Berdon Blogs

TAX TALK: Business Expense Deductions Require Documentation

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 19, 2016 12:50:00 PM

The IRS generally requires you to substantiate your business deductions. If the IRS audits your tax return, they can examine your books and records to determine if you claimed the correct deductions. If you have incomplete or missing records, your business may lose out on valuable deductions. Here are two recent U.S. Tax Court cases that help illustrate the rules for documenting deductions.

Case 1: Insufficient records

In the first case, the court found that a taxpayer with a consulting business provided no specific facts and no documentation to substantiate more than $52,000 in advertising expenses and $12,000 in travel expenses for the two years in question. His only allegation concerning the advertising expenses were that they related to “horses purchased for business use and the losses”; he attached documents purporting to establish the horses' pedigree.

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Topics: TAX TALK

T&E TALK: Consider SNTs for Loved Ones with Special Needs

Posted by Scott T. Ditman, CPA/PFS on Sep 19, 2016 11:00:00 AM

Special needs trusts (SNTs), also called “supplemental needs trusts,” benefit children or other family members with disabilities that require extended-term care or that prevent them from supporting themselves. This trust type can provide peace of mind that your loved one’s quality of life will be preserved while not disqualifying him or her from Medicaid or Supplemental Security Income (SSI) benefits.

Preserve Government Benefits

Medicaid and SSI pay for basic medical care, food, clothing, and shelter. To qualify for these benefits, however, the individual’s resources must be limited to no more than $2,000 in “countable assets.” Generally, every asset is countable with a few exceptions, including among other things a principal residence, a car, and a small amount of life insurance.

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Topics: T&E TALK

SALT TALK:  Aliens, Adult Entertainment, and Amnesty

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Sep 19, 2016 7:00:00 AM

We have recently reached the one year milestone with our Berdon Blogs (see ...announcement…).  What better way to celebrate than to come up with a title for this week’s blog that will hopefully propel its readership past that of the previously most popular article by my Partner Scott Ditman!  So here are a few interesting state and local tax tidbits that address aliens, adult entertainment (in New York), and tax amnesty (in Pennsylvania).

Facebook is locating a new datacenter in Los Lunas, New Mexico while New York adult entertainment establishments continue to battle the sales tax.  In exchange for property and sales tax breaks reported to be worth millions, Facebook will make an initial investment of $250 million to locate part of the cloud a mere 200 miles away from the UFO capital of Roswell. 

And in another example of “you just can’t make this stuff up,” the New York Tax Appeals Tribunal held that an adult entertainment establishment was clearly a place of amusement subject to the sales tax. The sales tax exemption for dramatic or musical performances did not apply.

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Topics: SALT TALK

TAX TALK:  Are You an Investor or a Trader?

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 12, 2016 1:43:26 PM

Do you invest in securities for your own account? If yes, do you know whether you are an investor or a trader? Is there a difference?

Investors

As a general rule, the IRS will classify most of you as investors. The IRS will treat the income from the sale of your investments as capital gains and losses. The long term capital gains (held more than one year) will be taxed at preferential capital gains rates. For those of you with net capital losses, the losses are limited to a $3,000 ($1,500 if married filing separately) per year deduction once any capital gains have been offset.

There are also many limitations on your investment expenses. Your investment expenses are deducted as itemized deductions (subject to the many limitations for high income earners). Also, your margin interest is deductible only to the extent of your net investment income. Other investment expenses are treated as miscellaneous itemized deductions, and therefore, may be limited by the 2% adjusted gross income threshold. In addition, your miscellaneous itemized deductions will not provide you with any alternative minimum tax benefit.

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Topics: TAX TALK

SALT TALK:  Catch Me if You Can Evolves to Match Me if You Can

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Sep 12, 2016 11:00:00 AM

You come home from a long day of work, check the mail, and find a letter from the IRS. Your heart sinks to the floor as you open the envelope. Straight from the enclosed IRS CP2000 notice:

The income and/or payment information we have on file doesn’t match the information you reported on your tax return. This could affect your tax return; it may cause an increase or decrease in your tax, or may not change it at all. 

The IRS has been doing it for years. Fail to include a 1099 for $100 of bank interest on your tax return and you are likely to receive a “matching notice” requesting the additional tax, interest and penalties. Catch me if you can (see my February 8, 2016 blog regarding state voluntary disclosure programs) has turned into match me if you can.

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Topics: SALT TALK

T&E Talk: Review Your Powers of Attorney at Least Every 5 Years

Posted by Scott T. Ditman, CPA/PFS on Sep 12, 2016 7:00:00 AM

Powers of attorney are critical components of an effective estate plan. After you’ve executed powers of attorney, it’s important to review them periodically — at least every five years and preferably more frequently — and consider executing new ones.

2 types

A sound estate plan should include two types of powers of attorney:

  1. Financial power of attorney. Also referred to as a power of attorney for property, this document appoints someone to make financial decisions or execute transactions on your behalf under certain circumstances. For example, a power of attorney might authorize your agent to handle your affairs while you’re out of the country or, in the case of a “durable” power of attorney, incapacitated.
  2. Health care power of attorney. This document, which also may go by other names, appoints someone to make medical decisions on your behalf in the event an illness or injury renders you unconscious or otherwise incapacitated and unable to make decisions for yourself.
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Topics: T&E TALK

SALT TALK: What’s All This Noise I Hear about Uniforms Being Unconstitutional in Pennsylvania?

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Sep 6, 2016 12:50:00 PM

While reading the most recent Commonwealth Court of Pennsylvania decision[1] striking down the Corporate Net Income Tax cap on net operating loss deductions (NOLs), I repeatedly had to assure myself that I wasn’t misreading or mishearing the basis of the Court’s decision. The Court found the cap to be in contradiction to the Uniformity Clause of the State Constitution. I couldn’t stay focused and kept hearing the voice of a kindly old lady in my head. She seemed baffled over my attaching importance to this matter and uttered some convoluted question as to why I was making all this noise over uniforms being found unconstitutional in Pennsylvania. 

Not understanding my momentary lapse of reason, I realized that although the case was riveting, with the recent passing of Gene Wilder, I couldn’t help thinking about my favorite Saturday Night Live character from way back in the seventies, Ms. Emily Litella. Ms. Litella was played by none other than Gilda Radner, who was married to Mr. Wilder. Ms. Litella was a kind, elderly woman with a hearing problem, who would offer editorial opinions on news topics of interest that she often misheard. (What’s all this fuss about natural race horses, other kinds of horses are important too… Why is everyone so upset about crustaceans hijacking planes … Why do we need an eagles’ rights amendment.) She would ramble on until corrected by one of her newscasters and would utter her trademark saying “Oh never mind… that’s completely different.”

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Topics: SALT TALK

TAX TALK: Does the IRS Tax Frequent Flyer Miles?

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 6, 2016 11:00:00 AM

Did you redeem frequent flyer miles to treat the family to a fun summer vacation or to take your spouse on a romantic getaway? You might assume that you do not owe any tax. You are probably right; however there are instances when your miles could be taxable.

General Rule — Tax Free
Generally, the IRS treats miles awarded by airlines for flying with them as nontaxable rebates. Similarly, the IRS treats miles and other rewards for using a credit or debit card as a purchase price reduction and not as taxable income.

The IRS partially addressed the issue in Announcement 2002-18, where it said “Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.”

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Topics: TAX TALK

T&E TALK: Direct Payments of Tuition and Medical Expenses Can Reduce Future Estate Tax Exposure

Posted by Scott T. Ditman, CPA/PFS on Sep 6, 2016 7:00:00 AM

The gift and estate tax exemption at $5.45 million in 2016 may make you less concerned about these taxes. Nonetheless, you may be missing a valuable opportunity to reduce your potential gift and estate tax exposure down the road if you don’t take advantage of making tax-free direct payments of tuition and medical expenses.

Leveraging the break

Federal tax law allows you to pay tuition and medical expenses on behalf of your children or other loved ones without incurring gift tax or using up any of your gift and estate tax exemption. This opportunity may not be important at the moment if your net worth is well under the current exemption amount, but what if your wealth grows beyond the exemption amount in the coming years?  What if lawmakers decide to reduce the exemption? Either way, your estate could end up with a hefty tax bill, leaving less for your family after your death.

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Topics: T&E TALK

T&E TALK: Proposed Valuation Regulations May Have a Major Impact on Real Estate Families

Posted by Scott T. Ditman, CPA/PFS on Aug 29, 2016 1:00:00 PM

In my August 15 blog, I noted that proposed regulations issued by the Treasury Department and IRS would significantly limit the ability to use valuation discounts in the context of transferring interests in family-owned entities to family members. These regulations would have a particularly significant impact in the case of real estate business owners.

All business owners have an opportunity to take advantage of discounts now by gifting family entity interests before the rules become final.  However, when you have a real estate entity, there are some special considerations.  With real estate, the income tax basis of the assets could be significantly lower than the market value because in real estate you can depreciate the assets as well as refinance mortgages and distribute additional dollars out to the owners.

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Topics: T&E TALK

About Berdon Blogs

Our experts examine the latest trends, economics, business conditions and industry issues to provide timely information you need to maximize your tax advantages and meet your financial goals.

SALT TALK: Hear an insider’s perspective on the business issues, legislative updates in state and local tax, and tax aspects behind today’s headlines.

T&E TALK: Gain insights into how changes in tax laws, shifts in the financial markets, and regulatory concerns will impact assets and affect preserving and transferring wealth.

TAX TALK: Get an all-inclusive perspective on regulatory changes, industry issues, and trends from our team of multidisciplinary tax professionals – many of whom also hold J.D. and LL.M degrees.

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