If you commute back and forth to work every day, you typically can’t deduct any of your travel costs, such as gas for your car or commuter fares. The IRS says these commuting expenses are nondeductible personal expenses. However, there are some special situations when your commuting costs may be deductible:
1. Business stops. It may be convenient to stop at a business client’s office on the way to work or going home. In this case, you can deduct the cost of the commute between the client’s location and your regular place of business.
2. Multiple business locations. Maybe you work for a company with separate branch offices or other business sites. If you drive between two or more business locations during the course of the day, the cost of the travel is deductible.
3. Long-distance travel. Normally, you may commute to a nearby workplace. But you might have to go to a distant business location for a few days, weeks or even months on occasion. As a result, you don’t go to your regular job site. The IRS allows you to deduct daily travel costs of this long-distance commute.
4. Temporary assignments. Finally, you might be required to work at a far-flung business location for a long stretch. To accommodate this work, you might stay near the job site in a hotel and return home on weekends. If the assignment lasts less than one year, you may deduct your meals and lodging expenses (subject to certain limits). Best of all, you can usually deduct the cost of your weekend trips home.
If you pay the commuting costs yourself, they are deducted as miscellaneous expenses on your personal return. The deduction for all miscellaneous expenses, including unreimbursed employee business expenses, is limited to the excess above 2 percent of your adjusted gross income (AGI). There are also potential commuter benefits available through your employer.
Give Carl Heinemann, your Chattanooga CPA, a call if you have questions about deducting your commuting expenses.
If you are divorced and have young children, there’s a good chance that you are paying or receiving alimony or child support (or both) under a divorce decree. What’s the difference? The distinction is important to the IRS.
Currently, alimony is deductible by the party who pays it and taxable to the party who receives it. Child support is neither deductible nor taxable.
Depending on what side of the fence you’re on, you should negotiate for payments to be characterized as either “alimony” or “child support” as part of a divorce agreement.
How to qualify for alimony deductions
Just saying that payments are alimony won’t suffice. According to the IRS, these are the requirements that must be met if you’re hoping to qualify for alimony deductions:
- You don’t file a joint return with your ex-spouse
- Payments are made in cash or an equivalent
- Payments follow the instructions of a divorce or separation agreement
- The agreement doesn’t designate the payment as not being alimony
- You and your spouse aren’t members of the same household when the payment is made
- There’s no liability for making the payment after your spouse dies
The following alimony payments aren’t considered deductible:
- Non-cash property settlements in a lump-sum or installments
- Payments that are a spouse’s part of community property income
- Payments to keep up the property owned by the person paying alimony
- Use of the property owned by the person paying alimony
- Voluntary payments
The terms can often be worked out to the satisfaction of both parties. For instance, the deduction for alimony can be valuable to someone who pays alimony and earns more while the taxable income may not cause any dire consequences to someone who earns less.
According to the new tax bill, alimony will not be deductible or taxable starting in 2019. This may also affect divorce and separation agreements executed in 2018 and modified in 2019 and beyond.
Keep these rules in mind when your 2017 tax return is filed. We can help you determine tax issues related to your alimony payments. Give Carl Heinemann, your Chattanooga CPA, a call.
Once you’ve retired, you may think you have it made, especially if you’ve managed to save enough money through IRAs and employer-sponsored plans like 401(k)s. But you still have to meet the tax obligations for required minimum distributions (RMDs).
Essentially, you must take a certain amount of money every year from IRAs and qualified plans after reaching age 70½, whether you want to or not. Otherwise, the IRS can assess a penalty equal to 50 percent of the amount that should have been withdrawn, on top of the regular tax that is due. Keeping that in mind, here are three little-known rules relating to RMDs:
1. Starting date: Technically, RMDs don’t have to begin until April 1 of the year following the year in which you turn 70½. For example, if you turned 70½ this year on July 15, you don’t have to take an RMD for the 2017 tax year until April 1, 2018. However, RMDs are due by Dec. 31 of each subsequent year (after you turn 70½), so you would have to make a “double payment” in 2018 if you don’t take an RMD in 2017.
2. Amount of RMDs: The amount of the RMD is based on your account balance in the prior tax year and special life expectancy tables provided by the IRS. In other words, RMDs for 2017 are generally based on account values as of Dec. 31, 2016, and your life expectancy. The financial institution handling your account will usually do the calculation for you if you ask.
3. “Still working” exception: If you’re still working for the employer providing a 401(k) where you’re required to take an RMD, you can skip this obligation if you don’t own 5 percent or more of the company. But you still must take RMDs from any other employer plan where you have assets, and from all of your IRAs.
These are just three factors that may affect RMDs this year. The stakes are high, so make sure you comply with all the rules. Call Carl Heinemann, your Chattanooga CPA, if you have questions about tax obligations related to your RMDs.
Ideally, you should try not to tap your 401(k) or IRA accounts before it’s time to retire. But life happens. In certain situations, you may need to withdraw a portion of your nest egg while you’re still working full time. Here are three scenarios where this may be the case — and possible alternatives to avoid tapping your retirement accounts too soon:
You’re drowning in high-interest debt. Your retirement plan may allow for a 401(k) loan that can be used to pay off expensive credit card accounts. Although the loan is paid back to your own account (paying yourself the interest), this solution has some disadvantages. For one thing, money that’s withdrawn from your 401(k) account isn’t available for long-term growth. Also, should you lose your job, the loan may become due immediately.
If you can’t settle the debt right away, you may be subject to a 10 percent early withdrawal penalty and regular income taxes on the outstanding loan balance. Consider paying off debts using other funding sources as it may be a more prudent solution.
You’re facing foreclosure on your home. The hit to your credit score can be devastating if you default on a mortgage. But, again, using your retirement nest egg should be considered a last resort. You may be better off working with your lender to revamp your mortgage. Consider extending the term or renegotiating the interest rate to reduce monthly payments.
You’re heading back to college. If you need to retool for a new career, the IRS allows you to make penalty-free withdrawals from your IRA accounts before age 59½ if the money is applied toward higher education expenses. But be aware that the same rules do not apply to 401(k) accounts. If you haven’t reached age 59½ and use funds from a 401(k) to cover college expenses, early withdrawal penalties and income taxes may apply.
The best way to avoid penalties is to understand the rules around retirement account withdrawals. Give us a call to learn more about tax penalties you may face if you withdraw funds early from retirement accounts. Carl Heinemann, your Chattanooga CPA, can help you create the best plan for your situation.
You’ve launched a business website, but customers aren’t flocking to purchase your online offerings. Why not? For some companies, tweaking an already inviting webpage may be sufficient. Other business websites may require a complete overhaul. If traffic to your homepage isn’t trending upward, consider the following tried-and-true guidelines:
- Keep it simple. Flashing fonts, animated gifs, lengthy product videos — website designers may love them, but customers don’t. Bells and whistles tend to distract. And your webpage shouldn’t drone on with large blocks of text. Use short paragraphs, easily scanned bullet points and a few strategically placed and relevant images. Assume that your visitors are always in a hurry. Don’t give them a reason to leave.
- Make the site accurate, fresh and easy to navigate. Before launching your website, fix all grammar and spelling errors. Confirm that each statement is correct. Update content frequently. Use a handful of clearly labeled tabs in your top-level menu. If the site contains several pages, make sure visitors can always get back to the homepage. Don’t make them search for what they need or want.
- Don’t forget mobile device users. According to a survey by marketing data company SessionM, more than 90 percent of shoppers use smartphones to compare prices and check product reviews. This is a great reason to make sure your mobile website experience is a good one. That means making sure your website is responsive (AKA works well on all devices) and relevant for users on the go.
- Focus on the customer. It’s great that your company has won the latest-and-greatest awards. Do online visitors care? Tie your awards to product quality. Link sales data to testimonials of satisfied customers. To encourage trust, include a professional photo of your team. Help visitors connect with your company by making contact information easy to find.
- Minimize loading times. If you’re searching for a product or service, how long are you willing to wait for a webpage to load? Three seconds? Five? Your customers are busy, too. Accelerate loading times by updating software regularly, optimizing graphics and employing hosting services that cater to your bandwidth needs.