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Local Lodging Expenses
How the Obamacare Tax Penalty Works
Medicare Tax For 2014: What You Should Know
Business and Pleasure Travel Tax Deductions
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Local Lodging Expenses

TD 9696 finalizes rules that the IRS put into effect in 2012 which allow employees to deduct certain expenses paid or incurred for local lodging as business expenses. Taxpayers may deduct certain expenses for lodging when not traveling away from home (local lodging). These include local lodging expenses that are considered ordinary and necessary business expenses in approp...riate circumstances.

Some of these circumstances include:

•The lodging is necessary for the individual to participate fully in or be available for a bona fide business meeting, conference, training activity or other business function.
•The lodging is for a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter.
•If the individual is an employee, the employee’s employer requires the employee to remain at the activity or function overnight.
•The lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation or benefit.

How the Obamacare Tax Penalty Works

For 2014, if you don't have health insurance and you don't qualify for an exemption, you'll have to pay a penalty of $95 per adult plus $47.50 per child (up to a maximum of $285 for a family) or 1% of your household income, whichever is greater. The flat dollar amount is reduced by 50% for dependents under the age of 18.

The fee increases each year until you g...et coverage. For 2015, penalty is $325 per adult plus $162.50 per child (with a family maximum of $975) or 2% of annual family income. And in 2016, the fee will be $695 per adult plus $347.50 per child (with a maximum of $2,085) or 2.5% of family income.

For purposes of determining the penalty, "income" is defined as what your household earns in excess of the income-tax filing threshold. (For 2014, the threshold is $10,150 for an individual and $20,300 for married couples filing jointly.) For instance, if you are a single woman who earns $45,000 in 2014, the penalty will be based on $34,850 of your income. One percent of $35,000 is $348.50. Because that amount is greater than $95, your penalty will be $348.50.

Medicare Tax For 2014: What You Should Know

Medicare payroll tax on earned income

The Medicare payroll tax is 2.9%. It applies only to earned income, which is wages you are paid by an employer, plus tips. You’re responsible for 1.45% of the tax, and it’s deducted automatically from your paycheck. Your employer pays the other 1.45%.

High-wage earners now owe an additional 0.9% on earned income a...bove $200,000 for individuals, $250,000 for couples filing jointly, and $125,000 for spouses filing separately. So, for example, if you are an individual filer whose income is $225,000, you will pay a 1.45% Medicare tax on the first $200,000, then 2.35% (1.45% plus 0.9%) on the next $25,000. Your employer is required to withhold the extra 0.9% once your wages pass the $200,000 threshold for individuals.

Another example: If you’re married and you and your spouse each earn $150,000, your employers will withhold 1.45% for Medicare tax, because neither of you exceeds the $200,000 individual threshold. But if you file a joint tax return, your combined earned income of $300,000 is $50,000 above the married filing jointly threshold. This means you will have underpaid your Medicare tax by $450 (0.9% of $50,000) and will owe the additional amount when you file your taxes. Speak to your tax adviser about potentially being required to make estimated tax payments.

Tax on net investment income

In the past, taxpayers weren’t required to pay Medicare tax on income generated from investments such as capital gains, dividends, and taxable interest. Since 2013, however, you could owe a 3.8% Medicare tax on some of or all your net investment income.

The amount you owe is based on the lesser of your total net investment income or the amount of your MAGI that exceeds $200,000 for individuals, $250,000 for couples filing jointly, or $125,000 for spouses filing separately.

In other words, you owe the 3.8% tax on the amount by which your investment income exceeds the income thresholds, or, if your wages alone already are higher than the income thresholds, you’ll owe tax on the lesser of net investment income or MAGI that exceeds the thresholds.


IRS Commissioner John Koskinen wrote all of the top tax writers in Congress to warn them that lawmakers must act swiftly to renew expired and expiring tax provisions or risk a delay in the start of the 2015 tax filing season.

He told Senate Finance Committee Chairman Ron Wyden, Sen. Orrin Hatch, the top Republican on the committee, Ho...use Ways and Means Committee Chairman Dave Camp, and Rep. Sander Levin, the top Democrat on the committee, that uncertainty over the future of a bundle of miscellaneous tax breaks creates a major burden for the IRS.

He said the tax writers should decide which breaks to extend and which will expire before the end of November.

"This uncertainty, if it persists into December or later, could force the IRS to postpone the opening of the 2015 filing season and delay the processing of tax refunds for millions of taxpayers," he wrote. "Moreover, if Congress enacts any policy changes to the existing extenders or adds new provision, the IRS could have to reprogram systems and make processing changes."

It is the same warning that the IRS has had to issue on several occasions in recent years. The tax extenders are frequently allowed to expire only to be renewed retroactively at a later date. The Finance Committee passed an extension of the majority of expired and expiring provisions in May but the full Senate has yet to consider that legislation.

Meanwhile, the House has passed a series of permanent extensions of individual extenders. Democrats largely oppose the approach and prefer to see a 1-2 year extension of all of the provisions to allow time for lawmakers to work on tax reform.

Business and Pleasure Travel Tax Deductions

Let Uncle Sam help pay for your business trip. When you tack on personal vacation days to the beginning or end of a business trip, your out-of-pocket costs could be minimal since much of the business portion of your travel could be tax deductible.

Ordinary, Necessary Expenses

The IRS has no problem with business owners deducting legitimate expenses. As long as the travel benefits or advances your business, you can write off ordinary and necessary expenses.

What's considered ordinary and necessary? That depends, says the IRS, on the facts and your circumstances. In general, an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business.

Under these standards, deductible travel expenses typically include hotels, meals, entertainment and round-trip travel to meet with existing or potential out-of-town clients.

Convention and seminar costs also could be deductible as long as the conferences specifically relate to your business or profession or help improve your career skills. That's why so many professional groups hold conventions in vacation spots like Orlando, Florida, or Las Vegas.

Getting There

Traveling to a business meeting obviously is work-related and the IRS doesn't really care whether you get there a few days early or hang around for a bit after your business is concluded.

Since you had to travel anyway, you can deduct the cost of your transportation as a business expense when you file your company's taxes. This applies to both auto travel as well as airfare.

In fact, when you fly for business purposes and extend your stay to get a reduced fare by, for example, spending a Saturday night at your destination, the associated stay-over costs usually are deductible, too, even though you have no business meetings that extra day.

The cost of travel by bus, train or auto, either your own car or one you rent, also is deductible. But don't try to slip in the price of airfare if you got your ticket via frequent flier miles.

Timing is Everything

Be sure, though, that you don't extend your personal stay too long. In order to deduct your transportation costs, your trip must be primarily for business. You do get to count your travel days as business, but carefully calculate the overall work-to-pleasure ratio.

If you spend three days getting to and meeting with clients, but bookend the travel with five extra days for sightseeing, the IRS will consider your trip more for fun and disallow your travel deductions.

Lodging Costs

Your hotel costs while conducting business also are deductible. Here, too, you need to differentiate between the portion of your stay that was personal.

For the extra days you stay to enjoy a location's recreational offerings, you cannot deduct those hotel charges.

Don't try to get cute here. The IRS frowns on counting a full day as business if you simply schedule a quick breakfast meeting with a client and then spend the other 23 hours on your own. In this case, that night's lodging will come out of your own pocket, not as a deduction on your tax return.

Dining Out

Speaking of eating, closing a deal over a meal is a time-honored business practice, but the IRS only helps out so much here.

Generally, you can only deduct 50 percent of your business-related meal costs. That limit also applies to your individual meals on business travel.

As for that breakfast business meeting, it isn't a total tax loss. Even though it isn't likely to get you the full day for lodging deduction purposes, you can include the morning meal's cost -- subject to the 50 percent limit -- with your client as a deductible expense.

Miscellaneous Expenses

When collecting your travel, hotel and meal receipts, be sure to note other miscellaneous expenses, too. Many of these work-related costs also are deductible.

You can write off taxi fares to and from the airport (or other transportation hubs, such as a train or bus station), as well as local fares from the airport to your hotel. And don't forget the cab costs from your hotel to your business meetings (and back).

If you shipped work material to your meeting destination, that expense is deductible. So are the extra charges you incur for business calls while on your trip, as well as Internet connection fees.

If your trip lasts longer than you planned, dry cleaning and laundry fees paid to make you look presentable also are deductible.

What are the Tax Implications of Filing for Bankruptcy

Here are the criteria that the IRS outlines for determining whether or not your tax is dischargeable:

All tax returns that represent the outstanding debt must have been filed with the IRS, the liability cannot stem from a Substitute Filed Return (SFR) prepared by the IRS;

There must not have been fraud or willful evasion involved with the f...iling of any of the tax returns eligible for discharge;

It must be an income tax liability. The trust fund portion of payroll tax liabilities (the withholdings from an employee’s pay) can never be discharged in bankruptcy. Nor can civil penalties associated with failure to file and pay payroll taxes be discharged.

Timing is critical. More than one bankruptcy case has been blown out of the water because these IRS guidelines were not met:

The return was due at least three years ago. The taxes must be from a tax return that was due (including all valid extensions) at least three years before you filed for bankruptcy. For example, if your 2009 income tax return were filed for which extensions to file the return expired on Oct. 15, 2010, the tax return due date test will be satisfied if the bankruptcy petition is filed after Oct. 15, 2013.

You filed the return at least two years ago. Not everyone files on time. You must have filed the tax return at least two years before filing for bankruptcy. To avoid additional objections from the taxing authority, you must make sure the return is signed and mailed or electronically filed, and sufficiently complete to be deemed a tax return. Using the above example, if extensions to file the 2009 return expired on Oct. 15, 2010, you filed the return on April 15, 2012, and you filed for bankruptcy on Oct. 15, 2013, you won't be able to discharge the debts. You will have satisfied the tax return due date test, but not the tax return filing date test. In this scenario, you must wait until two years after April 15, 2012, or until April 15, 2014, to file for bankruptcy.

The taxes were assessed at least 240 days ago. The IRS must have assessed the tax (processed the return and entered the liability in its records) against you at least 240 days before you filed for bankruptcy. Make sure you know the exact assessment date. You can get this information by contacting the IRS.

For individuals, the most common type of bankruptcy is a Chapter 13. The IRS states that before you consider filing a Chapter 13 here are some things you should know:
You must file all required tax returns for tax periods ending within four years of your bankruptcy filing;
During your bankruptcy you must continue to file, or get an extension of time to file, all required returns;
During your bankruptcy case you should pay all current taxes as they come due;
Failure to file returns and/or pay current taxes during your bankruptcy may result in your case being dismissed.

Some people are under the misconception that discharged taxes and other debt in a bankruptcy are considered cancellation of debt and therefore taxable. The good news is that they are not taxable income. The IRS will not kick you when you’re down. There is an exclusion for this type of cancellation of debt.

Hiring an Independent Contractor Overseas

The US side of the tax reporting of an overseas contractor is relatively straightforward if:

The worker is not a US citizen or resident alien,

All of the work will occur in the foreign country,

And the worker will not spend any time in the US. 

In this scenario, the organization must have the worker document citizenship and residence by completing Form W-8BEN, which should be kept on file, similar to a W-9. The foreign worker does not need a SSN, EIN, or ITIN in order to complete the form. A foreign citizen, who earns US source income, may be subject to nonresident alien (NRA) withholding, which varies according the type of income and any applicable treaty rates. But payment for personal services is sourced according to where the work is performed. If all of the work is done overseas, then the income is foreign sourced, which is not taxable by the US, and NRA withholding is not required. There is no further tax reporting required.

The foreign side of the transaction may not be quite so straightforward. Just as in the US, the first thing to consider is the local definition of an independent contractor. In the US, the IRS considers a list of 20 factors in determining if a worker is an independent contractor or a de facto employee. The same is true overseas, where each country has its own set of labor laws designed to protect local workers.

When considering hiring an overseas independent contractor, always get advice on the specific criteria for an independent worker in the foreign country. Consider using a professional firm that specializes in contracting local workers. Confirm that the firm will handle all of the local paperwork for the worker, and not act merely as a paying agent.

IRS Tax Tip: Vacation Home Rentals

If you rent a home to others, you usually must report the rental income on your tax return. But you may not have to report the income if the rental period is short and you also use the property as your home. In most cases, you can deduct the costs of renting your property. However, your deduction may be limited if you also use the property as your home. Here is some basic tax information that you should know if you rent out a vacation home:

•Vacation Home. A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.

•Schedule E. You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.

•Used as a Home. If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

•Divide Expenses. If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.

•Personal Use. Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.

•Schedule A. Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

•Rented Less than 15 Days. If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

Sample Calculation of ACA Tax Penalty

Single Individual no dependent
Household Income- $40,000/filing threshold =$10,150

Payment Calculation
Percentage of Income
1% X $29,850= $298.50
Flat Dollar-$95
($298.50 is>$95)
So in this example the 1% of Income is greater than the flat dollar amount for adult $95.00. The tax penalty for no health insurance would be $298.50

For Most Truckers, Highway Use Tax Return Due Sept. 2

The Internal Revenue Service today reminded truckers and other owners of heavy highway vehicles that in most cases, their next federal highway use tax return is due on Tuesday, Sept. 2, 2014.

This year’s Sept. 2 due date, pushed back two days because the normal Aug. 31 deadline falls on a Sunday, generally applies to Form 2290 and the accompanying tax payment for the tax year that begins on July 1, 2014, and ends on June 30, 2015. Returns must be filed and tax payments made by Sept. 2 for vehicles used on the road during July. For vehicles first used after July, the deadline is the last day of the month following the month of first use.