Friday, January 3, 2014

Intuit Looks Like the 2014 Super Bowl’s Only Financial Advertiser, and It Is Not Even Using Its Slot

JJ Hornblass for the Bank of Innovation writes: Ah, the Super Bowl — where 30 seconds costs around $4 million.
To many, the Super Bowl is one of the world’s largest sporting events. To others, the advertising in between the football is the more interesting ”game.”
The thing is, financial services advertisers appear to be again shunning the Super Bowl this year. As of now, Intuit appears to be the only financial services-related advertiser scheduled to run during the big game — and it is not even advertising its services. Instead, Intuit has been running a contest to allow one of four companies the right to advertise during its 30-second spot. (More on that in a moment.)
Otherwise, MetLife can be said to advertise during the Super Bowl, since it has naming rights on the stadium at which the game will be played. E*Trade, however, will not run an ad during the Super Bowl for the first time since 2008. Last year, E*Trade was the only FI advertiser during the Super Bowl. Here’s how E*Trade explained its decision to Advertising Age last month:
Rich Muhlstock, senior VP-branding and acquisition, said in an email that the company is reallocating media dollars more strategically. “Over the years, E-Trade has built phenomenal brand recognition and equity because our brand is approachable, real and up until this year pretty mass market focused,” he said. “Now we’re sharpening our focus on key prospects and existing customers. This focus applies to marketing as well.”
Intuit, meanwhile, has generated strong social engagement through its Small Business Big Game promotional campaign, which promotes Intuit’s QuickBooks brand. For example, #teamsmallbiz, the campaign’s hashtag, has appeared in more than 100,000 Twitter timelines, according to Hashtracking data. Intuit has narrowed down its contest to four finalists, as evidenced by the video below.
The Top/Final 4 Candidates are in the Video Below

Posted on 6:44 PM | Categories:

What Taxpayers Should Watch for in 2014 / Many important federal tax issues are up in the air.

Laura Saunders for the Wall St Journal writes:  Comprehensive overhaul of the Byzantine U.S. tax system is highly unlikely this year, given the congressional elections, experts say, but some less ambitious changes stand a better chance in 2014.
Here is a look at tax changes lawmakers will be considering:
Expired provisions. More than a half-dozen popular breaks expired at the end of 2013. They include the individual retirement account charitable-rollover provision for people 70½ and older; an exclusion for mortgage-debt forgiveness that would otherwise generate taxable income; and a state sales-tax deduction in lieu of income taxes.
Even if Congress retroactively reinstates these provisions, as has happened several times in the last decade, experts don't expect any action until nearly year-end.
A delay will be particularly hard on IRA donors, who get tax breaks for making direct gifts of up to $100,000 of their retirement-account assets. Experts caution that such donors may want to wait to see if Congress acts before taking their required annual IRA withdrawals this year.
Online and mail-order sales taxes. Alaska, Delaware, Montana, New Hampshire and Oregon don't levy state sales taxes. Elsewhere, residents owe sales tax on their purchases—or the equivalent "use" tax, if the item was bought out of state.
Whether out-of-state retailers have to collect such taxes has been a continuing controversy for more than two decades—and one with huge implications for online retailers such as Amazon.comAMZN -0.38% which now collects sales and use taxes from consumers in 19 states.
Last year, states with sales taxes and their allies—retailers that automatically collect tax on purchases, often in stores—won an important battle. In December, the U.S. Supreme Court declined to hear a case in which Amazon challenged a New York state law requiring Amazon and others to collect sales tax because of relationships with in-state affiliates.
Now the focus shifts to a bill the U.S. Senate passed in May, the Marketplace Fairness Act, which allows states to require remote sellers to collect taxes from consumers.
The bill is currently in the House Judiciary Committee. Sellers with more than $1 million of remote sales a year would have to collect tax for states they ship to, says Craig Johnson, who heads the Streamlined Sales Tax Governing Board, which seeks to standardize and simplify how states collect sales tax.
"Buyers owe this tax already and I'm confident most retailers will be collecting it in the near future," he says.
Education tax-break changes. In October, House Ways and Means Committee members Diane Black (R., Tenn.) and Danny Davis (D., Ill.) released a bill consolidating four federal higher-education tax benefits: the American Opportunity Tax Credit, the Hope Credit, the Lifetime Learning Credit and the tuition deduction.
The bill aims to simplify what critics say are often-confusing requirements for the different breaks. For example, the American Opportunity Credit is the best choice for many, but part-time students may not qualify for it. By contrast, the Lifetime Learning Credit is less generous but more flexible.
Some taxpayers might no longer qualify for a tax break under the proposal, which could spark political resistance. The new bill provides a maximum tax credit of $2,500, the same as the existing American Opportunity Credit.
But the benefit begins to phase out at just $86,000 of adjusted gross income for most joint filers (half that for singles). That's much lower than the current level of $160,000 of AGI for joint filers (half that for singles).
The chances of passage are unclear, says Melissa Labant, a tax specialist at the American Institute of CPAs, "but it's one to take seriously."
Road-warrior relief. This proposal would limit states' ability to tax the income of nonresident employees such as executives and salespeople who work in a state for 30 days or less a year. The limit wouldn't apply to professional athletes, entertainers or other public figures.
Currently there is a crazy quilt of laws and rules affecting road warriors, Ms. Labant says. "Some states require withholding for as little as one day of work," she says.
The House passed one version of the bill in 2012 and it has been reintroduced in the House and the Senate, with bipartisan support.
Ms. Labant says the CPA group strongly supports the bill and hopes it will be enacted this year. The bill "just makes sense," she adds. "Why create unnecessary tax-prep burdens for people?"
Tax reform. Seasoned Washington observers say there is virtually no chance of comprehensive tax overhaul in 2014.
Although working groups of the House Ways and Means Committee have released proposals on business taxes, there isn't an equivalent plan for individual taxes because the two parties want to focus on different issues.
"Who wants to say they're going to cut the mortgage-interest deduction in an election year?" says Clint Stretch, senior counsel at Tax Analysts, a nonprofit publisher.
There is the prospect of bigger change down the road, however. President Barack Obama has nominated Sen. Max Baucus (D., Mont.), who heads the Senate Finance Committee, to be the next ambassador to China, and he is likely to leave the Senate soon.
The next chairman is expected to be Sen. Ron Wyden (D., Ore.), who has a demonstrated interest in tax change for individuals. His 2011 proposal, co-sponsored by Sen. Dan Coats (R., Ind.), has three tax brackets (15%, 25% and 35%) and no alternative minimum tax. It also would nearly triple the standard deduction and create a 35% exclusion for long-term capital gains, resulting in a top rate of about 23%.
Posted on 5:11 PM | Categories:

Tax-Efficiency in Savings and Investments for Average Income Earners

Over at Bogleheads we read: Tax-Efficiency and Introduction

5 posts • Page 1 of 1

Tax-Efficiency and Introductionby ShimmyShuffle » Thu Jan 02, 2014 5:05 pm

Hi Everyone,

I'm a total noob, and before a few weeks ago never even considered investing my money in the stock market. After lurking for a while and reading all of the wonderfully honest and simple advice here I decided to go all in. I'm currently perplexed as to how I should go about contributing to my current investments from here on out. I'm 31 and just lump summed my savings into some Vanguard funds. Breakdown below along with some other pertinent info about myself:

22k VTSAX Vanguard Total Stock Market Index Fund Admiral Shares (personal taxable account)

3k VBMFX Vanguard Total Bond Fund (personal taxable account)

11k Target Retirement 2050 Fund (personal Roth IRA maxed for 2013 and 2014)

4,774 Target Retirement 2050 Fund (401k with no match and started in March 2013)

10k approximately in Emergency Fund (estimated 5 months expenses), but I'm going to be renting a new apartment soon and it will likely be cut in half. My job is stable, so I'm confident I will be able to replenish soon enough.

Single, 31, no debt, 55k/year base salary (made over 60k with bonuses and overtime and I will probably get a raise of a few grand next week). I figure after all my monthly expenses I would be left with close to about 800-1000 dollars to invest most months. This is after factoring in the 200/month I currently contribute to the 401k.

I'd like to always max out my Roth and obviously step up contributions to the 401k, but my mind seems to focus on the non-retirement account. Does anyone think I'm making a big mistake by not getting as close as possible to maxing out the 401k? Depending on my raise... I'm thinking the max I would want to contribute each month is 600. That, I'm hoping, would leave me enough room to save for the Roth max and keep my taxable account growing nicely. Also, am I looking at any serious tax costs with my taxable accounts, especially considering the Total Bond Fund is in there?

I'd like to thank in advance all the helpful members of this forum for providing me with so much great information in so short a time. Any help or advice for my particular situation would be greatly appreciated. I look forward to continuing to learn from all the great info provided by this amazing community.
Posts: 4
Joined: 2 Jan 2014

Re: Tax-Efficiency and Introductionby Peter Foley » Thu Jan 02, 2014 5:44 pm

First welsome - you are off to a good start just by living below your means. Having no debt at your age is a real plus. As to your question . . .

$36,250 in taxable income is the top of the 15% bracket. Unless you have some big deductions you are solidly into the 25% bracket. I would be inclined to save more in a 401k. Look at it this way, your are only funding 75% of what you put in, plus it gets to compound tax free. It is the best place to hold your bond fund. While there has been some debate due to low interest rates, taxable is not the best place to hold bonds if low cost options are available elsewhere. Is this a big mistake? No. You could just be investing a little more tax efficiently.
Posts: 1768
Joined: 23 Nov 2007
Location: Lake Wobegon

Re: Tax-Efficiency and Introductionby Laura » Thu Jan 02, 2014 9:44 pm

Welcome to the forum,

You are doing well by savings and investing but I think we can make a few adjustments to your holdings.

The general rule of thumb for investing priority is:

1. 401k to receive the full match (are you here yet?)
2. Max out Roth (you seem to be doing this)
3. Max out 401k contributions
4. Taxable investing

You skipped step 3 and went right to step 4. You want to change that and still can. For now, I suggest you max out 401k contributions and use that money you just invested in taxable for your living expenses. You won't have much tax to pay since there probably isn't much gain there yet. That allows you to "transfer" money from taxable into your 401k. Once you have that done you can reduce your 401k contributions again to the amount you can afford. Hopefully that means maximizing 401k contributions but perhaps you will just be close.

Another way to improve your portfolio is to focus on tax efficiency. You placed Total Bond Market in your taxable account. This fund generates dividends which are taxed at your normal income tax rate. It is normally best to hold bonds in a tax advantaged 401k if you have a decent bond option in your plan.

For someone who is new to investing you also invested in the Target Retirement funds that holds 90% in stocks and only 10% in bonds. That is very aggressive and you can expect some big losses when the market declines. Are you able to watch the value of your portfolio decline like without wanting to bail out? You may want to select a fund that is more conservative, perhaps something like 70/30 as a starting point.

22k VTSAX Vanguard Total Stock Market Index Fund Admiral Shares (personal taxable account) Fine choice for a taxable account

3k VBMFX Vanguard Total Bond Fund (personal taxable account) Best not held in a taxable account

11k Target Retirement 2050 Fund (personal Roth IRA maxed for 2013 and 2014) FIne for roth

4,774 Target Retirement 2050 Fund (401k with no match and started in March 2013) Fine for 401k

What other funds do you have available in your 401k? Any other Vanguard index funds? What are the expense ratios?

Don't get discouraged by all my questions. You are doing well but I think with a few modifications we can set you up to have a low cost, tax efficient, broadly diversified portfolio that is very easy to manage.

Laura
Posts: 5548
Joined: 19 Feb 2007

Re: Tax-Efficiency and Introductionby ShimmyShuffle » Fri Jan 03, 2014 1:11 pm

Peter Foley wrote:First welsome - you are off to a good start just by living below your means. Having no debt at your age is a real plus. As to your question . . .

$36,250 in taxable income is the top of the 15% bracket. Unless you have some big deductions you are solidly into the 25% bracket. I would be inclined to save more in a 401k. Look at it this way, your are only funding 75% of what you put in, plus it gets to compound tax free. It is the best place to hold your bond fund. While there has been some debate due to low interest rates, taxable is not the best place to hold bonds if low cost options are available elsewhere. Is this a big mistake? No. You could just be investing a little more tax efficiently.



Thanks Peter. The lack of debt is from being a total slacker in life and not bothering to even establish any credit until I was about 29  Gladly, I've taken care of that since then and now have a respectable credit score.

I live in NY, so my taxes kill me when it comes to available money left over to invest. I'm definitely going to be bumping up the 401k contributions this year, and hopefully will still have enough to max out the Roth and have something left to put towards my taxable account. I'd like that to grow over the next 5,10, maybe 15 years or more and have a nice amount of money to either buy a house or maybe invest in a business with. I may just exchange the bond fund in the taxable for more of the Total Stock Market fund. My entire portfolio would be heavily tilted towards stocks, but I don't mind. I honestly feel I'm fully prepared to take the risk and ride out the ups and downs, and I'd be a bit more tax efficient.
Posts: 4
Joined: 2 Jan 2014

Re: Tax-Efficiency and Introductionby ShimmyShuffle » Fri Jan 03, 2014 3:38 pm

Laura wrote:Welcome to the forum,

You are doing well by savings and investing but I think we can make a few adjustments to your holdings.

The general rule of thumb for investing priority is:

1. 401k to receive the full match (are you here yet?)
2. Max out Roth (you seem to be doing this)
3. Max out 401k contributions
4. Taxable investing

You skipped step 3 and went right to step 4. You want to change that and still can. For now, I suggest you max out 401k contributions and use that money you just invested in taxable for your living expenses. You won't have much tax to pay since there probably isn't much gain there yet. That allows you to "transfer" money from taxable into your 401k. Once you have that done you can reduce your 401k contributions again to the amount you can afford. Hopefully that means maximizing 401k contributions but perhaps you will just be close.

Another way to improve your portfolio is to focus on tax efficiency. You placed Total Bond Market in your taxable account. This fund generates dividends which are taxed at your normal income tax rate. It is normally best to hold bonds in a tax advantaged 401k if you have a decent bond option in your plan.

For someone who is new to investing you also invested in the Target Retirement funds that holds 90% in stocks and only 10% in bonds. That is very aggressive and you can expect some big losses when the market declines. Are you able to watch the value of your portfolio decline like without wanting to bail out? You may want to select a fund that is more conservative, perhaps something like 70/30 as a starting point.

22k VTSAX Vanguard Total Stock Market Index Fund Admiral Shares (personal taxable account) Fine choice for a taxable account

3k VBMFX Vanguard Total Bond Fund (personal taxable account) Best not held in a taxable account

11k Target Retirement 2050 Fund (personal Roth IRA maxed for 2013 and 2014) FIne for roth

4,774 Target Retirement 2050 Fund (401k with no match and started in March 2013) Fine for 401k

What other funds do you have available in your 401k? Any other Vanguard index funds? What are the expense ratios?

Don't get discouraged by all my questions. You are doing well but I think with a few modifications we can set you up to have a low cost, tax efficient, broadly diversified portfolio that is very easy to manage.

Laura


Thanks very much for taking the time to respond, Laura.

You bring up some interesting points about "transferring" money from the taxable to the 401k. I will need to seriously mull that over. I think my apprehension hinges on two things: I feel safer with the taxable account holding the majority of the savings I just invested because I can withdraw it at any time. I would love to be able to buy a property or maybe invest in a business someday with that. I've done enough homework to know that things will rise and fall, and I can't expect to buy a home in a few years. I do hope, though, that after a substantial amount of time that investment will have grown and given me some readily available options (if the markets allow  ).

Also, I think it's hard to wrap my mind around the tax benefits of the 401k. I do believe it's a misconception on my part, but knowing I will be taxed on that money when I eventually withdraw it in retirement causes me to lose enthusiasm. I have trouble fully understanding the benefits of the tax-deferral. I'm literally weeks into reading about investing, though, so I hope to gain a clearer understanding of it over time. Also, my employer does not match and to max it out, I would probably have very little left over to live on let alone invest with if i maxed. I have some personal changes coming up soon, though, so I hope to be able to have an increased budget.

I was considering just buying more of the total stock market with the bond fund money for better tax efficiency. I know that leaves me heavily invested in stocks overall, but I'm confident I will not sell when things drop. I have the time and patience to ride things out.

As far as the available 401k funds go, I don't have any the standard popular ones such as Total U.S. Stock or Bonds. It's primarily the Target funds with some other actively managed funds, and a few passively managed ones, that I wouldn't feel too confident about. They're all Vanguard, though. Do you think I should be looking to move into something other than the Target funds even if I'm OK with the risk?
Posted on 4:45 PM | Categories:

IRS Stats: Change in Law Prompts Jump in Roth IRAs

John D. McKinnon for the Wall St Journal writes: New statistics show that higher-income people jumped at the chance to convert traditional IRAs to Roth-type IRAs following a recent law change by Congress – a possible sign of fear about rising U.S. tax rates down the road.
New statistics from the Internal Revenue Service show that in 2010, the amount converted from traditional IRAs to Roth IRAs rocketed upward by more than 800%, to $64.8 billion. That even exceeded the amount contributed to Roth IRAs, the IRS said in its quarterly statistical bulletin. (IRAs, short for Individual Retirement Arrangements, were created by Congress to encourage people to save money for retirement on a tax-advantaged basis.)
About 10% of people with incomes exceeding $1 million who had traditional IRAs converted, according to the new report.
Unlike traditionally IRAs, money from Roth IRAs generally isn’t taxed when it’s distributed. Many people who convert traditional IRAs to Roth IRAs worried that they would eventually face a big tax bite.
Prior to 2010, only people making less than $100,000 could convert a traditional IRA to a Roth IRA. Congress passed a law in 2006 that eliminated that income limit, starting in 2010.
Of course, there’s often a price for congressional generosity. Roth conversions typically require a hefty upfront tax payment. Analysts in 2006 expected the law change to raise about $6 billion for the government over the next decade.
The findings could provide further fuel for the debate over the current array of tax breaks for retirement savings. Some liberal critics say the current system is too generous to wealthy people who would save anyway.
Posted on 4:32 PM | Categories:

The Most Common Reasons Tax Returns Get Audited & 14 IRS Audit Red Flags

Sandra Block for Kiplinger writes: The IRS will be looking for unreimbursed business expenses, as well as these out-of-the-ordinary moves on Schedules A and C.

 For its Insider Tips From the Pros package, Kiplinger’s spoke with dozens of experts in fields ranging from college aid to travel to glean insights they apply to their own financial lives and share with their own family and friends. Frank Degen, immediate past president of the National Association of Enrolled Agents, revealed these tips for avoiding a tax audit:
"Only about 1% of taxpayers are audited. What triggers an audit is generally something on the tax return that’s out of the ordinary," he says. "For example, if you have a side business and file a Schedule C, the IRS will flag large losses, particularly if they offset other income. The IRS is looking to see if your activity is a hobby as opposed to a business.
"On Schedule A, large charitable contributions could be a red flag because now you have to have a receipt for every item," he continues. "I don’t ask to see every receipt for charitable contributions, but I will specifically ask a client if he or she has receipts for all contributions.
Unreimbursed business expenses are another item you see people get flagged on," he says. "If your preparer isn’t asking serious questions about these items, you need a new preparer."
Discover even more ways to attract unwanted scrutiny in our popular collection of 14 Red Flags for IRS Auditors
Short on personnel and funding, the IRS audits only slightly more than 1% of all individual tax returns annually. We expect the audit rate for 2013 to fall even lower as resources continue to shrink and even more employees are reassigned to identity theft cases. So the odds are pretty low that your return will be picked for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.
That said, your chances of being audited or otherwise hearing from the IRS increase with key factors, including your income level, the types of deductions or losses you claim, how you make your money and whether you own foreign assets. Math errors may draw IRS inquiry, but “they’ll rarly lead to a full-blown exam. Although there's no sure way to avoid an IRS audit, these 14 red flags could increase your chances of unwanted attention from the IRS.
John Taylor for Kiplinger writes: 14 IRS Audit Red Flags
Making Too Much Money
Although the overall individual audit rate is only about one in 100, the odds increase dramatically as your income goes up. Recent IRS statistics show that people with incomes of $200,000 or higher had an audit rate of 3.70%, or one out of every 27 returns. Report $1 million or more of income? There's a one-in-eight chance your return will be audited.
We're not saying you should try to make less money—everyone wants to be a millionaire. Just understand that the more income shown on your return, the more likely it is that you'll be hearing from the IRS.
Failing To Report All Taxable Income
The IRS gets copies of all 1099s and W-2s you receive, so make sure you this income. IRS computers are pretty good at matching the numbers on the forms with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill. If you receive a 1099 showing income that isn't yours or listing incorrect income, get the issuer to file a correct form with the IRS.

Taking Large Charitable Deductions

We all know that charitable contributions are a great write-off and help you feel all warm and fuzzy inside. However, if your charitable deductions are disproportionately large compared with your income, it raises a red flag.
That's because the IRS knows what the average charitable donation is for folks at your income level. Also, if you don't get an appraisal for donations of valuable property, or if you fail to file Form 8283 for donations over $500, you become an even bigger audit target. And if you've donated a conservation or façade easement to a charity, chances are good that you'll hear from the IRS. Be sure to properly document everything.

Claiming Day-Trading Losses on Schedule C

Those who trade in stocks and securities have significant tax advantages compared with investors. The expenses of traders are fully deductible and traders’ profits are exempt from self-employment tax. Losses of traders who make a special section 475(f) election are fully deductible and aren’t subject to the $3,000 cap on capital losses. And there are other tax benefits.
But to qualify as a trader, you must buy and sell securities frequently and look to make money on short-term swings in prices. And the trading activities must be continuous.
The IRS knows that many filers who report trading losses or expenses on Schedule C are actually investors, who profit mainly on long-term appreciation and dividends, hold their securities for longer periods and sell much less often than traders, and can only report their expenses as a miscellaneous itemized deduction on Schedule A, subject to an offset of 2% of adjusted gross income.
So it’s pulling returns and checking to see that the taxpayer meets all of the rules to qualify as a bona fide trader.

Claiming Rental Losses

The IRS is actively scrutinizing rental real estate losses, especially those written off by taxpayers claiming to be real estate pros and whose W-2 forms or other businesses show lots of income. Agents are checking to see whether these filers worked the necessary hours, especially in cases of landlords whose day jobs are not in the real estate business. The IRS started its real estate professional audit project several years ago, and this successful program continues to bear fruit.
The rules require you to spend more than 50% of their working hours and 750 or more hours each year materially participating in real estate as developers, brokers, landlords or the like to write off losses without limitation. Also, if you actively participate in the renting of your own property, you can deduct up to $25,000 of loss against your other income. But this $25,000 allowance phases out as adjusted gross income exceeds $100,000 and disappears entirely once your AGI reaches $150,000.

Deducting Business Meals, Travel and Entertainment

Schedule C is a treasure trove of tax deductions for self-employeds. But it's also a gold mine for IRS agents, who know from experience that self-employeds sometimes claim excessive deductions. History shows that most underreporting of income and overstating of deductions are done by those who are self-employed. And the IRS looks at both higher-grossing sole proprietorships and smaller ones.
Big deductions for meals, travel and entertainment are always ripe for audit. A large write-off here will set off alarm bells, especially if the amount seems too high for the business. Agents are on the lookout for personal meals or claims that don't satisfy the strict substantiation rules. To qualify for meal or entertainment deductions, you must keep detailed records that document for each expense the amount, the place, the people attending, the business purpose and the nature of the discussion or meeting. Also, you must keep receipts for expenditures over $75 or for any expense for lodging while traveling away from home. Without proper documentation, your deduction is toast.
Claiming 100% Business Use of a Vehicle
When you depreciate a car, you have to list on Form 4562 what percentage of its use during the year was for business. Claiming 100% business use of an automobile is red meat for IRS agents. IRS agents are trained to focus on this issue and will scrutinize your records. Make sure you keep detailed mileage logs and precise calendar entries for the purpose of every road trip. Sloppy recordkeeping makes it easy for the revenue agent to disallow your deduction.
As a reminder, if you use the IRS' standard mileage rate, you can't also claim actual expenses for maintenance, insurance and other out-of-pocket costs. The IRS has seen such shenanigans and is on the lookout for more.
Writing off a Loss for a Hobby Activity
You must report any income you earn from a hobby, and you can deduct expenses up to the level of that income. But the law bans writing off losses from a hobby. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes that you're in business to make a profit, unless the IRS establishes otherwise. So make sure you run your activity in a businesslike manner and can provide supporting documents for all expenses.

Claiming the Home Office Deduction


Like Willie Sutton robbing banks (because that's where the money is), the IRS is drawn to returns that claim home office write-offs because it has found great success knocking down the deduction and driving up the amount of tax collected for the government.
If you qualify, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance and other costs that are properly allocated to the home office. That's a great deal. And beginning with 2013 returns, you have a simplified option for claiming this deduction. The write-off can be based on a standard rate of $5 per square foot of space used for business, with a maximum deduction of $1,500.
To take advantage of this tax benefit, you must use the space exclusively and regularly as your principal place of business. "Exclusive use" means that a specific area of the home is used only for trade or business, not also for the family to watch TV at night, or as a guest bedroom or children’s playroom. Don't be afraid to take the home office deduction if you're entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.

Taking an Alimony Deduction

Alimony paid by cash or check is deductible to the payer and taxable to the recipient, provided certain requirements are met. For instance, the payments must be made under a divorce or separate maintenance decree or written separation agreement. The instrument can’t say the payment isn’t alimony. And the payer’s liability for the payments must end when the former spouse dies. You’d be surprised how many divorce decrees run afoul of this rule.
The rules on deducting alimony are complicated, and the IRS knows that some filers who claim this write-off don’t always satisfy the requirements. It also wants to make sure that both the payer and the recipient properly reported alimony on their respective returns. A mismatch in reporting by ex-spouses will almost certainly trigger an audit. Alimony doesn’t include child support or noncash property settlements.

Running a Small Business

Small business owners in cash-intensive businesses—think taxis, car washes, bars, hair salons, restaurants and the like—are a tempting target for IRS auditors. Experience shows that those who receive primarily cash are less likely to accurately report all of their taxable income. The IRS has a guide for agents to use when auditing cash-intensive businesses, telling how to interview owners and noting various indicators of unreported income.
Other small businesses will also face extra audit heat, as the IRS shifts its focus away from auditing regular corporations. The agency thinks it can get more bang for its audit buck by examining S corporations, partnerships, limited liability companies and sole proprietorships. So it’s spending more resources on training examiners about issues commonly encountered with pass-through firms.
Failing to Report a Foreign Bank Account
The IRS is intensely interested in people with money stashed outside the U.S., especially those in tax havens, and tax authorities have had success getting foreign banks to disclose account information. The IRS has also used voluntary compliance programs to encourage folks with undisclosed foreign accounts to come clean—in exchange for reduced penalties. The IRS has learned a lot from these amnesty programs and has been collecting a boatload of money (we’re talking billions of dollars). It’s scrutinizing information from amnesty seekers and is targeting the banks that they used to get names of even more U.S. owners of foreign accounts.
Failure to report a foreign bank account can lead to severe penalties. Make sure that if you have any such accounts, you properly report them. This means electronically filing FinCEN Form 114 by June 30 to report foreign accounts that total more than $10,000 at any time during the previous year. And those with a lot more financial assets abroad may also have to attach IRS Form 8938 to their timely filed tax returns.

Engaging in Currency Transactions


The IRS gets many reports of cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses, plus suspicious-activity reports from banks and disclosures of foreign accounts So if you make large cash purchases or deposits, be prepared for IRS scrutiny. Also, be aware that banks and other institutions file reports on suspicious activities that appear to avoid the currency transaction rules (such as persons depositing $9,500 in cash one day and an additional $9,500 in cash two days later).
If deductions on your return are disproportionately large compared with your income, the IRS may pull your return for review. But if you have the proper documentation for your deduction, don't be afraid to claim it. There's no reason to ever pay the IRS more tax than you actually owe.

Taking Higher-than-Average Deductions


If deductions on your return are disproportionately large compared with your income, the IRS may pull your return for review. But if you have the proper documentation for your deduction, don't be afraid to claim it. There's no reason to ever pay the IRS more tax than you actually owe.



Posted on 10:16 AM | Categories: