Home office deduction

BY MICHAEL R. REDEMSKE, CPA

JANUARY 2012

With unemployment still near the highest rate in decades, it is not surprising to find many people working out of their homes. Now may be a good time to review the criteria for claiming a deduction for the business use of part of a person’s residence.
  Your home office must be used in a trade or business activity. You cannot take a deduction if you use your home for a profit-seeking activity that is not a trade or business. For example, if you use part of your home to manage your personal investments, you cannot take a home office deduction.
  The home office must be used regularly and exclusively for business. You must regularly use a room or other separately identifiable area of your home only for your business. You do not meet this requirement if you use the area for both business and personal purposes. For example, an attorney who writes legal briefs at the kitchen table cannot claim a home office deduction for the kitchen.
You do not have to meet the exclusive-use test if you use part of your home to store inventory or product samples or as a day care facility.
  Your home office must be one of the following:

• Your principal place of business. Your home office also will qualify as your principal place of business if you use it regularly for administrative activities and you have no other fixed location where you conduct substantial administrative activities; or
• A place to meet with patients, clients or customers in the normal course of your business.Using your home for occasional meetings and telephone calls is insufficient; or
• A separate structure not attached to the dwelling unit used for trade or business purposes.The structure does not have to be your principal place of business or a place where you meet patients, clients or customers. For example, John operates a floral shop in town. He grows plants in a greenhouse behind his home and sells them in his shop. He uses the greenhouse exclusively and regularly in his business. Even though it is not his principal place of business, because it is separate from his dwelling, he can deduct the expenses for its use.

  If you are an employee, you must use your home office for the convenience of your employer. If the employer does not require the employee to work from home and provides an office or work space elsewhere, a home office is likely to be considered a matter of the employee’s convenience and therefore not deductible.

Time is getting short for 1099 and W-2

Employers have to have 1099s and W-2s to their employees by January 31. Corrections have to be submitted by February 29. If you have questions or if you need help, contact Neikirk, Mahoney & Company today at 502-896-2999.

82 Days Left....

There's only 82 days left to file your tax returns:) If you aren't ready, call Neikirk, Mahoney & Company today!

Watchdog: $133 billion in TARP funding still hasn’t been repaid

By Peter Schroeder - 01/26/12 10:16 AM ET

American taxpayers still have $132.9 billion in funds tied up in federal bailout programs, and they will not recoup all of that investment, according to a new watchdog report.

The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) told lawmakers in its quarterly report that the Treasury has already lost $12 billion on the broad bailout program, with more losses potentially to come.

“Taxpayers will never get back some of these funds,” SIGTARP stated in its report.

In addition, while the government has been winding down its involvement in the program, the watchdog noted that some aspects of the program will linger “for years.”

The new report provides a stark reminder of the challenges facing TARP, even as the Treasury Department has been eager to tout the successes of the often-reviled initiative.

The report noted that some programs under TARP, mainly targeted at housing, were never intended to be paid back — the Treasury has the ability to dole out $51 billion more in that effort through 2017.

The watchdog also noted that, even as the Treasury is trying to exit some investments in firms such as American International Group (AIG) and General Motors, the slow economic recovery and volatile financial markets have posed challenges. The Treasury estimated it needs to sell its 1.5 billion shares of AIG stock at $28.73 per share to break even, and its 500 million shares in GM at $53.98 per share. -Read Full Article

Tax relief and health care acts shape 2011 returns

As CPAs gear up for tax season, they’ll find the Form 1040 series for 2011 looking much the same as that of the previous year, but only because of Congress’ 11th-hour compromise late in 2010 to keep it so. Nonetheless, a number of new features affecting individuals and businesses, such as new information reporting forms, are debuting, so return preparers should be aware of developments in the past year that will affect 2011 tax returns.

For 2011 inflation-adjusted tax rates and updated amounts of various credits and other items, see the “Quick Guide” (click here to download). For inflation-adjusted items for the 2012 tax year, see the sidebar, “Looking Ahead to the 2012 Tax Year,” below.

The most significant event affecting 2011 returns was the signing on Dec. 17. 2010, of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act), P.L. 111-312, which extended the ordinary income tax rates introduced by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), P.L. 107-16, and the capital gain tax rates introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), P.L. 108-27. The Tax Relief Act also extended a large number of other expired or expiring provisions.

Many of the tax provisions enacted in EGTRRA and JGTRRA had been set to expire after 2010. The Tax Relief Act amended EGTRRA and JGTRRA to postpone the sunset of the affected provisions until after 2012 and extended many other provisions to 2011 or 2012.

PRACTICE AND PROCEDUREPTINs. This tax season is the second for which tax preparers must register with the IRS and obtain or renew preparer tax identification numbers (PTINs). The IRS required preparers who registered and obtained a PTIN for the 2011 filing season to renew it for 2012 by the end of 2011.

Mandatory e-filing. This tax season, the threshold above which preparers must e-file most individual and fiduciary income tax returns drops from 100 returns they or their firm reasonably expect to file during the year to 11. A transitional rule allowing return preparers to paper file upon written request from the taxpayer expired at the end of calendar 2011 (Notice 2011-27). EITC due diligence. The U.S.-Korea Free Trade Agreement Implementation Act, P.L. 112-41, increased the preparer penalty under Sec. 6695(g) from $100 to $500 for each failure to exercise due diligence with respect to the earned income tax credit. The higher penalty is effective for returns required to be filed after Dec. 31, 2011. 

Full Article from The Journal of Accountancy

New tax provisions for 2012

With the ringing in of the new year, several new tax provisions took effect. While the list of new items does not compare with the number of tax provisions that expired at the end of 2011, practitioners should be aware of what has changed.

Inflation Adjustments

The applicable amounts for many tax items increased on Jan. 1, due to annual inflation adjustments. Revised tax tables are in effect, as well as an increased personal exemption amount (now $3,800) and standard deduction amounts. Various credits and other items also were adjusted. Contribution limits and other amounts for pension plans retirement accounts were also changed for 2012. The Social Security wage base for 2012 is $110,100.

The standard mileage rate for business use of an automobile remains at 55½ cents per mile for 2012; for medical and moving expenses it decreases to 23 cents per mile, down a half-cent from the second half of 2011.

Capital Gain and Loss Reporting

Taxpayers will have to report new information on Form 1040, Capital Gains and Losses, and file a new form, Sales and Other Dispositions of Capital Assets, to report gains and losses of certain capital assets. The information on Form 8949 will correspond to the new information being reported on 2011, Proceeds from Broker and Barter Exchange Transactions.

Read more here

Companies perform better with small, regular M&As, study finds

Companies that regularly acquire or merge with other companies on a relatively small scale tend to outperform those that undertake large acquisitions or focus on organic growth, a study by McKinsey & Co. concluded. Looking at shareholder returns at 1,000 companies over 10 years, McKinsey found that companies with regular M&A programs representing 19% or more of their market capitalization performed better than those with large deals or no M&A activity. The Wall Street Journal/CFO Journal (tiered subscription model) (1/23)