate, complete tax return. If you do have a home office, take pictures of the setup in case you sell the house or discontinue the use of the office while the tax return is still open to audit.

There are more rules than can be covered here. Contact us about how your business use of a home affects your tax situation now and in the future. Also be aware that deductions for a home office may affect the tax results when you eventually sell your home.

© 2016

Tax-Related Identity Theft

Identity theft is a growing problem, and tax-related identity theft in particular continues to increase each year. In 2015, tax-related identity theft continued to hold a high spot on the IRS’s annual “Dirty Dozen” tax scams list.

Tax return identity theft occurs when the taxpayer’s personal information, such as name, Social Security number (SSN), employer identification number, or other identifying information, is used without the taxpayer’s authority to file a fraudulent tax return (usually to claim a fraudulent refund or to obtain tax benefits). This type of identity theft carries serious consequences. It can take victims months just to prove their identity to the IRS, which in turn delays the processing of legitimate refund claims. According to the IRS, individual victims of identity theft “may lose job opportunities, be refused loans, education, housing or transportation, and may even be arrested for crimes they didn’t commit” (IRS Publication 4535, Identity Theft Prevention and Victim Assistance). Businesses may incur significant damage to their reputations, in addition to financial losses and the costs incurred to resolve the issues with numerous agencies.

Scams – Unless you have been in communication with a specific IRS agent regarding a specific matter, the IRS will never contact you via phone or email. Scammers often use these mediums to get personal information or con taxpayers into paying fake taxes/penalties. If the IRS needs to reach a taxpayer they generally do it via U.S. mail. Be suspicious. If you receive a notice that seems suspicious, we recommend that you contact a CPA.

Need help communicating with the IRS because you have been a victim of tax-related identity theft or you have received a suspicious notice? Atchley & Associates LLP may be able to assist you.

See the full article issued by The Tax Adviser on this topic at : http://www.thetaxadviser.com/issues/2015/dec/assisting-clients-with-tax-related-identity-theft.html#sthash.09Lk7sql.dpuf

The IRS Raises Tangible Property Expensing Threshold to $2,500; Simplifies Filing and Recordkeeping for Small Businesses

The IRS has made some changes today and simplified requirements for small businesses regarding paperwork and recordkeeping. According to the Notice 2015-82, the safe harbor threshold for deducting certain capital items has been raised from $500 to $2,500.

Those businesses that do not maintain an audited financial statement will be affected by these changes. Change applies to amounts spent to acquire, produce or improve tangible property that would qualify as capital item. The change in threshold to $2500 applies to any of these that is substantiated by an invoice.

“This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.” said IRS Commissioner John Koskinen.

The new $2,500 threshold takes effect starting with tax year 2016. The IRS will also provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

For further information about this change, check the latest information found in Notice 2015-82, or in the IRS website.

Take steps to avoid this tax “gotcha”

Last summer the Trade Preferences Extension Act (TPEA) was signed into law, giving the President fast-track trade authority. But like many complex pieces of federal legislation, some provisions buried deep in the law don’t get as much publicity as the headline provisions. However, they can have a big impact on business.

One of these is Section 806, which has nothing to do with trade or globalization but everything to do with raising revenue. Specifically, Sec. 806 increases by up to 150% the potential penalties that must be paid by businesses that fail to file correct information returns or that provide incorrect payee statements.

Specifically, failing to file Forms W-2 and 1099 will trigger the increased penalties. So will failing to file new information returns required by the Affordable Care Act (ACA) for the first time in 2016. They include Forms 1094-C and 1095-C for applicable large employers and forms 1094-B and 1095-B for small employers.

Effective dates are imminent

The new penalties are effective for statements and information returns filed after December 31, 2015. Short-term penalty relief is provided under IRC Sections 6721 and 6722 for companies that demonstrate a good-faith effort to comply with the new ACA information reporting requirements. But this relief applies only to reported information that’s incorrect or incomplete (such as Social Security numbers). Relief isn’t available for companies that fail to file or furnish statements in a timely manner.

The general penalty for failing to file a correct information return with the IRS or provide correct payee statements has increased from $100 to $250 per return or statement. Meanwhile, the maximum annual penalty a company may be subject to has doubled — from $1.5 million to $3 million for large businesses and from $500,000 to $1 million for small businesses (those with gross annual receipts under $5 million).

Companies that correct their filing failures or inaccuracies within 30 days can pay a lower penalty. However, this also has been increased — from $30 to $50 per return with a maximum annual penalty of $175,000 for small businesses (up from $75,000) and $500,000 for large businesses (up from $250,000).

Intentional disregard is costly

If a failure is due to what the IRS considers to be intentional disregard, the penalty rises from $250 to $500 per return or statement with no annual maximum. The penalty amounts are expected to be adjusted for inflation every five years.

Also, failing to file required information and to provide required payee statements could lead to penalties that are double the annual maximum. This is because each of these errors is treated as a separate infraction. So, a large business that doesn’t file W-2 forms with the IRS or provide W-2 forms to employees could face annual penalties of up to $3 million for each error, for a total of up to $6 million.

Systems and controls are recommended

One of the best ways to guard against making the kinds of errors that lead to these increased penalties is to implement appropriate systems and controls for information reporting.

For example, consider using the IRS’s Taxpayer Identification Number On-line Matching service, which enables you to compare the 1099 information you have to the IRS’s records before filing an electronic return. If the information doesn’t match, you can ask payees for verification — and that can help reduce mistakes and subsequent penalties.

Be prepared

Don’t let Section 806 sneak up on you. Take steps now to make sure you aren’t subject to these tougher penalties.

© 2015

Payroll Service Providers (PSP)

The Spring SSA/IRS Reporter includes a useful article offering tips for organizations that use payroll service providers. A payroll service provider (PSP) can be an excellent option for employers that are looking for assistance with payroll processing and payroll tax deposit requirements. However, it is important to remember that the responsibility for timely filing and payment still lies with the employer. The IRS can hold you and your business ultimately responsible for unpaid taxes, or unfiled or late files returns. The IRS offers a few tips if you use a payroll service:

  1. Check to see if your payroll service is listed on the IRS Payroll Service Providers page. The listed providers have passed IRS testing requirements [Click here to see the full list].
  2. Know your tax due dates. The IRS offers Tax Calendar options that can help [Tax Calendar].
  3. Review your payroll tax reports for accuracy before they are filed.
  4. Enroll in EFTPS. You will be able to login and see the tax payments made under your EIN, and make missed payments, if necessary.
  5. Keep your organization’s address as the address of record with the IRS. This way you are sure to see any correspondence from the IRS and make sure that a response is made quickly.
  6. If you suspect your PSP is not complying with regulations, file a complaint with the IRS using Form 14157.

As always, Atchley & Associates, LLP is happy to answer questions or assist you in any way we can.

Reference. Publication 1693 (Rev. 6-2015) Catalog Number 15060W Department of the Treasury Internal Revenue Service www.irs.gov