TaxMamas TaxQuips

Today TaxMama® hears from Raj in the TaxQuips Forum, with a common issue. Let me summarize. (You can read the discussion here ) His tax return is being audited and the IRS auditor wants copies of receipts for his hotel stays for all his travel. But he used the IRS per diem rates, so he didn’t keep receipts. Can she disallow all his travel if he can’t produce the receipts?

                                                                    

Dear Raj,

The IRS allows you to use certain standardized systems to deduct business expenses – like mileage, travel, meals and, this year, even office in home. This is designed to simplify computations, and perhaps, to reduce incidences of audits.

However, in all cases, you still need records, receipts, etc. -  proofs that you did engage in those activities, did spend money on those things, etc. So, when you’re using per diem lodging expenses, you still have to have receipts or some other tangible proof that you actually stayed in those towns for those specific nights.

Self-employed people can’t use per diem rates for lodging. They must use actual expenses – and keep receipts.

However, everyone may use per diem rates for meals and incidentals. Again, it helps if you have records to prove you were in a specific town, on a specific date, for business purposes.

If you are an employee, entitled to use lodging per diems, often, when you stay in an area long-term, you stay with your parents, a friend, or relatives, rather than a hotel. Be sure to pay rent, or your share of upkeep on the home. Get detailed receipts for your rent or the payments. The receipts should show the date, the amount paid, and to whom the amount was paid – and for what. When you are paying rent to such folks, be sure they understand that they are reporting the rental income.

When you keep good records and have receipts, you can find yourself paying someone $500 a month for a room. However, you could be entitled to deduct $2,310/mo ($77×30 – average rates in the continental US) – or even as much as $8,850/mo ($295×30 in Manhattan), if you look up your city’s specific rate.

And remember, you can find answers to all kinds of questions about substantiating travel expenses and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

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Today TaxMama® hears from Pierre in the TaxQuips Forum, with this issue. “In 2012, an S-Corp had an employee who stole cash from them through the inventory and sales. They own a NAPA Auto Parts store. They have camera tapes on him and have reported the theft to NAPA. They did not report the theft to the police or to their insurance company because he was a family acquaintance and did not want to cause harm to the family. The total loss was approx $25,000.00 Can they write any of this loss off even though it wasn’t reported to police or insurance, just to NAPA, their franchise corporate? I looked it up and don’t see anything about police reports or insurance reimbursement, only that they ask how much was the insurance reimbursement. Please let me know you take on it should we write it off.”

Dear Pierre,

Nope.

If they want a theft loss, they MUST file a police report AND the perp must be convicted. Otherwise, there is no proof of a theft loss. (Since not everyone is caught, it’s important to, at least, have a copy of a police report and file number.)

Mike Reed, EA adds that Tax Topic 515 covers casualty losses:  The loss, regardless of whether it is a casualty or theft loss, must be reduced by any salvage value and by any insurance or other reimbursement you receive or expect to receive.

So, if they didn’t report it to the insurance company, how would you expect to compute the loss?

Frankly, the guy isn’t much of a family friend if he engaged in Grand Theft or Grand Larceny. And if they don’t report the jerk, he’ll do it to someone else – another ‘family friend’, who will also be too gutless to report him. And so on.

Sorry, the IRS isn’t in business to make it to up to them if they don’t have the balls to
own up to their responsibilities. Remember, if the insurance company would have covered all or some of the loss if it had been reported, the deduction would only have been the difference.

Good luck explaining this to your clients…of course, if the family really wants to protect them, the whole family should bring pressure to bear on the thief to set a payment plan to repay the whole thing.

[Additional TaxMama note: Think about this in terms of employee business expenses. If the employee could have submitted the expenses to the employer for reimbursement, but didn’t – the IRS doesn’t allow a deduction. Anytime a reimbursement is available, but not used, you can’t deduct that part of any loss or expense.]

And remember, you can find answers to all kinds of questions about theft losses and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the new TaxQuips Forum .

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Today TaxMama® hears from Marisa in the TaxQuips Forum, with this problem.  Let me summarize. (You can read the details.) “After her father’s death, Marisa received a settlement from a drug company class action suit. It was not taxable in her state. But now she has a notice from the IRS demanding taxes, based on a 1099MISC issued under her name and SSN. What should she do?”

 

Dear Marisa,

So sorry you’re going through this stress. But…take a deep breath.  There’s nothing to worry about.

First of all, the letter you got is making a ‘proposed’ assessment. It’s not written in stone yet.

Second, this income is not taxable for federal purposes. But the IRS doesn’t know it until you tell them.

Clearly, it’s for damages to his health (drug co related). Settlements on physical damages are not taxable.

If you have anything at hand to explain what the settlement is, just send a reply to the IRS with a copy of the document (the paperwork you gave the court should suffice). They will remove the assessment.

If you no longer have anything on hand, send them a reply with an explanation anyway. Tell the IRS you will be sending them proof soon. Get copies of paperwork you need. And send it along with the IRS document number on the IRS letter you received.

The key is – REPLY ASAP.

And remember, you can find answers to all kinds of questions about IRS assessments and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Please post all Comments and Replies in the new TaxQuips Forum .

 

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TaxQuips

The #1 Free Tax Podcast Online

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Today TaxMama® hears from RJ in the TaxQuips Forum, with this question.  “I just came across TaxMama’s 2012-09-04 TaxQuip to “Ivan” entitled “Late Gift Tax Return”
(at TaxMamas TaxQuips : TaxMama’s Free Daily Tax Podcasts or Late Gift Tax Return | taxmama | taxquips), which says (in part):
...
2) Did you know that if a gift tax should have been filed and wasn’t, the donee (the recipient) may be liable for the gift tax?
...

That’s something I wasn’t aware of. Could you please give some more information on this?”

Dear RJ,

Unless you have a specific question relating to you or a client, I shan’t be looking for general information.

However, you are certainly welcome to do the same search I would.

Google the following and read the resulting links:  ”irs.gov recipient liable for gift tax”

Or search the Tax Court Opinions for “recipient”, “gift tax”

You might have fun doing this.

And remember, you can find answers to all kinds of specific questions about gifts and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Download the MP3 (0:00min, 2MB) or listen now...

TaxQuips

The #1 Free Tax Podcast Online

Ask TaxMama

Where Taxes Are Fun

TaxQuips Forum

Where you can you ask your tax questions

TaxQuips Forum

Where you can you can add your comments

Today TaxMama® hears from YbSick in the TaxQuips Forum, with a common question.  “In a short sale where they abandoned the property and they receive a cancellation of debt, is it non-taxable since it was on their personal residence? Is there a time limit on how long after they move out of the property it can still be excluded? Assume for the time being that they did not borrow more money above the original mortgage.”

 

Dear YbSick,
Mike Reed, our EA in California has good news.

The Mortgage Debt Relief Act of 2007 was extended through Dec 31, 2013.

The provision allows exclusion of acquisition (or improvement) debt from income. There is no set time limit between the date the T/P leaves or abandons the property and when the 1099-C is issued. Use Form 982 to avoid taxation on the cancelled debt.

Remember that even though the cancellation of debt income may be excluded, there could be a gain on the sale – which is usually excluded by §121, as sale of a personal residence. But be sure to report the transaction on the new Form 8949, so that IRS has a record of this.

And remember, you can find answers to all kinds of questions about short sales and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]

Download the MP3 (0:00min, 2MB) or listen now...

TaxQuips

The #1 Free Tax Podcast Online

Ask TaxMama

Where Taxes Are Fun

TaxQuips Forum

Where you can you ask your tax questions

TaxQuips Forum

Where you can you can add your comments