The past couple of months have seen some new announcements for added airlines and destinations previously unserved for the Reno-Tahoe International Airport. Hooray! It is about time we see a little new blood flexing their muscles in our air service community.
I don’t know if anyone else has become frustrated with the “old standby” (no pun intended) carrier that has served Reno-Tahoe for many years…and might I add…has been enthusiastically supported by residents such as myself for equally as long. In anticipation of writing this blog, I thought I would do a little fantasy get-away planning to make my point. Let me set this trip planning up so that we know that everything was on equal ground. I selected a departure date just in excess of 2 weeks from this writing in hopes of finding fares that weren’t too outrageous…you be the judge! Departure was a Thursday and return the following Sunday for all inquiries. Here are my results with the destination listed first, the roundtrip airfare and the roundtrip flight time:
Really inconsistent results, don’t you think? Can you guess the mystery carrier? I purposely included the last 4 destinations because this carrier has recently discontinued nonstop service to these destinations. I felt that it was important to show that they can still get us to these destinations but you will likely be routed through Las Vegas further distorting the seat demand for that important Nevada destination for business and government purposes.
Just for fun, and to further press my point of discontent, I thought I would plan a more extensive trip for my long weekend. Here are my results from that search using another major airline:
These results point to a very real problem for us that rely on good affordable air service to nearby important destinations for our market. This problem will likely only be rectified by the introduction of additional carriers to our area. Let’s hope we are on the cusp of seeing that happen. In the meantime, we will have to happily climb aboard our over-sold aircraft and enjoy our often delayed flights to our over-priced destinations. Happy flying!
Tax season is quickly approaching. According to its website, the IRS received 149,684,000 individual income tax returns in 2014 as of December 26, 2014 (2014 Filing Season Statistics). Of these returns, the IRS states that more than half were prepared by hired tax professionals. If you decide to hire a tax professional to prepare your tax return this year, it is essential to choose them carefully to avoid hiring an abusive return preparer.
What is an abusive return preparer?
The IRS defines a return preparer as “any person (including a partnership or corporation) who prepares, for compensation, all or a substantial portion of a tax return or claim for refund under the income tax provisions of the Internal Revenue Code.” An abusive return preparer is a return preparer who engages in return preparer fraud, which involves preparing and filing false income tax returns.
An abusive tax return preparer may use different methods to commit this type of fraud. For instance, he or she may prepare a false Schedule C, Profit or Loss from Business, to claim deductions for fake expenses to counterbalance income derived from outside employment. Another method is to take false and overstated deductions on Schedule A, Itemized Deductions, for charitable contributions and medical expenses. An abusive return preparer may also claim fake Schedule E, Supplemental Income and Loss, losses. Finally, he or she may include impermissible credits or excessive exemptions to lower taxable income or taxes owed.
How do you avoid an abusive return preparer?
To avoid an abusive return preparer, the IRS lists several helpful tips on its website:
Regardless of whether or not you hire a return preparer, remember that you are responsible for the information on your tax return, including all related schedules, forms, and supporting documentation. If there is something on your return that does not make sense or that you do not understand, always ask your return preparer to explain it and correct it, if necessary. You do not want to be liable for additional taxes, interest, and possible penalties when the IRS discovers your false return.
Hold off on filing your income tax return until all Forms 1099 are received. Otherwise, you might be amending your return.
Various types of Forms 1099 are used to report different types of activities. Three of the more popular types of 1099’s are:
Some people are familiar with the 1099-Div. Most commonly, this form is used to report dividend income. The general rule is that it must be sent out to anyone who has received $10 or more in dividend income, including capital gain dividends and exempt-interest dividends.
Most people are familiar with the 1099-Int. The most common use of this form is to report interest income. The general rule is that it must be sent out to anyone who has received $10 or more in interest income.
Most taxpayers have either an interest-bearing checking account or some type of interest-bearing savings account. These are the most common types of accounts that trigger the preparation of a 1099-Int.
The most common use of this 1099 is to report payments of $600 or more for rents or services in the course of a trade or business. Some examples of uses of this form are:
The most common use of this form is to report compensation to a non-employee for services. If the non-employee is performing these services as a corporate entity, issuing a 1099 is not required – unless the payment is for legal services. Legal services to corporate and noncorporate persons or entities must be reported if they exceed the $600 threshold.
All of these Forms 1099 must be sent to the recipient by Jan. 31 of the year following the calendar year in which the income was received.
A good idea is to wait until after Jan. 31 to prepare your income tax return so that you can be sure you are including all of the income that needs to be reported on your return. A lot of people prepare their returns early, only to realize that they had some sources of income reported on a 1099 that they did not include.
Disability income is taxable for a military veteran – despite not being taxable in earlier years.
The U.S. Tax Court ruled that disability retirement pay received by Kevin M. Campbell was taxable income despite the fact that, in previous years, the Internal Revenue Service had treated it as nontaxable (Kevin M. Campbell and Pamela J. Campbell v. Commissioner, U.S. Tax Court, T.C. Summary Opinion 2014-109, Dec. 22, 2014).
Campbell enlisted in the Coast Guard on July 12, 1987. He was forced into disability retirement in 1990 because he was diagnosed with insulin-dependent diabetes and determined to be unfit for duty.
At first, Campbell received temporary disability status. A letter from the Coast Guard dated Sept. 20, 1990, informed him that he would receive monthly retirement pay equal to his base pay multiplied by his disability rating. His disability rating was 40 percent.
The Coast Guard also informed Campbell that it would withhold federal income taxes on the gross amount of the retirement/disability pay. At the end of each year, the Coast Guard sent him a Form 1099-R for the gross amount of retirement/disability pay he had received.
Campbell’s accountant reviewed the 1099-R when preparing his client’s income tax return. The accountant never included any of the 1099-R amounts on the tax return because he and his client felt that these amounts were nontaxable income.
Through the years, the IRS sent Campbell letters threatening to increase his taxable income by the amount of the Coast Guard retirement pay. Campbell forwarded these letters to his accountant.
The accountant contacted the IRS to explain that this income was nontaxable. A short time later, Campbell would receive a “no change” letter from the IRS, accepting his tax return as filed.
On April 6, 1995, Campbell received a letter from the Coast Guard informing him that his diabetes qualified as a permanent physical disability. His disability rating was determined to be 60 percent, an increase from the 40 percent rating he had received back in September 1990 when he had temporary disability status.
The Coast Guard again informed Campbell that this retirement pay was taxable and that it would withhold federal income tax on the pay.
Fast forward to 2012 when Campbell timely filed his 2011 income tax return. Coast Guard retirement pay of $9,210 was omitted from the taxable portion of the return as it had been in prior years. The IRS sent a letter of deficiency for the 2011 tax year.
The IRS has a general rule for military retirement pay. The rule states that amounts received as a pension, an annuity or a similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country are not included in gross income.
But the IRS has a limitation to this general rule. The limitation provides that the amount of military retirement pay considered nontaxable shall not be less than the maximum amount the individual would receive from the U.S. Department of Veterans Affairs as disability income.
Because the court had no evidence in the record that Campbell had applied to the VA for disability income, it considered the amount Campbell would receive from the VA as zero. Therefore, the court determined that all of the retirement pay from the Coast Guard for tax year 2011 was taxable and properly included in Campbell’s income.
If Campbell had documentation that he had applied for VA disability benefits and could show the court the amount of disability benefits the VA had determined that he was entitled to, this result might have been different. Unfortunately, Campbell had no such documentation.
A taxpayer was disallowed dependency exemptions for his son, daughter and grandchild in a January 2015 U.S. Tax Court case. The court also denied him head-of-household filing status.
This decision (Gregory McBride v. Commissioner, U.S. Tax Court, T.C. Memo. 2015-6, Jan. 8, 2015) cost the taxpayer $3,540 in additional federal income taxes and penalties of $708.
During 2010, Gregory McBride and his son, daughter and granddaughter all lived together in McBride’s home.
On Feb. 28, 2011, McBride’s son filed his Form 1040 income tax return, claiming himself as a personal exemption. Also on that date, McBride’s daughter filed her Form 1040. She claimed $11,892 in gross income.
McBride’s daughter claimed a personal exemption for herself and a dependency exemption for her daughter. She received a refund of $5,290, due mostly to a refundable credit of $4,450.
McBride had requested a filing extension for his 2010 return. He timely filed his return on May 23, 2011, claiming head-of-household filing status and dependency exemptions for his son, daughter and granddaughter.
A taxpayer can claim a dependency exemption for someone who is a qualifying child or a qualifying relative.
The IRS requires a taxpayer to meet a five-part test to claim an exemption for a qualifying child. The taxpayer must meet the requirements of all five parts to claim this exemption. One of the parts is an age test.
The dependent child must be under the age of 19 or a student and under the age of 24 as of the end of the tax year, which in this case was Dec. 31, 2010. The facts in this case stipulated that both the son and the daughter were over the age of 24, so the age test was not met and McBride would not be able to claim his children as dependents.
There is an exception – which did not apply in this case – for an individual who is permanently and totally disabled.
McBride could claim neither his daughter nor his son as qualifying relatives because he did not present any evidence that he provided more than 50 percent of their support during the year. A taxpayer must meet the support test to claim someone as a dependent relative. In the case of his daughter, McBride did not meet the support test.
McBride could not claim his granddaughter as a dependent because the mother had already claimed her. The Internal Revenue Code has a special “tie-breaker rule” when multiple taxpayers are claiming the same child as a qualifying child. In these cases, the child is treated as the qualifying child of the taxpayer who is the parent – in this case, the mother.
The court denied McBride’s claim for head-of-household status. To claim this status, a taxpayer must be unmarried at the end of the tax year and provide a home for a dependent for at least half of the year.
Because the son, daughter and granddaughter were not considered to be dependents by the court, McBride did not meet the criteria for head-of-household filing status. Therefore, the court disallowed all three dependency exemptions and the head-of-household filing status.
Be careful when filling out your W-4 form.
The Internal Revenue Service requires that employees fill out a Form W-4 on or before the first day of employment. The W-4 form determines how much federal income tax an employer will withhold from an employee’s wages. The information on the W-4 is used when calculating the employee’s first payroll check from the employer.
But use caution. There is a $500 civil penalty for employees claiming excess withholding allowances on Form W-4. Criminal penalties can apply when an individual willfully supplies false withholding information or fails to supply withholding information.
Employees are entitled to claim dependency exemptions for themselves and for each of their dependents, including their spouse. Employees who can be claimed as a dependent on someone else’s tax return may not claim a withholding exemption for themselves.
Employees with more than one job may not claim an exemption that is currently in effect with another employer. So, for example, if you are a single person with no dependents and you have two jobs, you would be allowed to claim one exemption on your W-4 form for one of the jobs. Then you would have to claim zero dependents on the W-4 form for the second job.
These rules do not apply if the wages from the second job are $1,500 or less.
If an employee does not fill out a W-4 form, the withholding must be computed as if the employee were single and claiming no other exemptions.
Employees who certify to their employer that they had no income tax liability for the preceding tax year, and don’t anticipate any tax liability for the current year, may claim to be exempt. No federal income tax will be withheld from their wages. They should fill out and file a W-4 form with the employer each year that they are in this situation.
©2015 CPAmerica International
When it comes to income taxes, it pays to be organized.
Begin gathering your tax information as early as it is available. You should receive most of your 2014 tax documents by early to mid-February 2015.
Probably the most important document you need to locate is a copy of last year’s tax return. The tax situation of most individuals does not change dramatically from year to year. The information shown on last year’s return is a good guide to what you need to look for this year.
On the other hand, if you experienced a life event during 2014, your tax situation could be in for a big adjustment. Life events include marriage, divorce, birth of a child, retirement, a business startup or a change in employment.
Everyone’s situation is different, but most people receive some common tax documents in the mail:
You may receive other income tax-related forms as well:
All of these forms will be needed to determine whether you qualify to itemize your deductions.
If you are self-employed, you will also need to gather receipts for all deductible business expenses. Check out IRS Publication 535 for more information about business expenses.
While you’re digging up all these records, look ahead to next year at this time. Sort everything and create files to hold:
Then keep items sorted as they come in during 2015. Using this method, next year’s income tax return should be easier.
©2015 CPAmerica International
The U.S. Tax Court recently determined that a cash method taxpayer is entitled to claim an American Opportunity Credit only in the tax year when the payment was actually made – not for the academic year when the tuition payment was paid.
John and Brenda Ferm paid their daughter’s tuition at the local community college for the 2011 winter semester, which ran January through April 2011. They made the tuition payments in three installments with the majority of the tuition paid on Dec. 28, 2010.
The taxpayers timely filed their 2011 income tax return, but they did not claim the American Opportunity Credit, a tuition credit available to parents of dependent children who are undergraduate students.
On April 1, 2013, the taxpayers filed an amended return. On the amended return, the taxpayers claimed an American Opportunity Credit of $2,107.
On June 13, 2013, the IRS sent the taxpayers a notice of deficiency disallowing the American Opportunity Credit for lack of payment verification.
The taxpayers filed a petition in court contesting the IRS in its disallowance of the credit.The taxpayers provided the court with the appropriate evidence that the tuition had been paid. The court disallowed all but $157 of the credit because $2,151 of the qualified educational expenses was paid in 2010, not in 2011.
The portion of the tuition paid in 2010 cannot be used to claim a credit in 2011. Only $157 of qualified tuition and related expense was actually paid in 2011.
The American Opportunity Credit is allowed only when payment is made in the same year that the academic period begins.
When a taxpayer prepays qualified tuition and related expense during one taxable year for an academic period that begins during the first three months of the following taxable year, the academic period is treated as beginning during the taxable year in which payment was made.
In this case (John Mark Ferm and Brenda Kay Ferm vs. Commissioner, T.C. Summary Opinion 2014-115, Dec. 30, 2014), the academic year and the majority of the tuition payments were considered 2010 transactions, not 2011, explaining the court’s disallowance of most of the credit.
The Tax Court’s opinion in this case may not be used as precedent for any other case.
©2015 CPAmerica International
Certain expiring tax provisions were extended on Dec. 19, 2014, when President Obama signed into law the Tax Increase Prevention Act of 2014.
Some interesting examples of tax law extended on the individual income tax side are:
These provisions of the Internal Revenue Code were set to expire in 2014. With passage of this new law, you are still able to take advantage of these provisions in 2014.
These are just a few examples of the various individual tax law provisions that were extended. A number of business income tax provisions were extended as well.
The law (P.L. 113-295) also included technical corrections to the Internal Revenue Code of 1986.
©2015 CPAmerica International
Now is the time to begin logging your business travel miles if you want to take a tax deduction for 2015.
The IRS requires strong substantiation – even if it is obvious that you use your vehicle for business purposes.
If you are audited, estimates are not acceptable. Each business trip should be documented with location, destination, purpose of trip, date and number of miles driven. Business driving must be separated from personal driving.
If you haven’t been taking a deduction for your business driving, 2015 is a good time to start because recently released standard mileage rates are attractive considering the decrease in gas prices.
Effective Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup truck or panel truck will be:
✦ 57.5 cents per mile, an increase from 56 cents per mile in 2014
✦ 23 cents per mile for medical or moving purposes, down from 23.5 cents per mile in 2014
✦ 14 cents per mile driven in service of charitable organizations (the same rate as last year – the longtime rate fixed by Congress)
Taxpayers also have the option of deducting vehicle expenses based on actual costs of using a vehicle rather than standard mileage rates.
For those filling out their 2014 tax returns, remember to use mileage rates that applied for 2014. Your mileage expenses must be documented in detail or they won’t be allowed.
If you don’t have strong enough substantiation and are audited, the IRS will in all likelihood deny your entire deduction. And to make matters worse, you’ll probably also be charged penalties and interest for overdue taxes.
If substantiation of auto expense records is lost or stolen, the IRS will generally also deny the deduction.
The standard mileage rate is based on an annual study of the costs of operating a vehicle, including gas, oil, maintenance, tires, repairs, insurance and depreciation.
©2015 CPAmerica International