Back-to-School Tips for Students and Parents Paying College Expenses

Whether you’re a recent high school graduate going to college for the first time or a returning student, it will soon be time to head to campus, and payment deadlines for tuition and other fees are not far behind.

The IRS offers some tips about education tax benefits that can help offset some college costs for students and parents. Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return. 

• American Opportunity Credit. This credit, originally created under the American Recovery and Reinvestment Act, is still available for 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education at an eligible institution. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you don't owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment.
• Lifetime Learning Credit. In 2012, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.

You can claim only one type of education credit per student in the same tax year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.

• Student loan interest deduction. Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, you may be able to deduct interest paid on a qualified student loan during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

These education benefits are subject to income limitations, and may be reduced or eliminated depending on your income. For more information, visit the Tax Benefits for Education Information Center at IRS.gov or check out Publication 970, Tax Benefits for Education, which can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

• American Opportunity Tax Credit
• Tax Benefits for Education: Information Center
• Publication 970, Tax Benefits for Education
• The American Recovery and Reinvestment Act of 2009: Information Center
• Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

YouTube Videos:

• Education Tax Credits and Deductions - English | Spanish | ASL

Podcast:

• Education Tax Credits and Deductions - English 

Taxpayer Advocate

http://www.taxpayeradvocate.irs.gov/Home

This website will help individuals, businesses, & tax professionals.

 The quote below was copied from their website.  The quote explains what they do....

Who We Are

As an independent organization within the IRS, we help taxpayers resolve problems with the IRS and recommend changes that will prevent the problems. We are “Your Voice at the IRS.”

1. Reminder: For Most Truckers, Highway Use Tax Return Due Aug. 31

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The Internal Revenue Service reminds truckers and other owners of heavy highway vehicles that in most cases, their next federal highway use tax return is due on Aug. 31, 2012.

IRS Offers Tips to Reduce Big Refunds and Prevent Tax Bills

The Internal Revenue Service reminds taxpayers that it's not too late to adjust their 2012 tax withholding to avoid big tax refunds or tax bills when they file their tax return next year.

Taxpayers should act soon to adjust their tax withholding to bring the taxes they must pay closer to what they actually owe and put more money in their pocket right now.

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. Each year millions of American workers have far more taxes withheld from their pay than is required. Many people anxiously wait for their tax refunds to make major purchases or pay their financial obligations. The IRS encourages taxpayers not to tie major financial decisions to the receipt of their tax refund - especially if they need their tax refund to arrive by a certain date.

Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees 

• New Job. When you start a new job your employer will ask you to complete Form    W-4, Employee's Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.
• Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W–4 at anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.

Self-Employed

• Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

Publication 505, Tax Withholding and Estimated Tax, has information for employees and self-employed individuals, and also explains the rules in more detail. The forms and publication are available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). 

Links:

• Form W-4, Employee's Withholding Allowance Certificate
• Form 1040-ES, Estimated Tax for Individuals
• Form W-4P, Withholding Certificate for Pension or Annuity Payments
• Publication 505, Tax Withholding and Estimated Tax

YouTube Videos:

• Estimated Tax Payments - English | Spanish | ASL  

IRS Offers Tips to Reduce Big Refunds and Prevent Tax Bills

The Internal Revenue Service reminds taxpayers that it's not too late to adjust their 2012 tax withholding to avoid big tax refunds or tax bills when they file their tax return next year.

Taxpayers should act soon to adjust their tax withholding to bring the taxes they must pay closer to what they actually owe and put more money in their pocket right now.

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. Each year millions of American workers have far more taxes withheld from their pay than is required. Many people anxiously wait for their tax refunds to make major purchases or pay their financial obligations. The IRS encourages taxpayers not to tie major financial decisions to the receipt of their tax refund - especially if they need their tax refund to arrive by a certain date.

Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees 

• New Job. When you start a new job your employer will ask you to complete Form    W-4, Employee's Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.
• Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W–4 at anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.

Self-Employed

• Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

Publication 505, Tax Withholding and Estimated Tax, has information for employees and self-employed individuals, and also explains the rules in more detail. The forms and publication are available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). 

Links:

• Form W-4, Employee's Withholding Allowance Certificate
• Form 1040-ES, Estimated Tax for Individuals
• Form W-4P, Withholding Certificate for Pension or Annuity Payments
• Publication 505, Tax Withholding and Estimated Tax

YouTube Videos:

• Estimated Tax Payments - English | Spanish | ASL  

Labor Day Power Outage Planned - IRS

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As we do each Labor Day weekend, we will have a planned power outage at the Martinsburg, W. Va. Computing Center. To minimize the effect this will have on processing, we will slowly begin bringing down our processing systems beginning Thursday morning, Aug. 30. Normal operations should resume after noon EDT on Tuesday, Sept. 4, 2012. Below are the major IRS services affected by this outage: • All toll-free services, including the e-help desk and Practitioner Priority Service (PPS), will have limited service beginning Thursday, Aug. 30 through Friday, Aug. 31 at 4p.m. EDT and completely unavailable for the remainder of the outage period. • The e-Services suite of services, including Disclosure Authorization, Transcript Delivery and TIN Matching will be unavailable beginning Friday, Aug. 31 at 1 p.m. EDT through the remainder of the outage period. • Modernized e-file and the Legacy systems will be unavailable beginning Friday, Aug. 31 at 3 p.m. EDT and Wednesday, 11 a.m. EDT, respectively. Contact your software provider if you have questions concerning filing and refund processing times during the outage. • Taxpayer Assistance Centers will keep their regular business hours but will have limited access to taxpayer account information. They can only take non-cash payments during the outage period.  We appreciate your patience while we perform this important recurring maintenance.

Labor Day Power Outage Planned - IRS

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As we do each Labor Day weekend, we will have a planned power outage at the Martinsburg, W. Va. Computing Center. To minimize the effect this will have on processing, we will slowly begin bringing down our processing systems beginning Thursday morning, Aug. 30. Normal operations should resume after noon EDT on Tuesday, Sept. 4, 2012. Below are the major IRS services affected by this outage: • All toll-free services, including the e-help desk and Practitioner Priority Service (PPS), will have limited service beginning Thursday, Aug. 30 through Friday, Aug. 31 at 4p.m. EDT and completely unavailable for the remainder of the outage period. • The e-Services suite of services, including Disclosure Authorization, Transcript Delivery and TIN Matching will be unavailable beginning Friday, Aug. 31 at 1 p.m. EDT through the remainder of the outage period. • Modernized e-file and the Legacy systems will be unavailable beginning Friday, Aug. 31 at 3 p.m. EDT and Wednesday, 11 a.m. EDT, respectively. Contact your software provider if you have questions concerning filing and refund processing times during the outage. • Taxpayer Assistance Centers will keep their regular business hours but will have limited access to taxpayer account information. They can only take non-cash payments during the outage period.  We appreciate your patience while we perform this important recurring maintenance.

August 27th is the first day of school for Franklin College

Six Tips for Charitable Taxpayers

Contributing money and property are ways that you can support a charitable cause, but in order for your donation to be tax-deductible, certain conditions must be met.  Read on for six things the IRS wants taxpayers to know about deductibility of donations.

1. Tax-exempt status. Contributions must be made to qualified charitable organizations to be deductible. Ask the charity about its tax-exempt status, or look for it on IRS.gov in the Exempt Organizations Select Check, an online search tool that allows users to select an exempt organization and check certain information about its federal tax status as well as information about tax forms an organization may file that are available for public review. This search tool can also be used to find which charities have had their exempt status automatically revoked.

2. Itemizing. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3. Fair market value. Cash contributions and the fair market value of most property you donate to a qualified organization are usually deductible. Special rules apply to several types of donated property, including cars, boats, clothing and household items. If you receive something in return for your donation, such as merchandise, goods, services, admission to a charity banquet or sporting event only the amount exceeding the fair market value of the benefit received can be deducted.

4. Records to keep. You should keep good records of any donation you make, regardless of the amount. All cash contributions must be documented to be deductible – even donations of small amounts. A cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity that includes the charity’s name, contribution date and amount usually fulfill this record-keeping requirement.

5. Large donations. All contributions valued at $250 and above require additional documentation to be deductible. For these, you should receive a written statement from the charity acknowledging your donation. The statement should specify the amount of cash donated and/or provide a description and fair market value of the property donated. It should also say whether the charity provided any goods or services in exchange for your donation. If you donate non-cash items valued at $500 or more, you must also complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a contribution of noncash property worth more than $5,000, you typically must obtain a property appraisal and attach it to your return along with Form 8283.

6. Timing. If you pledge to donate to a qualified charity, keep in mind that for most taxpayers contributions are only deductible in the tax year they are actually made. For example, if you pledged $500 in September but paid the charity just $200 by Dec. 31 of that same year, only $200 of the pledged amount may qualify as tax-deductible for that tax year. End-of-year donations by check or credit card usually qualify as tax-deductible for that tax year, even though you may not pay the credit card bill or have your bank account debited until after Dec. 31.

Bottom line: your support of a qualified charitable organization may provide you with a money-saving tax deduction, but conditions do apply. For more information, see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Exempt Organizations Select Check
• Schedule A (Form 1040), Itemized Deductions
• Form 8283, Noncash Charitable Contributions
• Publication 526, Charitable Contributions
• Publication 561, Determining the Value of Donated Property
• Tax Topic 506 - Charitable Contributions

From the Entrepreneur Magazine

How to make your hobby a business...
1. Raise funds
2. Make  a business plan
3. Manage finances
4. Do industry research
5. Go online
6. Start the business

Tax Tips for Recently Married Taxpayers

If you’ve recently updated your status from single to married, you’re not alone – late spring and summertime is a popular period for weddings. Marriage also brings about some changes with your taxes. Here are several tips for newlyweds from the IRS.

• Notify the Social Security Administration  It’s important that your name and Social Security number match on your next tax return, so if you’ve taken on a new name, report the change to the Social Security Administration. File Form SS-5, Application for a Social Security Card. The form is available on SSA’s website atwww.ssa.gov, by calling 800-772-1213 begin_of_the_skype_highlighting            800-772-1213      end_of_the_skype_highlighting, or visiting a local SSA office.
• Notify the IRS if you move  IRS Form 8822, Change of Address, is the official way to update the IRS of your address change. Download Form 8822 from IRS.gov or order it by calling 800-TAX-FORM begin_of_the_skype_highlighting            800-TAX-FORM      end_of_the_skype_highlighting
  (800-829-3676 begin_of_the_skype_highlighting            800-829-3676      end_of_the_skype_highlighting).
• Notify the U.S. Postal Service  To ensure your mail – including mail from the IRS – is forwarded to your new address, you’ll need to notify the U.S. Postal Service. Submit a forwarding request online at www.usps.com or visit your local post office.
• Notify your employer  Report your name and/or address change to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
• Check your withholding  If you both work, keep in mind that you and your spouse’s combined income may move you into a higher tax bracket. You can use Publication 505, Tax Withholding and Estimated Tax, to help determine the correct amount of withholding for your marital status, and it will also help you complete a new Form W-4, Employee's Withholding Allowance Certificate. Fill out and print Form W-4 online and give it to your employer(s) so the correct amount will be withheld from your pay.
• Select the right tax form  Choose your individual income tax form wisely because it can help save you money. Newlywed taxpayers may find that they now have enough deductions to itemize on their tax returns rather than taking the standard deduction. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
• Choose the best filing status  A person’s marital status on Dec. 31 determines whether the person is considered married for that year for tax purposes. Tax law generally allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but filing jointly is usually more beneficial.

Bottom line: planning for your wedding may be over, but don’t forget about planning for the tax-related changes that marriage brings. More information about changing your name, address and income tax withholding is available on IRS.gov. IRS forms and publications can be obtained from IRS.gov or by calling 800-TAX-FORM begin_of_the_skype_highlighting            800-TAX-FORM      end_of_the_skype_highlighting (800-829-3676 begin_of_the_skype_highlighting            800-829-3676      end_of_the_skype_highlighting).

To automatically receive IRS tax tips, visit IRS.gov, click on "News" and select "e-News Subscriptions."

Links:

• Form 8822, Change of Address (PDF)
• Form W-4, Employee's Withholding Allowance Certificate (PDF)
• Publication 505, Tax Withholding and Estimated Tax (PDF)

YouTube Videos:

• Changed Your Name After Marriage or Divorce? - English |Spanish | ASL
• Getting Married? - English

Podcasts:

• Change Your Name After Marriage or Divorce - English |Spanish



Automated IRS System Helps College-Bound Students with Financial Aid Application Process

College-bound students and their parents sometimes face last minute requests to complete or provide additional information for financial aid applications. 

The Internal Revenue wants to help by minimizing time spent on the completion of the Department of Education’s Free Application for Federal Student Aid (FAFSA). By using the IRS Data Retrieval Tool, applicants can automatically transfer required tax data from their federal tax returns directly to their FAFSA form.

This IRS tool is a free, easy and secure way to access and transfer tax return information onto the FAFSA form. Using the tool saves time, improves accuracy and may reduce the likelihood of the school’s financial aid office requesting that you verify the information.

Here are some tips on using the IRS DRT:

• Eligibility Criteria  To use the IRS DRT  to complete their  2012 -2013 FAFSA form, taxpayers must:  

o          have filed a federal 2011 tax return,
o          possess a valid Social Security Number,
o          have a Federal Student Aid PIN (individuals who don’t have a PIN will be given the option to apply for one through the FAFSA application process), and 
o          have not changed marital status since Dec. 31, 2011.

• Exceptions  If any of the following conditions apply to the student or parents, the IRS Data Retrieval Tool cannot be used for the 2012 FAFSA application:

o          an amended tax return was filed for 2011,
o          no federal tax return was filed for 2011, 
o          the federal tax filing status on the 2011 return is married filing separately or
o          a Puerto Rican or other foreign tax return has been filed.

Applicants who cannot use the IRS DRT to meet college requests for verification, may need to obtain an official transcript from the IRS. Transcripts are not available until the IRS has processed the related tax return. To order tax return or tax account transcripts, visit IRS.gov and select "Order a Transcript" or call the toll-free Transcript line at 1-800-908-9946.

In addition, the IRS offers money-saving information for college students and their parents about tax credits and deductions for qualifying tuition, materials and fees.

Links:

• Student's Page - College Bound
• Order a Transcript
• IRS Tax Benefits for Education: Information Center 
• IRS Publication 970, Tax Benefits for Education

How to Get a Transcript or Copy of a Prior Year’s Tax Return from the IRS

Taxpayers should keep copies of their tax returns, but if they cannot be located or have been destroyed during natural disasters or by fire, the IRS can help. Whether you need your prior year’s tax return to apply for a loan or for legal reasons, you can obtain copies or transcripts from the IRS.

Here are 10 things to know if you need federal tax return information from a previously filed tax return.

1. Get copies of your federal tax return via the web, phone or by mail.

2. Transcripts are free and are available for the current and past three tax years.

3. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.

4. A tax account transcript shows any later adjustments either you or the IRS made after you filed your tax return. This transcript shows basic data including marital status, type of return filed, adjusted gross income and taxable income.

5. To request either type of transcript online, go to IRS.gov and use the online tool called Order A Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message.

6. To request a 1040, 1040A or 1040EZ tax return transcript through the mail, complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use Form 4506-T, Request for Transcript of Tax Return.

7. If you order online or by phone, you should receive your tax return transcript within five to 10 days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail.

8. If you need an actual copy of a previously filed and processed tax return, it will cost $57 for each tax year you order. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area.  Copies are generally available for the current year and past six years. Please allow 60 days for delivery. 

9. The fee for copies of tax returns may be waived if you are in an area that is declared a federal disaster by the President. Visit IRS.gov, keyword “disaster,” for more guidance on disaster relief.

10. Forms 4506, 4506-T and 4506T-EZ are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Need help with your small business?

Click here for a website which will help you with your small business.
This website is the U.S. Small Business Administration.
The link will lead you to counseling and training for your small business.

Don’t Overlook the Benefits of Miscellaneous Deductions

Summer Tips from the IRS

If you are able to itemize your deductions on your tax return instead of claiming the standard deduction, you may be able to claim certain miscellaneous deductions. A tax deduction reduces the amount of your taxable income and generally reduces the amount of taxes you may have to pay.

Here are some things you should know about miscellaneous tax deductions:

Deductions Subject to the 2 Percent Limit. You can deduct the amount of certain miscellaneous expenses that exceed 2 percent of your adjusted gross income. Deductions subject to the 2 percent limit include:

• Unreimbursed employee expenses such as searching for a new job in the same profession, certain work clothes and uniforms, work tools, union dues, and work-related travel and transportation.
• Tax preparation fees.
• Other expenses that you pay to: 

– Produce or collect taxable income,
– Manage, conserve, or maintain property held to produce taxable income, or
– Determine, contest, pay, or claim a refund of any tax.

Examples of other expenses include certain investment fees and expenses, some legal fees, hobby expenses that are not more than your hobby income and rental fees for a safe deposit box if it is not used to store jewelry and other personal effects. 

Deductions Not Subject to the 2 Percent Limit.  The list of deductions not subject to the 2 percent limit of adjusted gross income includes:

• Casualty and theft losses from income-producing property such as damage or theft of stocks, bonds, gold, silver, vacant lots, and works of art.
• Gambling losses up to the amount of gambling winnings.
• Impairment-related work expenses of persons with disabilities.
• Losses from Ponzi-type investment schemes.

Qualified miscellaneous deductions are reported on Schedule A, Itemized Deductions. Keep records of your miscellaneous deductions to make it easier for you to prepare your tax return when the filing season arrives.

There are also many expenses that you cannot deduct such as personal living or family expenses. You can find more information and examples in IRS Publication 529, Miscellaneous Deductions, which is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 529, Miscellaneous Deductions (PDF)
• Tax Topic 508 – Miscellaneous Expenses
• Schedule A Itemized Deductions (PDF)
• Instructions for Schedule A (PDF)

YouTube Videos:

• Standard Versus Itemized Deductions - English | Spanish |ASL
• Record Keeping - English | Spanish | ASL

Podcasts:

• Standard Versus Itemized Deductions - English | Spanish

Organizing Tax Records This Summer Can Help You Keep Your Cool

From IRS.GOV

If the sweltering dog days of summer aren’t incentive enough to get out of the sun for awhile, the IRS suggests another reason to head indoors: organizing your tax records. Devoting some time mid-year to putting your tax-related documents in order may not only keep you out of the sun, but it should also make it easier for you to prepare your tax return when the filing season arrives.

Here are some things the IRS wants individuals and small business owners to know about recordkeeping.

• 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. 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, account statements, petty cash slips and real estate closing statements. Electronic records can include databases, saved files, e-mails, instant messages, faxes and voice messages.
• How to keep them - Although the IRS generally does not require you to keep your records in any special manner, having a designated place for tax documents and receipts is a good idea. It will make preparing your return easier, and it may also remind you of relevant transactions. Good recordkeeping will also help you prepare a response if you receive an IRS notice or need to substantiate items on your return if you are selected for an audit.

For more information on recordkeeping for individuals, check out Chapter 1, “Filing Information,“ in IRS Publication 17, Your Federal Income Tax. Find small business recordkeeping information in IRS Publication 583, Starting a Business and Keeping Records. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Also available are new video and audio files explaining recordkeeping requirements in detail, located on our IRS video portal at www.irsvideos.gov.

Links:

• Publication 17, Your Federal Income Tax (PDF)
• Tax Topic 305 - Recordkeeping
• Publication 583, Starting a Business and Keeping Records (PDF)

Aircraft and Tax

This website contains great tax articles for those who own an aircraft. Click here.

The article below is an example of one of the many tax articles for aircraft tax deductions or depreciation.  Great articles.

NEW IRS PROPOSED REGULATIONS LIBERALIZE DEDUCTIONS FOR AIRCRAFT ENTERTAINMENT

Author: Jonathan S. Levy, Legal Director 10.02.2010

The Internal Revenue Service has issued proposed regulations on an employer’s restricted deductions for aircraft entertainment use by specified individuals. The regulations follow the general approach provided in Notice 2005-45; however, they provide certain significant election opportunities, and hint of more to come. Highlights of the regulations include the following:

1. The disallowance rules only apply to specified individuals, their family, or other individuals attributable to them. A specified individual is generally a 10% owner of a corporation or a partnership, an officer, or an individual holding a similar position in a related entity.
2. Expenses subject to disallowance only include entertainment use by specified individuals; non-entertainment use by specified individuals, and entertainment use by non-specified individuals remains exempt from disallowance computations.
3. There is a simplification in the computations under the occupied seat rule. Notice 2005-45 required a computation involving occupied seats of both business and non-business flights. Under the new rules, there is a new option that allows for computation of expenses on a flight-by-flight basis and a per capita computation for partially disallowed deductions.
4. Trips involving both business and pleasure without repositioning the aircraft that are primarily business in nature will not require an allocation. Trips where the aircraft is repositioned will be subject to disallowance based on an allocation method that denies incremental cost based on marginal flight time.
5. The regulations clarify that the deductions do not apply to any disallowance for business entertainment that meets the “directly related” or “associated with” test that qualify as deductible business entertainment.
6. The regulation introduces a new optional depreciation calculation that is used solely for the purpose of determining the deduction disallowance for applicable entertainment flights. Although there is a consistency requirement for calculation of the disallowance under this section, it does not deprive a taxpayer of the use of accelerated depreciation for regular tax purposes.
7. The regulation did not provide any further guidance as to what constitutes entertainment, and specifically refers to existing regulations in the area. The regulation also refuses to address integration of existing entertainment facility rules with these new changes in the law.
8. The regulation states that the issue relating to charging specified individuals is outside the scope of these proposed regulations. However the preamble states that the fair market value exception was designed to be limited to those in the business of providing entertainment to customers.
9. The regulations also state that the Service is considering an alternative method of determining expenses subject to disallowance derived from a charter rate. Under this safe-harbor method, taxpayers could elect to treat as the amount of expenses for entertainment flights an amount equal to a fair market value charter rate. The proposed regulations do not include a safe harbor at this time, and taxpayers may not use the charter rate to determine expenses unless and until a rule is adopted in the final regulations.

The regulations as proposed apply to any taxable year beginning on or after the date of the publication of the Treasury decision adopting the rules as final regulations. However, taxpayers may rely on the rules in the proposed regulations before the publication of the Treasury decision. The proposed regulations offer some relief, and significant planning opportunities in the form of irrevocable tax elections. The first opportunity to take advantage of these elections for most taxpayers will occur as early as October 2007.

These changes in the regulations add significant complexity to an already burdensome area of the law. We will be conducting a series of webinars designed to educate our clients, their advisors, and our friends on both the complexity and the opportunities available under these new rules. The seminars will be customized based on both the size of the aircraft and whether or not they are owner flown or professionally flown. Please register for our email updates to receive the announcement and invitation information .

Contributions to this article were made and edited by Louis M. Meiners, Jr., CPA