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2014 Mileage Rates

June 25 2014

The Internal Revenue Service issued optional standard mileage rates used to calculate the deductible costs of operating automobiles, vans and trucks for business, charitable, medical or moving purposes.  The 2014 rates for business, medical and moving are down 0.5 cent per mile.

Business miles:$0.560
Medical miles:$0.235
Charitable miles:$0.140

A taxpayer may not use the standard mileage rate for a vehicle after using the Modified Accelerated Cost Recovery System (MACRS) depreciation method or after claiming Section 179 deduction on that vehicle.  In addition, the business standard mileage rate may not be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicles rather than using the standard mileage rate.   Actual costs would include gasoline, oil, repairs, insurance, maintenance and depreciation of the purchase cost.   Use of the standard mileage rate in the first year of business use is considered an election to exclude the vehicle from MACRS depreciation.

We recommend that you keep a daily log of the travel and expenses for each of your automobiles to document such income tax deductions.   The IRS tax forms ask if you have written records of your mileage and if you’re ever audited you can be sure the IRS examiners will ask the same.  If you would like more details and advise, please call us 610.770.9236 or send us a message info@wernercpa.net.

Five Great Reasons to E-File

February 15 2014

Are you still doing your taxes on paper? If so, join the 122 million taxpayers who e-filed last year. It’s fast, it’s easy and it’s free.

Here are five great reasons why you should e-file your tax return:

  • Accurate and complete. E-file is the best way to file an accurate and complete tax return.The tax software does the math for you, and it helps you avoid mistakes.
  • Safe and secure. IRS e-file meets strict guidelines and uses the best encryption technology. The IRS has safely and securely processed more than 1.2 billion e-filed individual tax returns since the program began.
  • Faster refunds. E-filing usually brings a faster refund because there is nothing to mail and your return is less likely to have errors, which take longer to process. The IRS issues most refunds in less than 21 days. The fastest way to get your refund is to combine e-file with direct deposit into your bank account.
  • Payment options. If you owe taxes, you can e-file early and set an automatic payment date anytime on or before the April 15 due date. You can pay by check or money order, or by debit or credit card. You can also transfer funds electronically from your bank account.
  • E-file’s easy. You can also use commercial tax software or have us e-file your return. We have been e-filing tax returns since 2006. We would be happy to sit down with you and discuss your tax circumstances and help save where possible.
TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.

Standard Tax Changes for 2014

January 8 2014

Tax changes occur from year to year in order to accommodate new tax guidelines for the year as well as inflation. The good news is that the IRS does provide some details about the changes in the form of helpful bulletins and useful articles. These are a few of the highlights you need to know about for the changes to expect for the 2014 tax year.

Inflationary Adjustments

Most people hear the word inflation and instantly begin clenching their teeth. No one wants to see prices or interest rates rise. However, when it comes to taxes, the tax code adjusts in order to account for inflation, which can result in modest savings for the average taxpayer. In 2014, for example, a married couple filing jointly whose total taxable income is $100,000 will pay $145 less in taxes for 2014 than they did in 2013.

Deductions

Standard deductions for singles and married people who file individually increase in 2014 from $6,100 to $6,200. The standard deduction for married couples filing jointly increases to $12,400. Head of household deductions also increase from $8,950 to $9,100.

One deduction that’s a little different is the standard deduction for those who are blind and the age of 65 or older. The deduction will remain the same ($1,200) for those who are married individuals and for surviving spouse, but will increase to $1,550 for those who are single, blind, and aged 65 or older.

Gifting Adjustments

While the annual “Gift Tax” threshold remains the same in 2014 at $14,000 per person, per year for individuals, the lifetime amount increases in 2014 from $5,250,000 to $5,340,000. These gifts impact your estate once you’ve died, so plan your gifting carefully.

Tax Credits

The year 2014 marks many changes in the area of tax credits. The Earned Income Tax Credit, for instance, the maximum credit amount for earned income of married couples filing jointly with three or more children is $6,143 for 2014. The Hope Scholarship, American Opportunity, and Lifetime Learning Credits are increased to a maximum of $2,500 for 2014 with certain conditions. The Adoption Credit, also seeing changes for 2014, is $13,190 for children with special needs though that credit is reduced for people above certain income levels.

Remaining Unchanged

Sometimes, though, the big news is what stays the same rather than the things that have changed. Despite all the increases there are several programs that are remaining static between 2013 and 2014. Notable examples include Flexible Spending Accounts, the $5,500 limit on IRA Contributions, and the Child Care Tax Credit.

Planning ahead can help you prepare for 2014 tax changes and adjustments now rather than being taken by surprise when they arrive. Now is the time to begin planning your tax strategy for 2014 and beyond.

Avoiding Capital Gains When You Sell Your Home

December 10 2013

The average family selling a home for the first time and moving on to another home or newer town will not need to worry about capital gains. According to the IRS, when you sell your primary residence (the key word here is primary residence or the home you actually live in), you can realize up to $250,000 in profit without owing capital gains taxes. That number is doubled for married homeowners to $500,000.

The Primary Residence Requirement

In order to qualify for the exemption from capital gains taxes on the sale of your home, it must be your primary residence. However, the IRS offers a great deal of latitude in defining a primary residence as a home you own and live in for two of the previous five years before selling the home.

While it is possible to sell multiple homes without acquiring a capital gains tax penalty, you must wait two years between these transactions. This makes sense as the intent is for this home to be your primary residence and the IRS requires two of the past five years of residence in order for the home to qualify.

Exceptions to the Two-Year Rule

For every rule, there is usually an exception. The same holds true when it comes to the two-year rule for capital gains exemptions. If you have lived in your home less than two years, you may still exclude a portion of the gain if you are forced to move due to a change in jobs, the result of health-related issues, or other unexpected issues. These unexpected issues include the destruction of your home, divorce, death, loss of a job, and acts of terrorism or war.

Another exception occurs when one of the primary residents of the home becomes suddenly disabled (mentally or physically) and can no longer care for him/herself as a result of the disability. As long as the individual lived in the home for one year before being moved into a licensed care facility, the time the individual lived in the primary care facility may count towards the two-year rule.

Upping the Ante for Bigger Tax Benefits

Another way to avoid capital gains taxes on higher ticket home sales is to add more owners. As long as the owners meet the residence requirements, they can each shelter an additional $250,000. This means if you add an adult child as a homeowner who has lived in the home for two of the past five years along with you and your spouse, the three of you can shelter a total of $750,000 profit from capital gains taxation.

No one wants to pay unnecessary taxes. The government has granted homeowners a major boon when it comes to eliminating capital gains taxes on home sales. Keep in mind though, that these are generalized rules, and may not apply to every situation.

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