By Mike DiSabatino on Wednesday, 01 October 2014
Category: Newsletters

October 2014 DiSabatino CPA Newsletter

In this issue:

The Month of May:October 1st:

As fall approaches, Congress still has not made a decision on pending tax legislation that could impact 2014. In the meantime, estimated tax information for 2015 based upon the Consumer Price Index are here for your review. There are also articles on the tax treatment of employer-provided free meals and qualifying for home-based business expenses. Ideas to reduce your cost of a hotel stay round out this month's newsletter.

As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Preview of Some Key 2015 Tax Figures

While official numbers for 2015 are not yet released by the Internal Revenue Service (IRS), many figures are formulas set within the Internal Revenue Code (IRC) or are based on the Consumer Price Index (CPI) published by the Department of Labor. Using the release of recent CPI figures, a number of references are projecting key figures for 2015. They are noted here for your planning purposes:

Tax Brackets: While the actual income brackets for tax rates are not set for 2015, the rate of inflation that impacts the income levels for each tax rate is anticipated to raise the income brackets by approximately 1.55-1.60%.

Personal Exemption: $4,000 in 2015 ($3,950 in 2014)

Standard Deductions:

Deduction Tax Year 2015 Tax Year 2014
Single
$6,300
$6,200
Head of Household
9,250
9,100
Married Filing Joint
12,600
12,400
Married Filing Separately
6,300
6,200
Dependents (kiddie tax)
1,050
1,000
65 or Blind: Married
Add $1,250
Add $1,200
Single
Add $1,550
Add $1,550

Other Key figures:

Estate & Gift Tax Exclusion
$5.43 million
$5.34 million
Annual Gift Tax Exclusion
$14,000
$14,000
Roth and Traditional IRA Contribution Limit
$5,500
$5,500

Caution: Remember, these are early figures using the recently announced Consumer Price Index. Official numbers are released by the IRS later in the year.

 

A Cheaper Hotel Stay

One of the biggest expenses you endure while travelling is for your hotel room. Here are some ideas to help reduce your stay.

 Use online services. There are many internet services that shop hotels and display their prices. Many show photos of the rooms and provide visitor feedback. Other services allow you to enter the price you are willing to pay and then find options. How do you know which online service to use? Visit the travel website AFTER your stay at a hotel. See if the review and pricing rings true to your experience.

Direct Reservations. Outsource or direct? Sometimes it is cheaper to book a room directly with the local hotel. This is not always the case as some hotels have outsourced all their room bookings. Or look for a non-chain hotel that may be more willing to offer direct booking of rooms for less.

Added discounts. AARP, AAA, and other affinity programs can often get you an even better deal. Sometimes discounts can be had by booking your room with a preferred credit card. Other times the hotel chain may have a membership program that provides special deals.

Watch out for extras. When booking a room make sure you understand if there are added costs. Some of the more common are parking fees and extra costs for added people in a room. These costs should be disclosed to you at time of booking.

Leverage the extras. If you are going to pay for a service, plan to use it. Many hotels now offer a free breakfast with your room. Others offer discounts for other hotel services like laundry rooms and exercise rooms.

Negotiate, but not too late. If a hotel has rooms available and it is getting late, you may be able to bargain for a lower rate. The ability to do this is less likely to happen if the manager is not on duty or it is so late that the hotel knows you have few alternatives.

Trade off location. If your hotel is in a popular destination, being willing to drive a bit further can save you money on your room. The same is often true for the location of your room in your hotel. If you are not in your room for most of the day, who cares if your view is a little less special. Be careful, however, as that less optimal location just might be due to less privacy when you wish to get a good night's sleep.

Simply ask. Often the best approach to getting a better room rate is to simply ask. If travelling for business, ask the hotel if you can receive a corporate rate. Or just ask for a discount. You never know.
 

Business Use of your Home

A tax deduction under your nose?

The advent of cloud computing, extensive communication channels, and other new technologies make it easier to work out of your home. If you qualify, many home business expenses are deductible. Think you might qualify? You must first pass these tests.

Trade or business use test. To qualify for business use of your home you must use part of your home for a qualified trade or business. This profit seeking activity must not be a hobby in the eyes of the IRS.

Exclusive use test. You must use part of your home exclusively for your business activity. Blending personal use within the same space as your business activity can disallow the business use of home deductions. There does not need to be a permanent barrier between this space and the rest of the house.

Regular use test. In addition to having a qualified business activity in an exclusive area of your home, you must also use it "regularly" for your business activity. The IRS applies judgement in this area to determine the facts and circumstances around what it deems to be regular use.

Principal place of business test. To deduct your home office expenses, the home location must also be your principal place of business. That does not mean there cannot be other business locations, just that your home office must be your primary location. You might also have multiple business activities. In this case, you could meet the test for one of your businesses to qualify to take the deductions. With multiple locations, the considering factors are:

  • The relative importance of the activities performed at each location,
  • the amount of time spent at each location,
  • the primary place used exclusively and regularly for administrative or management activities and,
  • whether there are other fixed locations for business use.

Here is a diagram presented by the IRS to help you determine whether your business qualifies.

Note: Do not use this chart if you use your home for the storage of inventory or product samples, or to operate a daycare facility.

Source: IRS Publication 587

Why bother?

Sound confusing? Perhaps. But with the recent introduction of a simplified home office deduction calculation more small businesses will have the opportunity to reduce their tax bill. Please call should you need help in navigating this part of the tax code.

 

No Such Thing as a Free Lunch?

The IRS is making headlines on the west coast as it reviews and challenges the practice of employers providing free meals to employees. Employers consider the free meals a non-taxable fringe benefit. The IRS believes this fringe benefit is employee wages.

Background

Many fringe benefits offered as part of your employment are not considered taxable to you as an employee. The IRS publishes a fringe benefit guide for employers to help them navigate what benefits are income to the employee and what benefits are not. Common examples of non-taxable fringe benefits include; health insurance, certain life insurance, disability insurance and minor fringe benefits like employee outings and small branded items.

Current Situation

A number of large firms have been offering fairly elaborate free meals as part of their employment package. Firms like Google and Facebook use this fringe benefit to build employee morale and encourage their employees to spend more time on the job.

The IRS is now reviewing the interpretation of this "free" benefit and is challenging the taxability of the meals. If deemed taxable, each employee would need to include the fair market value of the meals as income on their W-2s.

What you need to know

 Know the standards. If a meal is considered to be "for the convenience of the employer" it is not deemed to be wages. This typically means meals during work hours for a work related purpose that benefits the employer.

Minimal value and frequency. Occasional meals or meals of minimal value are also not taxed as wages. This includes things like employee picnics.

Meals before and after hours. Meals provided before or after work could be wages. Common exceptions to this rule are employees of restaurants and employees at cafeterias. Another exception could be work environments that prohibit getting a meal during the workday.

It is in the IRS spotlight. Each year the IRS publishes a list of initiatives, called their Priority Guidance Plan. Reviewing the taxability of employee-provided meal benefits is on their agenda for 2014-15.

If your employer provides free or reduced meals as part of your benefit package you can probably expect to see changes in the next year. Perhaps there is no such thing as a free lunch.

 

As always, should you have any questions or concerns regarding your situation please feel free to call.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

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