IRS SIMPLIFIES CALCULATING HOME OFFICE DEDUCTION

Check out Rev-Proc 2013-13 to learn about a simplified way that taxpayers can calculate the home office deduction starting in 2013. Here is the press release issued by the IRS:

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

IR-2013-5, Jan. 15, 2013

WASHINGTON ? The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after Jan. 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

  • E-mail to: Notice.Comments@irscounsel.treas.gov.?? Include ?Rev. Proc. 2013-13? in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
  • Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier?s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comment is April 15, 2013.

WHAT’S NEW WITH THE FICA REFUND?

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 MDTAXES’?April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the?IRS’ Chief Counsel Advice Memorandum on this issue.

COST OF MEDICAL DEVICES TO INCREASE JAN.1 – PT.1

Owners of medical and dental practices beware! Due to a provision included in the Affordable Care Act, the cost of medical devices is set to increase by 2.3% on January 1, 2013.

Called an Excise Tax, manufacturers are required to collect a COST OF tax equal to 2.3% of the sales price of each piece of equipment sold, and then remit that tax to the federal government. Unless the manufacturer decides to reduce their prices by 2.3%, expect to pay more for your purchases of medical devices starting in 2013.

Let’s say you purchase a medical device for $10,000. As of January 1, 2013, your cost for that equipment will be $10,230. Make capital expenditures of $100,000 for your practice, and you’ll pay an extra $2,300 for that equipment starting next year.

Here is some information provided by our friends at the IRS regarding this new? tax:

The following questions and? answers provide general information on the medical device excise tax. For more? detailed information see the proposed? regulations issued on Feb. 3, 2012.

Q. What is the? medical device excise tax?

A. The medical? device excise tax is a tax on the sale of certain medical devices by the? manufacturer, producer or importer of the device.

Q. When does the tax? go into effect?

A. The tax? applies to sales of taxable medical devices by the manufacturer or importer? after December 31, 2012.

Q. How much is the? tax?

A. The tax is? 2.3-percent of the price for which the manufacturer or importer sells the? taxable medical device.

Q. Who is responsible? for reporting and paying the medical device excise tax?

A. The? manufacturer or importer of a taxable medical device is responsible for? reporting and paying the tax.

Q. Will individual? consumers be subject to any reporting or recordkeeping requirements?

A. No action is? required by individual consumers.

Q. What form will be? used to report the medical device excise tax?

A. The medical? device excise tax is a manufacturers excise tax. Manufacturers excise taxes are? reported on Form? 720, Quarterly Federal Excise Tax Return.

Q. I?m not familiar? with manufacturers excise taxes. Where can I learn more?

A. For more? information about manufacturers excise taxes in general, see Chapter 5 of IRS Publication 510, Excise Taxes.

Q. Has the IRS issued? guidance on the medical device excise tax?

A. The IRS and? the Treasury Department issued proposed regulations on February 3, 2012. The IRS? and the Treasury Department welcome comments on the proposed regulations.

We’ll post Part 2 of this series tomorrow.

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HOW LONG DO YOU NEED TO KEEP YOUR TAX RECORDS?

At my firm, we get this question all the time: “How long do I need to keep my tax records?”

Here is the IRS answer to this question:

Well organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination, or to prepare a response if you receive an IRS notice.

  • What to Keep – Individuals. In most cases, keep records that support items on ???? your tax return for at least three years after that tax return has been?filed. Returns filed before the due date are treated as filed on the due date. Examples include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed.? You should typically keep records relating to property at least three? years after you’ve sold or otherwise disposed of the property. Examples?include a home purchase or improvement, stocks and other investments,?Individual Retirement Account transactions and rental property records.
  • What to Keep – Small Business Owners. Typically, keep all your employment tax records for?at least four years after the tax becomes due or is paid, whichever is ???? later. Also, keep records documenting gross receipts, proof of purchases,?expenses, and assets. Examples include cash register tapes, bank deposit?slips, receipt books, purchase and sales invoices, credit card charges and?sales slips. Forms 1099-Misc, canceled checks, accounts statements, petty?cash slips and real estate closing statements. Electronic records can?included databases, saved files, e-mails, instant messages, faxes and?voice messages.

There is no period of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed. For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For filing a claim for a loss from worthless securities the time to make the claim is 7 years from when the return was due.

For more information from the IRS, check out:

  • Publication 552,? Recordkeeping for Individuals, provides?more information on recordkeeping requirements for individuals.
  • Publication 583,?Starting?a Business and Keeping Records
  • Publication 463,?Travel,?Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses

For a more complete listing, please check out this Record Retention Guide Compiled by the Massachusetts Society of CPAs.

IRS: Job Search Expenses Can Be Tax Deductible

Many healthcare professionals work based on the Academic Calendar. That means that a lot of Doctors switch jobs over the summer. According to our friends at the IRS in their IRS Summertime Tax Tip 2012-06:

Summertime is the season that often leads to major life decisions, such as buying a home, moving or a job change. If you are looking for a new job that is in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return.

Here are seven things the IRS wants you to know about deducting costs related to your job search:

  • To qualify for a deduction, your expenses must be spent on a job search in your current occupation. You may not deduct expenses?you incur while looking for a job in a new occupation.
  • You can deduct employment and outplacement agency fees?you pay while looking for a job in your present occupation. If your?employer pays you back in a later year for employment agency fees, you?must include the amount you received in your gross income, up to the amount of your tax benefit in the earlier year.
  • You can deduct amounts you spend for preparing and mailing copies of your r?sum? to prospective employers as long as you are?looking for a new job in your present occupation.
  • If you travel to look for a new job in your present?occupation, you may be able to deduct travel expenses to and from the area to which you travelled. You can only deduct the travel expenses if the?trip is primarily to look for a new job. The amount of time you spend on personal activity unrelated to your job search compared to the amount of time you spend looking for work is important in determining whether the?trip is primarily personal or is primarily to look for a new job.
  • You cannot deduct your job search expenses if there was?a substantial break between the end of your last job and the time you begin looking for a new one.
  • You cannot deduct job search expenses if you are looking for a job for the first time.
  • In order to be deductible, the amount that you spend?for job search expenses, combined with other miscellaneous expenses, must exceed a certain threshold. To determine your deduction, use Schedule A, Itemized Deductions. Job search expenses are claimed as a miscellaneous?itemized deduction. The amount of your miscellaneous deduction that?exceeds two percent of your adjusted gross income is deductible.

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

  • Schedule A, Itemized Deductions (PDF)
  • Publication 529, Miscellaneous Deductions (PDF)