Tax

Tax Planning Includes Keeping Good Records

It’s January and tax season is right around the corner. For many people that means scrambling to collect receipts, mileage logs, and other tax-related documents needed to prepare their tax returns. If this describes you, chances are, you’re wishing you’d kept on top of it during the year so you could avoid this scenario yet again. With this in mind, here are seven suggestions to help taxpayers like you keep good records throughout the year:

1. Taxpayers should develop a system that keeps all their important info together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.

2. Throughout the year, they should add tax records to their files as they receive them. Having records readily at hand makes preparing a tax return easier.

3. It may also help them discover potentially overlooked deductions or credits. Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.

4. Records that taxpayers should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return.

5. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.

6. In general, the IRS suggests that taxpayers keep records for three years from the date they filed the return.

7. For business taxpayers, there’s no particular method of bookkeeping they must use. However, taxpayers should find a method that clearly and accurately reflects their gross income and expenses. The records should confirm income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

Well-organized records make it easier for taxpayers to prepare their tax returns. Good recordkeeping also helps provides answers in the event that a taxpayer’s return is selected for examination or if the taxpayer receives an IRS notice. If you need help setting up a recordkeeping system that works for you, don’t hesitate to call.

• By Leon Clinton
• January 24, 2020

Opportunity Zone Guidance Finalized

Final regulations were recently issued regarding details about investment in qualified opportunity zones (QOZ) that modified and finalized proposed regulations for QOFs and QOZ businesses that were previously issued on October 28, 2018, and May 1, 2019.

The final regulations provide additional guidance for taxpayers who are eligible to make an election to temporarily defer the inclusion in gross income of certain eligible gain. The final regulations also address the ability of such taxpayers’ eligibility to increase the basis in their qualifying investment equal to the fair market value of the investment on the date that it is sold, after holding the equity interest for at least 10 years.

Here’s what it means for taxpayers investing in qualified opportunity zones:

The statute permits the deferral of all or part of a gain that would otherwise be included in income if corresponding amounts are invested into a QOF. The gain is deferred until an inclusion event or Dec. 31, 2026, whichever is earlier.

Furthermore, the final regulations provide a list of inclusion events and provide guidance that allows taxpayers to determine the amount of income that must be included at the time of the inclusion event or December 31, 2026.

Also addressed are the various requirements that must be met to qualify as a QOF, as well as the requirements that an entity must meet to qualify as a QOZ business. Specifically, how an entity becomes a QOF or QOZ business and the rules regarding the requirement that a QOF or QOZ business engage in a trade or business.

The final regulations also retain the general approach of the proposed regulations while providing additional guidance and clarification regarding the rules regarding QOZ business property.

Related forms, instructions, and other information taxpayers need to take advantage of this update are available in January 2020. For more information about this and other TCJA provisions, please contact the office for assistance.

• By Leon Clinton
• January 22, 2020

Standard Mileage Rates for 2020

Starting January 1, 2020, the standard mileage rates for the use of a car, van, pickup or panel truck are as follows:

• 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019
• 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
• 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

Prior to tax reform, these optional standard mileage rates were used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. However, it is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than five vehicles used simultaneously. Please call if you need additional information about these and other special rules.

If you have any questions about standard mileage rates or which driving activities you should keep track of as the new tax year begins, do not hesitate to contact the office.

• By Leon Clinton
• January 18, 2020