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Tax Tips Newsletter
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February 2008 - Vol 3, Issue 2
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Greetings!
Linda 2008 head shot

ATTENTION! THE OFFICE WILL BE CLOSED ON WEDNESDAY, MARCH 5, 2008!

Edison will be installing a new power pole in our neighborhood and we will be without power for most of the day. However, we will all still be working from remote locations and checking our messages periodically. A major inconvenience during the busiest part of tax season, but we'll manage.

For individual and LLC taxpayers, please note that the cutoff date to get your information in to us is March 15, 2008. After that date your returns may be put on extension. We make every effort to get all the returns out that come in, but in the last few years we have had to adhere to the cutoff date in order to get out the returns that are currently in process.

Shanghai skyline
Did you know that you can deduct "commuting" expenses between your home and temporary job locations? Daily transportation costs between your home and a regular work location are nondeductible commuting expenses. However, you may be able to deduct costs of going to and from your home and a temporary (not regular) job location. This deduction is allowed if your work fits one of the following descriptions:

You have one or more regular places of business outside your home, but sometimes travel to temporary work locations in the same trade or business.
You sometimes travel to a temporary work location outside the metropolitan area in which you live and normally work.

Generally speaking, employment at a work location is temporary if it is realistically expected to last (and does in fact last) for no more than a year. So, for example, if you have a regular workplace, but you are assigned to another location for three months, your new work location is considered a temporary one. This means that you will be able to deduct your commuting expenses to the temporary location.

Sometimes a temporary location can turn into a regular one. This happens when your realistic expectation changes, so that work at a location that had been expected to last for a year or less is now expected to last for more than a year. Assume, for example, that a three-month assignment to a work location becomes permanent. In that case, your commuting expenses to that location won't be deductible after the date when your realistic expectation changed, even if the location is outside of your metropolitan area.

You must be able to substantiate the auto expenses that you claim through adequate records, such as a log or diary. You can either use the standard mileage rate or deduct your actual expenses.

If your employer reimburses your commuting expenses, you needn't report the reimbursements as income if they are made under a so- called "accountable plan." An accountable plan is one that reimburses only deductible business expenses, requires you to substantiate your expenses, and requires you to return amounts in excess of your substantiated expenses. If the plan isn't an accountable plan, the reimbursement must be reported as income, and your deductible expenses must be claimed as employee business expenses.

If you have any questions about whether you are entitled to deduct your job-related commuting expenses, please give me a call.
Mom with 2 kids
To qualify, you must maintain as your home a household which for more than half the year is the principal home of:

(1) A "qualifying child," i.e., someone who (a) lives in your home for over half the year, (b) is your child, stepchild, adopted child, or foster child, or your sibling or stepsibling (or a descendant of any of these), (c) is under 19 years old (or a student under 24), and (d) does not provide over half of his or her own support for the year. (If a child's parents are divorced, the child will qualify if he meets these tests for the custodial parent even if that parent released his or her right to a dependency exemption for the child to the noncustodial parent.) A person will not be a "qualifying child" if he is married and cannot be claimed by you as a dependent because he filed jointly or is not a U.S. citizen or resident. Special "tie-breaking" rules apply if the individual can be a qualifying child of (and is claimed as such by) more than one taxpayer.

(2) Any other relative of yours whom you can claim as your dependent (unless you only qualify due to the multiple support rules). See below for a special rule for your parents.

Maintaining a household. You are considered to "maintain a household" if you live in the household for the tax year and pay over half the cost of running it. In measuring the cost, include house-related expenses incurred for the mutual benefit of household members, including property taxes, mortgage interest, rent, utilities, insurance on the property, repairs and upkeep, and food consumed in the home. Do not include items such as medical care, clothing, education, life insurance, or transportation.

Special rule for parents. Under a special rule, you can qualify as head of household if you maintain a home for a parent of yours even if you don't live with the parent. To qualify under this rule, you must be able to claim the parent as your dependent.

Marital status. You must be unmarried to claim head-of-household status. If you are unmarried because you are widowed, you can use the married filing jointly rates as a "surviving spouse" for two years after the year of your spouse's death if your dependent child, stepchild, adopted child, or foster child lives with you and you "maintain" the household. The joint rates are more favorable than the head-of-household rates.

If you are married, you must file either as married filing jointly or separately, not as head of household. However, if you have lived apart from your spouse for the last six months of the year and your dependent child, stepchild, adopted child, or foster child lives with you and you "maintain" the household, you are treated as unmarried. If this is the case, you can qualify as head of household. If you have any questions or would like to discuss a particular situation with me, please call.
Man buried with papers
The IRS has recently increased the amount of audits it is doing. In the event that you are audited, you will be asked to produce your records to verify your income and deductions. I want to give you a partial list of items that the taxing authorities will be asking for. One of the reasons I am doing this is so that you can organize your records while you are compiling them for preparation of your 2007 returns.

  • CANCELLED CHECKS! Many banks do not give you cancelled checks anymore. This is one of the items they will ask for. Be sure you can get copies from your bank.
  • Check registers for all accounts (business and personal)
  • Deposit slips for all deposits
  • Bank reconciliation workpapers for all accounts
  • General ledgers for business accounts
  • Schedules showing computations and reconciliations
  • Bank statements for all accounts
  • Brokerage statements for all accounts
  • Other investment statements
  • Records of all other receipts including loans, insurance proceeds, etc

  • Repair receipts for autos showing the mileage
  • Log books and other records to verify mileage claimed
  • Auto purchase documents if you are writing part of your auto off for business
  • Verification of the number of nights spent away from home for business travel
  • A log or diary of travel costs.
  • Receipts or monthly credit card statements showing the detail of business expenses.
  • For entertainment expenses, the name and business purpose of the expense, the date, place and amount of expenditure
  • Records and receipts showing the cost of business gifts, to whom the gift was made and the business relationship
  • Itinerary of business trips away from home
  • Copies of payroll tax returns

This is only a partial list, but it was taken directly from a document request that was recently sent to a client.

If you have any questions about recordkeeping, please call me.
Golden Egg
The Tax Tip this week has information regarding how to report foreign financial accounts.

The Business Tip of the Month is called "Raising Prices is a Balancing Act" and has some tips regarding the art of pricing.

The Financial Tip of the Month is about the importance of long-term disability insurance and suggests 3 considerations when shopping for this type of insurance.

The Fraud Alert deals with tax rebate scams which you know will be happening as soon as the first rebate check is mailed.

Photos © Bigstockphotos.com, istockphoto.com, Janet Gelfman

Sincerely,
Linda Heineman
Linda L. Heineman, CPA, CITP

phone: 626-577-0979