Source: http://www.advisorfyi.com/tag/expense/
Timestamp: 2013-06-19 17:13:06
Document Index: 258863783

Matched Legal Cases: ['§1', '§1', '§1', '§1', '§ 162', '§ 1', '§ 1', '§ 1', '§ 461', '§ 1', '§ 1', '§ 1', '§ 7701', '§ 63', '§ 61', '§ 162', '§ 1', '§ 1', '§ 1', '§ 1']

AdvisorFYI » Expense
Why is this Topic Important to Wealth Managers? This topic presents discussion on the child and dependent care credit. For those wealth managers who participate fully in clients planning decisions, it is helpful to understand the implication of tax credits generally. This particular blogticle explores one such credit, the child and dependent care credit. In addition this blogticle presents an excerpted preview of new, updated material from Advanced Markets which will be available soon (see www.advisorfx.com). Over the coming 9 months, the entire AUS service is being revised and will be rolling out monthly. The updating will include many new areas and a sharper focus with practical explanations and client presentation aides for current areas. We look forward to helping you secure your next sale.
A credit is available for certain child and dependent care expenses incurred by a taxpayer as a result of employment.[1] Eligible taxpayers are allowed a credit of up to 35% of certain expenses incurred for the care of a “qualifying individual.” [2] However, the credit is subject to several restrictions.
First, the 35% is reduced (but not below 20%) by one percentage point for each $2,000 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds $15,000.[3] The effect of this reduction is that for taxpayers with adjusted gross income of more than $43,000 the applicable percentage is 20%.
A second restriction further reduces the credit by limiting the amount of expenses eligible for the credit to $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals.[4]
A “qualifying individual” is defined as: (1) a child under age 13 for whom the taxpayer is entitled to take a dependency exemption, (2) a physically or mentally incapacitated dependent, or (3) a physically or mentally incapacitated spouse.[5]
Expenses for household and dependent care services are “employment related” if they are incurred to enable the taxpayer to be gainfully employed.[6] “Gainful employment” includes periods in which the taxpayer is employed full-time, part-time, or in active search of gainful employment.[7]
Expenses for services outside the taxpayer’s household qualify only if they are in respect to a child under age 13 or a qualifying individual who regularly spends at least eight hours each day in the taxpayer’s household.[8] However, no amount of any expenses for overnight camp will be considered “employment-related.” [9]
Payments for child or dependent care to a close relative qualify for the credit so long as: (1) neither the taxpayer nor his spouse is entitled to claim the relative as a dependent; and (2) the relative is not a child of the taxpayer who is younger than age 19 at the close of the taxable year. Taxpayers must provide the name, address and taxpayer identification number of the child care provider in order to claim the credit.[10]
The full material presented under this section will be available soon. Check back with Advanced Markets for more information. Tomorrow’s blogticle will continue to discuss important planning aspects of 2011.
[1] IRC Sec. 21(a)(1).
[2] IRC Sec. 21(a)(2).
[3] IRC Sec. 21(a)(2).
[4] IRC Sec. 21(c).
[5] IRC Sec. 21(b)(1).
[6] IRC Section 21(b)(2).
[7] Treas. Reg. §1.21-1(c)(1).
[8] Treas. Reg. §1.21-1(e)(1).
[9] Treas. Reg. §1.21-1(d)(6).
[10] IRC Sec. 21(e)(9).
Tags: Adjusted Gross Income, Child and Dependent Care Credit, Childcare, Employment, Expense, Internet Relay Chat, Tax, Wealth Posted in Uncategorized | No Comments »
Why is this Topic Important to Wealth Managers? This topic presents discussion on the individual and nonbusiness deductions offered under the Internal Revenue Code. Since April 15th is fast approaching, it is important to review common tax positions with regards to client planning. In addition this blogticle presents a excerpted preview of new, updated material from Advanced Markets which will be available soon (see www.advisorfx.com). Over the coming 9 months, the entire AUS service is being revised and will be rolling out monthly. The updating will include many new areas and a sharper focus with practical explanations and client presentation aides for current areas. We look forward to helping you secure your next sale. An expense of an individual may be business, nonbusiness, or personal, depending upon which of the individual’s spheres of activity gave rise to the expense. This Blogticle discusses personal and nonbusiness expenses generally. Personal Expenses
Personal expenses are all expenses incurred by an individual that are not business or nonbusiness expenses. These would include, for example, food and clothing for the individual and his family, repairs on the family home, and premiums paid on the individual’s personal life insurance. Generally, no deduction is permitted for personal expenses. [1] By specific statutory provision, however, deductions are allowed for some personal expenses, such as certain personal taxes, a limited amount of charitable contributions, medical expenses, certain interest on a principal residence, and alimony.
Tomorrow’s blogticle will discuss important planning aspects of 2011. We invite your opinions and comments by posting them below, or by calling the Panel of Experts [1] IRC Sec. 262(a).
[2] IRC Sec. 469(c).
[3] IRC Sec. 469(b). [4] IRC Sec. 67(b).
[5] IRC Sec. 212.
[6] Treasury Reg. §1.212-1(d).
Tags: accounting, Adjusted Gross Income, Business, Expense, Internal Revenue Code, Itemized deduction, Tax, Tax deduction Posted in Uncategorized | No Comments »
Tags: Business, Expense, Internal Revenue Code, Property, Section 179 depreciation deduction, Small business, Tax, Tax deduction Posted in Uncategorized | No Comments »
Year End Tax Planning: Pre-Paid Insurance Expense For Accrual Accounting Taxpayers
Why is this Topic Important to Wealth Managers? Discusses the key differences and similarities to the treatment for the deduction of an insurance contract premium payment with regards to accrual basis taxpayers with that of the cash receipts and disbursement method. Today’s blogticle continues our week long series on year-end tax planning for businesses and individuals. Specifically we pick up right where we left off yesterday, except today’s focus is on accrual basis taxpayers with regards to prepaid expenses.
Accrual taxpayers are treated slightly different than cash taxpayers when it comes to prepaid expenses, and in fact the process can sometimes add complications. The idea behind accrual accounting is to match revenues with expense in the period in which they occur. For a detailed discussion on the difference between cash and accrual taxpayers see our August 23 blogtice: Advisor FYI: Accounting for Corporations and Limited Liability Companies and How it Relates to Insurance
As was discussed yesterday, an ordinary and necessary expense is deductible when it is paid or incurred in the taxable year for the purpose of carrying on a trade or business. [1]
One such class of deductions that is generally allowable is, “insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business, and rental for the use of business property.” [2]
Generally, an accrual basis taxpayer, unlike cash method taxpayers, may deduct a business expense in the first year in which the taxpayer “incurs,” or becomes liable for, that expense, regardless of when the taxpayer actually pays for the expense. [3] Whether a taxpayer has incurred an expense is governed by the “all events” test. Under this test, all the events must have occurred that establish the liability, and the amount must be capable of being ascertained with reasonable accuracy. [4]
Furthermore, in “determining whether an amount has been incurred with respect to any item during any taxable year, the all events test shall not be treated as met any earlier than when economic performance with respect to such item occurs.” [5]
Economic performance with regard to insurance, warranty or service contracts, occurs when “payment is made to the person to which the liability is owed.” [6] “The term payment has the same meaning as is used when determining whether a taxpayer using the cash receipts and disbursements method of accounting has made a payment.” [7]
On its face, one may consider how the tax law treats insurance contract premium payments for cash receipts and disbursements method of accounting with that of an accrual election, and note that the deduction for both cash and accrual taxpayers occurs when the payment of cash or cash equivalents is made. The short answer is, the law has conflated the two and there is no significant difference in the timing of this accrual deduction as compared to cash basis taxpayers, discussed yesterday.
This also means that an accrual based taxpayer may take a deduction in the year the premium is paid, and if the contract is for less than 12 months, the taxpayer need not capitalize and amortize the premium over the life of the contract. [8]
Tomorrow’s blogticle will continue the year-end tax planning series.
[1] 26 U.S.C. § 162 (a); Neonatology Associates, P.A. v. C.I.R. 115 T.C. 43, 88 (U.S.Tax Ct.,2000) Citing, Commissioner v. Lincoln Savs. & Loan Association, 403 U.S. 345, 352, 91 (1971); Welch v. Helvering, 280 U.S. 111, 115, (1933).
[2] 26 C.F.R. § 1.162-1; U.S. v. Weber Paper Co., 320 F.2d 199, 63-2 U.S. Tax Cas. (CCH) P 9630, 12 A.F.T.R.2d 5256 (8th Cir. 1963).
[3] Treas.Reg. § 1.461-1(a)(2); United States v. Anderson, 269 U.S. 422, 424, 46 S.Ct. 131, 70 L.Ed. 347 (1926).
[4] 26 C.F.R. § 1.461-1(a)(2); Valero Energy Corp. v. C.I.R. 78 F.3d 909, 915 (C.A.5,1996). See also, U.S. v. General Dynamics Corp. 481 U.S. 239, 243 U.S.,1987).
[5] 26 U.S.C. § 461(h)(1).
[6] 26 C.F.R. § 1.461-4 (g)(5).
[7] 26 C.F.R. § 1.461-4 (g)(1)(ii).
[8] 26 C.F.R. § 1.263(a)-4 (f)(1).
Tags: Accounts payable, Accrual, Business, Deferral, Expense, insurance, Tax, Tax deduction Posted in Uncategorized | 1 Comment »
Year End Tax Planning: Pre-Paid Expenses For Cash Accounting Taxpayers
Why is this Topic Important to Wealth Managers? Generally, wealth managers can help identify situations where clients may benefit from one or more concepts, and present ideas to clients as part of a comprehensive planning partnership. This blogticle discusses on way in which wealth managers can contribute to client tax planning discussion. As December 31 approaches we would like to take this opportunity to discuss some of the common tax planning concepts that are used by professionals in an effort for legal tax mitigation. Therefore, this week’s blogticles discuss year-end tax planning for businesses and individuals. Today’s blogticle kicks off our discussion with pre-paid expenses for cash disbursements and receipts method taxpayers. As with all transactions, it should be kept in mind that the transaction, to comply with Federal tax law, needs to change the taxpayers “economic position” in a meaningful way not including any tax benefits, and the taxpayer has a” substantial purpose” for entering the transaction not including any tax considerations. [1] Satisfying the above conditions is commonly referred to as a transaction that contains economic substance. For more information on the economic substance doctrine, please see our October 29th AdvisorFYI blogticle entitled: One More to Note: The Economic Substance Doctrine, as well as: AdvisorFX: The Economic Substance Doctrine Can Unwind Even the Best Laid Plans . Traditionally, taxable income of a business is computed by its gross income less its deductions and exclusions. [2] Generally, gross income means all income from whatever source derived unless otherwise excluded by law. [3] Congress allows for a “deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” [4]
The taxpayer has the burden to show that the item claimed as a deductible business expense: 1) was paid or incurred during the taxable year; 2) was for carrying on its trade or business; 3) was an expense; 4) was a necessary expense; and 5) was an ordinary expense. [5] One such class of deductions that is generally allowable is, “insurance premiums against fire, storm, theft, accident, or other similar losses in the case of a business, and rental for the use of business property.” [6]
There is a general rule that cash receipts and disbursements method taxpayers may deduct expenses when actually paid in cash. [7]
Can the taxpayer deduct the entire amount paid, if reasonable, for a benefit that expires within a 12 month period, or must the expense be capitalized and depreciated over its useful life? The Treasury Regulations state, “a taxpayer is not required to capitalize…amounts paid to create [a] benefit for the taxpayer that does not extend beyond…12 months after the first date on which the taxpayer realizes the right or benefit”. [8]
Compare the 12 month standard to “[a] prepayment for multiyear insurance coverage creates an asset having a useful life longer than a taxable year, which must be capitalized.” [9] The former is generally fully deductible in the year paid, the latter is not. Tomorrow’s blogticle will discuss pre-paid expense for accrual method taxpayers. We invite your questions and comments by posting them below, or by calling the Panel of Experts.
[1] 26 U.S.C. § 7701(o). [2] 26 U.S.C. § 63 (a). [3] 26 U.S.C. § 61(a). [4] 26 U.S.C. § 162 (a) [5] Neonatology Associates, P.A. v. C.I.R. 115 T.C. 43, 88 (U.S.Tax Ct.,2000) Citing, See Commissioner v. Lincoln Savs. & Loan Association, 403 U.S. 345, 352, 91 S.Ct. 1893, 29 L.Ed.2d 519 (1971); Welch v. Helvering, 280 U.S. 111, 115, 50 S.Ct. 49, 74 L.Ed. 217 (1933).
[6] 26 C.F.R. § 1.162-1; U.S. v. Weber Paper Co., 320 F.2d 199, 63-2 U.S. Tax Cas. (CCH) P 9630, 12 A.F.T.R.2d 5256 (8th Cir. 1963).
[7] 26 C.F.R. § 1.461-1(a)(1); Eckert v. Burnet 283 U.S. 140, 141, 51 S.Ct. 373, 374 (U.S., 1931); Chapman v. U.S., 527 F. Supp. 1053, 1054 82-1 U.S. Tax Cas. (CCH) ¶9119, 49 A.F.T.R.2d 82-443 (D. Minn. 1981). [8] 26 C.F.R. § 1.263(a)-4 (f)(1). [9] Toyota Town, Inc. v. C.I.R. L 140819, 9 -10 (U.S.Tax Ct.,2000), citing Higginbotham-Bailey-Logan Co. v. Commissioner, 8 B.T.A. 566, 577 (1927); 26 C.F.R. § 1.461-4(g)(8), Example (6).; see also USFreightways Corp. v. Commissioner, 113 T.C. —-, (1999); Johnson v. Commissioner, supra at 488; Hinshaw’s, Inc. v. Commissioner, T.C. Memo.1994-327.
Tags: accounting, Expense, Individual Retirement Account, insurance, Tax, Tax deduction, Treasury Regulations Posted in Uncategorized | No Comments »