If your business has made repairs to tangible property, such as buildings, machinery, equipment and vehicles, you may be eligible for a deduction on your 2014 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”

Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted. Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. (A qualified small business is generally one with gross receipts of $10 million or less.)

Contact us to ensure that you’re taking all of the repair and maintenance deductions you’re entitled to.

Investment interest — interest on debt used to buy assets held for investment, such as margin debt used to buy securities — generally is deductible for both regular tax and alternative minimum tax purposes. But special rules apply that can make the deduction less beneficial than you might think.

Your investment interest deduction is limited to your net investment income, which, for the purposes of this deduction, generally includes taxable interest, non qualified dividends and net short-term capital gains, reduced by other investment expenses. In other words, long-term capital gains and qualified dividends aren’t included. However, any disallowed interest is carried forward, and you can deduct it in a later year if you have excess net investment income.

You may elect to treat net long-term capital gains or qualified dividends as investment income in order to deduct more of your investment interest. But if you do, that portion of the long-term capital gain or dividend will be taxed at ordinary-income rates.

If you’re wondering whether you can claim the investment interest expense deduction on your 2014 return, please contact us. We can run the numbers to calculate your potential deduction — or to determine whether you could benefit from treating gains or dividends differently to maximize your deduction.

If you don’t meet IRS substantiation requirements, your charitable deductions could be denied. To comply, generally you must obtain a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services.

If you haven’t yet received substantiation for all of your 2014 donations, you may still have time to obtain it: “Contemporaneous” means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. So as long as you haven’t filed your 2014 return, you can contact the charity and request a written acknowledgement — you’ll just need to wait to file your return until you receive it. (But don’t miss your filing deadline; consider filing for an extension if needed.)

Be aware that certain types of donations are subject to additional substantiation requirements. To learn what requirements apply to your donations, please contact us.

If you have a child in college, you may not qualify for the American Opportunity credit on your 2014 income tax return because your income is too high (modified adjusted gross income phaseout range of $80,000–$90,000; $160,000–$180,000 for joint filers), but your child might. The maximum credit, per student, is $2,500 per year for the first four years of postsecondary education.

There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her — and the child can’t take the exemption.

But because of the exemption phaseout, you might lose the benefit of your exemption anyway. The 2014 adjusted gross income thresholds for the exemption phaseout are $254,200 (singles), $279,650 (heads of households), $305,050 (married filing jointly) and $152,525 (married filing separately).

If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the taxsavings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.

We can help you run the numbers and can provide more information about qualifying for the American Opportunity credit.

The manufacturers’ deduction, also called the “Section 199” or “domestic production activities” deduction, is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.

Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the alternative minimum tax.

Contact us to learn whether this potentially powerful deduction could reduce your business’s tax liability when you file your 2014 return.

You probably know that miles driven for business purposes can be deductible. But did you know that you might also be able to deduct miles driven for other purposes? The rates vary depending on the purpose and the year:

Business: 56 cents (2014), 57.5 cents (2015)

Medical: 23.5 cents (2014), 23 cents (2015)

Moving: 23.5 cents (2014), 23 cents (2015)

Charitable: 14 cents (2014 and 2015)

The rules surrounding the various mileage deductions are complex, however. Some are subject to floors and some require you to meet specific tests in order to qualify. There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.

So contact us to help ensure you deduct all the mileage you’re entitled to on your 2014 tax return — but not more. (You don’t want to risk back taxes and penalties later.) And if you drove potentially eligible miles in 2014 but can’t deduct them because you didn’t track them, then start tracking your miles now so you can potentially take advantage of the deduction when you file your 2015 return next year.

If you’re like many Americans, you may not start thinking about filing your tax return until the April 15 deadline is just a few weeks — or perhaps even just a few days — away. But there’s another date you should keep in mind: Jan. 20. That’s the date the IRS began accepting 2014 returns, and filing as close to that date as possible could protect you from tax return fraud.

In this increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.
Tax return fraud can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the thief who’s filing the duplicate return, not you.

Of course you need to have your W-2s and 1099s to file. So another key date to be aware of is Feb. 2 — the deadline for employers to issue 2014 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2014 interest, dividend or reportable miscellaneous income payments.

Let us know if you have questions about tax return fraud or would like help filing your 2014 return early.

On Dec. 19, the president signed into law the Tax Increase Prevention Act of 2014 (TIPA), which extended through Dec. 31, 2014, many valuable tax breaks that had expired at the end of 2013. Here are three that individuals may be able to take advantage of when filing their 2014 returns:

1. State and local sales tax deduction. Individuals can take an itemized deduction for state and local sales taxes instead of for state and local incometaxes. This option can be valuable for taxpayers who live in states with no or low income tax rates or purchase major items, such as a car or boat.

2. Tuition and related expenses deduction. This above-the-line deduction for qualified higher education expenses may be beneficial to taxpayers who’re ineligible for education-related tax credits, though income-based limits also apply to the deduction.

3. Home mortgage debt forgiveness exclusion. Discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married taxpayers filing separately), may be excluded from gross income.

To learn whether you qualify for these — or other breaks extended by TIPA — please contact us.

Many retirement plan contribution limits increase slightly in 2015; thus, you may have opportunities to increase your retirement savings:

Other factors may affect how much you can contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or even eliminate your ability to take advantage of IRAs. For more information on how to make the most of your tax-advantaged retirement-saving opportunities in 2015, please contact us.

On Dec. 16, the Senate passed the Tax Increase Prevention Act of 2014 (TIPA), which the House had passed on Dec. 3. TIPA extended many valuable tax breaks that expired at the end of 2013 — but only through Dec. 31, 2014.

Here are three types of extended tax breaks that you may want to take action on before year end:

1. Small business stock gains exclusion. Gains realized on the sale or exchange of qualified small business (QSB) stock acquired in 2014 will be eligible for an exclusion of 100% if the stock has been held for at least five years. So you may want to consider purchasing QSB stock by Dec. 31.

2. Tax-free IRA distributions to charities. Taxpayers age 70½ or older can make direct contributions from their IRA to qualified charitable organizations without incurring any income tax on the distribution, up to $100,000 for the 2014 tax year. You can even use the distribution to satisfy a required minimum distribution. But the distribution must be made by Dec. 31.

3. Depreciation-related breaks. Businesses can enjoy larger 2014 deductions if they invest in property that qualifies for enhanced Section 179 expensing, 50% bonus depreciation, and/or accelerated depreciation for qualified leasehold-improvement, restaurant and retail-improvement property. But the property must be placed in service by Dec. 31.

Additional rules and limits apply to these breaks, so please contact us to find out which ones you can benefit from.