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March 2015


by Andrew D. Schwartz, CPA

It's a fact of life. The current tax system rewards taxpayers who are aggressive with their deductions. When it comes to your taxes, are you aggressive with your deductions each year? Or do you play it safe, hoping to avoid being audited by the IRS?

To find out what people are deducting, we undertook an informal survey of many of our CPA colleagues. What we found out is that there are a handful of tax deductions that show up repeatedly on the tax returns of those taxpayers who tend to be very aggressive with their deductions, including the following:

Home Office Deduction:

Two things make claiming the home office deduction very attractive. First, the rules are pretty liberal regarding who is eligible to claim the home office deduction. And if you don't own your home, the rent you pay isn't otherwise deductible on your federal tax return.

Let's take a look at the rules. To be eligible for the home office deduction, you must use a portion of your home regularly and exclusively for your trade or business. If your home office is used even one day during the year for any other purpose, no deduction will be allowed. In addition, you must perform either the income producing activity or your administrative or managerial tasks within the home office on an ongoing basis to qualify for this deduction.

Temporary Job Assignment:

Temporary job assignments provide taxpayers with the opportunity to claim a huge tax deduction. As long as the following three conditions are met, individuals can deduct all of their travel and living expenses while away from home on a temporary job assignment:

  • The assignment must be for a specific length of time.

  • The assignment must last for a period of one year or less.

  • The taxpayer must continue to be engaged in business activities in the general vicinity of the original home, incur duplicated living expenses, OR intend to return to his or her original home after the temporary assignment ends.

Just imagine how huge this deduction can be. Remember, someone qualified to claim the temporary job assignment deduction can deduct travel to and from the job location plus the total amount spent for lodging for up to one full year plus the daily per diem allowance of up to $71 per day (see below).

Automobile Expenses:

Claiming the automobile deduction has been a favorite of aggressive taxpayers for years. For 2015, people are allowed to claim a deduction of $.575 per business mile driven, which includes:

  • Travel between two different workplaces.

  • Travel between a residence and a temporary workplace at which a person works on an irregular or short-term basis lasting less than one year.

  • Travel to and from job interviews, conferences and continuing education seminars that qualify as deductible business expenses.

Since the only information needed to calculate the automobile deduction is the number of business miles driven, it's not too difficult to see why this is one of the favorite deductions for taxpayers who like to be aggressive with their deductions.

Non-Cash Contributions:

Individuals who itemize their deductions are allowed to claim a deduction for contributions they make to qualified charitable organizations. The gift can be either cash, check, or property. Gifts of property, such as clothing and household items, are known as "non-cash" contributions, and are deductible based on the fair market value of the donated property as of the date of the gift.

To deduct a non-cash contribution (of up to $5,000), it's up to the person who made the donation to determine fair market value. Enough said.

Per Diem Rates:

Each year, you might travel quite a bit in connection with conferences and seminars, job searches, and/or temporary job assignments. The cost of travel, lodging and 50% of the cost of meals incurred while away from home (and not reimbursed) in connection with these business trips is generally deductible.

There are two ways that you can keep track of the cost of meals and incidentals incurred while away on business. You can either keep receipts each time you eat a meal during your business trips, or you can use the per diem rates established by the IRS. Depending on the city, the per diem rate is up to $71 per day. A list of per diem rates by state can be found in the IRS Publication 463, Travel expenses or using the interactive tool available at

Taxpayers who are aggressive with their deductions generally prefer to base their meals and entertainment deduction on the per-diem rates since the only information needed to calculate their deduction is the number of days they were away on business. And from what we've seen, these taxpayers seem to always find some business purpose for every trip that they take.

How Aggressive Are You With Your Tax Deductions?

How aggressive are you with the deductions you claim on your income tax returns each year? We've put together this five question quiz to help you perform a quick self-evaluation:

1. Did you claimed the home office deduction last year?

  • Yes, I claimed more than 20% of my residence as a home office (+ 2 points)

  • Yes, but less than 20% of my residence qualifies as a home office (+1 point)
  • I either wasn't eligible to claim the home office last year, or own my home and decided not to claim the home office or to claim the new simplified home office (0 points)
  • I don't own my home, and have a home office, but didn't want to raise any red flags so didn't bother claiming the home office deduction (- 2 points)

2. Have you ever deducted for a temporary job assignment?

  • Yes, and if I remember correctly, the deduction was huge (+ 2 points)

  • Yes, but I only deducted my travel expenses, and didn't deduct for my lodging or my food because the deduction seemed excessive (+ 1 point)
  • I never had a temporary job assignment (0 points)
  • I was eligible, but didn't want to raise any red flags (- 2 points)

3. Do you claim a deduction for you automobile expenses each year?

  • Each year, I deduct at least 75% of my car's mileage as a business expense (+ 2 points)

  • Each year, I keep a very accurate log, and only deduct the automobile mileage that I'm eligible to claim (1 point)
  • I never use a car in connection with my work (0 points)
  • I could claim some of my mileage as business miles, but don't want to raise a red flag (- 2 points)

4. Did you claim any non-cash contributions last year?

  • Yes, and the deduction I claimed was more than $500 (+ 2 points)

  • Yes, but I kept the deduction to less than $500 because I didn't want to attach the non-cash contributions form (+ 1 point)
  • I didn't make any non-cash contributions last year (0 points)
  • No, even though I gave away lots of stuff, I didn't bother to get any receipts and don't want to raise any red flags (- 2 points)

5. Did you do much business travel last year that wasn't reimbursed?

  • If I get on a plane, it's a business trip, no matter what (+ 2 points)

  • I have no problem deducting my business travel, if the trip is 100% business (+ 1 points)
  • I never have to travel for my job (0 points)
  • I traveled quite a bit and wasn't always reimbursed by my employer, but didn't deduct my business travel because I didn't want to raise a red flag (- 2 points)


Interpreting you score:

Greater than 5: Consider yourself aggressive

Between 4 and -4: You're an average Joe

Less than -5: Go to Home Depot, get yourself a red flag, and raise it up. Maybe that will help you get over the irrational fear that you have about raising the proverbial red flag.



IR-2015-26, Feb. 9, 2015

WASHINGTON — The Internal Revenue Service wrapped up the 2015 "Dirty Dozen" list of tax scams today with a warning to taxpayers about aggressive telephone scams continuing coast-to-coast during the early weeks of this year's filing season.

The aggressive, threatening phone calls from scam artists continue to be seen on a daily basis in states across the nation. The IRS urged taxpayers not give out money or personal financial information as a result of these phone calls or from emails claiming to be from the IRS.

Phone scams and email phishing schemes are among the "Dirty Dozen" tax scams the IRS highlighted, for the first time, on 12 straight business days from Jan. 22 to Feb. 6. The IRS has also set up a special section on highlighting these 12 schemes for taxpayers.

"We are doing everything we can to help taxpayers avoid scams as the tax season continues," said IRS Commissioner John Koskinen. "Whether it's a phone scam or scheme to steal a taxpayer's identity, there are simple steps to take to help stop these con artists. We urge taxpayers to visit for more information and to be wary of these dozen tax scams."

Illegal scams can lead to significant penalties and interest for taxpayers, as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them. Taxpayers should remember that they are legally responsible for what is on their tax returns even if it is prepared by someone else. Make sure the preparer you hire is up to the task. For more see the Choosing a Tax Professional page.

For the first time, here is a recap of this year's "Dirty Dozen" scams:

  • Phone Scams: Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season. (IR-2015-5)
  • Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will not send you an email about a bill or refund out of the blue. Don’t click on one claiming to be from the IRS that takes you by surprise. Taxpayers should be wary of clicking on strange emails and websites. They may be scams to steal your personal information. (IR-2015-6)
  • Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim. (IR-2015-7)
  • Return Preparer Fraud: Taxpayers need to be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns. (IR-2015-8)
  • Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order. The IRS offers the Offshore Voluntary Disclosure Program (OVDP) to help people get their taxes in order. (IR-2015-09)
  • Inflated Refund Claims: Taxpayers need to be on the lookout for anyone promising inflated refunds. Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via community groups and churches in seeking victims. (IR-2015-12)
  • Fake Charities: Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. has the tools taxpayers need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally known organizations. (IR-2015-16)
  • Hiding Income with Fake Documents: Hiding taxable income by filing false Form 1099s or other fake documents is a scam that taxpayers should always avoid and guard against. The mere suggestion of falsifying documents to reduce tax bills or inflate tax refunds is a huge red flag when using a paid tax return preparer. Taxpayers are legally responsible for what is on their returns regardless of who prepares the returns. (IR-2015-18)
  • Abusive Tax Shelters: Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2015-19)
  • Falsifying Income to Claim Credits: Taxpayers should avoid inventing income to erroneously claim tax credits. Taxpayers are sometimes talked into doing this by scam artists. Taxpayers are best served by filing the most-accurate return possible because they are legally responsible for what is on their return. (IR-2015-20)
  • Excessive Claims for Fuel Tax Credits: Taxpayers need to avoid improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including use in farming. Consequently, the credit is not available to most taxpayers. But yet, the IRS routinely finds unscrupulous preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds. (IR-2015-21)
  • Frivolous Tax Arguments: Taxpayers should avoid using frivolous tax arguments to avoid paying their taxes. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2015-23)

Additional information about tax scams is available on IRS social media sites, including YouTube and Tumblr, where people can search “scam” to find all the scam-related posts.



by Andrew D. Schwartz, CPA

How would you like to get a higher return on your investment portfolio without taking on any more risk? Believe it or not, it's easy to do.  All you need to do is set up your various investment accounts to take full advantage of the current tax rules.  And with taxes at the highest rates in recent memory, tax-wise investing is even that much more valuable to you.

The first step is obvious.  Start by maximizing your contributions into your retirement accounts such as IRAs, 401(k) and 403(b) accounts, and self-employed retirement plans is a great first step.  Amounts contributed to these accounts are generally tax deductible and always grow tax deferred unless you go with the Roth version of the retirement plan.  That means you won't owe any taxes on the investment earnings until you begin withdrawing money from your pre-tax accounts.  Each year you can contribute quite a bit of money into these accounts - up to $18,000 into your 401(k) or 403(b) plan this year, or up to $53,000 into your self-employed retirement plan.  Higher limits apply if you'll be 50 or older by December 31, 2015.

To illustrate the power of tax-deferred investing over your working years, let's assume you have the choice of contributing $10,000 to a 401(k) plan each year for 25 years, or you can take the $10,000 as a bonus, pay the applicable taxes, and then invest whatever's left.  If you choose the 401(k) plan route, your account will grow to be worth more than $1,000,000 after 25 years, assuming a 10% rate of return.  If you choose to pay taxes along the way, your investment portfolio won't even grow to $500,000 over the same period of time.

Next, take a look at your tax-free investment opportunities.  These include Roth IRAs for your retirement and and 529 Accounts for your child's education.  You don't get a tax deduction for contributions made into these accounts, but you'll owe no taxes on amounts withdrawn, as long as certain conditions are met. 

If you haven't taken full advantage of these tax-free investment opportunities for 2014, there's still time.  You have until April 15th to contribute the maximum of $5,500 ($6,500 if you were 50 years old by December 31, 2014) directly into a Roth IRA, subject to certain income limitations, or first into a traditional IRA that you will convert to a Roth IRA.

Investing in tax-favored accounts is only half the battle. It's also important to give some thought as to the specific investments you'll hold within your taxable accounts and your tax-advantaged accounts. 

As a rule of thumb, try to hold those investments that pay out the least amount of interest and dividends within your taxable accounts.  Examples of tax-wise investments for your taxable accounts include index funds, ETFs, individual stocks, and "tax-efficient" mutual funds.  These investments generally pay little or no dividends each year.  Remember, while the tax rate on interest and dividends can be as high as 43.4% this year, the long-term capital gains tax rate for most individuals is capped at 23.8%, as long as the investment is held for more than 1 year before being sold.

You might also consider switching some of your fixed-income and money market investments to tax-exempt bonds, bond funds and money market accounts.  Since the earnings on these investments generally isn’t subject to federal income taxes, this strategy could help you increase the after-tax return on your fixed-income investments.  Most of the mutual fund companies offer a variety of tax-exempt investment choices. 

Finally, in your tax-advantaged accounts, hold those mutual funds, bond funds, and other investments that historically pay out large dividends each year, since you aren't being taxed on the investment earnings within these accounts.

By maximizing contributions to tax-advantaged accounts, and giving some thought to the investments you hold in each of your accounts, you should be able to increase the after-tax return of your investment portfolio without taking on any more risk.




Income Taxes

Saving and Investing



  • To have your returns completed by 4/15, please get your information to one of the MDTAXES CPAs during March
  • Use your tax refund to pay off some debts, fund an IRA, and/or invest.


2014 & 2015 TAX FACTS

  • For 2014, the standard deduction for a single individual is $6,200 and for a married couple is $12,400. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2014, the personal exemption is $3,950. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $118,500 for 2015, up from $117,000 in 2014.
  • The standard mileage rate is $.575 per business mile as of January 1, 2015, up from $.56 for 2014.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $18,000 in 2015, up from $17.5k in 2014.  And if you'll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year, up from $5,500 last year.
  • The maximum annual contribution to your IRA is $5,500 for 2014 and 2015.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2015 to make your 2014 IRA contributions.


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This Month's Topics

Favorite Tax Deductions Claimed By "Aggressive" Taxpayers

IRS Announces "Dirty Dozen" Tax Scams For 2015

Tax-Wise Investing

The FICA Refund for Medical Residents 

2014 & 2015 Tax Facts

Tax and Financial Planning Calendar for March 2015


Browse our index of previous months' newsletter topics

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In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.


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