The U.S. Tax Court ruled that a taxpayer who worked as a taxi driver and a real estate appraiser wasn’t eligible to deduct vehicle-related expenses relating to an appraisal business he operated from a friend’s house. The court stated that the taxpayer didn’t meet strict substantiation requirements. Rather, he offered only inconsistent testimony and noncontemporaneous … Read More
Extending credit to business customers can be an effective way to establish goodwill and nurture long-term buyers. But customer credit also brings financial risks. For this reason, it’s critical to thoroughly research a customer’s creditworthiness. Start by contacting the potential customer’s trade references to get background on its payment history. Also check its banking info … Read More
Taxpayers lose their “the IRS should’ve known we changed our address” argument. The U.S. Tax Court has ruled that the IRS properly mailed a deficiency notice to a married couple’s last known address. The taxpayers didn’t live at that address at the time the deficiency notice was mailed and argued that the IRS Appeals Officer … Read More
Tax-exempt organizations can generally be penalized for not reporting donor information for donations of $5,000 or more. But in IRS Revenue Procedure 2018-38 (issued in July 2018), certain organizations were excused from including this information on future Forms 990. In July 2019, the U.S. District Court of Montana found the Rev. Proc. invalid. That meant … Read More
Income from a lawsuit or settlement can be excluded from income if it’s paid due to personal injury or sickness. In one case, the U.S. Tax Court ruled that a taxpayer wasn’t entitled to exclude from income the amount her homeowner’s association had paid to settle a lawsuit she’d filed. She’d alleged nuisance, and breach … Read More
Problems arise when data reported on a W-2 form doesn’t match data held by the Social Security Administration (SSA). Wages and taxes paid can’t be credited to the right wage earner. To fix errors, the SSA regularly notifies employers when mismatches occur in the name and Social Security number on a W-2, or when key … Read More
The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026. To reflect the change, the IRS has updated rules for using standard mileage rates when computing the deductible costs of operating an automobile for business purposes. Revenue Procedure 2019-46 explains that a … Read More
The IRS has proposed regulations on the “tax year of income” inclusion for certain accrual method taxpayers. The proposed regs reflect changes to Sec. 451(b) made by the Tax Cuts and Jobs Act. They amended the section to provide that, for accrual-method taxpayers, the “all events” test for any gross income item isn’t treated as … Read More
The IRS has issued official inflation-adjusted tax rate schedules and other key tax figures for 2020. Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more if you’re in a higher bracket. The standard deduction for 2020 will be $12,400 for single filers and $24,800 for married couples filing … Read More
The IRS has announced the 2020 cost-of-living adjustments with respect to retirement plan contribution limits. Many dollar limits will change because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Key figures include: elective annual deferrals to 401(k) and 403(b) plans will increase $500 to $19,500. The maximum contribution to … Read More