Tax Talk

We’ve heard a lot about red card purchases lately. But the question for some of us is this. Is my red card purchase deductible?

DID YOU KNOW?

If you use a bank credit card to pay for an otherwise tax deductible expenditure before the end of 2019, you can deduct that expenditure even if you do not pay the credit card bill until 2020.

ON THE OTHER HAND

If you use a retail store credit card to make an otherwise deductible expenditure before the end of 2019, that expenditure will be deductible only if you pay the credit card bill in 2019.

I know this sounds crazy. While there is a sound tax reason for this, the more important thing is to know the rules.

[Of course, all this assumes that you are on the cash basis. If you are on the accrual basis for income tax purposes, different rules apply.]

Call us if you have questions.

CIRCULAR 230 DISCLOSURE: To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein. Likewise, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS.

For FIND-A-GRAVE Search, scroll down.

As a member of Find-a-grave, we offer this link for Mercer County searches. We are not responsible for any errors. Errors, questions, or comments should be directed to Find-a-grave as explained in their Q&As.

Conover & Conover, CPAs, PSC, is offering free dependent returns when the parent or guardian’s return is prepared by us. Please call to see if your dependents will qualify.

Depending on the number of dependents, this could result in savings up to $150. Restrictions apply. Please ask for details.

Mileage log requirements clarified: [Call us for a review]:

A deduction for the ordinary and necessary expense of transportation, whether in a company vehicle or reimbursement of mileage to employees, has long been an allowable deduction for businesses. However, the recent Tax Court case, DAVID H. GARZA v. Commissioner, makes it clear that a deduction will NOT be allowed for most vehicles* unless the strict requirements of code section 274 are met.

These strict requirements would mean that a daily log be kept which shows at a minimum:
1. Business miles driven (and total miles driven for company vehicles);
2. Date; AND
3. Business purpose.

If the standard federal mileage allowance is not being taken item 1. would also require the amount of each separate expenditure with respect to [the vehicle], such as the cost of acquisition, the cost of capital improvements, lease payments, the cost of maintenance and repairs, gasoline or other expenditures.

*Vehicles, such as 18-wheelers, dump trucks, tow trucks, other heavy trucks, and certain other vehicles not generally used for personal transportation are exempted.

The decision states in relevant part:
Section 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017
(Nov. 6, 1985), provides in relevant part that “adequate records” generally consist
of an account book, a diary, a log, a statement of expense, trip sheets, or a similar
record made at or near the time of the expenditure or use, along with supporting
documentary evidence. The strict substantiation requirements of section 274(d)
return to for vehicle expenses must be met even where the optional standard mileage
rate is used. Sec. 1.274-5(j)(2), Income Tax Regs.
The Court concluded that transportation expenses could not be allowed unless this record included all elements required by Regulation 26 CFR 1.274-5T(b)(6). The regulation can be found here: http://www.law.cornell.edu/cfr/text/26/1.274-5T

Most of you know you must have a log. If you would like for us to take a look at the logs you are keeping to insure that you have met the strict requirements of the law, we’ll be glad to arrange that. Give us a call at 859-734-0304.

[Last reviewed 8-16-18]

Posted in Uncategorized Tagged Conover & Conover, CPAs, PSC, CPAs, Harrodsburg, mileage rate, PSC Leave a comment

Protect your babies and your great-grandmother ~Get a flu shot.

I often hear adults say. “I don’t have time for a flu shot.” or “The flu shot makes me feel bad.” But did you know that if you get a flu shot, you protect others around you from getting the flu? If you don’t bring the flu home, they’ll be less likely to be exposed to it. You might be in good health and you might get over the flu easily. But the very young and the very old don’t. So if you have a loved one that falls in that category, get the flu shot for their sake.

Did you know that under the new Affordable Care Act, the flu shot is free? If you have a conforming health insurance policy, you have no reason not to protect yourself and your family by taking this important step. Most employers will give you time off to go and get your flu shot.

Published: 11/25/2013 ~ Reviewed 1/28/2022

Posted in CPA in Harrodsburg, KY, Preparedness Tagged ACA, Affordable Care Act, health insurance, medical, ObamaCare Leave a comment

W-2 Reporting requirements for Health Care Costs

Employers, Requirements and voluntary reporting At the time of this writing, those of us who will have less than 250 W-2s this year are not YET required to report health care costs on the W-2s. Those employers with 250 or more W-2s are required to report it. However, nothing in this prevents employers from voluntarily reporting this information. I have found this reporting to be good PR with the employees. Most employees do realize how much their employers are paying on their behalf. Taxability As the law now stands, these health care costs are NOT taxable to the employee and the reporting is for information purposes only. As I understand it, this is to help implement the Affordable Care Act. Tips and Assistance Even though you may not be required to report this information currently on the W-2s, I expect that this requirement will change in the near future. I recommend that you insure that your books and records are capturing this information on an employee by employee basis. One way to do that is to split each insurance payment by employee. If you need assistance with this, just let us know. If you need additional information, including information as to what costs are included health care costs, please contact us. CIRCULAR 230 DISCLOSURE: To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein. Likewise, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS.

Posted in Business Tax Tips, CPA near Lexington, KY Tagged ACA, Affordable Care Act, Employers, Harrodsburg, Health Care Reform, ObamaCare, W-2 Leave a comment

Kentucky News you can Use.

The Kentucky Department of Revenue had added the corporation income tax, the S corporation income tax, the partnership income tax and related limited liability entity tax (LLET) returns and schedules to the electronic filing program. The only current exception is Single Member LLET return.

Posted in Business Tax Tips, Uncategorized Tagged corporation, e-file, LLC Leave a comment

One thing you need to know about Obamacare if you have a kid age 18 – 25 (or if you are that kid).

November and December are open season for most health insurance plans. It is important to consider now whether you need to cover your young adult in your family plan. Your employer should notify you of open season for the employer plan. If your employer does not offer a plan or you do not have insurance for you or your family you can apply to Marketplace. You generally must apply during open enrollment. Click here to apply during open enrollment if you are in Kentucky: KY Marketplace KYnect . * If you lost employer insurance, check to see if you qualify for a special enrollment. For more information concerning who qualifies for special enrollment click here: Special Enrollment Period Many parents may be worried about how they are going to pay for health insurance for their young adult in 2021. Obamacare [the ACA] is still to the rescue! Did you know that if you have a family plan or if your employer-provided health insurance has a family option, you can cover kids up to age 26. This is true regardless of whether that “kid” is still at home or not. A young adults can join, remain, or return to a parent’s plan even if: >married >not living with the parents >attending school >financially independent >eligible to enroll in their own employer’s plan. If the young adults child turns 26 during the year, coverage might end on on the day they turn 26 under some employer plans, but check with the employer. If it does, the young adult qualifies for a special enrollment period at the Kentucky Marketplace. Click here: KYnect. For more information see: YOUNG ADULT COVERAGE. CIRCULAR 230 DISCLOSURE: To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein. Likewise, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS. *KYnect open season for 2021 runs from November 1 through December 15. [reviewed and updated 11/16/2020]

Posted in CPA near Lexington, KY, Tax Tips Tagged Education, health insurance, insurance, medical, ObamaCare, Play or pay, under age 26 Leave a comment

Finding Conover & Conover CPAs, PSC… We don’t mean to be difficult.

Where are you? Where is East Street? I’m on East Street, but I don’t see 116? Is East Street one way? Where do I park? These are all questions we hear frequently. And we would like to help you out BEFORE you get lost. We are located at 116 S. East Street. East Street runs along the railroad tracks in Harrodsburg. If you are coming from US Highway 127, you will go east on Lexington Street (US Highway 68) and swing a right just BEFORE you cross the tracks. But if you are coming from Lexington on US Highway 68, you will take a left just AFTER crossing the tracks.
Corner of Hwy 68 & S. East Street
This historic two-story home sets at the corner of Lexington Street and S. East Street. If you are on East Street but do not see 116, you are likely on NORTH East Street. North East Street also runs along the tracks but on the opposite of the tracks from SOUTH East Street. Just come south, cross the railroad tracks at US Highway 68, and you will see us right away. Believe it or not East Street is a two-way street, at least for now. It really causes little problem because the one-lane portion is very short. Once at the office, you may park in either drive. Yes, it appears that we do not have much parking. But the truth is we do not double book. There is additional parking if needed. But your scheduled time is just for you. In a sense, you have “reserve” parking. But, please, do not park in the road. It is only one lane and the police insure that it is kept clear. Take advantage of your “reserve” parking, instead. We look forward to seeing you.

Posted in Company News, CPA in Harrodsburg, KY, CPA near Danville, KY, CPA near Lexington, KY, FAQ Tagged Conover & Conover, CPAs, PSC, CPAs, Employers, Harrodsburg, income taxes, Sales Tax, Small Business Taxes, tax preparation, W-2 Leave a comment

What is the difference between an income tax deduction and a tax credit?

Great question! A tax credit lowers your tax bill dollar for dollar. If it is a refundable credit, such as the Earned Income Credit and the Hope education credit, it can also result in a refund when you owe no tax. The deduction reduces your taxable income, which is amount on which you pay taxes. Its value depends on your tax bracket. If you are in the 10% tax bracket, a $1000 deduction saves you $100. But a $1000 credit could save you $1000, no matter what tax bracket you are in. And a $1000 refundable tax credit would result in a $1000 refund, even when you owe no taxes and had no withholding.

One of the best places to see these distinctions in practice is by comparing the current tax breaks for paying college tuition. There are currently three types of tax breaks, a tuition deduction, a Hope credit and a life-long learning credit. The tuition deduction reduces taxable income, the life-long learning credit reduces tax, but the Hope credit is a credit with a refundable feature.
Let’s assume we have a student, single, who in 2011 made $20,000 in wages and paid $6,000 in college tuition. For clarity, let’s assume he had no tax withhold on these wages. Remember, the student is out $6000 in each of these scenarios. Here are the differing results:
Tuition Deduction: Owes $653
Life-long learning credit: Owes $0; Refund $0
Hope Credit (a refundable credit), even though no income tax was withheld from the wages: $1000 refund
As you can see, the credit results in $1653 less tax on the same $6000 outlay. If the student had earned $22,250, the tax would have been $1900 less with the refundable credit.

CIRCULAR 230 DISCLOSURE: To ensure compliance with the requirements imposed by the IRS, we inform you that, to the extent this communication addresses any tax matter, it was not written to be (and may not be) relied upon to (i) avoid tax-related penalties imposed under the Internal Revenue Code, or (ii) promote, market or recommend to another party any transaction or matter addressed herein. Likewise, nothing herein is intended to convey an expression of an opinion as to the likelihood a tax position would ultimately prevail if challenged by the IRS.

Posted in Business Tax Tips, CPA in Harrodsburg, KY, CPA near Danville, KY, CPA near Lexington, KY, Individual Tax Tips, Tax Tips, Uncategorized Tagged Education, Tax Credits Leave a comment

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When are credit card purchases deductible?

Quick Link to Mercer County Find-a-Grave Memorials

FREE FILE: DEPENDENT RETURNS PREPARED FOR FREE!! HUGE SAVINGS!

Mileage log requirements

Protect your babies and your great-grandmother ~Get a flu shot.

W-2 Reporting requirements for Health Care Costs

Kentucky News you can Use.

One thing you need to know about Obamacare if you have a kid age 18 – 25 (or if you are that kid).

Finding Conover & Conover CPAs, PSC… We don’t mean to be difficult.

What is the difference between an income tax deduction and a tax credit?