Monthly Archives: July 2017
The myRA? It’s Just Been Revoked.
A myRA is a government-administered Roth IRA authorized to hold only one type of investment, a US Treasury security which earns interest at the same variable rate as investments in the government securities fund for federal employees. MyRAs became available in 2014 and were described as being safe, simple, and affordable savings accounts to help low- and moderate-income taxpayers save for retirement.
Why the MyRA Program Failed
Unfortunately for the myRA program, there are a multitude of private sector investment alternatives. Taxpayers have many options in the private market to offer no account maintenance fees, no minimum balance, and safe investment opportunities. Demand for myRA accounts has been extremely low, and the Treasury Department announced that it will be phasing out the myRA program over the next few months. Taxpayers have paid nearly $70 million to administer this program since 2014 and the cost to taxpayers is not justified.
MyRAs are Roth IRAs that Can Only Invest in One Security. When the MyRA Account Becomes Too Big, it Must be Converted to a Roth IRA…Huh?
MyRAs are subject to the same rules that apply to Roth IRAs, including the income-based eligibility for contributions, maximum annual contributions, and tax treatment of distributions. Participants can save up to $15,000 in a myRA account and can hold funds in myRAs for up to 30 years. Once either of these limits is reached, the myRA will have to be rolled into a Roth IRA. So why not just invest in a Roth IRA? Exactly, that is why the myRA is being discontinued. Too bad $70 million taxpayer dollars had to be wasted.
The myRA program is no longer accepting new enrollments. However, existing accounts remain open and accessible, and until further notice, participants can make deposits and their accounts will earn interest. Participants are being notified of upcoming changes, including information on how to roll over their myRAs into Roth IRAs.
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Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Deducting Travel Expenses for Charity
People who travel to, or on behalf of, a charitable organization as a volunteer may be able to deduct the travel expenses as charitable contributions. Unreimbursed travel expenses are deductible only if there is no significant element of personal pleasure, recreation, or vacation in the travel. In determining whether there is a significant element of personal pleasure, the relevant question is how much time the taxpayer spends in service to the organization and how much time the taxpayer spends in recreation or in free time.
What Travel Expenses are Deductible?
Deductible travel expenses include:
- Air, rail, and bus transportation
- Auto expenses. The use of an automobile for charitable purposes is deductible at the standard mileage rate of 14 cents per mile. Alternatively, taxpayers may deduct the cost of gas and oil directly related to the use of the auto in providing services to a charitable organization
- Reasonable food (subject to the 50% meal limitation) and lodging costs necessarily incurred while away from home
- Transportation costs between the airport or station and the hotel (or place where the taxpayer is staying)
There is no deduction for the value of the volunteer’s time or services.
Example: Tim is on the board of directors of a charity. There is a seminar in Florida on fundraising. Tim is sent by the charity to attend the seminar. He is covering the travel, lodging, and meal costs. If the seminar lasts a couple hours a day for three days, and Tim spends most of the day hanging out at Disney World, it is highly likely that the travel contains a significant element of personal pleasure and the travel, lodging, and meal expenses are not deductible.
Example 2: Same as above except that the seminar is 8 hours a day for three days. Tim goes out for dinner and entertainment each night. In this example, most of the day is spent at the seminar and even though Tim enjoys some recreation at night, it is unlikely that this amount of recreation would constitute a significant element of personal pleasure. Tim would be able to deduct the expenses.
Keeping Records
Unreimbursed volunteer expenses have the same substantiation requirements that apply to cash contributions. To prove a gift was made, a donor must produce one of the following:
- A cancelled check
- A receipt showing the name of the charity, the contribution date, and the contribution amount
A contribution of $250 or more must, in addition to meeting one of the two above requirements, be supported by a contemporaneous written acknowledgement by the charity. It is critical for clients to have all required receipts before filing their return, even if this means extending the return. Since the charity is not directly receiving funds it may be unaware that the volunteer incurred the expenses, volunteers have to be proactive in requesting an acknowledgement that they incurred unreimbursed expenses while volunteering.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
What You Need to Know about the Alternative Minimum Tax
The alternative minimum tax (AMT) can increase the complexity of your tax planning. Knowing the basic rules can help you better plan for its potential impact.
How It Works
Originally introduced in the 1960s, the AMT system was designed to prevent higher income taxpayers from avoiding federal income taxes through the use of various exclusions, deductions, and credits. To achieve this goal, the AMT system treats certain items — referred to as “preferences” and “adjustments” — less favorably than they are treated for regular income-tax purposes.
Affected items include interest on certain tax-exempt bonds; itemized deductions for home equity loan interest, state and local income taxes, and medical expenses; personal and dependency exemptions; incentive stock options; and depreciation.
Generally, the AMT calculation starts with your regular taxable income and requires you to make the required revisions for adjustments and preferences until you arrive at alternative minimum taxable income (AMTI). Then, after an exemption amount is subtracted, a 26% tax rate is applied to the first $187,800 (in 2017) of the resulting income, and a 28% tax rate is applied to any amounts above $187,800.
The 2017 exemption amounts are $84,500 (married filing jointly), $53,900 (single and head of household) and $42,250 (married filing separately). These exemptions phase out at higher income levels.
Planning
If you believe you may have a potential AMT problem — either this year or in 2016 — you may be able to use certain strategies to reduce your tax. For example, if a tax projection indicates that you will be subject to AMT this year but not next year, you may want to delay prepaying certain expenses, such as state and local income taxes, for which you would not receive a tax benefit this year.
Connect with our team today for all the latest and most current tax rules and regulations.
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Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
The Tax Implications of a Company Car
When an employer provides a company vehicle to an employee, the employee must generally include the market value 
of her personal use of the vehicle in her income. The employer can generally take a payroll deduction for the actual costs, including depreciation, of providing the vehicle to the employee.
If the personal use of the vehicle is de minimis (of such small value that accounting for it would be impractical), the employee will not have to include the value of her personal use in income. However, personal use of more than one day per month is not considered de minimis, so this exception is of little value.
Determining How Much to Include in the Employee’s Income
Under the general valuation rule, the value of the company vehicle that is included in the employee’s income is what it would cost the employee to lease a comparable vehicle for the same period the vehicle is available to her. Generally, a cents-per-mile value cannot be used unless a comparable vehicle is available for lease to the employee on a cents-per-mile basis.
There are also three special valuation rules (each having different requirements).
- The Annual Lease Value Method
- The Commuting Value Method
- The Cents-per-Mile Method
The Annual Lease Value Method (ALV)
The ALV is based on IRS tables and is based on the market value of the vehicle on the first date it is available to the employee. The vehicle’s purchase price can be used as the market value if the vehicle was purchased in an arm’s length transaction. If the employer leases the vehicle, the employer can use the MSRP plus sales tax less 8% of this sum as the market value.
Example: ABC Corp leases a Ford Focus. The MSRP for the car is $23,000. After sales tax, the cost is $24,380. ABC Corp can reduce this sum by 8% to determine a market value of $22,429 to look up in the ALV tables. Based on the ALV tables, the employee will have to include $6,100 as income for her personal use of the car with a market value of $22,429.
The ALV includes maintenance and insurance, but does not include gas. If the employer pays for gas, the value of the gas will have to be included in income in addition to the ALV amount.
The Commuting Value Method
This method may be used if four requirements are met:
- The auto must be owned or leased by the employer and provided to the employee to use in the employer’s business
- The employer requires, because of business reasons, the employee to commute in the vehicle (e.g., the employee is on 24 hour call)
- The employer must have a written policy that forbids the employee (or certain family members) from using the vehicle for personal reasons other than commuting or de minimis personal use
- The employee required to use the vehicle must not be a controlling owner of the employer
If these requirements are met, the personal use value of the company car will be $3 per round trip ($1.50 per one way commute).
The Cents-Per-Mile Method
This method may be limited because it cannot be used when the value of the vehicle when it first becomes available to the employee exceeds $15,900 for a passenger vehicle and $17,800 for a truck or van. In addition, this rule may be used only for vehicles that are expected to be used in the employer’s business throughout the year, or for vehicles that are actually driven at least 10,000 miles in that year and used primarily for business by employees. If the vehicle qualifies under this method, the standard mileage rate (53.5 cents in 2017) may be used to determine the personal use value of the vehicle.
Requirements of All Special Use Valuation Methods
To use any of the three special valuation rules, one of the following conditions must exist:
- The employer treats the value of the vehicle as wages for reporting purposes before the extended due date of its tax return for the year the benefit is provided
- The employee includes the value of the benefit in income before the extended due date of her tax return for the year the benefit is provided
- The employee is not in control of the employer
- The employer demonstrates a good faith effort to treat the benefit correctly
Payroll Tax Implications
The employer must report and withhold income and employment taxes on the value of personal use of a company car. However, there are two elections available to the employer:
- The employer can elect to treat the personal use value as paid at any time during the year. Thus, the employer can treat the entire personal use value as being provided on December 31 of each year to delay the due dates of the income withholding and payroll taxes
- An employer can elect not to withholding income taxes (the employee will have to pay income tax estimates on her own). However, the employer is still responsible for employment taxes.
Comments or questions about this post? Please let us know through the comment area below!
If you found this article informative, subscribe to our Tax Newsletter.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Hired Your First Employee? Your Tax Obligations
It’s a major milestone for you, but it comes with a lot of paperwork that must be done correctly.
Bringing a new employee into your business is a reason to celebrate. You’ve done well enough as a sole proprietor that you can’t handle the workload by yourself anymore.
Onboarding your first worker, though, comes with a great deal of extra effort for you at first. You have to show him or her the ropes so you can offload some of the extra weight you’ve been carrying.
But first things first. Before your employee even shows up for the first day of work, you should have assembled all the paperwork required to keep you compliant with the IRS and other federal and state agencies.
A New Number
As a one-person company, you’ve been using your Social Security number as your tax ID. You’re an employer now, so you’ll need an Employer Identification Number (EIN). You can apply for one here.
The IRS’s EIN Assistant walks you through the process of applying for an Employer Identification Number (EIN).
Once you’ve completed the steps in the IRS’s EIN Assistant, you’ll receive your EIN right away, and can start using it to open a business bank account, apply for a business license, etc.
You’ll also need an EIN before you start paying your employee. It’s required on the Form W-4. If you’ve ever worked for a business yourself, you’ve probably filled out this form. As an employer now, you should provide one to your new hire on the first day. When it’s completed, it will help you determine how much federal income tax to withhold every payday. If you’re not bringing in a full-time employee but, rather, an independent contractor, you won’t be responsible for withholding and paying income taxes for that individual. You’ll need to supply him or her with a Form W-9.
Note: Payroll processing is probably the most complex element of small business accounting. If you don’t have any experience with it, you’ll probably want to use an online payroll application. After you’re set up on one of these websites, you enter the hours worked every pay period. The site calculates tax withholding and payroll taxes due, then prints or direct deposits paychecks. Let us know if you want some guidance on this.
Don’t forget about state taxes if your state requires them, and any local obligations. The IRS maintains a page with links to each state’s website. You can get information about doing business in your geographical area, which includes taxation requirements.
More Forms
You also have to be in contact with your state to report a new hire (same goes if you ever re-hire someone). The Small Business Administration (SBA) can be helpful here, as it is in many other aspects of managing a small business. The organization maintains a list of links to state entities here.
All employees are required to fill out a Form I-9 on the first day of a new job. New employees must also prove that they’re legally eligible to work in the United States. To do this, they complete a Form I-9 from the Department of Homeland Security. As their employer, you’re charged with verifying that the information provided is accurate by looking at one or a combination of documents (U.S. Passport, driver’s license and birth certificate, etc.). By signing this form, you’re stating that you’ve done that.
You can also use the U.S. government’s E-Verify online tool to confirm eligibility.
A Helping Hand
The Department of Labor has a great website for new employers. The FirstStep Employment Law Advisor helps employers understand what DOL federal employment laws apply to them and what recordkeeping they they’re required to do. Please consider us a resource, too, as you take on a new employee. Preparing for a complex new set of tax obligations will be a challenge. We’d like to see you get everything right from the start.
