IRS Releases 2015 Standard Mileage Rates
Dec 30, 2014
The IRS has recently announced the 2015 standard mileage rates available for use in calculating the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Starting January 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be 57.5 cents per mile for business miles driven, which is up from the 56 cents per mile currently allowed in 2014. In addition, the rate will change to 23 cents per mile driven for medical or moving purposes, which is actually down half a cent from the 2014 rate. The rate for charitable miles driven will remain at 14 cents per mile as this rate is fixed by Congress.
Some may wonder why there is such a difference between the business miles rate and the rate for medical or moving purposes. The reasoning behind this is that, in calculating the rate for business miles driven, the IRS uses an annual study of the various fixed and variable costs associated with operating a vehicle. These costs include depreciation, insurance, repairs, tires, maintenance, gas and oil. As inflation causes the cost of many of these expenses to rise, the IRS adjusts their rate for business miles accordingly. In contrast, the rate for medical and moving purposes is based only on variable costs, like gas and oil. As we have all noticed, prices at the pump have dropped considerably in recent months. In fact, the U.S. Department of Energy predicts the average price for a gallon of gas to be $2.60 in 2015, the lowest full-year average since 2009. As a result, the rate for medical or moving purposes has decreased to account for this expected drop in gas prices.
It is important to remember that these standard mileage rates are optional, and taxpayers always have the option of deducting their actual costs incurred with operating a vehicle. While deducting the actual costs may require more work, due to the increased recordkeeping required, in many cases the actual costs method provides the greatest benefit. It is also important to note that, when choosing to use the standard mileage rates, taxpayers should always keep an accurate and detailed log of their miles traveled for business, charitable, medical or moving purposes.
By: Ruben Becerra, Staff Accountant
Categories: Uncategorized
Driving A Lot? Deduct Your Mileage
Dec 18, 2014
I recently met with a client who is starting a new investment firm. He asked me how to determine if an expense can be classified at a business expense. He told me he drives to meet with potential partners and was wondering if any of that mileage would be considered a business expense. I told him if you are using your vehicle to meet people or to scope out locations, etc. then absolutely, those situations would fall under the business expense category.
The question then came up of how to track these expenses in order to receive the deduction. I explained there are two different methods, the first being the allowance method and the second, tracking the actual expenses. Each of these methods has a sidenote worthy of mentioning. The allowance method must be elected in the first year the vehicle is used for business purposes. If it is not, it cannot be used.
The allowance method replaces taking a deduction for actual operating costs and depreciation. You can, however, deduct parking fees and tolls that are paid for business purposes. If you use the allowance method, you must keep records of your business trips. These records need to be comprised of the date, customer or client visited, the purpose and the number of miles travelled for business. This can be used for leased vehicles as well. However, it must be used for the entire lease period. The log can be kept electronically or on paper, but must be available at the request of the IRS. The total business miles for the year are then multiplied by the IRS standard mileage rate, $.56 in 2014, and deducted on the tax return.
Actual expenses can be deducted in the first year if the allowance method is not elected, or in any future year. This is only true if the vehicle is not leased. However, electing in a future year forfeits any first-year accelerated depreciation that may be available. Actual expenses must be tracked for items like, gasoline, oil, repairs, license tags, insurance, etc. Depreciation or lease payments can also be deducted. If the vehicle is also used personally, then the total expenses are allocated based on the business use percentage. This percentage is determined based on the total miles driven for the year and the business miles driven for the year.
Deducting automobile expenses can surely save you money on your tax return, just make sure you gather the appropriate documentation the select the right method for your deduction.
To receive a free copy of William Vaughan Company’s mileage log, email Jessica Sloan at sloan@wvco.com
By: Tara West, CPA, CMA
Categories: Uncategorized
Can Your Business Save More by Paying More?
Dec 18, 2014
A client recently sent me a notification they received from the Ohio Department of Job and Family Services (ODJFS) informing them that they could reduce their unemployment tax rate by making a voluntary additional payment. Usually, paying more taxes in is something employers try to avoid doing, but for certain employers, making this voluntary payment may save them money.
The unemployment rate that employers pay is largely based on their experience rate – the lower their experience rate, the lower their tax rate. The experience rate is dependent on factors such as how much the employer has paid into its account, how much has been paid out in claims, as well as what the average annual taxable wage amount is. If the employer has paid in enough contributions, their account could reach a certain threshold that could reduce the experience rate. The ODJFS will usually notify the employer whether an additional voluntary contribution would help the employer reach that threshold to reduce its rate.
A basic calculation is included with the ODJFS notification that allows the employer to estimate whether the tax savings is more than what the voluntary payment would be. In the case of my client, it did not benefit them enough to make the voluntary payment, but depending on how many employees your business has, the voluntary payment could end up saving you tax dollars. Please contact your William Vaughan Company representative should you need any further guidance.
Categories: Uncategorized
2014 Year-end Payroll tax information and 2015 updates
Dec 16, 2014
Social Security and Medicare withholding The employee’s and employer’s portion of social security taxes withheld has remained unchanged (6.2%). The wage base for 2014 is $117,000. In 2015 the wage base will increase to $118,500.
For 2014 and 2015 the Medicare tax calculation rates are unchanged. The employee’s and employer’s Medicare tax remains at 1.45% with no wage limits. Earners making more than $200,000 in a year are subject to an extra 0.9% Medicare tax. The extra 0.9% tax is not matched by the employer like the 1.45% Medicare tax.
940 FUTA Unemployment tax The 2014 and 2015 FUTA rate remains at 0.6%. This rate includes the 5.4% credit for State Unemployment paid. There are still credit reduction states published by the IRS and listed on Schedule A (Form 940). A “credit reduction state” is a state that has borrowed money from the federal government to pay unemployment benefits and has not yet repaid this money. In 2014, there are 7 states listed on this credit reduction list. Some of the state changes include:
- Ohio – .012
- Indiana .015
- New York – .012
- North Carolina – .012
This means that instead of paying the 0.6% in 2014, there is an additional 1.2 % added (or 1.5% for IN), for a total of 1.8% for Ohio. The credit reduction will add up to approximately $84- $126 of extra tax liability per employee for this year. Each year the % will increase another .003 until the state is no longer on the list published by the IRS each fall. Line 11 of the 2014 940 Form is where the amount from Schedule A, calculating your state credit reduction amount is entered. The extra 940 deposit will need to be paid thru EFTPS.gov by January 31, 2015.
1099 Misc forms These forms are the most common. They are issued to independent contractors who received $600 or more for their services in the calendar year. Make sure you have their address and social security/Federal ID number and any DBA company name in your software. Now is the time to contact the vendors for any missing information and ask them fill out a W-9 form with their current information. If you have any other questions with other 1099 forms, please contact our company.
Sandra Stone, Accountant
Categories: Uncategorized
Hello New Year, Good Bye Tax Provisions!
Dec 13, 2014
When the clock strikes midnight on New Year’s Eve, not only will we be welcoming 2014, but we will also be saying goodbye to certain income tax provisions. I’m sure while you are wishing your friends and family a Happy New Year, you will not even give this a second thought. However, now is a good time to look into your position and see if you are in the group of individual taxpayers affected by these changes.
Teachers listen up! As of now, 2013 will be the last year to take advantage of the educator’s expense deduction. For the 2013 tax year, teachers can deduct up to $250 in unreimbursed expenses that they accumulated for school supplies or classroom items. With this nice perk expiring, teachers should try and move any potential 2014 expense into the current year if they haven’t maximized their $250 limit as of yet.
Charitable intent Taxpayers’ who are 70½ or older must take required minimum distributions from their IRA. In 2013, if a taxpayer would prefer, he or she can directly transfer their RMD to a charity, up to $100,000. This distribution will not be a deductible charitable donation, but it also will not count as income, and the really great part is that it does satisfy the required distribution. It helps keep taxable income down and helps taxpayers avoid other phase out regulations that could affect them if their income is high.
Consumer Benefit Taxpayers can usually deduct on their Schedule A income taxes paid to state or local governments. However, a few states do not have income tax or the amount paid is not a significant benefit to the taxpayer. I am in Ohio, so I of course do not know what that is like! For the last couple years, taxpayers could deduct sales tax amounts paid if they are higher than income taxes paid. Starting in 2014, this benefit will also go away.
Relief for Debt Forgiveness When a debt is forgiven, the amount forgiven in most cases will result in taxable income to the borrower. However, in 2013, taxpayers can exclude up to $2,000,000 of forgiveness of debt income if their principal residence is foreclosed on. Certain rules apply to this relief and it may not benefit everyone, but it’s definitely worth considering if you are in this situation.
There are other items set to expire at the end of 2013 for both individual taxpayers and businesses. With December being the heart of tax planning, contact your tax professional to discuss your personal situation and to discuss if deductions that benefit you the most will expire at the year’s end.
By: Jill Blakeman, CPA
Categories: Uncategorized