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Depreciation Updates | Tax Tip of the Week | No. 156 July 25, 2012

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Repair or Improvement?

Generally speaking, any asset purchased by a business that is expected to last more than one year must be depreciated over the useful life of that asset.

Under current law, the maximum Section 179 deduction (first year expensing) is $139,000, down from $500,000 in 2011.  In addition, the 100% “Bonus” depreciation (Section 168) rules allowing a write-off of the entire cost of qualifying assets is limited to 50% this year compared to a 100% optional election in 2011.

While those rules may be familiar, you need to be aware of the revised “repair regulations.”  These temporary regulations give us some guidance on what assets need to be capitalized and depreciated instead of expensing in the current year.

Say, for example, that you replace the roof on your commercial office building.  In prior years, you may have decided the expense was a repair because only a small portion of your building was involved.  Under the new regulations, roof replacement is an improvement.  That means you depreciate the cost over the life of the building (39.5 years) instead of expensing it immediately.

A more detailed explanation of the new “repair regulations” goes beyond the scope of this newsletter.  The key highlights, however, include:

– Unit of property is segregated to “component systems” for buildings.
– Reduced scope of what qualifies under case law and redacted 2008 proposed regulations.
– Provides rules for “component system” disposal losses.
– Clarifies the de minimis rules.
– New procedures to make accounting changes to correct prior depreciation elections have been simplified (Form 3115).

Deciding which depreciation method, and options to make, should be an important part of your tax planning to maximize profits.  We will be right here to help you make those decisions—just give us a call. 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.

What We Know So Far…. | Tax Tip of the Week | No. 155 July 18, 2012

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Watch Out!  2013 Taxes Are Coming!

Little publicized, but effective and starting in 2013, as a part of the Patient Protection and Affordable Care Act of 2010, enacted March 23, 2010, there will be a new tax of 3.8% applied to “net investment income.”  This new tax would apply to taxpayers with taxable incomes in excess of $200,000 ($250,000 for married filing joint return). 

Net investment income is defined as investment income less allocable expenses. 

Investment income includes income from Interest, Dividends, Annuities, Royalties, Rents, and net Capital Gains from the Disposition of Property (unless property is used in a Trade or Business that is NOT a Passive Activity). 

We worked on some projections for a client with a large capital gain expected in 2013 and beyond.  It was not a pretty picture unless the law is changed by Congress before the end of this year.  Also, the long term capital gains rate will rise to 20% in 2013. 

Good tax planning will require proper timing of capital gains which could save thousands of dollars in taxes. 

We expect that Congress will enact more new tax rules late in 2012.  We will keep you posted. 

Give us a call to discuss how we can save you taxes if you are in this situation.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.

Tax Identity Theft on the Rise | Tax Tip of the Week | No. 154 July 11, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , 3comments

IRS ALERT

There is a lot of discussion about the growing problem of identity theft. Most people think of identity theft as a stolen credit card or a compromised bank account. But many people don’t realize that tax identity theft is becoming increasingly common. The IRS reported tax identity theft as No. 1 on its annual list of “Dirty Dozen Tax Scams.” In fact, many refunds in the 2012 filing season were delayed because of IRS filters that were meant to screen for identity theft on tax filings. When the IRS cannot detect and prevent tax identity theft, it becomes a complex post-filing issue.

A growing problem

In general, the incidence of identity theft is increasing worldwide. In 2010, the Congressional Research Service noted that there were 8.1 million victims of identity theft in the United States. In 2011, the Federal Trade Commission reported that one out of four identity theft complaints received were related to tax identity theft, and the IRS detected 940,000 tax returns involving identity theft out of 141 million total returns filed.

In 2009, the IRS implemented its identity theft indicator system, which places a “marker” indicating identity theft on affected taxpayer accounts at the IRS. In just two years, the number of indicators created increased 153%, from 254,079 in 2009 to 641,052 in 2011. The IRS Identity Protection Specialized Unit (IPSU) tracked more than 254,000 new cases in 2011, and numbers for 2012 are even higher. The Taxpayer Advocate Office’s workload for identity theft cases has almost doubled in 2012, indicating that internal IRS systems are not sufficiently handling the caseload.

The most common form of tax identity theft is refund theft.

Refund theft occurs when a thief intentionally uses another person’s Social Security Number (SSN) to file a false tax return to acquire an illegal refund. Usually, this is detected when the IRS rejects an electronic tax return as a duplicate filing or rejects a paper return and sends a notice to the taxpayer. At this point, the identity theft victim has already lost the money and must confirm his or her identity with the IRS to process the return and, if applicable, receive the refund. The majority (85%) of identity theft incidents reported to the IRS involve refund theft.

Elderly persons and those who are recently deceased represent the highest percentage of refund theft victims.

Now, more than ever, it is important to protect your SSN and date of birth from falling into the hands of identity thieves.

If you, or someone you know, has been a victim of refund identity theft let us know.  There are procedures in place to help resolve this issue with the IRS.

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.

An Update on Lodging Expenses | Tax Tip of the Week | No. 153 July 4, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes , add a comment

A Potential New Deduction

Previously, an employee was not allowed to deduct personal expenses and lodging expenses if the event did not include travel away from home.

Proposed regulations were recently written that would allow a deduction of these expenses if they occurred in the taxpayer’s home town.  The IRS has stated they will allow these deductions to be taken immediately, versus waiting, for the regulation to become permanent.  In order to take these deductions you must meet all of the following tests:

• The lodging is necessary for the employee to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function.

• The lodging does not exceed five calendar days and does not occur more than once each calendar quarter.

• The employer requires the employee to remain at the activity or function overnight.

• The lodging is not extravagant or lavish and does not provide a significant element of personal pleasure.

This new regulation also means taxpayers may deduct these expenses on any tax returns that are still “open” (three years from filing date/two years from payment of tax) by filing an amended return.

It pays to keep up with the ever changing tax rules—we hope this one helps you!

As always, give us a call if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/BlhqUiVEsJo

…until next week.