Besides being healthier for the environment, purchasing an electric car can be healthy for your tax return. However, there are a few requirements that go hand-in-hand with the purchase of an electric car that one needs to understand to reap the full benefit from the tax credit.

Put simply, the current tax credit for purchasing an electric car is $7,500. This tax credit is not a rebate, so you will not receive it when you purchase the vehicle, nor is it a tax deduction. That means you cannot use it to reduce the amount of your taxable income.

How to Use an Electric Car Tax Credit
In the year you purchase an electric car, you are allowed to reduce the total amount of income tax you owe by $7,500. This means that if you own less than $7,500, you will lose the remainder of the tax credit. For example, if your tax liability is $6,500, then that is the full amount of the tax credit you will receive. The balance is not a refund nor can it be used to offset future tax liabilities.

Determining Which Cars Qualify for the Tax Credit
When considering the purchase of an electric car, keep in mind, it must be a new vehicle that will be used for your personal use. You cannot use the credit on a used car or a lease as the leasing company typically receives the tax credit. In addition, the car must have been manufactured by a car company and cannot be a conversion. Finally, the car must be used in the United States.

As with all things related to the IRS, there are conditions that must be adhered to when using the electric car tax credit, but the upside is that by utilizing this credit, it is possible to bring the cost of an electric car down to where it is inline with a gasoline vehicle.

For more information on the electric car tax credit and how it may apply to your dental practice, please don’t hesitate to call the office!

Claiming the home office deduction for your practice can reduce your income tax obligation, but be sure you understand the IRS’s rules.

One of the many ways the internet has changed business over the last two decades is the increasing numbers of part-time entrepreneurs. Simple do-it-yourself website design tools have made it possible for anyone to create a virtual storefront that looks impressive – even if its CEO is working out of his or her spare bedroom.

At the same time – whether it’s good or bad – business people have found it easier to do office work at home.

If you’re in one of these two situations, you may be able to take the Home Office Deduction on your IRS Form 1040.

There are two primary requirements:

• You have to use your home office space exclusively for business.
• The area of your home that you’re claiming must be used as your “principal place of business.”

Prior to the 2013 tax year, doing the required calculations to determine the costs associated with the business use of a portion of your home was quite complicated. It can be a less complex task now, if you use what’s called the Simplified Option. However, you can still claim the Home Office Deduction using the Regular Method.

Warning: Once you select one of these options for a given tax year, you must stick with it through that year. If you change from the Simplified Option one year to the Regular Method the next, you’ll need to know how to handle depreciation. We can help with this.

Here are some of the specifics. Where you used to have to maintain records of actual, legitimate expenses (and you still can, using the Regular Method), you now have the option to take a standard deduction of $5/square foot (maximum 300 square feet) for the section of your home that you’re claiming.

Filing can be less time-consuming, too, using the Simplified Option. In previous years, you had to enter some home-related itemized deductions on the Schedule A and the rest on Schedules C or F. You can still do so using the Regular Method. But now you can claim them in total on the Schedule A.

Do you want to work with depreciation for your Home Office Deduction? If so, you’ll have to stick with the Regular Method. Using it, you can:

• Take a depreciation deduction for the area of your home that you use for business, and
• Recapture that depreciation when you sell your home.

Figure 1: The Simplified Option makes it easier to file for the Home Office Deduction, but it may not be best for your situation. We can help you sort it out.

If you’ve decided that you want to use the Simplified Option, there’s no depreciation deduction, and, of course, no recapture of it.

Loss carryover is affected, too. Using the Simplified Option, you cannot:

• Carry over any amount that exceeds your gross income limitation, or
• Claim a loss carryover that was derived from the use of the Regular Method in the previous year.

One thing that’s stayed the same in both is this – the Home Office Deduction can’t be higher than the gross income you’re declaring from the business use of your home minus business expenses.

Obviously, determining what the amount of your home office deduction will be is still a complex operation, even though the new rules are called the Simplified Option. We can’t recommend that you attempt either alternative without consulting with us. It may or may not be an effective way to lower your tax obligation, and you might spend hours trying to figure this out on your own, so let us help. Contact us today to get started.

Oops! Did you realize that you made an error on an income tax return that you already filed? It’s not unusual. That’s why the IRS has a special form that will fix it.

Maybe a 1099 that you had forgotten about came in after you’d filed your income taxes for the previous year. Or a big business deduction slipped your mind. Or as you glanced through your return before filing it, you noticed that one digit in your Social Security number was incorrect.

Sometimes, post-filing errors are your own fault and sometimes not. Whatever the reason, you should file an amended return as soon as you discover the error because it takes some time to get it processed. The IRS recommends you file a Form 1040X when you need to register a change – or changes – in your filing status, income, deductions, or credits.

Note: Keep in mind that there are exceptions to the general rules and additional forms that may be required depending on your situation. Also, there are some errors that, for numerous reasons, don’t warrant an amended return. So please talk to us before you file one.

Figure 1: You’ll need to file an IRS Form 1040X to correct a Form 1040, 1040A, 1040EZ, 1040NR, or 1040NR-EZ.

Though we strongly urge you to let us help you prepare and submit an amended return, here are answers to some questions you may have about the process.

What’s Needed: If you need to file an amended return, you’ll have to get a paper copy of the IRS Form 1040X. Besides the form itself and IRS instructions, you’ll need your original return and all of its supporting forms, schedules, worksheets, and instructions.

Where It Goes: Even if you originally filed electronically, you’ll have to complete and submit this the old-fashioned way: through the U.S. Mail. (See page 12 of the IRS instructions for this form to find the appropriate mailing address). Note: If you have discovered errors in more than one year, you’ll have to submit separate 1040X forms in separate envelopes.

How Long You Have to Submit It: The IRS wants to see your 1040X within three years of the date that your original form was filed (including extensions) or within two years of actually paying the tax – whichever date is later.

How Long It Takes the IRS to Process Your 1040X: It may not even show up in the IRS’ system for three weeks. Expect to wait up to 16 weeks for the change to be completed.

How You Can Check the Status of a 1040X: The IRS provides an online tool called Where’s My Amended Return?, which only has updates on certain types of amended returns. You can also call an automated toll-free number (866-464-2050).

What the IRS Does If It Has Questions About Your 1040X: It will contact you through the U.S. Mail.

Figure 2: The IRS Form 1040X is structured differently from the other forms in the 1040 family. It will actually replace your original return.

The Form 1040X is not as lengthy as the 1040, but it in essence becomes your new tax return for the year. You’ll supply your original entry or any adjustment that the IRS has already made in one column and then the new amount in another, with the difference in between.

Keep in mind that an amended federal form may have an impact on your state return. We can help you determine this and advise you on how to proceed.

You know how important it is to get everything right on your income tax return. Accuracy is just as critical – if not more so – when you file an amended return. You don’t want to have to correct your corrections, and we don’t want you to, either. So let us know if it looks like a Form 1040X is in your future.

For one reason or another, thousands of American citizens are living outside the United States at any given time. Many retirees are taking advantage of the lower cost of living and temperate climate offered south of the border while younger individuals and families are abroad for school, business or simply for the adventure. While living abroad certainly has its advantages, there are also disadvantages.

Living abroad has always come with challenges. Learning a new language, adapting to a new culture and adjusting to a different pace of life have always been among those challenges. Recently, Americans living abroad have faced a new challenge. This one, however, does not come from their adopted country but from their homeland. With the passage of the Foreign Account Tax Compliance Act, or FATCA, many expatriates are worried about the penalties they face from the Internal Revenue Service for failing to comply with complex provisions of FATCA.

Wealthy Americans have historically taken advantage of foreign tax havens. Most likely everyone knows what a “Swiss bank account” means. Several countries in Central America as well as the Caribbean have also been popular options for off-shore accounts. Because these countries have traditionally maintained a policy of confidentiality with regard to the identity of account holders, wealthy Americans have been able to hide large sums of money in these offshore accounts and allow the funds to earn interest tax-free. As a result, experts estimate that the U.S. government loses as much as $100 billion dollars each year in revenue.

FATCA was passed in 2010 in an attempt to tighten up the reporting requirements for foreign financial accounts which will, in turn, result in a dramatic increase in tax revenue for the U.S. government each year. Unfortunately, FATCA applies to everyone living outside the United States and/or everyone who has a financial account located outside the U.S., and the potential penalties for non-compliance are steep.

FACTA has two main provisions. The first requires foreign financial institutions to enter into an agreement with the IRS. The agreement obligates the financial institution to provide names, TINs, addresses and transactional information regarding accounts held by U.S persons. The second provision requires most U.S. persons who have foreign accounts or certain types of assets to complete and file IRS Form 8938 “Statement of Specified Foreign Financial Assets” with their tax return each year. As a general rule, Form 8938 is only required if the value of the assets exceeds $50,000; however, there are exceptions to that general rule. In addition to Form 8938, financial accounts that total more than $10,000 must be disclosed using a “Foreign Bank Account Report”, or FBAR. Additionally, not only do account holders need to file a FBAR, but  beneficiaries, signatories and anyone with a power of attorney over the account need to as well.

Making a mistake on Form 8938 or failing to comply with the FATCA requirements for any other reason can incur a hefty penalty. The civil penalty for failing to disclose assets or accounts on Form 8938 can be as high as $10,000 plus an additional $10,000 for every 30 days of non-disclosure after the IRS officially provides notice of a failure to disclose. The maximum civil fine is $60,000 for a FATCA violation. The penalty for failing to file a FBAR is also up to $10,000 for a non-willful violation. For a willful violation, however, the penalty is the greater of $100,000 or 50 percent of account balances.

If you are an American living abroad and/or you own assets or financial accounts outside the United States you are likely subject to the provisions of FATCA. To ensure that you comply with all the FATCA requirements be sure to retain the assistance of a reputable accounting professional when you prepare your tax return this year and in subsequent years. For more information, please don’t hesitate to contact us.

There was a time that determining the correct deductions for your home office was complicated and could potentially lead directly to an audit. Luckily, those days are in the past. The IRS no longer considers a home office a red flag, and they have found ways to simplify the process of taking this deduction.

Before 2013, business owners that worked out of their home were required to determine the actual expenses of their home office. This could include items such as utilities, insurance and mortgage interest. The amount that could be deducted as a business expense was determined by the percentage, of the total square footage of your home, that was used for office space, but in 2013 that all changed.

For taxable years of 2013 and beyond, the IRS has introduced a simplified option. This allows business owners to multiply a prescribed rate by the square footage of the home that is being used as office space to determine the allowable deduction.

This change permits business owners to reduce the need for recordkeeping as actual expenses no longer need to be tracked.

There are two requirements that a business owner needs to meet to be eligible for the home office tax deduction. First, the area of your home that is used for your office must be used exclusively for conducting business. That means a kitchen table is not a home office, but if you have a room in your home that you use for office space exclusively, that would qualify.

Secondly, your home office must be your principal place of business. That doesn’t mean you can’t have an office elsewhere, but you need to be using your home office for meetings with clients, or some other activity that would suggest it is not simply an area that you work in from time-to-time.

If you have a home office, don’t hesitate to take the deduction you are entitled to. With the simplified option to determine your deduction, this is one time the IRS has made it too easy to pass up.

For more information about deducting a home office, please contact us!

Cost segregation is the process of identifying your assets and correctly classifying those assets for the purpose of paying federal taxes. In this process, personal assets that are mixed with real property assets are separated out, so all assets can be depreciated properly and potentially increase your bottom line.

Cost Segregation Studies

A cost segregation study is performed to determine which assets can be claimed as personal property instead of real property. These items usually include indirect construction costs, non-structural elements of buildings and exterior land improvements.

By separating these assets, they can be depreciated over a shorter term, which will reduce your current income tax liabilities and increase cash flow. This decreased depreciation period is typically between five and fifteen years instead of the twenty-seven and a half to thirty-nine years for non-residential real property.

For example, items such as carpeting, wallpaper, parts of the electrical system, and even sidewalks and landscaping all qualify for the shorter depreciation periods.

Eligibility and Advantages of Cost Segregation

To be eligible for cost segregation, a building must have been purchased, remodeled or constructed since 1987. This method of tax reduction is best used on new construction, but it can be used retroactively on older buildings as well.

Beyond the benefits of reduced tax liability and increased cash flow, a cost segregation study will provide your business with an audit trail of all costs and asset classifications. This will help put to rest any unwanted inquiry from the IRS in its early stages. Finally, during this process, you may identify possible ways to reduce your real estate tax liabilities as well.

While there are some costs associated with performing a cost segregation study, as long as the assets in question are valued over $200K, it’s worth the time and expense to complete the study and categorize these assets correctly.

For more information on the process, please contact us.