Burgess COMMENTARY

Peter Burgess

De Minimis Safe Harbor Taxpayers may elect a minimum capitalization threshold (aka de minimis safe harbor) under which amounts are not capitalized. However, eligible taxpayers must: 1. Have an applicable financial statement. 2. Have written accounting procedures at the beginning of the year with a set dollar amount for certain property with a life of 12 months or less. 3. Treat those amounts as expenses on its financial statements. 4. Set dollar amount (threshold) cannot exceed $5,000 per invoice or item. No Financial Statement - The threshold for taxpayers with no financial statement is $500 per invoice or item and the accounting procedures are not required to be in writing. The de minimis safe harbor is elected annually and must be applied to all amounts paid in 2015 for tangible property that meet the requirements of the de minimis safe harbor, including amounts paid for materials and supplies that meet the requirements.

Election to Capitalize Repairs and Maintenance You may elect to treat amounts paid during 2015 for repair and maintenance to tangible property as amounts paid to improve that property and as an asset subject to the allowance for depreciation, as long as you incur the amounts in carrying on a trade or business and you treat the amounts as capital expenditures on your books and records used for regularly computing income. If you elect this treatment, you must apply the election to all amounts paid for repair and maintenance to tangible property that you treat as capital expenditures on your books and records in that taxable year. If making the election, you must begin to depreciate the cost of such improvements when the improvements are placed in service under the applicable provisions of the Code and regulations.

Small Taxpayer Safe Harbor The final regulations permit a qualifying small taxpayer to elect to not apply the improvement rules to an eligible building property if the total amount paid during 2015 for repairs, maintenance, improvements, and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building. Eligible building property includes a building unit of property that is owned or leased by the qualifying taxpayer, provided the unadjusted basis of the building unit of property is $1,000,000 or less. A qualifying small taxpayer for purposes of this election must have gross receipts of $10,000,000 or less.

Election to Capitalize Materials and Supplies You may capitalize and depreciate amounts paid for materials and supplies that are rotable, temporary, or standby emergency spare parts.

Partial Asset Disposition Election You can claim a loss on the disposition of a structural component (or a portion thereof) of a building or upon the disposition of a component (or a portion thereof) of any other asset without identifying the component as an asset before the disposition event. The rule minimizes circumstances in which an original part and any subsequent replacements of the same part are required to be capitalized and depreciated simultaneously. In Rev. Proc. 2014-17, the IRS allowed taxpayers to make a late partial disposition election where they had not timely made such an election under the proposed regulations. However, the election could only be made for any tax year beginning on or after January 1, 2012, and beginning before January 1, 2014. In Rev. Proc. 2014-54, the IRS extends the timeframe for making the election to any tax year beginning on or after January 1, 2014, and taxpayers may choose to apply the provisions to taxable years beginning on or after January 1, 2012.

Election to Capitalize Employee Compensation or Overhead A taxpayer may elect to treat amounts paid for employee compensation or overhead as amounts that facilitate the acquisition of property. The election is made separately for each acquisition and applies to employee compensation or overhead, or both.

You can deduct the actual expenses of running your car or truck or take the standard mileage rate. You must use actual expenses if you used five or more vehicles simultaneously in your business. You can use the standard mileage rate if you owned the vehicle and used the standard mileage rate for the first year you placed the vehicle in service or if you leased the vehicle and are using the standard mileage rate for the entire lease period (except the period, if any, before 1998).

Commuting Miles Commuting miles are miles driven from your home to work and back home. These miles are not deductible and are considered personal miles. You cannot deduct these miles no matter how far your work is from home. You cannot deduct these miles even if you work during your commute. For additional information see IRS Publications 463.

Personal Miles Other personal miles are miles that are not business or commuting. These are the miles driven for leisure, personal errands, etc. For additional information see IRS Publications 463.

Business Miles Business miles include the following miles that are ordinary and necessary for your business: Visiting clients or customers Driving to a business meeting away from your normal place of business Driving to a temporary workplace from your home Driving to a second workplace from your first workplace Business miles do not include commuting miles (miles driven from your home to work and back home). For additional information see IRS Publications 463.

Simplified Option You may be able to use a simplified option to calculate the business use of home deduction. The Simplified Option changes the way the deduction is calculated and reduces the record keeping burden. The rate is $5 per square foot of the part of your home used for business. The maximum square footage allowed is 300 square feet. Facts Regarding the Simplified Option The Regular Method or Simplified Option can be chosen for any taxable year. You cannot depreciate your home office using the Simplified Option. When the Simplified Option is used, you can still deduct other qualified home expenses, such as mortgage interest and real estate taxes on Schedule A. These expenses can be deducted in full instead of allocating between business and personal as would be required with the Regular Method. The Simplified Option can only be used for one home with a qualified home office. You may use the Simplified Option for one home, and the Regular Method for any others. You must use the same method for all qualified business uses of the same home. You cannot use the simplified method to figure a deduction for rental use of your home.

Expenses for Business Use of Your Home Direct expenses are those that you can specifically identify as being derived from or of benefit to the business part of your home. Direct expenses would include painting or repairs to the area of your home used for business. Enter 100% of your direct expenses on the appropriate line. Indirect expenses are those that are for keeping the entire home up and running and cannot be specifically associated with just the business area. They benefit both the business and personal areas of your home. Indirect expenses would include insurance, utilities, and general repairs. Generally, enter 100% of your indirect expenses on the appropriate line and they will be allocated to the business portion using the ratio of your business square footage to the total square footage of your home. Unrelated expenses are expenses only for the parts of your home not used for business. Unrelated expenses include lawn care or painting a room not used for business. None of these amounts are deductible.

Deduction Limit Business income greater than business expenses. If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Business expenses greater than business income. If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), that are allocable to the business, is limited to the gross income from the business use of your home minus the sum of the following: The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040/1040NR)). The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. If you are self-employed, do not include in (2) above your deduction for half of your self-employment tax. Carryover of unallowed expenses. If your deductions are greater than the current year's limit, you can carry over the excess to the next year. They are subject to the deduction limit for that year, whether or not you live in the same home during the year. Example. You meet the requirements for deducting expenses for the business use of your home. You use 20% of your home for business. In 2015, your business expenses and the expenses for the business use of your home are deducted from your gross income in the following order: Gross income from business $6000 Minus: Deductible mortgage interest and real estate taxes (20%) $3000 Business expenses not related to the use of your home (100%) (business phone, supplies, and depreciation on equipment) $2000 Deduction limit $1000 Minus other expenses allocable to business use of your home: Maintenance, insurance, and utilities (20%) $800 Depreciation allowed (20%=$1600 allowable, but subject to balance of deduction limit) $200 Other expenses up to the deduction limit $1000 Depreciation carryover to 2016 ($1600-$200) (subject to deduction limit in 2016) $1400 You can deduct all of the business part of your deductible mortgage interest and real estate taxes ($3000). You also can deduct all of your business expenses not related to the use of your home ($2000). Additionally, you can deduct all of the business part of your expenses for maintenance, insurance, and utilities, because the total ($800) is less than the $1000 deduction limit. Your deduction for depreciation for the business use of your home is limited to $200 ($1000 minus $800) because of the deduction limit. You can carry over the $1400 balance and add it to your depreciation for 2016, subject to your deduction limit in 2016.

Retirement Plan Income Did you receive money from a retirement plan or move funds from one plan to another? Yes No Common retirement plan transactions are: Distributions from an employer pension plan such as a 401(k) Distributions from Individual Retirement Arrangements (traditional IRA or Roth IRA) Railroad retirement benefits, Military retirement pay, and Civil Service retirement benefitsLearn More Distributions from 403(b), 457, SEP, SIMPLE or Qualified plans such as a Keogh plan Rollovers, Conversions, Recharacterizations, Excess contributions, Corrective distributions, Disability pensions Generally this income will be reported to you on Form 1099-R or RRB-1099R. Some of these transactions may apply to taxpayers who are not retired.

Manually Calculate Taxable State or Local Refund There are situations when a taxpayer may need to manually calculate the taxable state or local income tax refund using IRS Publication 525. These include: the refund is for a tax year other than 2014, you made your last payment of 2014 state or local estimated tax in 2015, you could not deduct all your tax credits for 2014 or you could be claimed as a dependent by someone else in 2014. If you are required to use Publication 525 then you will need to manually calculate the taxable portion. Enter the correct taxable amount on the State or Local Income Tax Refund Document and enter 2013 as the tax year of the refund. For these situations, click 'Review' to enter your Form 1099-G and enter the manually calculated taxable portion of your refund. This amount will then transfer directly to Form 1040.

State or Local Income Tax Refund - Calculation Method Do you wish to enter information from your 2014 federal tax return to determine the taxable amount of your state or local tax refund? If your state or local refund received in 2015 from your 2014 state return is fully taxable and you do not wish to enter information from last year's federal return click No below. Yes No Entering information from your 2014 federal tax return could be a time consuming process but may save you some money; making the state or local income tax refund fully taxable is quick but may add more tax than is required to your 2015 federal tax return.

ax-Favored Health Plans HSAs, MSAs, and FSAs are all different. Make sure you know what type of plan you have before making entries. A Flexible Spending Account (FSA) is established by an employer and allows employees to be reimbursed for medical expenses out of funds set aside through a salary reduction plan before income tax is computed. FSAs are sometimes referred to as cafeteria plans, flex plans, or Section 125 plans. The employer may also contribute to an FSA. Funds within an FSA can be used to pay for eligible medical expenses such as co-payments, deductibles, prescription drugs, dental care, vision care etc. The funds must be used within a specific period of time (generally one year). Any unused amounts in the account at the end of the period typically are lost, (often referred to as use-it-or-lose-it). However, beginning in 2014, employers may amend the FSA to allow up to $500 of unused amounts remaining at the end of a plan year for a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided the plan does not also incorporate the grace period rule. Employers may report details of your FSA on your W-2, but no entries are required on Forms 8853 or 8889 for an FSA. An Archer Medical Savings Account (MSA) is a tax-exempt account that you set up with a trustee, such as a bank or insurance company, to pay or reimburse certain medical expenses you incur. You can claim a tax deduction for contributions you make. The contributions remain in your account from year to year until you use them. The earnings generated within the account are tax free. You are the owner of the MSA. An MSA is portable so you retain ownership of the account even if you change jobs or leave the workforce. You must be covered under a High Deductible Health Plan (HDHP) and meet other requirements to be eligible to have contributions made to your MSA. The law authorizing new Archer MSAs has expired and MSA's are being phased out in favor of the more attractive Health Savings Account (HSA). However, taxpayers who own an Archer MSA may continue to use the account. Information on MSA contributions and distributions is entered on Form 8853. A Health Savings Account (HSA) is a tax-exempt account that you set up with a trustee, such as a bank or insurance company, to pay or reimburse certain medical expenses you incur. An HSA is similar to a MSA, but is more beneficial to the taxpayer. Funds may be rolled from an Archer MSA to an HSA, but not the other way around. You can claim a tax deduction for contributions you make. Contributions made by your employer may be excluded from your gross income. The contributions remain in your account from year to year until you use them. The earnings generated within the account are tax free. You are the owner of the HSA. It is portable so you continue to own the account even if you change jobs or leave the workforce. You must be covered under a High Deductible Health Plan (HDHP) and meet other requirements to be eligible to have contributions made to your HSA. Information on HSA contributions and distributions is entered on Form 8889. For additional guidance on Health Savings Accounts and other tax-favored health plans see IRS Publication 969.

Student Loan Interest Deduction Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary payments. Qualified Student Loan This is a loan you took out solely to pay qualified education expenses that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Loans from the following sources are not qualified student loans: A related person. A qualified employer plan. Eligible Student An eligible student is a person who: Was enrolled in a degree, certificate, or other program leading to a recognized educational credential at an eligible educational institution and Carried at least half the normal full-time workload for the course of study he or she was pursuing. Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending and eligible educational institution, including graduate school. They include amounts paid for the following items: Tuition and fees. Room and board. Books, supplies, and equipment. Other necessary expenses (such as transportation). Certain adjustments must be made to arrive at Qualified Education Expenses. See IRS Publication 970, Tax Benefits for Education for more information. Interest paid by others. If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Student Loan Interest Deduction Examples Example 1: During 2015 Ann paid $450 of interest on her qualifying student loan. She is the only person legally obligated to pay her student loans. Ann is claimed as a dependent on her parents return. Neither Ann nor her parents are allowed to claim the student loan interest for Ann's loan. Example 2: During 2015 Brian paid $750 of interest on his qualifying student loan. He is the only person legally obligated to pay his student loans. Brian is not claimed as a dependent on another person's return. Brian can claim the student loan interest deduction, assuming he meets all other requirements. Example 3: During 2015 Cindy's parents paid $1,200 of interest on Cindy's qualifying student loan. Cindy is the only person legally obligated to pay her student loans. Cindy is not claimed as a dependent on another person's return. Cindy can claim the student loan interest deduction, assuming she meets all other requirements. For more details on the student loan interest deduction, click IRS Form Instructions or see IRS Publication 970, Tax Benefits for Education.

New York - NYC-202 - Spouse Copy If you have an unincorporated business (other than partnership) engaged in any trade, business, profession, or occupation wholly or partly carried on within New York City, you may need to file a NYC-202 - Unincorporated Business Tax return. Would you like to review Form NYC-202? Yes No If your unincorporated business gross income (without deduction for cost of good sold or services performed) is $95,000 or less, you are not required to file an unincorporated business tax return.

Social Security Benefits Received In General If your income is modest, it is likely that none of your Social Security benefits are taxable. As your gross income increases, a higher percentage of your Social Security benefits becomes taxable, up to a maximum of 85% of your total benefits. The program will calculate the taxable amount of your Social Security income (if any), based on the entries you make in the Social Security Benefits entry fields, and your other income entries. Social Security benefits include monthly survivor and disability benefits. Social Security Benefits Worksheet The taxable portion of your social security benefits is calculated on the Social Security Benefits Worksheet. You can access this worksheet using the Forms List. To access the Forms List, click Forms then View Complete Forms List. Scroll down to Form 1040 Taxable Social Security Benefits Worksheet 1 and select. This worksheet is based on the worksheet in IRS Publication 915, Your Social Security Benefits. Social Security Benefits Received by a Child Income from social security benefits paid to a child belongs to the child, and if the child meets the filing requirements, they would need to file a tax return to report this income. Do not enter this income on your tax return. The filing requirements for filing a federal tax return are based on factors such as the taxpayer's income, the filing status and the age of the taxpayer, the age of the spouse on joint returns, if the taxpayer is claimed as a dependent on someone else's return, earnings from self-employment, etc. See the instructions for IRS Form 1040. Refer to the charts in the Filing Requirements section of the 1040 instructions: Chart A - For Most People, Chart B - For Children and Other Dependents, and Chart C - Other Situations When You Must File a Return. For additional guidance see IRS Publication 501 Exemptions, Standard Deduction, and Filing Information. Lump-Sum Election Method In addition to Worksheet 1 - Figuring Your Taxable Benefits, TaxAct also supports the Lump-Sum Election Method. For more information on the lump-sum election method, see the Miscellaneous topic Lump-sum payment of social security benefits in the Quick Q&A Topics (after you have completed the entire Federal Q&A).

IRA Contribution Limits Traditional IRAs The traditional IRA contribution limit is the maximum amount you can contribute to a traditional IRA. Generally this will be $5,500 ($6,500 if age 50 or older), or your taxable compensation (earned income). Additional limits apply based on your Modified Adjusted Gross Income (MAGI). No contribution is allowed if the taxpayer is deceased or age 70 1/2 or older. Contributions to a traditional IRA may be deductible. Roth IRAs Generally, the maximum allowable contribution to a Roth IRA is the smaller of, $5,500 ($6,500 age 50 or older) minus all contributions to traditional IRA's, or your earned income/net self-employment income minus all contributions to traditional IRA's. No contribution is allowed if the taxpayer is deceased. If you are age 70 1/2 or older, you can still make a contribution to a Roth IRA. Contributions to a Roth IRA are not deductible.

HealthWatch 2016 The HealthWatch report includes information about your health care situation so you can plan for or take advantage of the health care laws in the upcoming tax years. The contents of this report are specific to your tax situation based on the information provided on your 2015 return. General Information The Affordable Care Act (ACA) requires most U.S. citizens and legal residents to have health insurance or pay a penalty, commonly referred to as the individual shared responsibility payment. The law applies to individuals of all ages, including children. If you currently have health insurance through individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage, you will not need to get different health insurance. However, you do have the option to compare your health insurance coverage against what you could receive through your state's marketplace, also known as an exchange. If you have qualifying health insurance for all of 2016, you won't pay a tax penalty. Otherwise, based on your 2015 return, your estimated tax penalty for not having health insurance for all of 2016 would be $1,565. New Forms You may begin to start receiving some new tax forms through email or by mail. These forms are: Form 1095-A, Form 1095-B and Form 1095-C. These 3 forms will report your health insurance coverage depending on where you receive your health insurance from. To access a printed copy of how all the new ACA tax forms and the individual shared responsibility payment may impact your taxes, click here. Exemptions Under certain circumstances, you won't have to make the individual shared responsibility payment because you may be eligible for an exemption. You may qualify for one of the exemptions below: You're uninsured for less than 3 months of the year The lowest-priced coverage available to you would cost more than 8.05% of your household income You don't have to file a tax return because your income is too low You're a member of a federally recognized tribe or eligible for services through an Indian Health Services provider* You're a member of a recognized health care sharing ministry You're a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare* You're incarcerated (either detained or jailed), and not being held pending disposition of charges You're not lawfully present in the U.S. You qualify for a hardship exemption* While most exemptions can be claimed on your federal tax return, some exemptions must be claimed through the Marketplace. These exemptions are marked by a '*' above. Most exemptions listed above are on an annual basis. However, hardship exemptions are usually provided for the month before the hardship, the months of the hardship and the month after the hardship. Marketplace If you need health insurance, you may be able to access the health insurance marketplace in the state in which you live. You will be required to complete an application that will help you determine the type of health insurance that you qualify for. Open enrollment starts November 1, 2015 for coverage starting as early as January 1, 2016. Open enrollment ends January 31, 2016. When applying through your state marketplace, you may be eligible for an advanced premium tax credit. This credit can be used right away to lower your monthly premium costs. If you qualify, you may choose how much advance credit payments to apply to your premiums each month, up to a maximum amount determined by the marketplace. The credit will then be reconciled on your federal income tax return, which could lead you to receiving a bigger credit, or having to pay back a portion of the credit if your income were to increase or decrease in 2016. If you already have health insurance through your state marketplace, your plan will automatically renew for 2016. However, if you have certain life or income changes during the year, you should report those changes to your state marketplace as soon as possible. After you report your changes to the marketplace, you'll get a new eligibility notice that will explain: Whether you qualify for a special enrollment period that allows you to change plans Whether you're eligible for lower costs based on your new income, household size, or other changed information Based on your address, your New York marketplace is called New York State of Health and the website is www.healthbenefitexchange.ny.gov. Marketplace Checklist When you apply for coverage in the Health Insurance Marketplace, you'll need to provide some information about you and your household, including income, any insurance you currently have, and some additional items. The checklist provided below will help you organize all this data for when you are ready to sign up through your marketplace. Household Member Information Name: Dahelia D Beverley Identifying Number: 069-50-9053 Date of Birth: 01/08/1950 *TaxAct computes your 2015 household income information based on yearly totals. You may be required to estimate your 2016 household income based on income earned on a monthly basis. Description 2015 2016 Wages, salaries and tips (before taxes): $82,909 Unemployment: $0 Pensions/IRAs: $0 Social Security: $0 Alimony received: $0 Net self-employment income: $0 Net farming/fishing: $0 Net rental/royalty: $0 Other income (type): State Refund $2,453 Alimony paid $0 Student loan interest $0 Other deductions (type): $0 Your total income: $85,362 Policy numbers for any current health insurance plans: Complete the Employer Coverage Tool for every job-based plan Dahelia D Beverley is eligible for. You can find this tool at www.healthcare.gov. Household Member Information Name: Thomas P Burgess Identifying Number: 450-90-4948 Date of Birth: 01/08/1940 *TaxAct computes your 2015 household income information based on yearly totals. You may be required to estimate your 2016 household income based on income earned on a monthly basis. Description 2015 2016 Wages, salaries and tips (before taxes): $0 Unemployment: $0 Pensions/IRAs: $0 Social Security: $15,960 Alimony received: $0 Net self-employment income: $-11,790 Net farming/fishing: $0 Net rental/royalty: $0 Other income (type): $0 Alimony paid $0 Student loan interest $1,440 Other deductions (type): $0 Your total income: $4,170 Policy numbers for any current health insurance plans: Complete the Employer Coverage Tool for every job-based plan Thomas P Burgess is eligible for. You can find this tool at www.healthcare.gov. For More Information Visit www.HealthcareAct.com, powered by TaxAct, for a year-by-year breakdown of how the ACA impacts taxes and health care. www.HealthcareAct.com also features calculators for the advanced premium tax credit and tax penalty, along with the latest ACA news.

The Self-Select PIN (Personal Identification Number) method allows taxpayers to electronically sign their e-filed return by using a five-digit PIN as their signature. The five-digit PIN can be any five numbers except all zeros. The taxpayer will need to know their original prior year Adjusted Gross Income or PIN from their prior year tax return and their Date of Birth for verification purposes.