May 31

Simplified Option for Home Office Deduction in 2013

Beginning in tax year 2013 (returns filed in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home. It is important to note this simplified option does not change the criteria for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements of the allowable deduction.

Highlights of the simplified option:

  • Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).
  • Allowable home-related itemized deductions claimed in full on Schedule A. (For example: Mortgage interest, real estate taxes).
  • No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.

Comparison of methods

Simplified Option Regular Method
Deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes Same
Allowable square footage of home use for business (not to exceed 300 square feet) Percentage of home used for business
Standard $5 per square foot used to determine home business deduction Actual expenses determined and records maintained
Home-related itemized deductions claimed in full on Schedule A Home-related itemized deductions apportioned between Schedule A and business schedule (Sch. C or Sch. F)
No depreciation deduction Depreciation deduction for portion of home used for business
No recapture of depreciation upon sale of home Recapture of depreciation on gain upon sale of home
Deduction cannot exceed gross income from business use of home less business expenses Same
Amount in excess of gross income limitation may not be carried over Amount in excess of gross income limitation may be carried over
Loss carryover from use of regular method in prior year may not be claimed Loss carryover from use of regular method in prior year may be claimed if gross income test is met in current year

Additional Information

  • You may choose to use either the simplified method or the regular method for any taxable year.
  • You choose a method by using that method on your timely filed, original federal income tax return for the taxable year.
  • Once you have chosen a method for a taxable year, you cannot later change to the other method for that same year.
  • If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table. This is true regardless of whether you used an optional depreciation table for the first year the property was used in business.
May 30

Basic Estate Planning Seminar Planned for June 18th

We will be putting on another basic estate planning conference on Tuesday, June 18th at the Southwest Technology Center in Altus. There will be both an afternoon and evening session. The seminar will focus on the options for passing property during your life and after death and will also highlight the recent changes to the estate, gift, and capital gain tax laws.

The seminar is free to the public and anyone, regardless of assets or family situation, is encouraged to attend to learn how a Last Will and Testament, a Living or Revocable Trust, and other estate planning options work.

If you would like to attend, please contact Brent directly at 580-318-8829 to reserve your seat.

May 12

The Need for Elderlaw Planning

I have had quite a few conversations the past month with seniors that are concerned about how they will receive the care they need in their later years. While they are in good health now, they conveyed to me their concern is related mainly to family issues. The common concerns are as follows: My mother had Alzheimer’s and was in need of round the clock care for about seven years; if that happens to me, I do not want to be a burden to my children. Or, my son depends upon my farm or business for his livelihood; if something happens to me, then he would be out of my help and assets and would not be able to make it on his own.

These are valid concerns and most of the issues can be planned for accordingly.

However, when you look at your own situation, you should be aware of the facts. Right now in the Altus area, the cost per month for a full-time nursing facility is about $4,800 per month. Assisted living in the Altus area costs about $2,500.

When it comes to paying for these costs, there are essentially only three options: 1. Self-pay, 2. Long-term care insurance, and 3. Medicaid or VA.

If you look at your assets (what you would consider spendable), how long would they last for your care. If your family depends upon these assets, how will they be able to continue to use them and satisfy your nursing costs too.

I encourage everyone to have a plan for what could happen. Long-term care insurance is a great option for most people, if you start when you are young. Medicaid planning might be an option for others. I would like to invite anyone interested in learning more about the options to contact me, Brent Howard, at 580-318-8829.

May 10

Many Tax-Exempt Organizations Need to Fileby May 15

A key deadline of May 15 is facing many tax-exempt organizations that are required by law to file annual reports with the Internal Revenue Service. Organizations will see their federal tax exemptions automatically revoked if they have not filed reports for three consecutive years.

The Pension Protection Act of 2006 mandates that most tax-exempt organizations file annual Form 990-series informational returns or notices with the IRS. Under this law, organizations that fail to file reports for three consecutive years automatically lose their federal tax-exempt status. The law, which went into effect at the beginning of 2007, also imposed a new annual filing requirement on small organizations. Churches and church-related organizations are not required to file annual reports.

Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s fiscal year ends. Organizations that need additional time to file may obtain an extension.

Many organizations use the calendar year as their fiscal year, which makes May 15 the deadline for them. Organizations that fail to file annual reports for three consecutive years will see their tax exemptions automatically revoked as of the due date of the third required filing.

Small tax-exempt organizations with average annual receipts of $50,000 or less may file an electronic notice called a Form 990-N (e-Postcard), which asks organizations for a few basic pieces of information. Tax-exempt organizations with average annual receipts above $50,000 must file a Form 990 or 990-EZ, depending on their receipts and assets. Private foundations file a Form 990-PF.

The IRS began to publish the names of organizations identified as having automatically lost their tax-exempt status for failing to file annual reports for three consecutive years. Organizations that have had their exemptions automatically revoked and wish to have that status reinstated must file an application for exemption and pay the appropriate user fee.