What Moving Expenses Are Tax Deductible?

We occasionally acquire clients who move their tax residences for a new job. There is always a lot of confusion and questions about what is deductible. Here is some guidance from the IRS.

If you move your home you may be able to deduct the cost of the move on your federal tax return next year. This may apply if you move to start a new job or to work at the same job in a new location. In order to deduct your moving expenses, your move must meet three requirements:

Your move must closely relate to the start of work. In most cases, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
Your move must meet the distance test. Your new main job location must be at least 50 miles farther from your old home than your prior job location. For example, let’s say that your old job was three miles from your old home. To meet this test, your new job must be at least 53 miles from your old home.
You must meet the time test. You must work full-time at your new job for at least 39 weeks the first year after the move. If you’re self-employed, you must also meet this test. In addition you must work full-time for a total of at least 78 weeks during the first two years at the new job site. If your tax return is due before you meet the time test, you can still claim the deduction if you expect to meet it.

See Publication 521, Moving Expenses, for more information about the rules.

If you qualify for this deduction, here are a few more tips from the IRS:

Travel. You can deduct certain transportation and lodging expenses while moving. This applies to costs for yourself and other household members while moving from your old home to your new home. You may not deduct your travel meal costs.
Household goods and utilities. You can deduct the cost of packing, crating and shipping your property. This may include the cost to store or insure the items while in transit. You can deduct the cost to disconnect or connect utilities at your old and new homes.
Expenses you can’t deduct. You may not deduct:
- Any part of the purchase price of your new home.
- The cost of selling your home.
- The cost of breaking or entering into a lease.

See Publication 521 for more examples.

Reimbursed expenses. If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You must report any taxable amount on your tax return in the year you get the payment.
Address change. When you move, make sure to update your address with the IRS and the U.S. Post Office. To notify the IRS, file Form 8822, Change of Address.

For other advice on family budgeting, check out our podcasts:

Family Financial Issues–Part II (Spending Your Monday) and Shopping in Tijuana.

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IRS CIRCULAR 230 DISCLAIMER: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, (Firm) would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

How Can I Pay my taxes? What if I Can’t Afford to Pay Them?

We get clients all of the time that are in tax trouble. Many neglect filing their tax returns for years because they are afraid of the tax balance due. This is the worst mistake you can make because if there is income reported under your social security number, then the federal and state agencies will find you. There is no statute of limitations that will save you if you don’t file.

The IRS has provided some advice about paying your taxes. I have commented below with what we do to help.

Pay your tax bill. If you get a bill, you should pay it as soon as you can. You should always try to pay in full to avoid any additional charges. See if you can use your credit card or to get a loan to pay in full. If you can’t pay in full, you’ll save if you pay as much as you can. The more you can pay, the less interest and penalties you will owe for late payment. The IRS offers several payment options on IRS.gov.
Use IRS Direct Pay. The best way to pay your taxes is with IRS Direct Pay. It’s the safe, easy and free way to pay from your checking or savings account. You can pay your tax in just five simple steps in one online session. Just click on the “Payment” tab on IRS.gov. You can now use Direct Pay with the IRS2Go mobile app.
Get a short-term payment plan. If you owe more tax than you can pay, you may qualify for more time, up to 120 days, to pay in full. You do not have to pay a user fee to set up a short-term full payment agreement. However, the IRS will charge interest and penalties until you pay in full. It’s easy to apply online at IRS.gov. If you get a bill from the IRS, you may call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help.
Apply for an installment agreement. Most people who need more time to pay can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is the hassle-free way to pay. The set-up fee is much less than other plans and you won’t miss a payment. If you can’t apply online, or prefer to do so in writing, use Form 9465, Installment Agreement Request. Individuals can use Direct Pay to make their installment payments. For more about payment plan options, visit IRS.gov. (We work with the IRS and state agencies to set up installment agreements like this. We recommend that you use their direct payment from your checking account so you don’t miss a payment and invalidate the agreement.)
Check out an offer in compromise. An offer in compromise, or OIC, may let you settle your tax debt for less than the full amount you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. Not everyone qualifies, so make sure you explore all other ways to pay your tax before you submit an OIC to the IRS. Use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be. (We have found this pretty hard to do if you have assets or access to credit.)
Change your withholding or estimated tax. If you are an employee, you can avoid a tax bill by having more taxes withheld from your pay. To do this, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form. If you are self-employed you may need to make or change your estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for learn more. (This is proactive for the current tax year. We prepare tax projections to help clients pay in the proper amount of taxes throughout the year.)

To find out more see Publication 594, The IRS Collection Process. You can get it on IRS.gov/forms at any time.

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Fulfilling Your Passion by Creating a Non-Profit Business

Welcome to the LA CPA Expose’ . These articles outline business and personal financial advice on a variety of topics. You should always consult your professional and legal advisors before implementing any new strategies.

Business Strategy and Tactics: What We Can Learn From How We Raise our Kids

Our kids hate us…when we don’t give them money. Oh sure, we pay of their schooling, sports, and other school-related activities, but we are determined to require them to work for their recreation money. All three of my boys have worked for me from time to time.

So, when I came across Barbara Haislip’s article, How to Raise en Entrepreneur, it rang true with lessons with business strategy and tactics:

Read On

Fulfilling Your Passion by Creating a Non-Profit Business

Do you have a passion to do charitable work? Have you thought of creating a non-profit to make the world a little bit better? Have you been asked to volunteer or participate on a board of directors of a non-profit? Today, we will be addressing this aspect of our society and some advice to starting or maintaining your own on-profit business.

Listen To Our Podcast Here

Antiquing: How My Wife Convinced Me, and The Impact on Business Strategy

It started with Chumlee. I walked through the living room to my computer and stopped to watch Rick and Chumlee on Pawn Stars discuss the historical significance of something like a musket rifle. This intrigued me, but what really got me interested in their antiques was “value.” No, I don’t mean some 1920 decorative egg, I mean something that won’t break down within two years like my microwave.

Eight years ago, we purchased moderately expensive sconces. We didn’t realized that they would only last about five years. They developed an electrical short, and succumbed to the outside elements.

Inspired by the Pawn Star’s antiques, I bought four 1929 sconces at an estate sale that I will recondition. I believe these will be a better value than going to a lamp store to pay $200 per sconce. These antiques have lasted over 80 years, and are pretty cool to look at. I believe they will be a good value.

Read On

Mobile Payment Strategy: Is Your Small Business Developing One?

A Rick E Norris, An Accountancy Corp Publication

Issue: # July 8th 2015

Mobile Payment Strategy: Is Your Small Business Developing One?

I remember around 1970 asking for a “stingray” type bicycle with a five speed stick shift and a slick tire. I was definitely leap-frogging my friends’ stingrays who lacked multiple gears. I nailed them on the hills. My bike was the early precursor of the multi-gear mountain bikes that cost up to $5,000 today. I was ahead of the pack, for a while anyway.

Last December, I wrote about the mobile payment strategy in Is Your Viral Strategy Becoming Obsolete? I asked the question of whether your strategy and tactics are being adjusted to accommodate the next horizon? If you were, you were ahead of the pack.

Read On

In a Company’s Strategic Culture, Where There’s Smoke There’s Fire! (But What if You Can’t See the Smoke?)
Employee resistance is the most common reason executives (and small business owners) cite for the failure of organizational change. Strong, respected change leaders i.e., people with informal influences, is needed to convince employees about the value of a new business strategy. Your effort to convince those who can influence others may create cultural change, allowing employees “own” the process. Join Rick and Brandon as they give some tips on how to nurture these key individuals.

Listen To Our Podcast Here

Social Marketing Cloud Computing: Ground Control to Major Tom

“Ground Control to Major Tom
Commencing countdown, engines on
Check ignition and may God’s love be with you”

When David Bowie sang these lyrics, the astonauts’s image touched us. We wondered what the astronaut was thinking, and why did he suffer a demise.

Cloud comuting is going private. Dan Rowinski came out with an article, The Personal Cloud will be a $12 Billion industry business by 2016. He claims that this will be the next horizon. In addition, an article by Jim Blasingame Social Media Builds Customer Communities touches on this new frontier combining cloud computing and social networking.

Read On

We hope our articles were informative. All questions, comments,and feedback are welcome.

Sincerely,

IRS Phone SCAMS and How to Protect Yourself

Scam Phone Calls Continue; IRS Identifies Five Easy Ways to Spot Suspicious Calls

I just found this on the IRS site. I get calls from my clients every now and then who are contacted by a scam artist. The main thing is to call your tax adviser. Never, ever give your bank or credit card numbers over the phone. The IRS doesn’t work that way.

WASHINGTON — The Internal Revenue Service issued a consumer alert today providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

Call you about taxes you owe without first mailing you an official notice.
Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
Require you to use a specific payment method for your taxes, such as a prepaid debit card.
Ask for credit or debit card numbers over the phone.
Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or atwww.tigta.gov.
If you’ve been targeted by this scam, also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.

Additional information about tax scams are available on IRS social media sites, including YouTubeand Tumblr where people can search “scam” to find all the scam-related posts.

CPA Tax Tip: Late Payroll Taxes?

During my CPA career I have seen business owners shirking their responsibility to withhold and pay federal income taxes, too many times. The taxes can be both federal and state. On the federal side, FICA (social security), Medicare, income taxes, and unemployment insurance (FUTA) can add up to large amounts that these employers cannot seem to part with when their business is in a bind. Penalties and interest usually compound the problem.

Not only are the owners responsible, but any “responsible party.” See The Consequences of willful failure to pay payroll taxes by Vani Murthy for a more comprehensive discussion on the responsible party. There has been limitations on who these people are, but just because you delegate the duty does not mean you are off the hook. If you are the owner or officer, the responsibility may put your personal assets at risk. Worse yet, in the most egregious cases, the IRS has imposed criminal penalties including jail time.

So, what can a business owner do to avoid falling into this situation? And, if in it, what can they do?

Manage your cash flow: This is always the first step. Too many business owners look at payroll taxes as a necessary evil that can be placed on the back burner. Instead, place this item at the top of your cash disbursements along with the payroll. Pay them at the same time as your payroll, not the 15th of of the following month, or any time before that just because it is mandated by law.
Defer your personal payroll to the next month: As a small business owner, if you can personally afford paying yourself for a few weeks, defer your personal paycheck to the next month. That can be only one day when you pay payroll on the last day of the month. This could delay your payroll tax liability due date.
Understand the danger signs: If you are using your business credit line to “make payroll,” then your business model is probably broken. It could be for a number of reasons: Uncollectible receivables, too low of a gross profit ratio, unproductive sales employees are just to name a few. I have seen all of these sink businesses.
Talk to the IRS: If you find your company without funds, rectify the problem as stated above but also open a dialog with the IRS. Keep the communication open and implement a payment plan for back taxes. This may keep them from levying your bank account thus sabotaging any efforts to save your business.
Take your head out of the sand: There is a type of business owner that I have come across that uses the ostrich method. They just put business problems out of their mind and don’t plan on rectifying them. When I would make recommendations they would delay until forgotten. Please try to avoid this.

Meeting a challenge before it happens, and after it happens will usually be the best route to take with payroll taxes. Since all situations are unique, please consult a tax adviser before making any decisions.

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Business California Sales Tax: Why Pay More When Buying Equipment?

On July 1, 2014, a new law will allow manufacturers and certain research and developers obtain a partial exemption of sales and use tax on certain qualified equipment purchases and leases. You must meet all three requirements:

“Qualified Person” : These are enterprises that are engaged in certain types of businesses. A “qualified person” means a person who is primarily engaged (50 percent or more of the time) in those lines of business described in the North American Industry Classification System (NAICS). These industries generally include those primarily engaged in the business of all forms of manufacturing, research and development in biotechnology, and research and development in the physical, engineering, and life sciences. (NAICS was developed under the auspices of the Office of Management and Budget (OMB), and adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It was developed jointly by the U.S. Economic Classification Policy Committee (ECPC), Statistics Canada, and Mexico’s Instituto Nacional de Estadistica y Geografia , to allow for a high level of comparability in business statistics among the North American countries.)

To be primarily engaged as a legal entity or as an establishment you must, in the prior financial year, either derive 50 percent or more of gross revenue (including inter-company charges) from, or expend 50 percent or more of operating expenses in a qualifying line of business. Alternatively, an establishment is primarily engaged if, in the prior financial year, it allocates, assigns or derives 50 percent or more of either of the following to a qualifying line of business: (1) employee salaries and wages, (2) value of production, or (3) number of employees based on a full-time equivalency.

2. “Qualified Properties”: Machinery, equipment, and tangible personal property. However, look at the description because there are some exceptions.

3. Use Qualified personal property for uses (50% +) allowed by law:

Any stage of manufacturing, processing, refining, fabricating, or recycling.
Research and development
Maintaining qualified personal and tangible property.
Contractor’s purchases of property used in construction for a qualified person if that person uses it for a qualified purpose.

Make sure you understand the rules. These are explained on this site: https://www.boe.ca.gov/sutax/manufacturing_exemptions.htm#Qualifications

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Tax Records Advice:Early Preparation Can Save Headaches Later

Most people I know live at a very fast pace. Planning ahead for a wedding, graduation, or a baby usually get priority in life. Planning and organizing tax information usually doesn’t. However, if you are one of those people who want to change your method of tax readiness before April, here are a few IRS tips with our comments:

What to keep – Individuals. In most cases, keep records that support items on your tax return for at least three years after that tax return has been filed. Examples include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed. You should typically keep records relating to property at least three years after you’ve sold or otherwise disposed of the property. Examples include a home purchase or improvement, stocks and other investments, Individual Retirement Account transactions and rental property records. We believe one set of items that you should keep forever is the support for all improvements made to your home or any real estate. When the time comes to sell your home, these improvements may reduce your capital gains tax.
What to keep – Small Business Owners. Typically, keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Also, keep records documenting gross receipts, proof of purchases, expenses and assets. Examples include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices, credit card charges and sales slips, Forms 1099-MISC, canceled checks, account statements, petty cash slips and real estate closing statements. Electronic records can include databases, saved files, e-mails, instant messages, faxes and voice messages.
How to keep them – Although the IRS generally does not require you to keep your records in any special manner, having a designated place for tax documents and receipts is a good idea. It will make preparing your return easier, and it may also remind you of relevant transactions. Good record-keeping will also help you prepare a response if you receive an IRS notice or need to substantiate items on your return if you are selected for an audit. We find that digital copies of receipts and checks help organize and preserve your records.

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CPA Tip: Charitable Contributions and the World of Doing Good

It is never too early for tax planning, especially when it comes to charitable contributions. This seems to be an area where clients come up short in April because they forget what they contributed during the year, or lack the proper documentation.

The IRS has provided some tips.

1. You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates. Many times clients ask if they can deduct payments made to a family member that is struggling financially.

2. In order for you to deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.

3. If you get a benefit in return for your contribution, your deduction is limited. You can only deduct the amount of your gift that’s more than the value of what you got in return. Examples of such benefits include merchandise, meals, tickets to an event or other goods and services. If you received any benefits from your contribution to a tax-exempt organization, you must compare that you paid.

4. If you give property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

6. You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. It can be a cancelled check, a letter from the organization, or a bank or payroll statement. It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift. I recommend that clients get documentation for all charitable deductions as a matter of discipline.

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CPA Tax Tip: IRS Guidance on Medicare Taxes

A new Medicare tax kicked in back in 2013. There is a lot of confusion, so here are some IRS guidelines that can help in tax planning:

1. The Additional Medicare Tax is 0.9 percent. It applies to the amount of your wages, self-employment income and railroad retirement (RRTA) compensation that is more than a threshold amount. The threshold amount that applies to you is based on your filing status. If you’re married and file a joint return, you must combine your spouse’s wages, compensation, or self-employment income with yours to determine if you exceed the “married filing jointly” threshold.

2. The threshold amounts are:

Filing Status Threshold Amount
Married filing jointly         $250,000
Married filing separately   $125,000
Single                            $200,000
Head of household          $200,000
Qualifying widow(er) with dependent child      $200,000

3. You must combine wages and self-employment income to determine if your income exceeds the threshold. You do not consider a loss from self-employment when you figure this tax. You must compare RRTA compensation separately to the threshold. See the instructions for Form 8959, Additional Medicare Tax, for examples.

4. Employers must withhold this tax from your wages or compensation when they pay you more than $200,000 in a calendar year, without regard to your filing status, wages paid to you by another employer, or income that you may have from other sources. Your employer does not combine the wages for married couples to determine whether to withhold Additional Medicare Tax.

5. You may owe more tax than the amount withheld, depending on your filing status and other income. In that case, you should make estimated tax payments /or request additional income tax withholding using Form W-4, Employee’s Withholding Allowance Certificate. If you had too little tax withheld, or did not pay enough estimated tax, you may owe an estimated tax penalty. For more on this topic, see Publication 505, Tax Withholding and Estimated Tax.

6. If you owe this tax, file Form 8959, with your tax return. You also report any Additional Medicare Tax withheld by your employer on Form 8959.

Your tax preparer will compute this on your tax return, but the real risk is not paying enough estimated taxes during the year. You should have a proper tax projection prepared early in the tax year to know whether you are subject to such tax.

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