Our Accounting Articles
You might benefit from deducting investment interest expense on your 2014 tax return
March 10, 2015
Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make the deduction less beneficial than you might think.
Your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, nonqualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included. However, any disallowed interest is carried forward, and you can deduct it in a later year if you have excess net investment income.
You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.
If you’re wondering whether you can claim the investment interest expense deduction on your 2014 return, please contact us. We can run the numbers to calculate your potential deduction — or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.
© 2015 Thomson Reuters/Tax & Accounting
Proper Substantiation for Your 2014 Donations
March 3, 2015
If you don’t meet IRS substantiation requirements, your charitable deductions could be denied. To comply, generally you must obtain a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services.
If you haven’t yet received substantiation for all of your 2014 donations, you may still have time to obtain it: “Contemporaneous” means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. So as long as you haven’t filed your 2014 return, you can contact the charity and request a written acknowledgement — you’ll just need to wait to file your return until you receive it. (But don’t miss your filing deadline; consider filing for an extension if needed.)
Be aware that certain types of donations are subject to additional substantiation requirements. To learn what requirements apply to your donations, please contact us.
© 2015 Thomson Reuters/Tax & Accounting
Should You Forgo a Personal Exemption So Your Child Can Take the American Opportunity Credit?
February 24, 2015
Who benefits more from the American Opportunity Credit deduction? You or your child?
If you have a child in college, you may not qualify for the American Opportunity Credit on your 2014 income tax return because your income is too high (modified adjusted gross income phaseout range of $80,000–$90,000; $160,000–$180,000 for joint filers), but your child might. The maximum credit, per student, is $2,500 per year for the first four years of postsecondary education.
There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her — and the child can’t take the exemption.
But because of the exemption phaseout, you might lose the benefit of your exemption anyway. The 2014 adjusted gross income thresholds for the exemption phaseout are $254,200 (singles), $279,650 (heads of households), $305,050 (married filing jointly) and $152,525 (married filing separately).
If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the tax savings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.
We can help you run the numbers and can provide more information about qualifying for the American Opportunity Credit.
© 2015 Thomson Reuters/Tax & Accounting
The “Manufacturers’ Deduction”: It’s Not Just for Manufacturers
February 17, 2015
The “Manufacturers’ Deduction”: Could Your Business Benefit from It?
The manufacturers’ deduction, also called the “Section 199” or “domestic production activities” deduction, is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.
Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.
The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the alternative minimum tax.
Contact us to learn whether this potentially powerful deduction could reduce your business’s tax liability when you file your 2014 return.
© 2015 Thomson Reuters/Tax & Accounting
Be Sure to Deduct All of the Mileage You’re Entitled To
February 10, 2015
Be sure to deduct all of the mileage you’re entitled to!
You probably know that miles driven for business purposes can be deductible. But did you know that you might also be able to deduct miles driven for other purposes? The rates vary depending on the purpose and the year:
Business: 56 cents (2014), 57.5 cents (2015)
Medical: 23.5 cents (2014), 23 cents (2015)
Moving: 23.5 cents (2014), 23 cents (2015)
Charitable: 14 cents (2014 and 2015)
The rules surrounding the various mileage deductions are complex, however. Some are subject to floors and some require you to meet specific tests in order to qualify. 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 2014 tax return — but not more. (You don’t want to risk back taxes and penalties later.) And if you drove potentially eligible miles in 2014 but can’t deduct them because you didn’t track them, then start tracking your miles now so you can potentially take advantage of the deduction when you file your 2015 return next year.
© 2015 Thomson Reuters/Tax & Accounting
BEWARE: Don’t Procrastinate on Filing Your 2014 Income Tax Return
February 5, 2015
BEWARE: Scam on Filing YOUR 2014 Income Tax Return
If you’re like many Americans, you may not start thinking about filing your tax return until the April 15 deadline is just a few weeks — or perhaps even just a few days — away. But there’s another date you should know: Jan. 20. That’s the date the IRS began accepting 2014 returns, and filing as close to that date as possible could protect you from tax return fraud.
In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.
Tax return fraud can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the thief who’s filing the duplicate return, not you.
Of course you need to have your W-2s and 1099s to file. So another key date to be aware of is Feb. 2 — the deadline for employers to issue 2014 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2014 interest, dividend or reportable miscellaneous income payments.
Let us know if you have questions about tax return fraud or would like help filing your 2014 return early.
© 2015 Thomson Reuters/Tax & Accounting