#TaxTipTuesday- Did you know you may be able to deduct miles driven for purposes other than business?

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Deduct all of the mileage you’re entitled to — but not more

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. But you might also be able to deduct miles driven for other purposes, including medical, moving and charitable purposes.

 

 

What are the deduction rates?

The rates vary depending on the purpose and the year:

Business: 54 cents (2016), 53.5 cents (2017)

Medical: 19 cents (2016), 17 cents (2017)

Moving: 19 cents (2016), 17 cents (2017)

Charitable: 14 cents (2016 and 2017)

The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. No depreciation is allowed for the medical, moving or charitable use of a vehicle.

In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls.

 

 

What other limits apply?

The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify.

For example, miles driven for health-care-related purposes are deductible as part of the medical expense deduction. But medical expenses generally are deductible only to the extent they exceed 10% of your adjusted gross income. (For 2016, the deduction threshold is 7.5% for qualifying seniors.)

And while miles driven related to moving can be deductible, the move must be work-related. In addition, among other requirements, the distance from your old residence to the new job must be at least 50 miles more than the distance from your old residence to your old job.

 

 

Other considerations

There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.

So contact us to help ensure you deduct all the mileage you’re entitled to on your 2016 tax return — but not more. You don’t want to risk back taxes and penalties later.

And if you drove potentially eligible miles in 2016 but can’t deduct them because you didn’t track them, start tracking your miles now so you can potentially take advantage of the deduction when you file your 2017 return next year.

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#TaxTipTuesday-Do you need to file a 2016 gift tax return by April 18?

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Last year you may have made significant gifts to your children, grandchildren or other heirs as part of your estate planning strategy. Or perhaps you just wanted to provide loved ones with some helpful financial support. Regardless of the reason for making a gift, it’s important to know under what circumstances you’re required to file a gift tax return.
Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

 
When filing is required
Generally, you’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:
• That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
• That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse,
• That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions,
• To a Section 529 college savings plan for your child, grandchild or other loved one and wish to accelerate up to five years’ worth of annual exclusions ($70,000) into 2016,
• Of future interests — such as remainder interests in a trust — regardless of the amount, or
• Of jointly held or community property.

 
When filing isn’t required
No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.
If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

 
Meeting the deadline
The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.
Have questions about gift tax and the filing requirements? Contact us to learn more.

Why you should consider using HRAs to help employees with medical costs

puzzle-1020409__340A health reimbursement arrangement, or HRA, is a benefit plan you can offer to your employees to reimburse them for medical expenses that are not covered by an insurance plan. HRAs offer tax benefits, including the deductibility of contributions you make to your employees’ accounts. Since the Affordable Care Act (ACA) took effect, if you employed 50 or fewer workers, your ability to provide HRAs to your employees may have been limited. However, a law passed in December 2016 created a new type of HRA that you can offer if you do not provide group health insurance.

The 21st Century Cures Act allows “stand-alone” HRAs if the accounts meet funding and other requirements. These new HRAs allow you to help your employees pay for medical costs, such as the reimbursement of premiums for policies purchased on the healthcare exchange. In addition, the Act extends relief from the $100 per day penalty for prior arrangements that did not meet Affordable Care Act rules.

Please contact us for more information about this new employee benefit option. This discussion could be crucial given the uncertainty of future ACA rules.

HSAs, FSAs and HRAs all offer tax-advantaged funding of health care expenses. But each type of account has its own rules and limits. Here’s the lowdown on how they compare.

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With health care costs continuing to climb, tax-friendly ways to pay for these expenses are more attractive than ever. Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three accounts?Here’s an overview:

HSA. If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for self-only coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.
You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

 
FSA. Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses.
What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

 
HRA. An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

 
Questions? We’d be happy to answer them — or discuss other ways to save taxes in relation to your health care expenses.

No need to itemize to claim these deductions

 

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Are you part of the approximately 68% of taxpayers who IRS statistics say claim the standard deduction instead of itemizing? If so, you can still deduct some expenses on your 2015 federal income tax return.
● Individual retirement account (IRA) contributions – For 2015, you may qualify to deduct up to $5,500 in contributions to a traditional IRA. That increases to $6,500 if you’re age 50 or older. Income limitations may apply in some cases. The same limits apply to Roth IRA contributions, which are not deductible.
● Health Savings Account (HSA) contributions – HSAs are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow tax-free, and you withdraw the money tax-free to pay unreimbursed medical expenses. The HSA contribution limit for 2015 is $3,350 for individuals and $6,650 for families. You can contribute an additional $1,000 when you’re age 55 and older.
● Student loan interest and tuition fees – Deduct up to $2,500 of interest on student loans for yourself, your spouse, and your dependents. For 2015, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply, and you must coordinate these deductions with other education tax breaks.
● Self-employment deductions – If you’re self-employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.
● Other deductions – Don’t overlook deductions for alimony you pay, certain moving expenses, and early savings withdrawal penalties. Educators can deduct up to $250 for classroom supplies purchased in 2015.
Contact our office for more information on these and other deductions you may be entitled to claim on your 2015 return.

3 Questions You Should Ask Your Parents

question-mark-1026527_960_720Discussing finances with your parents may be a talk none of you are eager to tackle. But addressing the topic can benefit your entire family by clarifying your parents’ wishes and enabling you to help establish a joint plan for carrying those wishes to fruition. Here are questions that can start the dialogue.
● Legal – Do your parents have a will and an estate plan? Have they executed a trust, a durable power of attorney for finances, or an advance healthcare directive? Will they allow you to review the documents and/or speak with their attorney?
● Medical – What medical insurance policies are in place? Do your parents have long-term care insurance? Who is their personal physician and what significant medical issues exist?
● Income, expenses, and debt – What are the sources and amounts of your parents’ income and expenses? To whom do your parents owe money, and how much do they owe?
● Records – Where do your parents keep tax returns, bank and brokerage statements, and similar records? Who are their tax preparers, financial advisors, and/or stockbrokers? Will your parents allow you current access to those records and advisors?
Talking about finances with your parents can be a daunting prospect. Give us a call if you’d like us to be part of the conversation. We’re here to help.

Are you 65 or older? Include these tax breaks in year-end planning.

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Celebrate your 65th birthday with federal income tax benefits. Here are some of the breaks available once you reach age 65.

Higher standard deduction. Your standard deduction is the sum of the basic standard deduction plus an additional standard deduction if you are age 65 or older at the end of the tax year. You are considered to be 65 on the day before your 65th birthday. For your 2015 tax return, you can add an extra $1,550 to your standard deduction if you’re single. If you and your spouse are both 65 or older, your combined extra deduction is $2,500.

Tax credit for the elderly. You may qualify for this direct reduction of your federal income tax if you’re age 65 or older. There are limitations if tax-free pension benefits such as social security exceed certain levels. Income limitations may also apply.

Medical expense deduction. Generally, when you itemize, unreimbursed medical expenses can be deducted only when they exceed 10% of your adjusted gross income. However, for 2015, when you’re 65 or over, you can deduct medical expenses that exceed 7.5% of your income. Are you married? Only one spouse needs to be 65 or older to qualify.

Please contact our office to make sure you’re receiving all the tax breaks for which you qualify at any age.

Should you “bunch” medical expenses into 2015?

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Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but generally only to the extent that they exceed 10% of your adjusted gross income.

Taxpayers age 65 and older can enjoy a 7.5% floor through 2016. The floor for alternative minimum tax purposes, however, is 10% for all taxpayers.

By “bunching” nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

If it’s looking like you’re close to exceeding the floor in 2015, consider accelerating controllable expenses into this year. But if you’re far from exceeding it, to the extent possible (without harming your or your family’s health), you might want to put off medical expenses until next year, in case you have enough expenses in 2016 to exceed the floor.

For more information on how to bunch deductions or exactly what expenses are deductible, please contact us.