Drones have been in the headlines here in Northern Nevada as we compete to be a player in their research and manufacture. Sensational headlines are appearing on how drones will revolutionize the delivery of packages. But for all the excitement, I for one am lamenting the day these become more ubiquitous.
The home is supposed to be the one place in a person’s life for solitude. Well that and getting to the outdoors. I can already envision a future where people’s drones are intruding on my private time at home while flying overhead or when I’m out hiking in the mountains and get to hear the whine of a drone overhead from somebody wanting a picture.
The only practical personal application I can see is that of taking pictures. But aren’t we taking enough pictures already now that everyone has a camera phone in their pocket? I do see some worthwhile business applications for drones. I see their usefulness in assessing damage after natural disasters, with military applications or helping farmers monitor their crops. However, I can never see a day where drones are economical in delivering the millions of packages that are delivered each day. And if they do find an economical way I don’t look forward to that day when hundreds are buzzing in the sky each day for me to dodge while delivering packages to their various destinations. Today it is hard enough just walking down the street dodging people immersed in their cell phone.
So while we develop drones and more people use them I think there are going to be more knuckleheaded people landing their drones on the White House lawn or taking pictures of some strangers lounging in their backyard or buzzing overhead while I’m checking out Yosemite. But if this is the future then at least Nevada should be at the forefront.
There are so many wonderful non-profit organizations in the Northern Nevada area, one of which is The Give Hope Foundation. I was recently asked to be a board member for this organization, and could not pass up the opportunity to be a part of an organization with such an important cause. Give Hope provides financial assistance to Northern Nevada families with children battling a chronic illness.
Financial assistance for these families could include non-covered medical expenses, but could also be any number of expenses necessary to support the family and the child. These expenses could include rent or utility payments, travel expenses for out of state treatment, food, or any other expenses the family may need help paying. One of the things that sets this foundation apart is it does not target a specific illness, thus allowing the foundation to provide financial assistance to families that need help regardless of the child’s diagnosis or illness.
This foundation has helped over 325 families and has distributed over $650,000 since its inception. The majority of the funds stay in our local community to help northern Nevada families and a small percentage is allocated to St. Jude’s Children’s Research Hospital and Children’s Hospital Oakland.
Give Hope has been helping children in our community since 2001, and received its 501(c)(3) charitable exemption status in 2005. Each year Give Hope hosts two annual fundraising events including a golf tournament and an auction gala to help raise money to support their cause. Upcoming is the golf tournament on July 10th at the LakeRidge golf course. There will also be an Aces game on Wednesday, July 29th at 7:05 p.m. where a portion of the tickets bought through the Give Hope website will directly benefit the Give Hope Foundation. There are many opportunities to support this organization through the events and all year long through donations. More information about these events and the organization can be found at their website.
A recent Tax Court case shows that keeping good auto mileage records – as well as a little persistence – pays off when it comes to dealing with the IRS.
In 2010, Ricky Ray Ressen was employed as a construction manager at Innovative Construction Solutions, Inc. (ICS).
For most of 2010, he lived away from home to carry out his job responsibilities. He would return home on weekends.
Ressen owned two different trucks that he used for commuting and for traveling between various jobsites. One of the vehicles was a 2008 Chevrolet Silverado 2500 and the other a 2007 Chevrolet Silverado. He put 11,585 business miles on the 2008 Silverado and 45,422 business miles on the 2007 Silverado.
Ressen’s employer, ICS, did not and would not reimburse him for the use of the 2007 or 2008 Silverado.
Ressen maintained both a logbook and a calendar to record his business activities and the business use of the two Silverados. He maintained, in general terms, a summary of his business activities and weekly travel in a logbook.
He recorded the beginning and ending odometer readings for the two Silverados in the logbook. He kept track of his mileage on a weekly basis on a calendar.
On Form 2106, Employee Business Expenses, Ressen claimed 100 percent of the 45,422 miles for the 2007 Silverado and 100 percent of the 11,585 miles for the 2008 Silverado as business miles. After multiplying the total miles driven times the standard mileage rate, Ressen claimed unreimbursed vehicle expenses of $28,504. He also reported additional unreimbursed employee business expense of $7,597.
Unfortunately, communication broke down between Ressen and the Internal Revenue Service, with the IRS ultimately disallowing all of the unreimbursed employee business expenses and issuing a notice of deficiency. The deficiency notice disallowed the deductions because of insufficient substantiation of the claimed miles.
Generally, the taxpayer bears the burden of proof for any claimed deduction. There is an income tax regulation that says if a taxpayer produces credible evidence about any factual issue relevant to determining the taxpayer’s tax liability for any year, the burden of proof shifts to the IRS.
The IRS has strict substantiation requirements regarding the use of trucks and automobiles. The taxpayer must substantiate by adequate records or sufficient evidence corroborating the taxpayer’s own statement:
➜ The amount of the expense
➜ The time and place of travel, entertainment or use of the property
➜ The business purpose of the expense of other items
➜ The business relationship of the taxpayer to the persons entertained or using the property
The taxpayer must also be able to establish the amount of business use and the amount of total use of the property.
Ressen provided his calendar and logbook and backed those items up in court with corroborating testimony. The burden of proof shifted from him to the IRS concerning the standard mileage deduction amount.
The court ruled in Ressen’s favor on the standard mileage deduction amount of $28,504 subject to the 2 percent miscellaneous deduction limitation.
Ressen was unable to provide any evidence regarding the other $7,597 in deductions. The burden of proof was on him to substantiate the deductions. Because he was unable to do so, the court disallowed these deductions and ruled in favor of the IRS (Ricky Ray Ressen and Rosalind Ressen v. Commissioner, U.S. Tax Court, T.C. Summary Opinion 2015-32, April 21, 2015). ■
©2015 CPAmerica International
The one-year IRS pilot program to provide relief to plan administrators who didn’t file required retirement plan returns on Form 5500-EZ expires June 2, 2015. So, anyone wanting to take advantage of the penalty relief program should act fast.
This penalty relief is available to:
➜ Certain small business (owner-spouse) plans and plans of business partnerships
➜ Certain foreign plans
Small business plans provide retirement benefits only for the owner and the owner’s spouse.
The late filing penalty for 5500-EZs is $25 per day, up to a maximum of $15,000 per return. A business being assessed the maximum penalty for four years’ worth of unfiled returns could pay as much as $60,000 in penalties if it were not for this pilot program.
Under the program, no penalty or other payment is required to be paid for late filing. The applicant must include a complete Form 5500 Series Annual Return/Report, including all required schedules and attachments, for each year that the applicant is seeking penalty relief.
All of the delinquent 5500s must be sent directly to the IRS. The businesses cannot file through the Department of Labor’s EFAST2 filing system. Filing through the EFAST2 filing system results in returns being processed as they normally would be, with applicable late-filing penalties being assessed.
Plans subject to ERISA are not eligible for this program.
A foreign plan is a retirement plan maintained outside the United States, primarily for nonresident aliens. A foreign plan is eligible for relief if the employer that maintains the plan is a domestic employer or a foreign employer with income derived from sources within the United States.
At the end of this pilot program, the IRS will consider whether it should be replaced with a permanent one. If a permanent program is established, the IRS will charge businesses a fee to take part in the program. ■
©2015 CPAmerica International
The Internal Revenue Service provides many different educational products, webinars and videos to help small businesses thrive.
Take child care services as an example. The IRS webinar “Tax-Related Guidance for Child Care Providers” provides information that would be beneficial for a provider just starting out in the business as well as anyone who is relatively new in the business.
Most small businesses employ CPAs to handle their financial needs, but having some knowledge of what is going on regarding the financial side of the business is important.
The child care webinar is broken down into four main topics:
1. Child Care Income – This section covers various types of income that must be reported. Some examples are:
➜ Income from contracts specifying charges, terms and responsibilities
➜ Late pick-up or early drop-off fees
➜ Registration fees
2. Child Care Expenses – This section focuses on what criteria must be met for an expense to be deductible. Some examples of topics covered in this section are:
➜ The business must be a for-profit activity. Remember, hobby losses are not deductible.
➜ The expense must be ordinary and necessary.
➜ An allocation must be made for business/personal expenses. Only the business portion is deductible.
➜ Personal expenses are never deductible.
3. Special Rules – A hot button for child care providers is the business use of the home. The webinar covers the special method used to compute the business use percentage of a home available only for daycare service providers.
4. Other Expenses – There are some expenses common to the daycare industry. The webinar discusses how to deal with these expenses:
➜ Food consumed by daycare recipients, including the USDA food reimbursement program
➜ Supplies such as games, books, child-proofing devices, toys and diapers
➜ Depreciation expenses
Child care is only one of several businesses that can benefit from the targeted IRS educational products. Check out the various webinars and videos at www.irsvideos.gov. ■
“Hey big spender! Bruce Willis treats waitress to a whopping 800 euro (roughly $900) tip after dining on filet mignon, lobster and gnocchi during Berlin getaway with Emma.”
That was the headline published on Mail on Line May 12, 2015. The total bill was not disclosed.
Typing “tipping guides” in Google search will result in no less than 35 pages of various websites on the topic of tips and tipping etiquette. Wikipedia defines “gratuity (also called a tip) as a sum of money customarily tendered, in addition to the basic price, to certain service sector workers for a service performed or anticipated.”
Tipping and the amount of a tip varies by location and circumstances. Traditionally, tipping is not part of the culture in China and Japan. In fact the people of these two countries see tipping as insulting.
The United States and Canada share similar tipping practices. A typical trip could result in a substantial amount of tips, starting with the bellman, possibly the concierge, a taxi driver, the maître d’ at a restaurant, the waiter, the restroom attendant and the hotel housekeeper when you leave. It all adds up.
Servers work in the United States with the expectation of receiving tips. Tips are considered income and are treated as earned wages except in the months when tip income is under $20. At least 40% of tips received by waiters are not reported, according to the Internal Revenue Service.
The IRS case on the Fior D’Italia in San Francisco computed the under-reporting of tip income by the employees of $156,545 in 1991 and $147,529 in 1992. The average tips ranged from 14.4% to 14.29%.
Under-reporting of tip income is a big tax nightmare. The employer share of FICA and Medicare taxes on under-reported tip income by the employees is owed by the employer. The employees may also be subject to audit for underreporting of income after discovery of under-reported tips at an establishment.
Tipping is customary, not mandatory. How much and if you tip is totally discretionary. It all depends on your personal view on tipping. Are you tipping because you received good service, out of guilt or just feel obligated?
On the flip side, if you receive tips, you’re supposed to report them as income for tax purposes. Tips are supposed to supplement your wages. For more information on reporting tip income go to the IRS website.
As my mind is busy with other things in life, I thought I’d buzz through some of the week’s events I have found interesting. And as much as the royal baby is cute, I won’t spend any more time on that subject.
This week saw the American celebration of Cinco de Mayo (and yes, we are primarily the only ones celebrating). I personally didn’t get out and do anything this year, but I did read the obligatory articles explaining the real history of May 5, 1862. Kelly Phillips Erb (the “taxgirl”) over at Forbes had an interesting piece explaining the Battle of Puebla was really just a small victory for Mexico in the Franco-Mexican War. Like most wars, the Franco-Mexican War was about power, money and taxes. The government in Mexico at the time decided to default on European debt. Not surprisingly Britain, Spain and France sent armed “debt collectors” over to gather their money owed. Britain and Spain cut deals with Mexico and went on their way while France decided to stick around and exert its power. War broke out and on May 5, 1862, Mexico won a small, symbolic battle at Puebla de Los Angeles. France would eventually take Mexico City and occupy it for three years, but that small victory in Puebla has given American and Mexican beer companies a perfect excuse to sell more beer.
Moving on to Wednesday of this week (May 6, 2015), the long-awaited “Deflategate” report was released by Ted Wells, the NFL appointed attorney who investigated the allegations. The conclusion? It is more probable than not that two New England Patriot employees deliberately deflated game balls and that Tom Brady more likely than not knew about it. To this whole thing I say, “meh.” I find it irritating and stupid. The evidence seems to point to the footballs being intentionally deflated, but I don’t believe anyone will ever own up to it. Any member of the Patriots staff that participated in this (player, locker room personnel or otherwise) is an idiot, but the fact that the NFL didn’t more closely control game balls has always blown my mind about this story. So, we’ll soon find out what the NFL will do and this story will be added to the annals of cheating in sports.
Lastly, and more locally, the nonstop Reno-London flights that were set to start in December have been canceled. I probably wasn’t going to hoping on that flight any time soon, but I liked the idea of international travel coming into Reno. A Thomas Cook Airline spokesperson said that processing time at customs was unacceptable. Bummer. Maybe the processing time will get better in the future and we’ll see this flight finally land in Reno.