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Medicare – The A B Cs (& Ds)


It seems like Medicare has been around forever, but actually, President Lyndon Baines Johnson called on the Congress to create Medicare in 1964 and signed the bill creating it on July 30, 1965. Medicare services began July 1, 1966 when more than 19 million Americans 65 and older enrolled in the program.

Basically, the traditional (or original) Medicare is a health insurance program and has deductibles and copayments. Medicare was not established to pay all the health care costs of participants. Routine vision and hearing care are not covered by traditional Medicare.

Components of traditional Medicare consist of three parts:

Participants enrolled in traditional Medicare may use services from health care providers who accept Medicare.

Medicare Advantage (also known as Medicare Part C plan) offers a variety of plans offering managed care options, or coordinated care options. These plans are offered by private insurers and health care organizations contracted with Center for Medicare and Medicaid Services (CMS).

Individuals are eligible to enroll for Medicare coverage the first day of the month in which they turn 65. They are eligible the month before they turn 65 if their birthday is on the first of the month. Medicare eligibility is tied to Social Security benefits. Individuals must be eligible for Social Security to be eligible for Medicare.

Additional information can be found at official Medicare website.



Landlords who want to deduct 100 percent of their rental property expenses must be sure to watch the personal use of their rental property.

In the case of Mark A. Van Malssen and Patricia D. Kiley v. Commissioner, T.C. Memo 2014-236, T.C.M., the taxpayers were limited in the amount of rental expenses that they could claim because their personal use of the rental property exceeded 14 days.There is a section in the Internal Revenue Code that limits the amount of rental expenses that can be deducted when personal use of the rental property exceeds 14 days. When that is the case, instead of being able to deduct 100 percent of rental expenses, the owner must allocate those expenses.

The allocation percentage is derived by dividing the number of days the property was rented by the total number of days that the rental property was used. The number of days the rental property was used is determined by adding the rental days and the personal use days together.

Mark A. Van Malssen and Patricia D. Kiley had deducted 100 percent of their rental property expenses on their 2008 and 2010 jointly filed 1040 returns. In both of these years, it was determined by the facts and circumstances of the case that the personal use of the rental property had exceeded 14 days.

Therefore, instead of deducting 100 percent of their expenses, they should have allocated the expenses based on the above allocation percentage.

The issue in this case was how many personal days the taxpayers had used their rental property. The taxpayers said they used the rental property in both 2008 and 2010 for 14 days. Had this beenthe only personal use of the rental property, they would have been entitled to claim 100 percent of the rental expenses as a deduction.

An IRS regulation states that when the principal purpose of use of the dwelling unit is to make repairs and maintenance, those days do not count as personal days.

Whether the principal purpose is for repairs and maintenance or for personal use is determined under a facts-and-circumstances test.

A number of times over the course of 2008 and 2010 Mr. Van Malssen made the 350-mile trip from his home to the rental property in South Carolina. If the purpose of the trip is deemed to be primarily business, then the travel days are not considered to be personal days. If the primary purpose of the trip is personal, then those travel days are considered to be personal days.

The travel days were caused because it took the whole day for Mr. Van Malssen to drive from his personal residence to the rental property.

Mr. Van Malssen kept very detailed logbooks regarding his personal and business use of the rental property. The court used thoselogbooks when determining whether the different travel days counted as personal use days.

When traveling to the rental property, if more than 50 percent of the days spent at the rental property are related to making repairs and maintenance, then all of the days spent at the rental property and the one day of travel time are all deemed to be nonpersonal use.

But if less than 50 percent of the days spent at the rental property were related to repairs and maintenance, then the one day of travel time is deemed to be personal use time.

Because the court ruled that some of the travel time from the main residence to the rental property was properly counted as personal time, the taxpayers exceeded 14 personal use days in both tax years 2008 and 2010.

Because of this fact, the taxpayers were required to allocate the rental property expenses instead of deducting 100 percent of them. The court denied some of the rental expenses and a deficiency judgment was asserted against the taxpayers.

©2014 CPAmerica International


Discharge of debt is generally considered income for tax purposes – and it will be again in 2014 for principal residence indebtedness.

Many taxpayers took advantage of not being taxed on discharge of debt for principal residences from Jan. 1, 2007, through Dec. 31, 2013. Unfortunately, this exclusion has ended effective for the 2014 tax year. It applied to homeowner’s mortgages or equity loans secured by their residence.

For those who had their home reposed by the bank or had a short sale in which the fairmarket value of the home was less than the balance owed on the mortgage, the bank allowed them to walk away from the mortgage without paying the remaining balance still owed.

And because the IRS had a provision in one of their code sections in which this deficient balance was not considered to be taxable income, the taxpayer did not have a taxable event as a result of this transaction.

Starting in 2014 this loophole is no longer available. If the bank forgives debt related to a mortgage or home improvement loan secured by your primary residence, that debt forgiveness will now be considered taxable income.

The company that discharged the debt will send a 1099 form at tax time, and the taxpayer will be required to include the amount of debt discharged as income the tax return.

The IRS provides for five situations in which this discharge of debt is not taxable income. Those five situations are:

  1. A debt discharged in a bankruptcy action under Title 11 of the U.S. Code.
  2. A discharge when the taxpayer is insolvent outside bankruptcy.
  3. A discharge of qualified farm indebtedness.
  4. A discharge of qualified real property business indebtedness.
  5. A discharge of qualified principal residence indebtedness occurring before Jan. 1, 2014.


The general rule regarding gifts to employees is that they are taxable income to the employee.

There are some exceptions to this general rule. Two of the more common exceptions are:

1. Employee achievement awards

2. De minimis (small) fringe benefits

Employee achievement awards are nontaxable. These awards are tangible property that is given to the employees as a reward for length of service or for achieving some sort of a safety standard.

The IRS worries that employee achievement awards are actually a form of disguised compensation. That is why when the company is giving out these awards, they should be presented in some type of ceremonial format.

The amount of the gift that the employee is allowed to exclude from income is tied to the amount the company claims as a deduction. If the awards are given by a company that does not have a qualified plan, the maximum amount of the deduction for the company is $400. Therefore, the maximum amount the employee is able to exclude from income and treat as a nontaxable gift would be $400.

So, for example, if the employee received an award with a fair market value of $650, $400 of that would be considered a gift and $250 would be considered taxable compensation.

If the gift is given to an employee by a company that does have a qualified plan – an established written plan that does not discriminate in terms of eligibility or benefits to highly compensated employees – the maximum amount of the deduction for the company would be $1,600. The employee would then be able to exclude this same amount from income and treat it as a gift.

Other categories of gifts that are nontaxable are de minimis fringe benefits. De minimis fringe benefits are property or services that are so small as to make accounting for it unreasonable or administratively impracticable.

Not all de minimis fringe benefits are gifts. In fact, most are not. The IRS provides some guidance on what a de minimis fringe benefit is. The following three items are considered to be de minimis fringe benefits that impact the discussion of nontaxable gifts:

1. Birthday or holiday gifts of property with a low fair market value.

2. Occasional theater or sporting event tickets.

3. Flowers, fruit, books or similar property provided to employees under special circumstances.

These three items would be considered gifts and not added to the employees W-2 wages.

Employers that give gifts to employees for the holidays would be well advised to know what the rules are. Otherwise that gift might end up being taxable income to that employee.


I always find it interesting to hear the back story of people’s success…men and women.

Over the last few months I’ve read a couple of historical novels: The Aviator’s Wife by Melanie Benjamin and The Paris Wife by Paula McLain. What struck me the most from these novels was the strong influence on their families and the fortitude these women had. Which led me back to thoughts of my youth when I was intrigued by western shows and the strength and fortitude required of the women living in the wild frontier.

Fortitude – strength of mind that enables a person to meet danger or bear pain or adversity with courage. Synonyms – grit, backbone, pluck.

We’ve been doing this for a long time. However, our roles continue to change from a strong supporting role to a strong leadership role.

My last plane trip I grabbed the October issue of Fortune featuring the 50 Most Powerful Women.

  1. Ginni Rometty, Chairman, CEO, and President, IBM
  2. Mary Barra, CEO, General Motors
  3. Indra Nooyi, Chairman and CEO, PepsiCo
  4. Marilyn Hewson, Chairman, CEO, and President, Lockheed Martin
  5. Ellen Kullman, Chairman and CEO, Dupont

The list goes on. The list is impressive. And the issue includes some in depth insight into these power players.

With these leadership roles comes even more of a balancing act. Innately women tend to be better at balancing. We do a lot of it.

Forbes Women Leadership column recently published “The Morning Routines of 12 Women Leaders.” Each routine was different yet similar…very busy.

Women…ourselves, our daughters, our friends, our co-workers…we are all striving to balance our lives. I listen to the stories and they all have a similar theme…not enough time. Both men and women.

As we move into the holiday season, let’s ensure we are using some of that pluck to prioritize and enjoy much needed time with family and friends!



Barnard Vogler & Co.
100 W. Liberty St., Suite 1100
Reno, NV 89501

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