In an article published last week (“A Reno Neighborhood Drinks in Style”), The New York Times declared “Reno is now a city of sustenance as well as indulgence.” This declaration came after some enthusiastic and positive writing on the happenings of Midtown District businesses. The article wandered from the Old Granite Street Eatery to Reno Public House to Hub Coffee Roasters, while also stopping over at other fine Midtown establishments along the way (Brasserie Saint James, Death and Taxes, and more). So, if an East Coast newspaper the likes of The New York Times is profiling an up and coming part of Reno, have we made it?
Yes, we have made it, but not because of The New York Times. Midtown, downtown and many parts of Reno/Sparks have made it because of the people creating the businesses and citizens of the area supporting them. At the same time, I can’t complain about good press at the national level. It really is quite awesome.
One thing I have to say about The New York Times’ declaration: It isn’t just “now” that we have become a city of sustenance as well as indulgence. I feel Reno has been that way for some time. Reno has definitely had an explosion of restaurants and bars of late, but we’ve had restaurants that can sustain or indulge us for as long as I can remember. Bricks, La Vecchia and Rapscallion come to mind; so do Peg’s Glorified Ham n Eggs, Silver Peak and Great Basin Brewing Co. Let’s not forget the myriad sushi places we have in town (all you can eat, of course) and the multitude of Chinese, Thai and Vietnamese restaurants. Reno has even had an Ethiopian restaurant for some years (Zagol; it’s quite good!).
I’ve digressed a bit from talking about Midtown, but as you can see, the Reno/Sparks area is alive with great restaurants and bars. So the next time you are heading out for food, think about giving the Midtown area a try. I don’t think you’ll be disappointed.
In a private letter ruling, the IRS has refused to waive the requirement to roll over IRA distributions within 60 days for an individual whose bank failed to advise her of the deadline.
The IRS determined that the taxpayer did not qualify for relief because she did not show that the bank had a duty to inform her of the 60-day requirement. The overall facts also indicated that the ability to redeposit the amount was within her reasonable control during the time period in question (PLR201339002).
Normally, there is no immediate tax if distributions from an IRA are rolled over to an IRA or other eligible retirement plan. For the rollover to be tax-free, the amount distributed from the IRA generally must be re-contributed to the IRA or other eligible retirement plan no later than 60 days after the date that the taxpayer received the withdrawal from the IRA.
A distribution rolled over after the 60-day period generally will be taxed and may be subject to a 10 percent premature withdrawal penalty tax. Only one tax-free IRA-to-IRA rollover per IRA account can be made within a one-year period.
The IRS may waive the 60-day rule if an individual suffers a casualty, disaster or other event beyond that person’s reasonable control and if not waiving the 60-day rule would be against equity or good conscience (i.e., hardship waiver).
The IRS will consider several factors in determining whether to waive the 60-day rollover requirement. These factors may include, for example, the time elapsed since the distribution; the inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; and errors committed by a financial institution.
In the new private ruling, an individual withdrew money from three IRAs maintained at a bank (Bank A) with the intent of depositing these funds at a later time into another IRA that would yield a better rate of return. The individual opened a rollover IRA at Bank B 68 days later but was informed that the intended deposit could not be accepted as a rollover contribution because the 60-day period had expired.
The IRS declined to waive the 60-day requirement. Although one of the factors on which relief can be based is whether errors were committed by the relevant financial institutions, the taxpayer did not demonstrate that Bank A had a duty to inform her of the 60-day rollover requirement.
Instead, the IRS found that the ability to timely redeposit the money into a rollover IRA was within the reasonable control of the taxpayer. Although the bank did not tell her that she needed to redeposit the funds within 60 days, she had the ability to do so.
When it comes to the tax law, not knowing about the rules generally is an insufficient excuse for not complying with them.
©2013 CPAmerica International
In a recent case, the Tax Court allowed a music professor and self-employed musician an itemized deduction as an unreimbursed employee business expense for the travel costs associated with his musical performances.
Consider whether some of the circumstances may apply to your travel costs, even though you may be in a different profession.
Joseph Scully is a jazz musician and music professor for the City Colleges of Chicago who plays with various ensembles and travels throughout the United States to participate in jazz conferences. Scully was also pursuing a doctorate in music.
Scully traveled to rehearsals and performances – “performance activities” – to stay abreast of developments in the music profession. He claimed deductions for driving miles in relation to his performance activities both as Schedule C business expenses and as Schedule A unreimbursed employee expenses.
Scully tracked his miles by logging the date, location visited and activity at each location. He maintained a mileage log for each of the years covered by the case.
But a flood destroyed the logs for the years 2002, 2003 and 2004. The mileage log for 2006 was not destroyed. Scully used his 2006 log to reconstruct the driving logs for his 2002, 2003 and 2004 tax years.
The IRS allowed certain travel expense deductions for music events on the Schedules C but did not allow any travel expenses as unreimbursed employee expense deductions on the Schedules A.
The Tax Court determined that Scully’s claimed vehicle expense deductions were for performance activities, and most of the trips were around the Chicago area. Scully did not claim the miles he drove from home to the City Colleges of Chicago where he taught. Therefore, the court determined that Scully was not trying to deduct personal commuting expenses but only expenses that he considered to be connected with his professional activities.
The court noted that the regulations permit a deduction for education expenses that:
➤ Maintain or improve skills required in employment, or
➤ Meet the express requirements of the employer.
However, expenses that fall into either of these categories would not be deductible if the education:
➤ Is required to meet the minimum education requirements for qualification in the taxpayer’s employment, or
➤ Qualifies the taxpayer for a new trade or business.
The court observed that Scully could have claimed his mileage as deductible business expenses or as deductible unreimbursed employee expenses. The court inferred from Scully’s reporting these expenses on Schedule A that he considered the expenses to be in furtherance of his trade or business as a college professor pursuing an advanced music degree, not as expenses incurred in the trade or business of a musician.
As a result, the court required Scully to show that the expenses were directly and proximately related to the skills required in his business as a college professor. The court then determined that Scully’s performance activities were related to his skill as a professor because he translated his specific experiences as a performer into classroom lessons. Scully showed a direct correlation between the costs expended to learn more about music and teaching music to students.
The court also noted that the deduction for educational expenses is not limited to formal or institutional education. Fees for refresher courses and courses dealing with current developments are deductible if not otherwise disqualified.
Instead of solely relying on structured classes and seminars, Scully stayed abreast of new developments in his profession through active participation, which is analogous to courses dealing with current developments.
The IRS had contended that Scully’s unreimbursed employee expenses were not ordinary and necessary to his employment as a music professor because (1) he generally enjoyed performing, and (2) performance activities were not in his job description. The court pointed out that the tax law doesn’t require activities resulting in business expenses to be unenjoyable, only that they be ordinary and necessary. It stated that Scully “should not be denied deductions because he likes his job.”
The court found that the tax law does not require that the expenses be explicitly connected with activities enumerated in a job description. In other words, there is not a direct connection between formally listing the activities in a job description and the deductibility of expenses incurred while performing those activities.
In addition, the court found that Scully testified credibly that he contemporaneously created mileage logs during the 2002, 2003 and 2004 tax years but those records were later destroyed when his basement flooded. Therefore, the court allowed him to substantiate the claimed deductions by making reasonable reconstructions of the expenditures (Joseph D. Scully, Jr. v. Commissioner, TC Memo 2013-229, Sept. 30, 2013).
©2013 CPAmerica International
Most businesses assume that compensation is deductible when it is paid. However, a recent statement by the IRS raises the question of whether some upfront “signing bonuses” paid to employees who sign a multi-year employment contract must be amortized over the term of the contract, rather than deducted when paid to the employee.
Signing bonuses paid by a minor league baseball team to its players must be amortized over the term of the player contracts, according to an IRS Legal Advice Issued by Field Attorneys.
Based on its experience, the taxpayer who operates the minor league baseball team and was the subject of the Legal Advice (FAA20133901F) wanted to amortize the signing bonus over a shorter period, which historically was shorter than the term provided in the contracts.
Except when the contract’s termination clause comes into effect, the contract stipulates that the player is required to provide services to the team for seven separate baseball seasons. At the end of this seven-year term, if the player has not entered into another contract with the team, he becomes a free agent.
Under the termination clause, the player can terminate his contract only if the team is in default on its contractual obligations for more than 15 days. The team can terminate the contract for several reasons, including if the player signs a major league contract, the player is traded, the player becomes disabled, or the team judges that the player has failed to play well enough.
The team compiled a report that showed the average life of all of its minor league player contracts over a period of years and sought to amortize the signing bonuses over that average number of years.
The IRS has previously ruled (Rev Rul. 67-379) that a signing bonus paid to a player is required to be capitalized and amortized over the useful life of the player’s contract. To the IRS, the useful life for a baseball player’s contract generally is the period over which the team controls the player’s ability to sign a contract with another team.
In the Legal Advice, the IRS concluded that, because the team controls the player for the term of the contract, the useful life of the player contract is that term – seven years – and that the player bonus is amortizable over the seven-year right of the team to receive services from the player.
©2013 CPAmerica International
As you think about year-end tax planning, keep in mind that beginning in 2013, the top rate for long-term capital gains and qualified dividends was raised to 20 percent. If you are subject to the 3.8 percent surtax on net investment income, your effective top rate could be as high as 23.8 percent.
If you are in the 10 percent or 15 percent marginal tax bracket, the zero percent rate still applies.
Almost everything you own and use for personal or investment purposes is a capital asset. An example is an investment in stocks. When you sell a capital asset, the difference between the asset’s basis (usually its cost) and the amount you sell it for is a capital gain or a capital loss.
If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed as a deduction is generally the lesser of $3,000, or $1,500 if you are married filing separately. If your net capital loss is more that this limit, you can carry the loss forward to later years.
For tax purposes, it is usually advisable to hold capital assets for more than 12 months before disposing of them to avoid short-term capital gain status, unless market conditions indicate otherwise. However, if you are carrying capital losses forward from 2012, you may want to consider recognizing capital gains to the extent of the available carryover deduction.
In choosing which gains to recognize to offset capital losses for tax savings, preferably you should recognize short-term gains, if available, because otherwise they would be taxed at your ordinary income rate. Defer recognition of long-term gains in this situation since they are usually taxed at the lower long-term capital gains rate.
Carryover net capital losses from pre-2013 transactions are able to offset capital gains at the new higher rates without adjustment for the rate change.
If this week’s negotiations to raise the federal debt ceiling do not end well, there could be major consequences to the economy. Administration officials say that by Thursday they will have exhausted all borrowing authority and only have cash on hand. There would be enough money to make payments for a few days, but not more than two weeks.
According to an article in the Washington Post, economists on both sides agree that no matter which course the President chooses, a drop in federal spending that large would have an impact on economic growth. The administration would have to consider delaying or suspending tens of billions of dollars, as soon as Friday, to Medicare and Medicaid providers, food stamp recipients, unemployment benefits and Social security checks. This could be detrimental to seniors and low-income people. Veterans’ benefits and pay for active-duty troops could also be delayed. Nearly $60 billion is due in November to cover the aforementioned expenses.
Further, economists have estimated that if the government shutdown lasts through October, real GDP could be reduced as much as 1.5 percentage points in the fourth quarter. Hundreds of thousands of furloughed workers are expected to postpone purchases, which would be a major hit to growth through reduced consumer spending. Consumer sentiment hit a nine-month low in early October. Estimates for fourth-quarter GDP are being held steady or have been cut slightly in light of the shutdown. Citigroup’s chief U.S. economist Robert DiClemente stated that the longer the delay in authorized spending, the greater the incidence of negative spillovers to private activity. Though these impacts would be reversed once the furloughed workers return to work, there would still be drags on the economy that may continue into 2014.
The government shutdown has affected many federal agencies, including the Internal Revenue Service. It is estimated that only about 10% of the IRS employees are currently working. This has caused some questions among taxpayers about whether or not their tax returns need to be filed by October 15th. The government shutdown and the decrease of IRS employees will not affect the upcoming tax deadline. All taxpayers who requested a six month extension by April 15 will still have to file their tax returns by October 15th.
Having a decrease in employees due to the shutdown will affect other areas of tax filing. It is recommended that you file your tax return electronically because most of these will be processed automatically. If you paper file, nothing will be done with your return until the shutdown ends, but it still needs to be postmarked by the October 15th or it will be considered late. If you do paper file, it is good idea to send your return using Certified Mail to have proof that you sent your return in by October 15th.
The government shutdown has caused much frustration for taxpayers. This is mostly true for taxpayers expecting a refund. Even if your tax return is filed on time, no refunds will be issued until the government shutdown ends and operations return to normal. However, if you owe money it still needs to be paid when you file. The “IRS Where’s My Refund?” function will not be available to anyone who filed their tax return after the start of the government shutdown until the shutdown ends.
Also there is not much happening in regards to tax assistance from the IRS. There is no one working the telephone customer service lines and the IRS’s walk-in taxpayer assistance centers are closed. However, the automated assistance line is still open.
So get your tax return filed by October 15th, and hopefully for everyone waiting on a refund or trying to resolve an issue with the IRS, the government shutdown ends soon.