Preparing Year-End Finances for Seamless Tax Filing

Stephanie Taylor Christensen  for Intuit writes: Tax season is right around the corner. Getting your financial house in order now can help you avoid problems later. Here are some key documents to gather as the calendar year draws to a close.

Income Records — If you worked for an employer before becoming an entrepreneur, you know that reporting your income as a small-business owner is trickier than it was when you simply waited for a W-2 to arrive in the mail. Minimize your tax-season headaches by organizing your bank deposits and statements, receipt books, invoices, and credit card processing data from the past year, along with any 1099-MISC forms you receive from clients.

W-9s and Employee Withholdings — Did you hire any independent contractors or work with subcontractors whom you paid more than $600 in 2013? If so, confirm that you have a completed and signed Form W-9 on file for each one; you’ll need to send them a 1099-MISC by Jan 31,2014. Did you have employees on your payroll? Pull together your records of all local, state and/or federal taxes and Social Security you paid on their behalf (and withheld from their paychecks). “You should have these records on file if you do your own payroll. If you use a payroll service, they will have copies of them,” says Manny Skevofilax of Portal CFO Consulting.

Receipts for General Business Expenses — If you plan to deduct, or “write off,” expenses related to your business, you’ll need evidence to support each claim. Round up your mileage log and/or original transaction receipts for advertising and marketing and business travel, meals, entertainment, gifts, and the like. Skevofilax urges small-business owners to begin this time-consuming information-gathering process well before tax time — especially if you don’t use an automated accounting system to track your business expenses.


Receipts for Home-Office Expenses — If you’ll claim a home-office deduction, gather receipts and canceled checks that support direct and indirect expenses, from utility bills to property insurance. If you have insufficient documentation to support a home office claim, new home-office rules allow you to claim $5 per square foot of the space used for business — up to 300 square feet — in 2013.

Asset Documentation — If you entered into any kind of equipment or property lease in 2013 — whether for an office copy machine or a business vehicle — make sure you have the paperwork on hand for tax prep. To support any claims of depreciation for assets you own, you’ll also need a purchase record (invoices, real estate closing statements, canceled checks) that includes when, how, and for what amount and purpose an item was purchased. If you no longer possess assets you previously claimed, note either how much you sold them for or how you disposed of them.

Annual Report Filing (If Required) — If you run a limited liability corporation, you may be required to file an annual report of sorts. It’s not an IRS report, so requirements vary by state (business owners in Delaware, Ohio, and South Carolina are exempt), and you’ll want to double-check the Statement of Information filing laws in your area. The process may simply require that you complete a one-page form verifying owner contact information and place of business; however, failing to miss the filing due date, which also varies by state, may result in penalties and fees. In some states (like California) not filing this information is taken as seriously as failing to file taxes at all, and can result in revocation of your legal right to conduct business in the state.

Estimated-Tax Payments — At this point, most small-business owners will have made three quarterly estimated tax payments for 2013. After you gather all of your income- and expense-related documents, verify that you’ve paid enough estimated taxes for 2013. If you haven’t, increase the payment that’s due Jan. 15, 2014, advises Nellie Akalp, CEO of the small-business advisory firm CorpNet.com, in order to reduce the amount you owe on April 15, as well as any penalties for underpayment.

Why It's Better Not to Give Your Car to Charity

Jeff Brown for The Street writes: The holidays are the time of giving, and just happen to come as many people are looking for tax deductions to slip in before Jan. 1. So how about handing an old vehicle to charity?

It's a perfectly good way to give to charity, and some key steps can ensure you and the charity get the most out of the donation. A tax deduction for a charitable donation could come in handy next April, and could be used for additional giving.

But first, let's be honest. From a purely financial perspective, giving a vehicle away is not the most profitable move. For every $100 in value, you might save $25 in taxes, assuming a 25% tax bracket. If you sold the vehicle, you'd pocket the full $100. (There'd also be no capital gains tax if the vehicle were sold for less than you'd paid.)

And if you intend to buy another vehicle, the old one has turn-in value. That may be a tad less than the value if sold to a private party, but still a good deal more than the value of the tax deduction. 

This is why these donations often involve vehicles on their last legs. Many charities will take vehicles that don't even run, as they can be auctioned to parts salvagers. Typically, the charity will pick the vehicle up, making donation an easy way to clear your life of a clunker that wouldn't have much value in a sale or turn-in anyway.

So, if you want to give to charity, why not do it with an old vehicle?

Edmunds.com, the car-shopping site, says that starting in 2005 donors could no longer simply claim deductions based on fair market value derived from sources such as Edmunds and Kelley Blue Book. Since then, the value claimed is the value realized by the charity, which reports the price to the donor in writing. The change was meant to curb inflated claims. Unfortunately, charities are not likely to hang tough on sale prices, because they don't want to store old vehicles. 

To get the deduction, you must give to a qualified charity, a 501(c)(3) organization approved by the IRS and listed on its exempt organizations site.

As with almost all deductions, this one can be claimed only if you itemize your tax return. But for many people, itemizing does not make sense because it produces less tax savings than they get with the standard deduction available to anyone who does not itemize.
Be sure to keep all paperwork related to the donation, especially that report from the charity on the deductible amount.

What charity should you choose? Charity Navigator, a nonprofit that advises on giving, suggests selecting a charity that accepts direct vehicle donations. Charities that don't take direct donations typically use intermediaries that skim a portion of the proceeds, sometimes quite a large one. 

If the vehicle runs, the charity will get more out of the donation if it does not have to pay to pick it up. Also, look for a charity that has low administrative costs. That data's on (the Charity Navigator site.   

Though giving the vehicle itself is hassle free, Edmunds says car owners can often make larger donations by selling the vehicle themselves and giving the proceeds. If you're willing to go to the trouble, there's a good chance you can get a higher price than the charity will realize at auction.

Pay Less Tax on Capital Gains in 2014: 3 Simple Tips

Dan Caplinger for the Motley Fool writes: The explosive move higher for stocks in the past several years has been great for stock investors, who've seen their portfolios largely recover from the 2008 bear market. But the IRS wants its share of your hard-earned investing profits, which means more taxpayers will have to pay tax on capital gains in 2014.

However, by  following a few simple strategies, you can make sure that you pay as little tax on your capital gains in 2014 as you absolutely have to. Let's look at three of those strategies and find out how you can pay less to Uncle Sam in the years to come.

1. In taxable accounts, hold on to your investments for more than a year

The easiest way to reduce your tax on capital gains is to hold on to your investments for more than a year. That qualifies you for long-term capital gain treatment, which includes favorable rates that are lower than what you'll pay for capital gains on investments you hold for a year or less. Short-term capital gains tax rates are the same as your ordinary income tax rate, ranging up to 39.6%. But for long-term capital gains on most qualifying investments, the maximum tax is 20% for those in the highest tax bracket, 15% for those in the four tax brackets from 25% to 35%, and 0% for those in the 10% and 15% brackets.

Not all assets qualify for these particular preferential rates. Gold and silver bullion, as well as exchange-traded funds SPDR Gold (NYSEMKT: GLD  ) , iShares Silver (NYSEMKT: SLV  ) , and iShares Gold (NYSEMKT: IAU  ) , are treated as collectibles, for which ordinary income tax rates apply subject to a higher maximum of 28%. Nevertheless, structuring your investments to hold them for longer than a year is the most obvious way to reduce your tax bill on capital gains in 2014 and beyond.

2. For quick trades, use tax-deferred accounts

Capital gains taxes make it expensive to be a short-term trader in a taxable account, but that doesn't mean you have to give up on all your opportunistic trading options. The key to avoiding capital gains with short-term trades is to use IRAs or other tax-deferred vehicles to hold those stocks.

The reason is simple: Even when you sell a winning stock in an IRA, you don't have to pay capital gains tax at that time. What happens instead is that the proceeds from the sale stay in the IRA and are available for reinvestment, and you'll only get taxed when you start making withdrawals from your retirement account. So if you're looking to take advantage of a short-term opportunity, such as a spinoff, special dividend, or buyout offer, buying it in an IRA will avoid a painful tax on eventual gains.

3. Look for capital losses to offset your gains

As in any other year, capital gains in 2014 will be netted against any capital losses you might have for the year. As a result, if you foresee selling some of your winning stocks next year, you should consider selling some of your losing stocks as well to offset those gains.

Tax considerations should only be part of your decision to sell a stock, though. If you sell a stock you like just to reap the loss, you won't be able to claim that loss if you buy the stock back within 30 days. That can lead to missing out on a rebound in that stock, forcing you to repurchase shares at a higher price after the 30-day period ends. Tactics like buying SPDR S&P 500 (NYSEMKT: SPY  ) or other index ETFs to substitute for an individual stock can reduce that risk, but nothing can eliminate it entirely. On the other hand, if you want to get rid of a losing stock for good, it only makes sense to use the tax loss to your best advantage.

It's easy to be tax-smart about your capital gains in 2014. By following these three simple strategies, you can make sure you pay as little tax on your 2014 capital gains as possible.

IRS issues final regs on implementation of Medicare tax

The IRS has issued final regulations relating to the additional Medicare tax imposed on income above certain threshold amounts, as added by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The final regulations provide guidance for employers and individuals relating to the implementation of the additional Medicare tax, including the requirement to withhold additional Medicare tax on certain wages and compensation, the requirement to file a return reporting additional Medicare tax, the employer process for adjusting underpayments and overpayments of additional Medicare tax, and the employer and individual processes for filing a claim for refund for an overpayment of additional Medicare tax.

The IRS issued proposed regulations on the additional Medicare tax on December 3, 2012, and issued corrections to the proposed regulations on January 30, 2013. The final regulations generally follow the proposed regulations. In response to one comment received, the final regulations provide for adjustment by an employer of overpaid additional Medicare tax withheld from employees in the calendar year in which the wages or compensation were paid.

This tax applies to individuals' wages and compensation, as well as self-employment income, above a threshold amount received after December 31, 2012. Employers must begin withholding the tax on wages it pays an employee in excess of $200,000 in a calendar year, beginning January 1, 2013. The tax rate is 0.9 percent. The tax will be calculated and reported on the individual's tax return. All wages in excess of the applicable threshold amount subject to Medicare tax are subject to the additional Medicare tax. The same is true of Railroad Retirement Tax Act (RRTA) compensation. Threshold amounts are $250,000 (married filing jointly), $125,000 (married filing separately), and $200,000 (single, head of household, qualifying widow(er) with dependent child).

The final regulations on the tax rate and threshold amounts, with respect to both income and self-employment tax, are effective for quarters beginning on or after November 29, 2013. Taxpayers may rely on rules contained in the proposed regulations for quarters beginning prior to that date. With respect to returns to be filed by taxpayers, the regulations are effective for tax years beginning on or after November 29, 2013. With respect to adjustments to underpayments, as well as to repayment of tax erroneously collected from the employee, the regulations apply to adjusted returns filed on or after November 29, 2013. Taxpayers may rely on rules contained in the proposed regulations for adjusted returns filed before that date. The regulations apply to refund claims filed on or after November 29, 2013. (78 FR 71,468, November 29, 2013.)

Thomson Sells Tax Prep, Outsourcing Businesses to Ernst & Young Deal Value Not Disclosed; 175 Employees to Join E&Y

Ben Fox Rubin for the Wall St Journal writes: Thomson Reuters Corp. TRI.T +0.18% sold its tax preparation and court accounting outsourcing businesses to accounting firm Ernst & Young, a move that comes as the data provider has worked to cut costs and re-evaluate its businesses.

"We are focused on delivering value to our customers and believe we can best execute through our software platform," said Brian Peccarelli, president of Thomson Reuters's tax and accounting business. "We have determined that an accounting and consulting organization like EY can better serve our customers' full-service outsourced tax preparation needs."

He said the company will continue to work closely with Ernst & Young.

About 175 employees will join Ernst & Young. The deal value wasn't disclosed.

Ernst & Young said the acquisition will help it to continue growing its outsourcing businesses, as it looks to expand its offerings to financial services organization and law firms.

Thomson Reuters's tax and accounting business will focus its resources on its core software and implementation services businesses. The software businesses of Onesource Trust Tax and Onesource Trust & Estate Administration will remain with Thomson Reuters's tax and accounting business.

Thomson Reuters's financial and risk division has suffered in recent years as big bank clients reduced head count. The company's Eikon financial desktop platform, launched in the wake of the financial crisis, has only recently shown signs of growth.

In October, the company said it would undergo a fresh review of its businesses, after it already had taken some steps to cut costs this year, launching plans to eliminate 2,500 jobs from its core financial and risk division in February.

Thomson Reuters competes with News Corp unit Dow Jones & Co., publisher of The Wall Street Journal and Dow Jones Newswires on business news.

Tax Implications for Bloggers

Lynn Stalhvorth, CPA,  & Susan Anderson, CPA, CFP,  for TMC Net write:The popularity and profitability of personal blogs continue to increase with the availability of easy-to-use social media tools, such as Twitter, LiveJoumal, and Tumblr, as well as the shift of more advertising dollars to these blogs. The term "blog" is a contraction of the term "web log." Information or commentary is posted to a blog in discrete entries and presented in chronological order, newest entries first. Blogging's popularity has steadily increased since the late 1990s. Many personal blogs are written solely for their own sake and earn less than $100 annually. While it is impossible to know the total amount of revenue generated by personal blogs, it is estimated that only about 10% of these blogs earn more than $100,000 annually. Approximately 150 million people post to their personal blogs regularly. Chances are that some of these individuals can be found among a tax preparer's clients. This article offers guidance to CPAs who provide tax and business advice to bloggers, large or small, by explaining the relevant tax provisions.

The pitfalls awaiting bloggers who do not think of themselves as business owners present opportunities for CPAs, as suggested by this blogger: I opened an LLC earlier this year. I'm lost with keeping up with all the expenses-money coming in and going out. Some items were paid with my personal account and others with my business account and I have income being deposited to PayPal! Many CPAs might be unfamiliar with personal blogs. Exhibit 1 presents a glossary of commonly used blogging terms. The first personal blogs, such as http://www.peterme.com, were generally online diaries. While the online journal genre of personal blogging is still around, many blogs now focus on a particular subject, such as politics (http:// www.cagle.com), food (http://www. aspicyperspective.com), exercise (http:// www.irunfar.com), personal finance (http://www.moolanomy.com), home improvement and decorating (http://www. digsdigs.com), fashion (http://www. manrepeller.com), travel (http://youngadventuress.com), or sports (http://www. mlbtraderumors.com). In terms of legal structure, most blogs are either de facto sole proprietorships or organized as LLCs.

Personal bloggers are often unaware that they may face any tax issues. Consider the following example: Katherine works in retail and has a personal blog on which she writes about regional travel. She and a friend recently spent a long weekend at a spa in the mountains a few hours away. Katherine plans to write on her personal blog about her spa experience. The spa provided her and her friend several free services and meals. The friends took a day trip to try zip lining and dined at a well-known area restaurant. Katherine has not yet decided whether she will blog about the zip lining; she had planned to review the restaurant on her blog, but the meal was unimpressive, so she changed her mind.


What are Katherine's taxable income and deductible expenses with regard to this trip? Katherine has no idea, and is not even aware that she needs to consider including any of these items on her tax return. Answering these types of questions for taxpayers requires considering whether a blog is a business, and what its revenues and expenses are.

Business or Hobby? As bloggers move into business activities, they would certainly benefit from tax planning and business advice. In anticipation of growth, issues such as deciding how to organize the business and the need to separate living space from office space in order to deduct home office expenses need to be addressed. Bloggers who do not think of themselves as small business owners might not realize that they need to file estimated quarterly tax payments or include income from companies that did not send them a Form 1099. While some bloggers might bristle at the idea that their personal blog is a business, they will likely welcome this guidance. And as CPAs become more familiar with the business aspects of blogging, they will likely recognize the potential for new service opportunities.

The most important consideration in determining the tax consequences of a blog is whether the blog is considered a hobby or business. Exhibit 2 lists the factors that the 1RS considers in classifying an activity as a business or hobby. The intent to make a profit is a crucial factor for the blog to be considered a business. Because many blogs are not started with this intention, but rather evolve into income-generating entities over time, CPAs can help address and overcome the profit-motive hurdle. Blogs that do not generate a profit for three or more years during a five-year period are presumed to not be profit motivated; therefore, they are subject to the hobby loss limitation (Internal Revenue Code [IRC] section 183 [d]). Even if a blog does not have the requisite three years of profits, CPAs can help a blogger demonstrate that the blog is a trade or business. It is important for a blogger to manage all blog-related activities as professionally as possible in order to be considered a business.

If the blog is a considered a hobby, its expenses are deductible only to the extent of its income (IRC section 183 [b] [2]). Hobby expenses are deductible in the following order: 1) interest and taxes related to the hobby (e.g., real property taxes and home mortgage interest that are otherwise deductible); 2) ordinary and necessary hobby expenses, excluding depreciation; and 3) depreciation (Treasury Regulations section 1.183-l[b][l]). Qualifying expenses in the last two categories are also subject to the 2% of adjusted gross income (AGI) floor on miscellaneous itemized deductions (IRC section 67[a]). In contrast, if a blog qualifies as a business, blogging expenses in excess of income can be deducted without limitation.

Blogging Revenues Starting a personal blog can be easy and inexpensive: pick a name; choose one of the various free blogging hosts (or platforms), such as Blogger, WordPress, or Posterous; and start writing. Posting high-quality content and developing loyal readers increase traffic to a blog. At this point, it may be pos sible for this casual hobby to generate an income stream. Many personal bloggers can earn at least small amounts of revenue by hosting some type of advertisement. Personal blogs that host ads are considered "monetized." If the decision is made to monetize, bloggers will have taxable income that needs to be reported, along with documentation of the costs incurred in connection with their blogs.

Monetization of a personal blog can take many forms. Although some sources of blogging revenues are similar to other types of income earned by freelancers or small businesses-for example, consulting or speaking engagements, offering workshops, or selling the business-others are unique to the blogosphere. One of the easiest ways for a blog to earn revenue is to join an advertising program, such as Google's AdSense or Chitika. These programs work by posting ads for products that might interest the blog's readers and then paying the blogger when readers click on the ads.

Another simple way for blogs to generate revenue is through affiliate marketing. Several of the more popular affiliate marketing programs are Link Share, Google's Affiliate Network, and Amazon Associates. Most of these programs are pay-per-sale. If a parenting blogger becomes an Amazon Associate, for example, and includes links to childcare books, strollers, or child-proofing gadgets in the text of a blog entry, the blogger is paid if a reader clicks on the link and buys any of those products from Amazon. Bloggers can also solicit businesses to advertise directly on the site. For example, a regional travel blog could collect fees for hosting ads for area restaurants, inns, and attractions. Offering online or virtual courses, selling e-books, installing donation buttons or "tip jars" and accepting products or services to review are other sources of blogging revenue.

Bloggers should be advised to track these revenues on a monthly basis. They may not realize they will only receive Form 1099s from companies from whom they earn over $600 annually, or that compensation in a form other than cash still represents taxable revenue. In response to recent posts to blogging communities about tax questions, these questions from bloggers drive home the point: I think a lot of people accept free food and products and don't think about that as income. I'd like to hear some discussion on minimum thresholds, too, i.e. you have to make X dollars before you have to claim it on taxes.

If a gift card is given instead of payment, how does that counts towards taxes? Not sure if a company would send a W-2 or not.

It is common practice for advertisers to deposit earnings directly into a blogger's PayPal account. These earnings must be reported as income in the year in which they are constructively received (Treasury Regulations section 1.451-1 [a]), so bloggers should be advised that those earnings are effectively received when deposited, regardless of when they are withdrawn, and note that there is generally a lag between the month in which advertising revenues are earned and that in which they are received.

Bloggers are often compensated in goods and services. For example, a home improvement blogger may receive free copies of decorating books or tools to review. A wine blogger may receive free bottles, complimentary wine tastings, or even trips to visit vineyards. Bloggers who speak at conferences are frequently compensated with conference fees and travel costs in lieu of fees for speaking. When meals, accommodations, and products are received as compensation, bloggers should be advised that the fair value of these items must be included in income (Treasury Regulations section 1.61-1 [a]).

Blogging Expenses Identifying and tracking deductible expenses is an area in which bloggers particularly need guidance, as suggested by the following quotes: I need to know the basics. Been blogging over a year, what should I have been doing or start doing now? Keep all my receipts? Keep a spreadsheet of all my expenses? Can I deduct these expenses? Do you have to have a business to deduct the blog expenses on your taxes? Whaf s the best way to handle groceries [for a food blogger] in terms of separating out what's for business versus personal, and how should we document their usage? Other questions also arise: How much, if any, of her grocery bill can a food blogger deduct if she is developing and posting recipes? Can a sports blogger deduct the costs of season tickets and travel incurred to attend out-of-town basketball games? Can a fitness blogger deduct gym membership fees? Blogging conferences, such as Blog World and Bloggy Boot Camp, are a great way to hone skills and gain exposure for a blog, but they come with conference fees, travel expenses, and dues for professional organizations. What, if any, costs of attending such conferences are deductible? Initially, bloggers might incur costs for professional webpage and logo design, trademark development and registration, advertising, prizes, business cards, head shots and letterhead. While it is possible to start a blog without incurring any costs, many personal bloggers choose to register their domain names with a registrar (e.g., http://www.GoDaddy.com) for an annual fee. A blog that owns its domain can be distinguished from one that does not by the absence of the blog host's name in the blog's web address. For example, http://www.anothermarvelousmeal.blogspot .com is the web address for a personal blog hosted by Blogger, for which the author does not own the domain, whereashttp://www.anothermarvelousmeal.com is the address for the same blog with a registered domain name. Registration of a domain name makes the blog easier to find because the web address is usually the same as the name of the blog. Registering the domain name gives ownership of the name to the blogger and allows for flexibility to move between hosting platforms.

Recurring costs for bloggers include expenses for blog- and photo-hosting sites, cloud access, search engine optimization, and other types of consulting. Bloggers incur typical business expenses, such as office supplies, mailing expenses, legal and accounting services, word processing, and other types of software. A computer and peripheral equipment, such as a printer, are necessary expenditures. Images are an important component of most types of blogs, so a digital camera, photo editing software, lighting, and other related equipment are generally needed. Many blogs are written from home, so a deduction for home office expenses is also a possibility. While it is relatively easy to track and determine the amount deductible for tax purposes for some of these expenses, the deductibility of other items is mysterious to many bloggers, assuming that they even realize a deduction is possible.

In order for an expense to be deductible, it must originate in an income-producing activity (U.S. v. Gilmore, 372 US 39 [1963]). Bloggers can deduct ordinary and necessary expenses incurred in the production of income (IRC section 212[1]). The definition of "ordinary and necessary" differs depending upon the subject matter of the blog. The courts consider the facts of each case when determining whether an expense is ordinary and necessary. Although workout costs are usually personal and not deductible, off-season physical conditioning costs were determined to be ordinary and necessary business expenses for a professional hockey player (Stemkowski v. Comm 'r, 690 F2d 40, 1982-2 USTC para. 9,589 [2d Cir.]) and may be considered such for a fitness blogger if the workouts are the basis for blog posts and the blog qualifies as a trade or business.

Similar guidance exists for entertainment: the regulations contain an objective test for classifying these costs (Treasury Regulations section 1. 274-2[b][ii]). For example, attendance at the theater by a theater critic is not entertainment, but workrelated. A sports blogger's season tickets are deductible as well. A food blogger can deduct the costs of food purchased to test a recipe, but must reduce the deduction by 50% (IRC section 274[n][l]). Transportation costs (e.g., air travel) are deductible if the majority of the time on the trip is related to the blogging activity (Treasury Regulations section 1.1622[b][l]). All of these bloggers can deduct blogging conference fees, as well as 50% of the cost of meals and lodging during the conference. If bloggers receive complementary registration and accommodations at a conference in exchange for speaking, the fair market value of these items would both be included in income and potentially deductible as an expense, subject to the hobby limitations if the blog is not a trade or business. Similarly, if a blogger receives complimentary merchandise from a manufacturer to review or use as a prize in a contest, the fair market value of the merchandise is both includible in income and deductible as an expense, subject to limitations.

If a blog is classified for tax purposes as a business, a blogger can elect under IRC section 179 to expense equipment such as computers and cell phones. For 2013, the maximum deduction is $500,000 (IRC section 179[b][l][B]). Most bloggers will be subject to the provision limiting the deduction to the blog's taxable income (IRC section 179[b][3][A]). The IRC section 179 deduction is not available for hobbies, so blogs classified as hobbies for tax purposes must depreciate these assets over their class lives. Computers and peripheral equipment are classified as five-year Modified Accelerated Cost Recovery System (MACRS) property (IRC section 168[e][3][B]), whereas cameras and cell phones have a class life of seven years (IRC section 168[e][3][C][v][II]). In order to depreciate computers, cameras, and peripheral equipment (e.g., "listed property"), the blogger must keep logs showing the amount of time the property is used for blogging versus personal purposes (Treasury Regulations section 1. 2745T[6][c]).

Depreciation deductions are prorated based upon the percentage of blogging use. In the case of listed property used for blogging, less than 50% of the total use must be depreciated under the alternative depreciation system (ADS) under IRC section 280F(b)(l). The ADS uses the straight-line method and does not permit bonus depreciation (IRC section 168[k][2][D][i][II]). If listed property was previously depreciated under MACRS and the business use drops to 50% or less, the excess depreciation deduction (including excess IRC section 179 deductions) must be recaptured as gross income (IRC sections 280F[b][2] and 179[d][10]; Treasury Regulations section 1.179-1 [e]). Over-the-counter computer software is amortized over 36 months beginning with the month in which the software is placed in service (Revenue Procedure 2000-50).

For a blogger to deduct home office expenses, a portion of the home must be used exclusively on a regular basis as- * a principal place of business for any trade or business of the taxpayer, or * a place of business that is used by patients, clients, or customers in meeting or dealing with a taxpayer's trade or business (IRC section 280A[c]).

The "exclusive use" requirement means that the portion of the home must be used solely for the blogging activity. For example, a food blogger will not be able to deduct costs associated with his home's kitchen, because it is also used to prepare meals for personal consumption. A principal place of business is an office used by the taxpayer to conduct administrative or management activities pertaining to the trade or business, when there is no fixed other location of the trade or business where the taxpayer conducts substantial administrative or management activities (IRC section 280A[c][l]). For example, if a sports blogger has a room with a computer and television that are used only for her blogging activities, the room would qualify as a home office. If the blogger obtains Internet access through a telephone company, the cost is not deductible, unless there is a separate line devoted to the blogging activity and not used for other purposes. If Internet access is through a cable provider, the cost is not deductible if used for personal purposes in addition to blogging.

The deduction for home office expenses is limited to the income from the blogging business, reduced by the allocable portion of otherwise deductible interest and taxes, and any expenses not related to the use of the home, such as advertising, supplies, and incidentals (IRC section 280A[c][5]). In determining the amount of expenses to allocate to the home office, taxpayers typically use the ratio of the square footage of the home office to the total square footage of the home.

In January 2013, however, the 1RS issued Revenue Procedure 2013-13, which provides an optional safe harbor for calculating the amount of deductible expenses attributable to the business use of a personal residence. This safe harbor, effective for tax years beginning after December 31, 2012, allows taxpayers to deduct $5 per square foot for home office expenses, up to a maximum of 300 square feet. This amount represents all expenses pertaining to the home office, except for otherwise deductible interest and taxes. The safe harbor election is made annually, but once it is chosen for a particular year, it is irrevocable. Depreciation on the home office is not deductible in years in which the safe harbor is elected. If, in subsequent years, the actual expense method is used, the home office must be depreciated under ADS.

It is critical that bloggers maintain adequate substantiation for all deductions. This documentation should include the amount, date, time, place, and business purpose for the expenditure. If the expense is for entertainment, the substantiation should also include the business relationship to the person being entertained (IRC section 274[d]).

Opportunities Serving bloggers is a great opportunity for tax advisors to expand their practices. As blogs continue to proliferate, tax professionals will increasingly be asked questions related to the specific issues that bloggers face. For many bloggers, these questions may involve relatively small amounts of money. Few blogs become "overnight successes," and it is hard to predict which will become big money makers. But at any time, the right sort of recognition-an award, a post that goes viral, a mention in a national newspaper story-can have a huge impact on a blog's popularity and profitability, turning a relatively small income stream into a much larger one. More commonly, blogs may become successful enough over time to provide a substantial second income. Bloggers and their CPAs need to understand the unique tax issues before the activity becomes lucrative. CPAs can start by advising clients who blog on the importance of establishing good record keeping from the outset. ? Personal bloggers are often unaware that they may face any tax issues.

If a blogger receives complimentary merchandise to review or use as a prize In a contest, the fair market value is both includible in income and deductible as an expense, subject to limitations.

Lynn Stalhvorth, CPA, is an associate professor of accounting at Appalachian State University, Boone, N.C. She also publishes a food blog at http://www.Carolina bonvivant.com. Susan Anderson, CPA, CFP, is a professor of accounting, also at Appalachian State University.

Business Standard Mileage Rate Drops For 2014

The optional business standard mileage rate will decrease from 56.5 cents-per-mile for 2013 to 56 cents-per-mile for 2014, the IRS has announced (IRS News Release IR-2013-95; Notice 2013-80, 2013-52 IRB __). The optional standard mileage rate for qualified medical and moving expenses will also decrease for 2014. The rate for charitable miles driven is set by statute and remains unchanged for 2014.

Comment

"No one was surprised that the optional standard mileage rate decreased. Oil prices have held relatively steady the past few months which in turn affects the price of gas," Cindy Hockenberry, EA, Manager, Tax Knowledge Center, National Association of Tax Professionals (NATP), told CCH. "We’ve seen the price of gas come down so it’s only natural to assume the standard mileage rate would reflect that. A drop of a half a cent won’t have that much of an impact overall."

Comment

As an alternative to the optional mileage rates, taxpayers can use the actual expense method. Actual expenses include expenditures for gas, oil, repairs, tires, insurance, registration fees, licenses, and other qualified costs.

The business and medical/moving rates are calculated by the IRS and an independent contractor. Included in the calculation are the fixed and variable costs of operating a motor vehicle, such as expenses for fuel and maintenance.

Mileage rates. For 2014, the business standard mileage rate will be 56 cents-per-mile. The rate for qualified medical/moving expenses will be 23.5 cents-per-mile. The rate for charitable miles driven remains at 14 cents-per-mile by statute.

Depreciation/FAVR. For 2014, the depreciation component of the business standard mileage rate will be 22 cents-per mile, which is a decrease of one cent from the depreciation component for the 2013 business standard mileage rate. The standard automobile cost may not exceed $28,200 for automobiles; $30,400 for trucks and vans for purposes of computing the allowance under a FAVR plan. In contrast to other amounts, these amounts reflect an increase from 2013 levels (an additional $100 for automobiles and an additional $500 for trucks and vans).

Limitations. To use the business standard mileage rate, the taxpayer must not operate four or more vehicles at the same time, such as in a fleet vehicle operation. Also, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Code Sec. 179 deduction for the vehicle, the IRS explained.

Effective date. The revised rates apply to deductible transportation expenses paid or incurred for business or medical/moving expenditures, or qualified charitable miles driven, on or after January 1, 2014.

Reference: PTE §8,020

Xero Accounting : Singapore starting to take off for Xero (with Simplepay & Yodlee)

At Xero Blog we read:   Singapore is currently experiencing some great traction in the Xero ecosystem. A new Add-on payroll partner, SimplePay, is launching their product into Singapore and we are close to launching bank feeds via Yodlee for Singapore banks.

Simplepay makes Payroll easier

SimplePay is a cloud payroll solution company that started out in South Africa and then released its product for neighboring Botswana. It has long recognised the need for country specific payroll solutions. It has a product in development for the UK and has now released its product into Singapore ready for Jan 1 – the start of the Singapore financial year.

While the functionality of payroll is similar worldwide, the different compliance requirements of each country alters the product somewhat. In Singapore’s case, there’s no PAYE, instead a raft of payroll statutory contributions or levies to various funds to calculate.

SimplePay found Inland Revenue Authority of Singapore (IRAS) to be fairly efficient in obtaining the information they need to become compliant, and have now received approval from IRAS for e-submission of employment income. The product has been tested by users while in beta, with some customers using it for their full payroll solution even prior to it going fully live. As a special introductory offer, sign up to SimplePay and enter your chart of accounts before the end of December and you won’t pay anything until February.

Yodlee bank feeds on the horizon

Bank feeds via Yodlee will also become available for many Singapore banks. We have  dedicated teams working in both the Xero and Yodlee office to enable bank feeds where direct bank feeds are unavailable. Before this increased co-operation, we had no say as to what banks Yodlee would set up feeds for, but we are now able to request Yodlee feeds based on customer demand.

Enabling Singapore bank feeds is the first big project as a result of this co-operation and they are now at the beta testing stage, due to go live in the New Year.

I encouraged Singapore accounting partners to use the beta feeds, not only to give those partners an edge in their business, but as a way of making sure Yodlee has a lot of test data. Currently  Xero is seeing beta data from OCBC Business Banking and DBS. The beta stage of feeds is open to everyone and if you’re Singapore based you can see if your bank is supported by enabling the bank feeds on your bank account. If your bank hasn’t got feeds enabled, ask them to  become part of the Xero movement by contacting your  account manager or emailing partners@xero.com.

Based on our other markets, foundation developments like this are critical for gaining traction, so it’s great to see this foothold in Singapore. Here’s to a great 2014!

Read more about Company News

Samson 
17 December 2013 #

Good to hear about Xero gaining traction in Singapore. I hope Xero is also pursuing market in Indonesia. There is a huge opportunity there because of the population and strong internet penetration.

Visit Xero blog to comment!

Final “Repair Regulations”: Improvements, Betterments, and Restorations / tax treatment of improvements, betterments, and restorations under the final regulations.

Final “Repair Regulations”: Improvements, Betterments, and Restorations In September 2013, the IRS released much-anticipated final “repair” regulations that explain when taxpayers must capitalize costs and when they can deduct expenses for acquiring, maintaining, repairing, and replacing tangible property. This article is part of a series discussing important features of the regulations; it focuses on the tax treatment of improvements, betterments, and restorations under the final regulations. Improvements The final regulations continue to require capitalization of amounts paid to improve a unit of tangible property. A unit of property is improved if amounts are paid for activities performed by the taxpayer resulting in: a betterment to the unit of property; a restoration of the unit of property; or adaptation of the unit of property to a new or different use. Comment A unit of property for this purpose consists of a group of functionally interdependent components, such as the parts of a machine, with the machine being treated as a unit of property. In the case of a building, the building (including its structural components) is a unit of property. However, certain major systems of the building—such as heating, air conditioning, and ventilation (HVAC); plumbing; and electrical—are treated as separate units of property for purposes of determining whether there has been a capitalizable betterment, restoration, or adaption to the system. The final regulations retain the unit of property rules in the temporary regulations. For real property, the regulations continue to apply the rules to both the building structure and to specified building systems. They also keep certain simplifying conventions, including a routine maintenance safe harbor and the optional regulatory accounting method. Comment The IRS explained that application of the improvement rules to both the building structure and the defined building systems is necessary to help ensure that the improvement standards are applied equitably and consistently across building property. Removal Costs The final regulations clarify that the cost of removing a depreciable asset or a component of a depreciable asset is not capitalized as an improvement if the taxpayer realizes gain or loss on the removed asset or component. If a taxpayer disposes of a component of a unit of property and the disposal is not a disposition on which gain or loss is realized, then the taxpayer deducts the costs of removing the component if the removal costs directly benefit or are incurred by reason of a repair to the unit of property. Otherwise, the removal costs are capitalized as part of the improvement costs to the unit of property. Comment Under proposed MACRS disposition regulations that were issued in conjunction with the final repair regulations, a taxpayer may recognize a loss on the retirement of a component of an asset, such as a structural component of a building, if the taxpayer makes an election to treat the retirement as a partial disposition of an asset and recognize the loss. This election should be exercised with caution because the final regulations retain the rule in the temporary regulations which requires the capitalization of any costs related to a repair as a restoration if a loss deduction is claimed. Under the temporary MACRS regulations, which are optionally effective for tax years beginning on or after January 1, 2012, and before January 1, 2014, loss recognition on the retirement of a structural component is mandatory, unless the taxpayer places the building in a general asset account. Safe Harbor for Small Taxpayers with Buildings Small taxpayers complained that they could not afford to collect and maintain the documentation necessary to apply the improvement rules in the final regulations to their buildings. In response, the final regulations include an annual safe harbor election for buildings owned or leased by a taxpayer with an unadjusted basis (i.e., generally cost) no greater than $1 million. The taxpayer must have average annual gross receipts of $10 million or less during the three preceding tax years. Gross receipts are specially defined and include income from sales (unreduced by cost of goods), services, and investments. In the case of a lessee, the unadjusted basis of the building is equal to the total amount of (undiscounted) rent paid or expected to be paid over the entire lease term, including expected renewal periods. Under the new exception, the small taxpayer is not required to capitalize improvements if the total amount paid for repairs, maintenance, improvements and similar activities during the year that are performed on the building does not exceed the lesser of $10,000 or two percent of the unadjusted basis of the building. Amounts deducted under the de minimis rule or the new safe harbor for routine maintenance are counted toward the $10,000 limit. No amount is deductible under the safe harbor for buildings if this limit (or the $1 million adjusted basis limit) is exceeded. The safe harbor is applied separately to each building owned or leased by the taxpayer. Eligible property includes a building (including structural components and building systems) owned or leased by a qualifying taxpayer and, also, portions of buildings that are owned or leased and considered separate units of property under the regulations, such as an individual condominium or cooperative unit or office space. The safe harbor does not apply to costs paid with respect to exterior land improvements that are separate units of property. Comment Under the final regulations, small taxpayers do not have to analyze the building systems. Comment As with the $200 materials and supplies threshold, the IRS is given the authority to adjust the $10,000, 2-percent, and $1-million amounts in the future through published guidance. The election is made annually on a timely filed (including extensions) original income tax return. In the case of a partnership or S corporation that owns or leases a building, the partnership or S corporation makes the election. The election may not be made by filing an application for a change in accounting method or on an amended return, unless permission to file a late election on an amended return is first obtained. The election is irrevocable. Comment A transitional rule allows taxpayers, by filing an amended federal tax return, to apply the safe harbor as contained in the final regulations to a tax year beginning in 2012 or 2013, even though a timely election was not initially made. This relief is also provided for certain other provisions that require an election. Betterments In the final regulations, the IRS has clarified the betterment rules and revised two of the betterments tests. Under the temporary regulations, a betterment is defined as an expenditure that: ameliorates a material condition or defect that existed prior to the acquisition of the property or arose during the production of the property; results in a material addition to the unit of property (including a physical enlargement, expansion, or extension); or results in a material increase in the capacity, productivity, efficiency, strength, or quality of the unit of property or its output. Under the final regulations, no change is made to the first betterment test. However, the second and third tests are changed to eliminate the "results in" standard. Specifically, under the final regulations, a betterment under the two revised standards now includes an expenditure if it: is for a material addition, including a physical enlargement, expansion, extension, or addition of a major component to the unit of property or a material increase in the capacity, including additional cubic or linear space, of the unit of property; or is reasonably expected to materially increase the productivity, efficiency, strength, quality, or output of the unit of property. The final regulations clarify that, if an addition or increase in a particular factor cannot be measured in the context of a specific type of property, then the factor is not relevant in determining whether there has been a betterment to the property. For example, the "productivity" or "output" standards, while relevant in analyzing a machine, would normally have no relevance to a building structure and, therefore, should be ignored when considering whether expenditures result in a betterment to a building structure. The final regulations also clarify situations involving refreshing or remodeling retail stores in particular, by fine-tuning examples in which such actions move from being maintenance activities to betterments that must be capitalized. Comment Facts and circumstances taken into account in determining whether an expenditure results in a betterment include, but are not limited to, the purpose of the expenditure, the physical nature of the work performed, and the effect of the expenditure on the unit of property. The treatment of an expenditure on a taxpayer's applicable financial statement is removed by the final regulations as a factor in considering whether an expenditure results in a betterment since taxpayers apply standards that may differ significantly than the standards in the regulations in determining whether to capitalize a cost for financial accounting purposes. Restorations The final regulations provide some relief from a rule in the temporary regulations which required a taxpayer to capitalize the entire cost of repairing property that was damaged in a casualty if the taxpayer adjusted the basis of the property as a result of claiming a casualty loss. Capitalization was required even if the adjusted basis of the building (generally, the amount to which the casualty loss is limited) was less than the amounts that could otherwise be deducted as a repair expense. Even if a taxpayer chooses not to claim a casualty loss, the basis adjustment for the loss that could be claimed is required, and the deduction of related repair expenses is prohibited under the temporary regulations. The final regulations revise the casualty loss rule to permit a deduction for amounts spent in excess of the adjusted basis of the property damaged in a casualty event, provided they would otherwise be considered deductible repair expenses. A taxpayer is still required to capitalize amounts paid to restore damage to property that would be capitalized without regard to the casualty loss rule, but the costs required to be capitalized under the casualty loss rule are limited to the excess of (1) the taxpayer's basis adjustments resulting from the casualty event, over (2) the amount paid for restoration of damage to the unit of property that are otherwise considered capitalizable restorations. Casualty-related expenditures in excess of this limitation may be deducted as repair expenses if they so qualify. Example A storm damages a building with an adjusted basis of $500,000. The cost of restoring the building is $750,000, consisting of a roof replacement ($350,000) and clean-up/repair costs ($400,000). A $500,000 casualty loss is claimed. The cost of the roof must be capitalized as an improvement because it is a major component and substantial structural part of the building. The remaining $400,000 clean/up repair costs must be capitalized to the extent of the $150,000 excess of the building's adjusted basis ($500,000) over the capitalized cost of the roof ($350,000). The remaining $250,000 of repair/clean-up costs ($400,000 - $150,000) may be currently deducted. Rebuilt Like New The final regulations retain the rule that a capitalizable restoration includes rebuilding a unit of property to a like-new condition after the end of its class life. A property is rebuilt to a like-new condition if it is brought to the status of new, rebuilt, remanufactured, or similar status under the terms of any federal regulatory guideline or the manufacturer's original specifications. The final regulations clarify that generally a comprehensive maintenance program, conducted according to the manufacturer's original specifications, even though substantial, does not return a unit of property to like-new condition.

Maximize Your Next Refund With These Tax Deductions And Credits

North American Precis Syndicate writes: According to the Internal Revenue Service, more than 101 million income tax refunds were issued in 2013, averaging $2,651 each. The average was a couple hundred dollars more for taxpayers who elected to have their refund directly deposited into a bank account.

Averages in 2014 will likely be similar because of tax legislation passed in the first couple days of 2013, according to TaxACT spokesperson Jessi Dolmage.

“The now-permanent and extended tax breaks will benefit taxpayers of all situations, including families, college students and homeowners,” said Dolmage.

The credits and deductions available on federal returns due April 15, 2014 include:

• Child and Dependent Care Credit—The maximum amount of child and dependent care expenses eligible for the credit is now $3,000 if you have one child or $6,000 if you have two or more children. These increased amounts are permanent.

• Child Tax Credit—The credit has been made permanent at $1,000 per child under the age of 17 at the end of 2013. This credit may be claimed in addition to the Child and Dependent Care Credit.

• Tuition and fees deduction—If you, your spouse or your dependent is enrolled in a postsecondary institution, you may be able to deduct tuition expenses as an adjustment to income, even if you don’t itemize deductions. You generally take this deduction if you don’t qualify for an education credit or other tax break for the same expenses.

• American Opportunity Tax Credit—The maximum amount of this credit for the first four years of postsecondary education costs in a degree or certificate program is $2,500 per student. Costs may include tuition, fees and course materials (books). If you don’t owe any tax, you may also be eligible to receive up to 40 percent of the credit ($1,000) as a refund.

• Educator expenses deduction—Elementary and secondary educators can deduct up to $250 in related job expenses as an adjustment to income, even if not itemizing deductions. Unlike most employee expenses, educator expenses are not reduced by 2 percent of your adjusted gross income.

• Deduction for mortgage insurance premiums—If you pay mortgage insurance premiums, also known as private mortgage insurance (PMI), you may be able to deduct premiums as mortgage interest.

• Alternative Minimum Tax—The AMT was created to ensure wealthy taxpayers receiving large tax benefits pay some tax. It will now be adjusted for inflation each year so fewer taxpayers are subject to the tax. The exemption amount rises in 2013 to $51,900 ($80,800 for married couples filing jointly). For married individuals filing separately, the exemption is $40,400.

• Adoption credit—You may qualify for a credit equal to up to $12,970 of your adoption expenses including fees, court costs, attorney fees, traveling expense and other expenses directly related to and for the principal purpose of the legal adoption of an eligible child. If your employer provides adoption benefits, you may also be able to exclude up to the same amount from your income. Both a credit and exclusion may be claimed for the same adoption but not for the same expense.

• State and local sales tax deduction—For 2013, you can still deduct state and local sales taxes. You can take this deduction or a deduction for state income tax—but not both.

As with most tax benefits, you must meet certain criteria in order to claim them on your tax return, and even if you are eligible, you may not qualify for the entire amount.

Online and mobile tax preparation programs make it easy to do your own taxes and confidently claim all your deductions and credits. As you answer simple questions, the program completes your tax forms and checks for errors and potential opportunities. One of the top solutions, TaxACT, even helps you plan for next year with guidance for the implications of the Affordable Care Act on your taxes.