Social Security for 2016- No Increase

Social security recipients will not receive a cost of living adjustment benefit increase in 2016 because of low inflation this year. This is only the third time in 40 years that payments won't change.  Also payments for Medicare Part B coverage will increase by about $54 a month for all those with higher incomes and those that don't have the coverage deducted from their social security payments. About 30% of Medicare beneficiaries will pay the premium increase.

Late Filing Penalty

The IRS penalty for failure to file a return is pretty stiff. It is 5% of the amount of tax due per month or part of a month up to a maximum of 25%. If you don't owe any tax, then there is no penalty. If the return is more than 60 days late, then there is even a minimum penalty of $135 or tax due. The extended due date of the 2014 individual return is this Thursday October 15, and after that this penalty comes into play if you haven't filed a return for 2014.

Deducting Vehicle Expense

The IRS allows you to to take the greater of actual costs or the standard mileage rate which is 57.5 cents for 2015 for cars driven for business. Commuting is not considered business use per the IRS. I recommend that most business owners use the standard mileage rate since it is so much easier to keep up with if they are using their cars less than 50% for business or think that they may in the future. Once you pick the actual cost method for a car, you can't switch later to the standard mileage rate. The information needed to deduct vehicle expense each year under the standard mileage rate is total miles driven, total business miles, and date vehicle is placed in service. You need to keep some sort of contemporaneous record to track your business miles each year. I use a quickbooks function to keep up with mine. One of my clients just lost their entire deduction for business use of a vehicle because they didn't have any supporting records in a recent IRS audit.

Health Club Dues

Generally health club dues are not deductible. However if a doctor recommended an exercise program as treatment for a specific condition, then you could deduct it. Doctor recommended exercise programs just to improve your health won't work.

Section 179 Deduction

A taxpayer can expense certain property placed in service like equipment, furniture, and autos if they are used more than 50% in a trade or business. The property also has to be purchased from an unrelated party. Most rental property, buildings and their structural components, and  investment property do not qualify. The maximum deduction for 2015 is now $25,000. Congress may increase the maximum back to $500,000 before the end of the year like it did for 2014, but you can't count on it.

Self Rental

If you have a business and also charge rent to the business since you own the business office, then how does the IRS treat the rental income from the office property? You can deduct the rental expense on your business tax return but the rental income from the office, which is usually reported on schedule E, is considered non passive if you have a profit and passive if you have a loss. This is to prevent the taxpayer from creating passive income to offset other passive losses. In my opinion, the best way to handle this situation is to structure the rental rate to break even on schedule E.

Phone Calls from the IRS

Some of my clients have received phone calls from someone saying they are from the IRS asking for information or money. Hang up. This is a scam. They are trying to scare you into giving them what they want by mentioning dire consequences like jail if you don't cooperate. The IRS will not ever initiate a phone call directly with taxpayers to ask for information. They send letters instead which you should send to me to handle for you.