2019 Mileage Rates IRS

New Mileage Rates Announced By IRS for 2019

New Mileage Rates Announced By IRS for 2019

Before the 2017 Tax Cuts And Jobs Act was enacted into law, many taxpayers relied on the IRS’ annual publication of the mileage rates to be used for business travel. For many taxpayers this was a significant tax deduction but the 2017 Tax Cuts And Jobs Act changes that.

Why fewer taxpayers will be itemizing:

Increase Of Standard Deduction A substantial increase to $12,000 for single filers (was $6,500), $18,000 for heads of household (was $9,550), and $24,000 for joint filers (was $13,000).

Limit On Deduction For State And Local Taxes A taxpayer may claim an itemized deduction of only up to $10,000 ($5,000 for a married taxpayer filing a separate return) in (i) personal state and local property taxes, and (ii) state and local income taxes (or sales taxes in lieu of income taxes).  Taxes paid or accrued in carrying on a trade or business are not subject to this limitation.

Limit On Deduction Of Mortgage Interest For mortgages incurred after December 31, 2017, taxpayers may deduct interest on up to $750,000 of principal (mortgages existing before January 1, 2018 are still subject to the pre-existing law’s $1 million limit). But for all taxpayers there is no longer a deduction for interest paid on home equity loans.

Elimination Of Miscellaneous Itemized Deductions And Deduction For Moving Expenses A taxpayer can no longer deduct miscellaneous itemized deductions which include unreimbursed employee expenses and tax preparation costs.  Also the deduction for moving expenses is gone.

But for those who can benefit from deducting costs of operating an automobile for business, charitable, medical or moving purposes, here are the rates for 2018:

Standard Business Mileage – The standard business mileage rate increased by 3.5 cents to 58 cents per mile.

Medical And Moving Mileage – The medical and moving mileage rates also increased by 2 cents to 20 cents per mile.

Charitable MileageCharitable mileage rates remained unchanged at 14 cents per mile.

Time Limits For Keeping Your Tax Records

Even though your 2018 income tax return is processed by the IRS and a refund is issued, that does not mean the IRS can later question or audit the tax return,  In fact the Statute Of Limitations allows the IRS three years to go back and audit your tax return.  That is why it’s a good idea to keep copies of your prior-year tax returns and supporting backup documentation for at least three years. In the case of backing of any deductible mileage, you will need to retain your travel log showing the distance traveled, who you visited and the purpose of the visit.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Metropolitan Los Angeles (Long Beach) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what our cannabis tax attorneys can do for you.

IRS tax deductible cannabis business expense court win

Harborside Finally Gets A Win In U.S. Tax Court Getting Tax Penalties Abated

Having been beaten in an opinion issued by the U.S. Tax Court just weeks before where the Court ruled that IRC Section 280E does apply to Harborside (Click here for the Court’s opinion: Patients Mutual Assistance Collective Corp., dba Harborside Health Center v. Commissioner of Internal Revenue, 151 T.C. 11) which Harborside can appeal to the U.S. 9th Circuit Court of Appeals, it was a relief that this same Court ruled that the California dispensary is not liable for accuracy-related 280E penalties. Those penalties would have tacked on another 20% to the tax bill IRS is prepared to send to Harborside if the taxpayer does not appeal the previous decision.

The Anti-Federal U.S. Climate

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law and other states that have legalized cannabis, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back though has no impact on the IRS which will likely start in 2019 to more aggressively target cannabis businesses with audits.

First Harborside Tax Court Opinion – IRS Code 280E will remain in effect for cannabis businesses

The Harborside case involved a dispute over the deductibility of business expenses taken by Harborside Health Center, recognized as the largest marijuana dispensary in the United States by revenue, and the IRS, which was enforcing the provisions of IRC Section 280E. Congress enacted this section back in the 1980’s so that taxpayers engaged in trafficking in a Schedule I or II controlled substances could not deduct any expenses other than Cost Of Goods Sold.

The Harborside dispensary introduced a novel argument about the inapplicability of IRC Section 280E to its activities and focused on two words in this code section – “consists of” – in making the case that this section of law does not apply to them. The Harborside dispensary highlighted the definition of “consists of” as it is used in IRC Section 280E when describing that business expense deductions are not allowed to taxpayers whose business “consists of” trafficking in a Schedule I or II controlled substance.  The Harborside dispensary pointed out, not without merit, that the phrase “consists of” generally introduces an exhaustive list. What this means is that when something is said to “consist of” a list of items, that list of items is the exclusive, exhaustive list, and no other unmentioned items can be said to be included in that list, since the enumerated list contains everything.

The Tax Court spent a considerable amount of time evaluating this argument and acknowledging that it had some merit based upon a review of the dictionary and other legal sources. However, what doomed the Harborside dispensary was the IRS argument, backed by case law, that a legal statute should not be read in such a constrained way so as to render it completely ineffective and toothless. The Tax Court, in ruling for the IRS on this issue, pointed out that if the Harborside dispensary’s reading of IRC Section 280E were correct, a drug dealer who also sold a single pack of gum could not have this same code section applied to him, as that drug dealer’s business would not consist solely of trafficking in a Schedule I or II controlled substance.

But since the Court did not establish a clear test as to when activities other than the sale of cannabis should be taxed differently that activities involving cannabis, there is still hope for cannabis businesses who invest in proper planning now can have the highest chance of prevailing should their tax returns be selected for audit.

Second Harborside Tax Court Opinion – Abatement Of Penalties

With the Tax Court’s previous ruling that IRC Section 280E denies all standard business deductions to businesses whose operations “consist” of activities that violate the CSA, we now turn to the Tax Court’s second opinion on whether Harborside should be subject to accuracy-related penalties.

IRC Section 6662(a) and (b)(1) and (2) imposes a 20% penalty on the portion of an underpayment attributable to any substantial understatement of income tax or negligence or disregard of rules or regulations. Negligence includes any failure to make a reasonable attempt to comply with the provisions of the Code, and disregard includes any careless, reckless, or intentional disregard. Sec. 6662(c). An understatement of a corporation’s income tax is substantial if it exceeds the lesser of $10 million or “10 percent of the tax required to be shown on the return for the taxable year (or, if greater, $10,000).” Sec. 6662(d)(1)(B). A taxpayer can avoid these penalties by showing that it acted with reasonable cause and in good faith. Sec. 6664(c)(1); sec. 1.6664-4(a), Income Tax Regs. To decide whether a taxpayer acted with reasonable cause and in good faith, the Court look at all relevant facts and circumstances, such as the “taxpayer’s effort to assess the taxpayer’s proper tax liability” and his “experience, knowledge, and education.” Sec. 1.6664-4(b)(1), Income Tax Regs.

According to the Opinion issued by the Tax Court (Click here for the opinion: T.C. Memo. 2018-208), Harborside acted “reasonably and in good faith” when taking its tax positions for the years at issue. The Tax Court cited Harborside’s timely filing of its tax returns and its maintenance of accurate financial records as a key strength, along with a persuasive argument from Harborside co-founder and Chairman Emeritus, Steve DeAngelo, that he made good-faith efforts to comply with the law, despite a lack of clear legal authority to guide medical marijuana dispensary taxpayers.

This second ruling is relief for Harborside and shows the importance that with proper planning, taxpayers involved in cannabis should fare better in minimizing liability to IRS.

Risk Of Getting A Big Tax Bill From IRS That You Cannot Pay

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses. A cannabis business that has not properly reported its income and expenses and not engaged in the planning to minimize income taxes can face a large liability proposed by IRS reflected on a Notice Of Deficiency or tax bill.

This risk should be risk posing the greatest challenge to any cannabis business as the Federal taxation of cannabis businesses is consistent in all states and not dependent on whether local Federal prosecutors are aggressive in enforcing the illegality of cannabis or the banks unwilling to do business with the cannabis industry. This unexpected liability can put you out of business so it is important to secure qualified tax counsel to be proactive with tax planning to minimize taxes and to defend you in any tax examinations, appeals or litigation with the IRS.


What Should You Do?

While more States are legalizing cannabis, risks to the cannabis industry still exist. Considering this risks of cannabis you need to protect yourself and your investment. Level the playing field and gain the upper hand by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (including Ontario and Palm Springs) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to maximize your net profits.

bitcoin crypto loss

How To Use 2018 Cryptocurrency Losses to Your Advantage

How To Use 2018 Cryptocurrency Losses to Your Advantage

While foreign governments are still figuring out how to tax cryptocurrencies, there are actually ways in the U.S. that U.S taxpayers can use them to their advantage to pay less taxes.  This is due to Notice 2014-21 issued by the Internal Revenue Service (IRS) which treats cryptocurrencies as an investment property, rather than a currency. Thus, whenever you trade cryptocurrency, the transaction is either a capital gain (where you make money) or a capital loss (where you lose money); and any losses this year could ultimately result in a smaller tax bill. Where your capital losses exceed your capital gains, you are still allowed to deduct up to $3,000 in capital losses. Losses beyond that amount get carried over to the next year to offset capital gains before applying another $3,000 excess loss application to your other income.

For example, assume a taxpayer bought $5,000 worth of BTC in 2018. After turning that into $10,000 through trading, he later lost cash due to a dip in the markets and took a big hit, losing $9,000. So he cashed out, walking away with just $1,000. Under this scenario he lost $4,000 in 2018 of which $3,000 he can still deduct in 2018 and the other $1,000 of loss gets carried forward to 2019.

Taxation of Crypto Currency.

Notice 2014-21 provides these tax rules:

  • Trading cryptocurrencies produces capital gains or losses, with the latter being able to offset gains and reduce tax.
  • Exchanging one token for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.
  • Receiving payments in crypto in exchange for products or services or as salary is treated as ordinary income at the fair market value of the coin at the time of receipt.
  • Spending crypto is a tax event and may generate capital gains or losses, which can be short-term or long-term. For example, say you bought one coin for $500. If that coin was then worth $700 and you bought a $700 gift card, there is a $200 taxable gain. Depending on the holding period, it could be a short- or long-term capital gain subject to different rates.
  • Converting a cryptocurrency to U.S. dollars or another currency at a gain is a taxable event, as it is treated as being sold, thus generating capital gains.
  • Air drops are considered ordinary income on the day of the air drop. That value will become the basis of the coin. When it’s sold, exchanged, etc., there will be a capital gain.
  • Mining coins is considered ordinary income equal to the fair market value of the coin the day it was successfully mined.
  • Initial coin offerings do not fall under the IRS’s tax-free treatment for raising capital. Thus, they produce ordinary income to individuals and businesses alike.

Penalties For Filing A False Income Tax Return Or Under-reporting Income.

Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.

Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).

The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).

And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.

Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!

Voluntary Disclosure – The Way To Avoid Criminal Fines & Punishment

The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.

What Should You Do?

With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.  Don’t delay because once the IRS has targeted you for investigation – even if it is a routine random audit – it will be too late voluntarily come forward. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and offices elsewhere in California get you set up with a plan that may include being qualified into a voluntary disclosure program to avoid criminal prosecution, seek abatement of penalties, and minimize your tax liability. Also, if you are involved in cannabis, check out how our cannabis tax attorneys can help you.

What You Need To Know To Deduct Charitable Contributions On Your 2017 Income Tax Return

The more itemized deductions you can rack up on you individual income tax return, the smaller amount of taxable income you will have which now puts more money in your pocket. Taxpayers who gave money or goods to a charity should be able to claim charitable contributions which get included as an itemized deduction on their 2017 federal tax return.

For those taxpayers looking to make charitable contributions in 2018 for their 2018 taxes, the good news is that the 2017 Tax Cuts And Jobs Act made no changes to the deductibility of charitable contributions.

So whether it is for 2017 or future years, here are some important facts you need to know about claiming charitable contributions to save on taxes and withstand an IRS audit.

  1. Qualified Charity. Only donations to qualified charitable organizations are deductible. Do not merely rely on the organization’s website or what the organization may state. If you are questioning whether an organization is qualified, you can check with IRS directly through the IRS website. To check the status of a charity, use the IRS Select Check tool. Keep in mind that religious institutions including churches, synagogues, temples, and mosques are considered “de facto” charitable organizations and are eligible to receive deductible donations even if they are not on the IRS’ website. However, you can never deduct donations to political organizations and candidates. Also, you cannot deduct contributions to specific individuals no matter how deserving or sympathetic to their tragic situation.
  1. You Must Itemize. To deduct donations, you must include these donations as Itemized Deductions on Schedule A of Form 1040. If the total amount of your Itemized Deductions does not exceed the Standard Deduction already given to you by the Federal government, you won’t get any real benefit from making these donations.
  1. Deductible Portion Of Donation May Be Reduced. You can only deduct the amount of your donation that exceeds the fair market value of the benefit received. If you get something in return for your donation, you would have to reduce your deduction by the value you received. Examples of benefits include merchandise, meals and tickets to events.
  1. Property donation. If you give property instead of cash, you can normally only deduct the item’s fair market value. Fair market value is generally the price you would get for the property item on the open market. Donating property that has appreciated in value, like stock, can result in a double benefit. Not only can you deduct the fair market value of the property (so long as you have owned it for at least one year), you will avoid paying capital gains tax.
  1. Donations From Your Retirement Account. Typically, if you want to make a donation from your IRA, you’d have to withdraw those funds, pay the tax and then make the donation. However, IRA owners who are age 70½ or older can transfer up to $100,000 per year to an eligible charity tax-free and the transfer counts toward your required minimum distribution (RMD) for the year. To be an eligible transfer, funds must be transferred directly by the IRA trustee to the charity. Withdrawing the monies first and then writing the check to the charity will not qualify for the non-recognition of income.
  1. Form to File. You would file Form 8283 for all non-cash gifts totaling more than $500 for the year. Keep an itemized list of for donations of non-cash items – do not just state you gave a bag of clothes and expect to substantiate the value of what you gave. Instead be specific, noting the description and condition of the items. You can generally take a deduction for the fair market value of the item which is the price that a willing buyer would pay to a willing seller. If you contribute property worth more than $5,000, you must obtain a written appraisal of the property’s fair market value.
  1. Proof of Donation. If you donated cash or goods of $250 or more, you must have a written statement from the charity. The statement must show:
    • Amount of the donation.
    • Description of any property given.
    • Whether the donor received any goods or services in exchange for the gift.  

For cash donations under $250, you should always have substantiation of payment by a bank record such as a canceled check or credit card receipt, clearly annotated with the name of the charity or in writing from the organization. Even with a statement from the charity, it is still a good idea to retain this evidence of payment.

  1. You Can’t Deduct The Value Of Your Time. While your time is valuable, when you volunteer your time for charities, the IRS does not allow a charitable deduction for the time you spent. However, most out of pocket expenses relating to volunteering are should be deductible so long as they are not reimbursed to you or considered personal. Out of pocket charitable expenses which might be deductible include parking fees and tolls; other travel expenses; uniforms or other related clothing worn as part of your charitable service; and supplies used in the performance of your services. You will need to keep receipts evidencing payment in case you are questioned by the IRS.
  1. Timing Of Contribution. Contributions are deductible in the year the contributions are made so for the 2017 tax year that would had to been no later than December 31, 2017. But that doesn’t necessarily mean that by the 31st the cash payment had to be made out of your account. Contributions made by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. Contributions made by credit card charges are deductible in the year charged so long as the charge is posted by your credit card company in that tax year. The credit charge itself does not have to be paid off by the end of the tax year it was charged. Similarly, checks which are written and mailed by the end of the year will be deductible for the year written if they are not cashed until the following year. Announcing that you intend to donate assets will not qualify for a deduction in the current tax year until the tax year you make good on the pledge.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, unreported crypto currency transactions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

IRS 2017 Tax Deductions

Itemized Deductions Or Standard Deduction? – Pick Your Tax Savings For 2017!

On December 22, 2017, President Trump signed into law the 2017 Tax Cuts And Jobs Act. It’s been a good 30 years since the last time the Internal Revenue Code received such a major update. Among other changes, the new law increases the Standard Deduction For Individuals starting with 2018. But for 2017 tax returns, the old law still applies where individual taxpayers can still effectively choose to itemize or take the Standard Deduction.

Most taxpayers claim the standard deduction when they file their federal tax return. However, some filers may be able to lower their tax bill by itemizing when they file their 2017 tax return. Before choosing to take the standard deduction or itemize, it’s a good idea to figure deductions using both methods and choose the method with the most benefit.

So here are some tips to help you decide how to save the most in 2017 taxes:

Figuring Itemized Deductions

Taxpayers who itemize basically add up the year’s deductible expenses to arrive at their total deduction. Deductions include:  

Home mortgage interest

State and local income taxes or sales taxes – but not both

Real estate and personal property taxes

Gifts to charities

Casualty or theft losses

Unreimbursed medical and employee business expenses above certain amounts

Know the Standard Deduction

For taxpayers who don’t itemize, the standard deduction for 2017 depends on their filing status:  

Single — $6,350

Married Filing Jointly — $12,700

Head of Household — $9,350

Married Filing Separately — $6,350

Qualifying Widow(er) — $12,700

If a taxpayer is 65 or older, or blind, the standard deduction is more, but may be limited if another person claims that taxpayer as a dependent.

Tax Planning For 2018

Starting in 2018 tax rates are lower so less of you will get to keep more of your income, a deduction is worth less. On top of that, several popular deductions are disappearing or getting substantially limited and in combination with a nearly doubled standard deduction, less taxpayers will be itemizing.

Limit On Deduction For State And Local Taxes – A taxpayer may claim an itemized deduction of only up to $10,000 ($5,000 for a married taxpayer filing a separate return) in (i) personal state and local property taxes, and (ii) state and local income taxes (or sales taxes in lieu of income taxes). Taxes paid or accrued in carrying on a trade or business are not subject to this limitation.

Limit On Deduction Of Mortgage Interest – For mortgages incurred after December 31, 2017, taxpayers may deduct interest on up to $750,000 of principal (mortgages existing before January 1, 2018 are still subject to the pre-existing law’s $1 million limit). But for all taxpayers there is no longer a deduction for interest paid on home equity loans.

Elimination Of Miscellaneous Itemized Deductions And Deduction For Moving Expenses A taxpayer can no longer deduct miscellaneous itemized deductions which include unreimbursed employee expenses and tax preparation costs. Also the deduction for moving expenses is gone.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), South Los Angeles County (Long Beach) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.