Dealing with the IRS

What should you do if you get a notice from the IRS about your tax return? The first thing to do is call me and send me a copy of the notice. The worst thing you can do is just throw the notice in a drawer and ignore it. The IRS uses a progression of steps each one becoming more harsh to deal with taxpayers who don't respond. It may be better for  you to call the IRS as they won't talk to me unless I have a signed power of attorney from you.  If you do call, be prepared to wait about an hour before you get to a person. Call on a Tuesday or Wednesday for quicker results. They will have to verify that you are who you say you are by asking for your social security #, birth date, and address. Have your tax return in front of you when you call. This data unlocks your file and allows them access so they can discuss your issue.  I have also found that IRS agents treat me with courtesy and really do try to help.

Substantiation of Business Expenses for Vehicles

The IRS requires you to document your business use of your car in order to get a tax deduction through the use of a daily log, expense report, account book, trip sheet, or some other contemporaneous record. I use the tracking function in Quickbooks for my own business mileage. Estimating business auto expenses cannot be used for tax deductions. However if you have a vehicle that qualifies as a nonpersonal use vehicle, then you don't need to track business mileage as the IRS assumes all expenses are tax deductible. A nonpersonal vehicle can be a truck or van that has been modified so that it is unlikely to be used much for personal reasons like only a front bench for seating, shelving filling the cargo area loaded with equipment or merchandise, and with advertising on the side.

Path2College 529 Plan for Georgia

A 529 plan is a great way to save for college. Georgia wants to encourage residents to contribute to the Georgia plan by giving a $4,000 deduction per child per year for joint returns and $2,000 for all other filing statuses.

Opportunity Zone Fund Investment vs. 1031 Exchange

In my opinion the opportunity zone fund investment (OZ) is a superior method to defer taxes on capital gains for the following reasons:

1. Deferral of taxes via OZ lasts until 12/31/26.
2. 15% of gain is completely eliminated if the OZ investment is held for 7 years. The 1031 exchange has no similar provision.
3. In a 1031 exchange it has to be like kind real property. There is no like kind property requirement in an OZ as it can be real or personal or even a business.
4. There is no requirement to identify replacement property in 45 days in an OZ.
5. There is no need for a financial intermediary to handle the proceeds from a sale of property in an OZ like there is in a 1031 exchange.
6. In a 1031 exchange you have to reinvest the entire proceeds from the sale to avoid taxes. In an OZ, you only have to reinvest the gain within 180 days of the sale.
7. If you hold the OZ for 10 years, then none of the gain of the sale of the OZ is taxable. 

Foreign Tax Credit

The foreign tax credit is limited to the ratio of foreign taxable income to total taxable income and is calculated on form 1116. However, you don't need to use this form to claim a credit if your total foreign taxes paid for foreign passive income like dividends don't exceed $300(single) or $600(joint).

Alternative Minimum Tax (AMT)

The AMT is an alternative tax system based on fewer deductions and more taxable income. You pay the higher of AMT or regular tax.  For example no deduction for state and local taxes is allowed for AMT. The new tax law limited state and local taxes to $10,000 and eliminated miscellaneous itemized deductions which were also not allowed for the AMT. The new tax law also increased the AMT exemption amounts for 2018. So far this tax season I have not seen any of my clients paying the AMT which is great news. I hope it continues.

Equitable owner

You can deduct the real estate taxes on a home and the mortgage interest for a home loan even if you are not the legal owner of the home or directly liable for the debt. You have to be considered the equitable owner by the IRS to take the deductions. An equitable owner is one who through facts and circumstances enjoys the economic benefits by living in the house and burdens of ownership such as paying for repairs, taxes and the mortgage.