Monday, February 27, 2017

Does Your Employer Offer Financial and Retirement Counseling?

Some employers may offer financial counseling services as a benefit to their employees. It is a nice benefit, but keep in mind that the employee receiving the benefit must report value of this benefit as income on their tax return. However, the employee may be entitled to an offsetting deduction that would allowing them avoid tax on some of the benefit.

Benefit is Treated as Income

These employer provided services can often quite extensive, including consideration of your savings and investments, life insurance coverage, real estate, retirement benefits and personal tax and estate planning advice. These services are typically provided by a professional consulting firm that is paid by the employer as a fringe benefit. The value of these services will be reported by your employer as wages on your W-2. The employer is also required to withhold income tax and FICA from the amount it reports as wages. Keep in mind that if your employer provides only minor and infrequent financial services, such as information about your employee benefits and how they affect your tax situation, you wouldn't be taxed on their value.

Taxation of the Benefit

Reporting the benefit as income doesn't necessarily mean that you will be fully taxed on it. You may be entitled to some deductions that can reduce the amount subject to tax.

Individual taxpayers are permitted to deduct investment expenses, such as expenses related to the collection or production of income. They also may deduct expenses related to the determination, collection, or refund of tax. Financial counseling fees included in your income are also deductible as if you had paid them yourself.

These expenses are claimed as miscellaneous itemized deductions, which are allowed only to the extent they exceed 2% of your adjusted gross income. You would add the deductible counseling expenses together with your other deductible investment and employment related expenses and any other miscellaneous deductions you might have, and subtract out 2% of your adjusted gross income. Only the balance, if any, would reduce your income subject to tax.

Retirement Planning Services

Under a special rule, employer provided retirement planning services aren't taxable if the employer maintains a retirement plan. The advice that can be provided tax-free isn't limited to information about the plan, but includes information about your income needs in retirement and how those income goals can be achieved.


Financial and retirement counselling are great benefits employers may offer to employees. It shows that the employer is concerned for the financial well-being of their employees. From the employee perspective, these are services that they may not otherwise choose to obtain. While the benefits are taxable, the employee should consider as if they are obtaining a valuable benefit for a fraction of the cost they would pay themselves. For example, if the employee has an effective tax rate of 20%, services priced at $2,000 will cost the employee only $400 (in the form of taxes on the benefit). In most cases we’d all like to buy something for an 80% discount. If your employer offers financial and retirement planning as a benefit, you should consider taking advantage of it. The relatively low cost to you in the form of taxes could yield you big benefits in the long run.

Monday, February 20, 2017

Notifying the IRS of an Address Change

Almost all of us will make a move during our lifetime. Whether you are making a move across town or across the country, you need to add the IRS to the list of organizations to notify of an address change.

Notifying the IRS of your address change is important because you’ll want to deposit any refunds the IRS may send you as soon as possible and secondly, failing to respond to a tax notice can be costly.

The IRS doesn't have to prove delivery to meet its responsibilities in many cases. The IRS is only required to send correspondence to your "last known address." The "I never got it" defense is lost if IRS properly sent the notice to your old address.

The IRS won't owe you any interest for the delay, if a refund is delayed due to a change in your address not reported to the IRS.

Similarly, notices of tax deficiency require a 90 day response otherwise you will lose the right to contest the matter in the Tax Court. While you can still wage the battle in federal district court, you will have to pay the tax first, and there may be other tactical disadvantages of doing so. You will also be assessed penalties and interest costs even though you didn't know you had an outstanding tax liability.

There are other notices IRS must send to you before taking certain actions affecting you so it’s in your best interest to keep IRS informed about your current address.

How to Notify the IRS of your Address Change

Filing a tax return showing your new address will make the change of address, but only after the return is processed. This could take many weeks after you file. The U.S. Postal Service will also notify the IRS of any permanent forwarding address, but this also takes time to process. To be safe, you should notify IRS of the change directly.

For your convenience, click on this link for
Form 8822 which you can use to notify IRS of the change. Be sure to sign the form, make a copy for your records, and send the original to the IRS at the address listed in the instructions. If your children file income tax returns, you must file a separate Form 8822 for each.
Also, don’t overlook changing your address with any states that you file income taxes with.

Monday, February 13, 2017

Gain or loss on sale of property received as a gift

Everyone likes to receive gifts, especially if its cash. But if you happen to be considering gifting property or stock or are the lucky recipient of such a gift, there are a few things you’ll need to know. There are tax consequences to the recipient if the property is sold at a later date. And just to clarify, inherited property is not the same a gifted property.

When gifted property is sold, recipient or donee will determine the gain or loss using the “basis” transferred from the donor. For most property you buy yourself, the basis is simply your cost. For property received as a gift, however, special basis rules apply.

General rule-carryover basis

Generally, you receive the same basis in the property that the donor had in it. This is referred to as the "carryover" basis, because the donor's basis carries over to you as donee along with the gift. Taxpayers are often unaware of this rule and mistakenly believe the basis to be the value of the gift when they receive it. Along with the carryover basis, the donor’s holding period also carries over to the done. Thus, gifts of property held for over one year by the donor carry a long-term holding period. If the gifted property was held for less than one year, it carries a short-term holding period unless the donee continues to hold it for over one year from the date it was acquired by the donor.

For Example: Kyle bought shares of stock for $1,000 and gave it to his nephew Allen when the stock was worth $9,000. Allen later sold the stock for $11,000. Allen's basis in the stock is only $1,000-the same basis Kyle had in the stock. Thus, Allen must report a $10,000 of gain on the sale.

If Allen sells the stock for $6,000, he will report a gain of $5,000, even though the stock declined in value in his hands. Allen is only be able to report a loss if he sells the stock for less than $1,000.

Loss property

When the value of property to be gifted decreases while owned by the donee, special rules apply. In this case, the donor's basis is higher than the value of the property and the donee must keep track of two figures for basis purposes. To measure gain on a later sale, the general carryover basis rule applies and the donee’s basis is the same that the donor had. But to measure loss on a later sale, the donee’s basis is limited to the value of the property at the time of the gift.

For example: Lauren bought stock for $12,000 and gave it to her nephew Ted when it was worth $8,000. Ted sold the stock for $6,000 and reports a $2,000 loss ($6,000 less the basis of $8,000).

Assuming the same facts as above, except that Ted sells the stock for $15,000. Ted's basis is $12,000, the same basis Lauren had and Ted’s gain is $3,000.

Under these rules, if a donee sells the gifted property for an amount in between donor’s original cost and the property's date of gift basis and basis, there will be no gain or loss on the sale.

Using the same information as above, except that Ted sells the stock for $10,000. Here, to measure Ted's loss, his basis would be $8,000, so there's no loss on the sale for $10,000. Similarly, to measure Ted's gain, his basis would be $12,000, so there's no gain on a sale for $10,000. Thus, Ted reports no gain or loss on the sale.

Did the donor pay gift tax?

If the value of the gifted property exceeds the annual gift tax exclusion (currently $14,000), the donor may have paid federal gift taxes on it. If so, the donee is able to increase the basis by any federal gift taxes attributable to appreciation in the gifted property. Donee’s will want to ask if the donor paid any gift tax and provide this information to their tax professional to ensure the correct basis is used.

Getting basis information

It's important to get the basis information you need from the donor. Many donors include this in the cover letter that accompanies the gift. If your donor didn't, you may find it awkward to say, "Thanks for the generous gift-what did you pay for it?" In this case, donees may ask their tax professional to contact the donor to explain the need for this information.

Don’t delay in getting the basis information when you receive a gift. It can be difficult to go back and establish basis at a later date and if you can't establish basis, IRS can impose a zero-basis treating the entire sale price as gain. Don't put yourself at risk in this fashion.

If you are considering making a gift of property or are the recipient of a gift, discuss the gift with your tax professional and obtain the documentation that you will need to support your basis in the property when it is eventually sold.

Monday, February 6, 2017

Deducting Local Transportation Costs

If you are in business, you’ll undoubtedly incur local transportation costs and you will want to make sure you can deduct these costs. If you are not deducting the actual costs incurred for a business vehicle, you’ll want to deduct local travel based on mileage.

Local transportation refers to travel in which you aren't away from your tax home (the city or general area in which your main place of business is located) long enough to require sleep or rest. Different rules apply if you are away from your tax home for significantly more than an ordinary work day and need sleep or rest in order to do your work.
Commuting Costs

When it comes to local transportation rules, your commuting costs are not deductible. So any fares or transportation costs between your home and business are nondeductible. But maybe you work during your commute, e.g., via a cell phone, or by performing business-related tasks while on the train or bus. Unfortunately for you, this does not change the deductibility of the commuting costs.

However, there is an exception for commuting to a temporary work location that is outside of the metropolitan area in which you live and normally work. A temporary work location is one where your work is realistically expected to last (and does in fact last) for no more than a year.

Local Travel

Now that you have endured the commuting costs and arrived at work, the cost of any local trips you take for business purposes is a deductible business expense. This includes the cost of travel from your office to visit a client, pick up supplies, etc. Also, if you have two business locations, the costs of travel between them is deductible.


Save the receipts for taxi or public transportation and make a notation of the expense in a logbook, and record the date, amount spent, destination, and business purpose. If you use your car, note miles driven instead of amount spent along with any tolls paid or parking fees. There are many apps that can be used to track your business mileage. We use and recommend
MileIQ which is available for Apple or Android. MileIQ makes it easy to track mileage for business as well as personal medical and charitable mileage that may be deductible on your individual tax returns. It’s not free, but as the old saying goes – You get what you pay for! Contact us and we’ll refer you to MileIQ for a 20% discount on an annual subscription.
The IRS changes the mileage deduction rate each year, so another advantage to MileIQ is that the app takes care of the change in rates for you.