Uber, Airbnb and Turo. The new “sharing” economy business model makes for complications with the IRS.

Handshake barter cellphone for paint brush

The new “sharing” economy

Pooling resources among citizens is quickly becoming an effective way to reduce cost, and make ends meet during trying financial times. Households are discovering that sharing capabilities such as transportation and lodging can relieve financial pressures of day to day living. This model allows everyday people an opportunity to capitalize on owned assets to produce incremental revenue.  Both seller and consumer are winning as these services are increasing choice at generally more attractive prices.  Car rental, vacation housing and urban transportation, to name a few, are leading the way.

The IRS has launched new and supportive guidelines on these businesses designed to assist the sharing community in maintaining these efficient, easy and effective services. The idea is to inspire other sharing programs that support the needs of communities and cities throughout the United States.

If you are one of these providers, it is important to know that money received from providing services is taxable, even if a Form 1099 or W-2 is not issued. There are various deduction options for people who either rent a room in their home, share business space or use their vehicle to taxi people from one location to another.

It is important to get familiar with the new guidelines or get help from a tax professional that you trust. Payment options vary depending on the needs of the taxpayer and there are benefits provided by the IRS…if you know where to look.

As this complicated network expands, the IRS Sharing Economy Resource Center will be forced to evolve and tax implications will follow. As always, TaxLane assists taxpayers in understanding and meeting their tax responsibilities.  A lot of people fall behind and need help getting caught up or dealing directly with the IRS.  When it comes to tax debt, knowing what to do when makes all the difference.  We are here to help if you need it.

IRS Taxpayer Bill of Rights Now Available in 6 Languages

Biology Book Shows Education And LearningOn August 12, 2014, the IRS announced that the “Taxpayer Bill of Rights” is now available in six languages.  The current version of Publication 1, Your Rights as a Taxpayer, is now posted on www.IRS.gov.  The available languages include: English, Spanish, Chinese, Russian, Korean and Vietnamese.  By making this important publication available in multiple languages, the hope of the IRS is to increase the number of Americans who know and understand their rights under the tax law.

Not only is the Taxpayer Bill of Rights now available in multiple languages, but the newest revision also takes the multiple existing rights embedded in the tax law and groups them into ten broad categories.  This makes them easier to find and understand.

The Taxpayer Bill of Rights contains the following 10 provisions:

  1. The Right to be Informed;
  2. The Right to Quality Service;
  3. The Right to Pay No More Than the Correct Amount of Tax;
  4. The Right to Challenge the IRS’s Position and to Be Heard;
  5. The Right to Appeal an IRS Decision in an Independent Forum;
  6. The Right to Finality;
  7. The Right to Privacy;
  8. The Right to Confidentiality;
  9. The Right to Retain Representation;
  10. The Right to a Fair and Just Tax System.

The IRS has created a special section within the website, www.IRS.gov, to highlight these 10 rights.  Similarly, the website will be continuously updated as more information becomes available.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Tax Season Opens Today!

time for taxesThe Internal Revenue Service will begin accepting electronically filed individual tax returns today (Jan. 31, 2014) to officially open the 2014 filing season.  The IRS encourages taxpayers to use e-file as one of the fastest way to receive refunds.

The delay in the opening date for individuals was required to allow the IRS adequate time to program and test its tax processing systems.  The annual process for updating IRS systems saw significant delays in October following the 16-day federal government shutdown.

“Our teams have been working hard throughout the fall to prepare for the upcoming tax season,” then IRS Acting Commissioner Danny Werfel said on December 18, 2013.  “The late January opening gives us enough time to get things right with our programming, testing and systems validation.  It’s a complex process, and our bottom-line goal is to provide a smooth filing and refund process for the nation’s taxpayers.”

The April 15 tax deadline is set by statute and will remain in place.  However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

The Sales Tax Deduction

Money percent sales tax

The sales tax deduction is one of the little-known deductions available to individuals.  Because taxpayers must choose between claiming the sales tax deduction or the state income tax deduction, most tend to claim their state taxes.  In some cases, though, claiming the sales tax deduction may result in a lower tax bill.

 What sales taxes can be deducted?

 The IRS allows taxpayers to claim any sales tax they pay in their home state for any reason.  All you need to do is keep records of all your sales tax receipts during the year so that you can provide documentation to the IRS in case of an audit.  This deduction can be particularly beneficial to those who live in states where there is no income tax.

 Claiming the sales tax deduction may even be advisable for those who could claim the state income tax deduction.  Since taxpayers won’t have to include their state income tax refund as taxable income if they don’t deduct the tax paid, using the sales tax deduction instead of the state tax deduction may save mo-ney in the long run.

 Claiming the sales tax deduction

 To calculate the amount of your sales tax deduction, you can either add up your total sales tax paid during the year or you can use the IRS sales tax calculator to approximate the amount of tax you paid based on your purchases.

 Because the sales tax deduction is reported on Schedule A, you’ll have to itemize your deductions in order to use it.  For most taxpayers, it’s only advisable to itemize deductions if your total deductions are higher than the standard deduction for your filing status.  Be sure that you calculate your return using both the standard deduction and your itemized deductions and then choose the method that gives you the highest refund.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Job Search and Moving Expenses

Job Search and Moving Expenses

Many taxpayers are unaware that they may be able to deduct the costs of searching for a job or moving to start work for a new employer.  The IRS allows taxpayers to write off their reasonable moving expenses under certain conditions, as well as the necessary expenses involved in searching for employment.  However, in order to receive the deductions, taxpayers must meet certain qualifications as to the types of costs they claim and the reasons for their relocation.

Deducting job search expenses – Tax Preparation

The primary qualification for claiming job search expenses is that the costs must be associated with searching for employment in the same line of work that you’ve had in the past.  You cannot deduct costs associated with changing careers, job hunting in an entirely different field, or searching for your very first job.  If your job hunt is for a job in your previous field, you can write off your mileage costs for travel to job interviews, the cost of printing resumes, the postage for mailing out written applications, and even the travel expenses if you have to attend an interview in another city.

In order to claim job search expenses, you must itemize your deductions on Schedule A.  According to the IRS, these costs are classified as “miscellaneous deductions”, which means that your total deduction will be limited to the amount that exceeds two percent of your adjusted gross income (AGI).

Deducting moving expenses – Tax Preparation

In order to claim moving expenses as a tax deduction, you must be relocating for the purpose of employment.  You’ll also have to meet two tests: the distance test and the time test.  First, your new job must be at least 50 miles farther from your old home than your old home was from your old job.  As an example, if you had to drive 15 miles from your old residence to your previous job, your new job must be at least 65 miles away from your old residence to meet the distance test.

Moving expenses must also meet a time test.  The time test states that you must work full-time at your new job for at least 39 weeks after the move.  If you work for yourself, this period is lengthened to 78 weeks for two years after the move.  Because of the time test, you may have to wait until the following tax year to claim the moving expenses.  These costs are calculated on Form 3903 “Moving Expenses” and deducted on the front page of Form 1040 as an adjustment to income.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Casualty Losses for Natural Disasters

Natural Disaster

According to the IRS, taxpayers can claim casualty losses from all kinds of natural disasters, including earthquakes, volcanic eruptions, tornadoes, hurricanes, and floods.  In general, the criteria for claiming a casualty loss as a tax deduction is that it must be a “sudden event.”  Because most natural disasters meet this standard, taxpayers are generally able to write these costs off on their taxes.

What are casualty losses?

Put simply, a casualty loss refers to a loss of property for which you do not receive insurance reimbursement.  As an example, if your home is flooded during a natural disaster, your insurance policy may only cover a certain amount of it due to deductible or coverage limits.  In this case, the excess amount of the loss for which you are not compensated would qualify for a casualty loss deduction.  You can also take a casualty loss if your insurance company denies your entire claim.  The IRS does not require you to explain why the claim is refused in order to claim your loss as a deduction.

IRS rules for claiming a casualty loss

The IRS does have a few stipulations that apply to claiming a casualty loss.  For example, the amount of the loss is limited to amounts over $100 per event.  This means that if you qualify for the deduction, you’ll have to subtract the first $100 of damage from your loss amount before claiming it.

Another IRS requirement for casualty losses is that the total must be more than 10 percent of your adjusted gross income (AGI).  You can find this amount for the current year by totaling up your received income and then subtracting any of the applicable deductions on the front page of Form 1040.  The amount left over will be your adjusted gross income.  As an example, if your AGI is $20,000, you’ll only be able to claim casualty losses that exceed $2,000 in total.

Claiming a casualty loss for a natural disaster – Tax Preparation

Form 4684 is used to list and deduct casualty losses from natural disasters.  Taxpayers list the damage amounts on the form and then carry the total over to Schedule A.  These losses are considered “miscellaneous deductions” and can only be deducted on Schedule A.  Because itemized deductions may not offer as large a tax benefit as the standard deduction, it would be wise for taxpayers to calculate their return using their total itemized deductions, including casualty losses, and then compare it to the result if they use the standard deduction.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

The Student Loan Interest Deduction

Student Loan InterestTaxpayers who are making payments on student loans may qualify to deduct the interest portion of their payments on their federal income tax returns.  According to the IRS, the student loan interest deduction is available to those who meet certain conditions and income restrictions.

Student Loan Interest Tax Deduction Restrictions

To claim student loan interest as a deduction, taxpayers must meet a few requirements regarding their use of student loan funds, their annual income, and their filing status.  For instance, a taxpayer can only claim the interest paid on a student loan that he or she is legally obligated to repay.  If the taxpayer is making loan payments for another individual and he or she is not required to do so, then the interest paid is non-deductible.

Taxpayers who file using the Married Filing Separately filing status are disqualified from deducting their student loan interest.  In addition, those who file jointly but earn more than the annual income threshold may have their deduction amount reduced or eliminated.  This annual income limit is updated each year.  For the tax year 2012, the IRS limited the annual income of single taxpayers to $75,000, while married taxpayers could earn up to $150,000 and still claim a deduction for student loan interest.

Another restriction for the student loan interest deduction is the amount of interest paid in a single tax year.  Taxpayers are only allowed to deduct a certain amount of their student loan interest annually.  This limit is $2,500 per year, regardless of the amount of interest actually paid.

Claiming Student Loan Interest on a Tax Return – Tax Preparation

Unlike many tax deductions, student loan interest is available as an adjustment to income.  This means that taxpayers are not required to itemize their deductions in order to claim their interest payments.  Rather, they can simply list the total interest paid on Line 18 of Form 1040A or Line 33 of Form 1040.  From there, they may subtract the interest from their total income to arrive at their adjusted gross income (“AGI”) for the year.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services to individuals and small businesses.

Pittsburgh, Allison Park, Hampton, Shaler, Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

Rules for Claiming Noncash Charitable Deductions

Did you donate some of your household items to charity during the past year?  If so, you may be eligible to deduct the value of these items as a charitable contribution on your federal income tax return.  The IRS allows taxpayers to claim an itemized deduction for these items as long as they meet certain standards.

Tips for Deducting Noncash Contributions

If you want to deduct your noncash charitable donations on your return, you’ll have to meet a few requirements.  For one thing, the organization that you donate the items to must be a qualified charity that is legally recognized by the IRS.  This includes most of the popular charities such as Goodwill, the Salvation Army, non-profit hospitals, and most religious organizations.  If you make your noncash charitable donations by taking household items to a drop box in your neighborhood, make a note of the charity listed on the box and research it online.  You’ll need to make sure that the organization is a qualified charity if you intend to deduct the items you donate.

Should you decide to make a noncash contribution in person, it’s usually best to ask for a receipt from the organization.  In most situations, the charity will simply give you a written receipt of the items you donate, not their value.  These receipts become especially important if you donate an item that is worth $500 or more.  In this case, it may be advisable to have it professionally appraised and then keep a copy of that appraisal in your records in case of audit.

How to Report Noncash Contributions

Noncash contributions are reported on Form 8283.  Once you list the deductions and calculate the total, you’ll carry the total over as an itemized deduction on Schedule A.  If the total of your itemized deductions exceeds your standard deduction, then it’s advantageous to use these deductions on your return.  To claim the household items you donate, you’ll need to determine the fair market value of the items.  You cannot use the amount you paid for the item as the basis for your deduction.

Since the fair market value of items can fluctuate wildly, it’s a good rule of thumb to imagine how much the item would sell for at a thrift store and then use that amount as the fair market value.  However, this only applies if the items you donate are in good condition.  If you’re still unsure about the value, you can research the selling prices of similar items on the internet or in your local newspaper.

This blog brought to you by TaxLane, LLC, providing tax preparation and consulting services in greater Pittsburgh, including the communities of Allison Park, Hampton, Shaler, and Glenshaw.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.