Axley & Rode, LLP

This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business decreased by one-half cent, to 57.5 cents per mile. As a result, you might claim a lower deduction for vehicle-related expense for 2020 than you can for 2019. Calculating your deduction Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases depreciation write-offs on vehicles are subject to certain limits that don’t apply to other types of business assets. The cents-per-mile rate comes into play if you don’t want to keep track of actual vehicle-related expenses. With this approach, you don’t have to account for all your actual expenses, although you still must record certain information, such as the mileage for each business trip, the date and

Direct deposit remains the fastest way to receive federal tax refunds. With tax season starting soon, the IRS reminds taxpayers that opting to have their tax refund directly deposited into their checking or savings accounts is the fastest way to get their money. According to the IRS, eight out of 10 taxpayers get their refunds via direct deposit. Direct deposit also avoids the possibility that a refund check could be lost or stolen or returned to the IRS as undeliverable. Taxpayers can split their refund into up to three financial accounts, including at a bank or in an IRA. Questions about refunds? We can answer them when we prepare your tax return.

The number of people engaged in the “gig” or sharing economy has grown in recent years, according to a 2019 IRS report. And there are tax consequences for the people who perform these jobs, such as providing car rides, renting spare bedrooms, delivering food, walking dogs or providing other services. Basically, if you receive income from one of the online platforms offering goods and services, it’s generally taxable. That’s true even if the income comes from a side job and even if you don’t receive an income statement reporting the amount of money you made. IRS report details The IRS recently released a report examining two decades of tax returns and titled “Is Gig Work Replacing Traditional Employment?” It found that “alternative, non-employee work arrangements” grew by 1.9% from 2000 to 2016 and more than half of the increase from 2013 to 2016 could be attributed to gig work mediated through online labor platforms. The tax agency concluded that “traditional” work arrangements are not

Are you required to file a 2019 tax return? Not everyone is. But even if you’re not required to file, it can be a good idea to do so anyway. For example, some people need to file to get a refund they’re due. In general, the requirement to file depends on factors such as: income, filing status, and age, but dependency status and self-employment may also play a role. Other questions to ask include: did you make tax payments (through withholding or estimated payments)? If so, did you overpay? Do you qualify for: the earned income tax credit, child tax credit, credit for other dependents or higher education credits? We can help you determine if you (or a loved one) should file a return.

The IRS announced it is opening the 2019 individual income tax return filing season on January 27. Even if you typically don’t file until much closer to the April 15 deadline (or you file for an extension), consider filing as soon as you can this year. The reason: You can potentially protect yourself from tax identity theft — and you may obtain other benefits, too. Tax identity theft explained In a tax identity theft scam, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund. The legitimate taxpayer discovers the fraud when he or she files a return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the valid one, tax identity theft can cause major headaches to straighten out and significantly delay a refund. Filing early may

If you’re age 70 ½ or older, be aware that a new law has changed the rules for IRAs. Before 2020, traditional IRA contributions weren’t allowed once you attained age 70 ½. Starting in 2020, new rules allow individuals of any age to make contributions to traditional IRAs, as long as you have compensation (generally, earned income from wages or self-employment). The required minimum distribution (RMD) age has also been raised from 70 ½ to 72. Before 2020, IRA owners were generally required to begin taking RMDs from their plans by April 1 of the year following the year they reached age 70 ½. Contact us with questions.

Generally, amounts withdrawn from an individual retirement account before age 59-1/2 are subject to an additional 10% tax, unless an exception applies (such as a distribution in a case of financial hardship). With the recent passage of the Setting Every Community Up for Retirement Enhancement Act (SECURE) a new exception has been added. Starting in 2020, a plan distribution up to $5,000 may be penalty-free, if it’s used to pay costs related to a birth or adoption. The limit applies on an individual basis, so for a married couple, each spouse may qualify for a penalty-free $5,000 distribution. Contact us with questions to learn more about this and other changes brought by the SECURE Act.

A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules. The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses. Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient manag

As you’ve probably heard, a new law was recently passed with a wide range of retirement plan changes for employers and individuals. One of the provisions of the SECURE Act involves a new requirement for employers that sponsor tax-favored defined contribution retirement plans that are subject to ERISA. Specifically, the law will require that the benefit statements sent to plan participants include a lifetime income disclosure at least once during any 12-month period. The disclosure will need to illustrate the monthly payments that an employee would receive if the total account balance were used to provide lifetime income streams, including a single life annuity and a qualified joint and survivor annuity for the participant and the participant’s surviving spouse. Background information Under ERISA, a defined contribution plan administrator is required to provide benefit statements to participants. Depending on the situation, these statements must be provided quarterly, annually or upon w

Late last year, Congress passed, and the President signed into law, the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Among its most notable rule changes are those pertaining to 401(k) plans. Here are some key highlights. New tax credit Starting in 2020, the new rules create a tax credit of up to $500 per year to employers to defray startup costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit, available for three years, is in addition to an existing plan startup credit. Employers who convert an existing plan to a plan with an automatic enrollment design may also claim this tax break. Auto-enrollment safe harbor plans An annual nondiscrimination test called the actual deferral percentage (ADP) test applies to elective deferrals under a 401(k) plan. The ADP test is deemed satisfied if a 401(k) plan includes certain minimum matching or nonelective contributions under either of two safe harbor plan designs and meets certain oth

In its 2018 decision in South Dakota v. Wayfair, the U.S. Supreme Court upheld South Dakota’s “economic nexus” statute, expanding the power of states to collect sales tax from remote sellers. Today, nearly every state with a sales tax has enacted a similar law, so if your company does business across state lines, it’s a good idea to reexamine your sales tax obligations. What’s nexus? A state is constitutionally prohibited from taxing business activities unless those activities have a substantial “nexus,” or connection, with the state. Before Wayfair, simply selling to customers in a state wasn’t enough to establish nexus. The business also had to have a physical presence in the state, such as offices, retail stores, manufacturing or distribution facilities, or sales reps. In Wayfair, the Supreme Court ruled that a business could establish nexus through economic or virtual contacts with a state, even if it didn’t have a physical presence. The Court didn’t create a bright-line test for

While you were celebrating the holidays, you may not have noticed that Congress passed a law with a grab bag of provisions that provide tax relief to businesses and employers. The “Further Consolidated Appropriations Act, 2020” was signed into law on December 20, 2019. It makes many changes to the tax code, including an extension (generally through 2020) of more than 30 provisions that were set to expire or already expired. Two other laws were passed as part of the law (The Taxpayer Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community Up for Retirement Enhancement Act). Here are five highlights. Long-term part-timers can participate in 401(k)s. Under current law, employers generally can exclude part-time employees (those who work less than 1,000 hours per year) when providing a 401(k) plan to their employees. A qualified retirement plan can generally delay participation in the plan based on an employee attaining a certain age or completing a certain number of y

If you save for retirement with an IRA or other plan, you’ll be interested to know that Congress recently passed a law that makes significant modifications to these accounts. The SECURE Act, which was signed into law on December 20, 2019, made these four changes. Change #1: The maximum age for making traditional IRA contributions is repealed Before 2020, traditional IRA contributions weren’t allowed once you reached age 70½. Starting in 2020, an individual of any age can make contributions to a traditional IRA, as long he or she has compensation, which generally means earned income from wages or self-employment. Change #2: The required minimum distribution (RMD) age was raised from 70½ to 72 Before 2020, retirement plan participants and IRA owners were generally required to begin taking RMDs from their plans by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the early 1960s and, until recently, hadn’t been adjusted to account fo