DiSabatino CPA Blog

DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...

Understanding Tax Terms: Casualty Losses Does your loss qualify?

Volcanoes, earthquakes, and sonic booms. Fires, floods, and storms. Terrorism, vandalism, and car accidents. All of these fall under the U.S. tax code definition of “Casualty Losses,” and your losses due to these events may be tax-deductible.

Tax Code Definition

According to the IRS, a casualty loss is the “damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected or unusual.”

As you can tell from the lists of events mentioned above, this definition covers a lot. It’s usually easier to describe what casualty losses are not:

  • Not sudden: Things that progressively deteriorate over time are not casualty losses. Damage from mold, pests or just the passage of time don’t count under IRS rules. For example, your water heater breaking down after years of use is not a casualty loss, but any sudden water damage to your carpets as a result is.
  • Not unexpected: If willful or negligent behavior caused the destruction, that’s not a casualty loss. For example, a fire caused by playing with matches is not unexpected, nor is a car accident caused by drinking and driving.
  • Not unusual: The typical breaking of fragile items like china or glass is not a casualty loss; nor is the common destruction of property by a family pet.
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Income the IRS Can't Touch

Wouldn't it be nice to have a source of nontaxable income? You may be more fortunate than you realize. Listed here are a number of income items that the IRS does not tax.

  1. Tax-free interest. The federal government does not tax municipal bond interest. This includes bonds issued by a state or municipality. The tax-free benefit increases the higher your income, but caution must be taken to ensure the underlying municipality is not in dire financial condition.
  2. Health insurance premiums. For now, most health insurance premiums are tax free. This could change in the future to help pay for health care reform, but for most this benefit can be paid in pre-tax dollars.
  3. Income from Roth IRA and Roth 401(k) accounts. While the amounts contributed into these retirement savings accounts are taxed, any earnings made on the contributions are federal tax free as long as holding period and distribution rules are followed.
  4. Health savings accounts (HSA). Contributions and earnings in health related savings accounts are tax free as long as the proceeds in the account are used to pay for qualified health care expenses.
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Understanding Tax Terms: Basis Covering the bases on basis

Basis is a common IRS term, but probably does not enter into your everyday conversation. This IRS term is important because it impacts the taxes you pay when you sell, exchange or give away property.

What basis is

The IRS describes basis as:

The amount of your capital investment in a property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange or other disposition of the property.

In plain language, basis is the cost of your property as defined by the tax code.

There are a few different types of basis that apply to different situations, including "cost basis," "adjusted basis," and "basis other than cost."

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Private Agencies Now Collecting for IRS Your scam alert should be on high

In a recent announcement, the IRS notified all taxpayers that outside collection of past-due tax bills is now beginning in mid-April 2017. This is a direct result of Congressional action in late 2015 requiring the IRS to turn over to outside companies billions in uncollected taxes it is no longer pursuing. This will impact all of us. Here is what you need to know.

Turn up your scam alert. Rest assured the tax-related identity theft epidemic is going to hit a new high as scam artists now will try to impersonate collection agencies. Never pay a collection agency directly for any tax owed. If you do not think you owe money to the IRS, ask for help.

Only four agencies have been authorized. Only four collection agencies have been authorized to collect unpaid taxes for the IRS. They are:

  • ConServe, of Fairport, New York
  • Pioneer, of Horseheads, New York
  • Performant, of Pleasanton, California
  • CBE Group, of Cedar Falls, Iowa
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Your next audit may be an "audit lite"

Your next audit may be an "audit lite"

The IRS is handling more reviews with form letters

In-person audits with an IRS agent are becoming more uncommon. The IRS is instead handling many routine reviews through form letters called correspondence audits.

These IRS letters are a kind of “audit lite” the agency uses to ask for clarification and justification of specific deductions on your tax return. Common issues that trigger a correspondence audit are large charitable deductions, withdrawals from retirement accounts and education savings plans, excess miscellaneous deductions, and small business expenses.

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Taxpayers to forfeit more than $1 billion in refunds Are you one of them?

The IRS disclosed there will be more than $1 billion in federal tax refunds forfeited this year if taxpayers don’t claim them by April 18.

Refunds have to be claimed within three years or they are forfeited to the government. The unclaimed $1 billion comes from about 1 million taxpayers who still haven't filed returns for the 2013 tax year. Often the people who leave these refunds behind are young adults, college students, senior citizens and low-income taxpayers.

Why refunds go unclaimed

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In the News: IRS Announces Release of Held Refunds

Finally...your refund is soon to be on its way

The IRS recently announced that tax returns using the Earned Income Tax Credit and the Additional Tax Credit will have their refunds issued. Congress approved legislation that delayed sending out these refunds until at least February 15th.

Here are the key dates: 


Saturday, February 18th: IRS "Where’s My Refund" web application will be updated with refund information.

Week of Feb. 27th: Probable timeframe the refunds will be arriving in bank accounts.

Here is a copy of the announcement:

Where’s My Refund? will be updated on Feb. 18 for the vast majority of early filers who claimed the Earned Income Tax Credit or the Additional Child Tax Credit. Before Feb. 18, some taxpayers may see a projected deposit date or an intermittent message that the IRS is processing their return.

By law, the IRS is required to hold EITC and ACTC refunds until Feb. 15. However, taxpayers may not see those refunds until the week of Feb. 27. Due to differing timeframes with financial institutions, weekends and the Presidents Day holiday, these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27 -- if there are no processing issues with the tax return and the taxpayer chose direct deposit.

Source: IRS e-news

Please recall this announcement only relates to held refunds that use the Earned Income Tax Credit and the Additional Tax Credit. Other refunds should be processed in normal timing.

Please consult our firm to asses your specific situation.

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

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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Rejected! What to do if your e-filed tax return is rejected by the IRS


What to do if your e-filed tax return is rejected by the IRS

More than 90% of individual tax returns are now filed electronically, and usually the process goes smoothly. However, when an e-filed tax return is rejected, e-filing can become more complicated.

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