Doeren Mayhew Blog Spot

Tuesday, August 10, 2010

Doeren Mayhew: Deducting receivables as bad business debts

While the economy continues to slowly recover, many businesses continue to face customers struggling to pay outstanding bills for services or goods. The Tax Code provides relief to businesses faced with the inability to collect on accounts receivable. Businesses that are unable to get customers to pay the bill can claim a deduction for the "bad debt."

Business bad debt deduction

Taxpayers may deduct any business receivable that becomes totally or partially worthless during the tax year under Tax Code Sec. 166(a). However, the business bad debt deduction is limited to the taxpayer's adjusted basis in the receivable.

The deduction allowed for bad debts is an ordinary deduction. To claim the deduction, you must establish that the debt is genuine and that the amount cannot be recovered from the debtor. You must also make a reasonable attempt to collect the debt (however, you do not have to turn the debt over to a collection agency or file a lawsuit in an attempt to collect on the debt if doing so has little probability of success). The law requires most taxpayers to use the specific charge-off method of accounting for bad debts. Under the specific charge-off method, the taxpayer must specifically identify the accounts or notes charged off as partially or completely worthless (it is also referred to as the direct write-off method).

If you meet these conditions, you can take the deduction in the year in which the debts became worthless. This includes certain previous years since, for some debts, worthlessness may not be immediately apparent. You can deduct a bad debt before the debt is due if you can establish the partial or complete worthlessness of the debt.

Partially worthless. If you failed to claim the bad debt deduction for a receivable that became partially worthless in a prior tax year, you have until the later of (1) three years after you file the tax return (including extensions) or (2) two years from the time you paid the tax to file an amended return and deduct the bad debt.

Totally worthless. If you failed to claim a deduction for a receivable that became completely worthless in a previous tax year, you have until the later of (1) seven years after the due date of the tax return (not including extensions) or (2) two years from the time you paid the tax to file an amended return and claim a deduction for the worthless receivable.

Cash basis taxpayers
Cash basis taxpayers cannot claim a bad debt deduction for accounts receivable that are not collectible. However, notes received by a cash basis taxpayer in the ordinary course of business are treated as the equivalent of cash to the extent of the note's fair market value (FMV) at the time received. Thus, the initial basis in such a note is its FMV. Cash basis taxpayers may claim a bad debt deduction for uncollectible notes receivable if they have included the FMV of the notes in gross income.

Accrual and hybrid taxpayers
Accrual basis taxpayers may claim a bad debt deduction for accounts receivable that become partially or completely worthless during the tax year. Accrual basis taxpayers must include the face value of a note receivable in gross income if a reasonable expectancy of collection exists at the time it is received. Taxpayers that use a hybrid method of accounting may deduct bad debts if they have included the revenue from the receivable in gross income.

Reporting
For self-employed taxpayers, the bad business debt deduction is reported on Schedule C, Profit or Loss from Business (Sole Proprietorship), or Schedule F (Profit or Loss from Farming (for self-employed farmers)). Corporations report bad debts on Line 15 of Form 1120, U.S. Corporation Income Tax Return. S corporations report bad debts on Line 10 of Form 1120S, U.S. Income Tax Return for an S Corporation. Partnerships report bad debts on Line 12 of Form 1065, U.S. Return of Partnership Income.

Recovering bad debts
If you recover a bad debt during the year, the amount recovered is gross income to the extent that you claimed the deduction for the bad debt in a previous tax year, reducing your taxable income. This is called the tax benefit rule. The bad debt you recovered may not be offset against the bad debt deduction for the tax year of the recovery.

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This data is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the content contained within this article, it is recommended that a Doeren Mayhew representative be contacted.

Monday, August 2, 2010

Preparing for the possible return of pre-EGTRRA individual tax rates

In less than six months, unless Congress acts, the individual marginal income tax rate reductions under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) will expire. While the timetable for addressing the EGTRRA tax cuts is not certain, the approaching sunset of the individual rate reductions, the possibility for their extension, and the fate of the limit on itemized deductions and the personal exemption phase-out will touch all taxpayers. The potential rate change makes tax planning all the more important.

Individual income tax rates

EGTRRA set in motion a gradual reduction of the individual marginal income tax rates. EGTRRA also created a new and temporary 10 percent regular income tax bracket for a portion of taxable income that was previously taxed at 15 percent.

The federal individual income tax rates for 2010 are:

Single individuals: If taxable income is not over $8,375: 10% of the taxable income; Over $8,375 but not over $34,000: $837.50 plus 15% of the excess over $8,375; Over $34,000 but not over $82,400: $4,681.25 plus 25% of the excess over $34,000; Over $82,400 but not over $171,850: $16,781.25 plus 28% of the excess over $82,400; Over $171,850 but not over $373,650: $41,827.25 plus 33% of the excess over $171,850; and Over $373,650: $108,421.25 plus 35% of the excess over $373,650.

Married couples filing a joint return: If taxable income is not over $16,750: 10% of the taxable income; Over $16,750 but not over $68,000: $1,675 plus 15% of the excess over $16,750; Over $68,000 but not over $137,300: $9,362.50 plus 25% of the excess over $68,000; Over $137,300 but not over $209,250: $26,687.50 plus 28% of the excess over $137,300; Over $209,250 but not over $373,650: $46,833.50 plus 33% of the excess over $209,250; and Over $373,650: $101,085.50 plus 35% of the excess over $373,650.

Unless extended or made permanent, the individual marginal income tax rates will all rise after December 31, 2010 when EGTRRA sunsets. The 10 percent regular income tax bracket will also disappear after December 31, 2010 and the first portion of an individual's taxable income will be taxed at 15 percent rather than at 10 percent.

According to the Joint Committee on Taxation (JCT), after EGTRRA sunsets and with no modification by Congress, the federal individual income tax rates for 2011 will be:

Single individuals: If taxable income is not over $34,850: 15% of the taxable income; Over $34,850 but not over $84,350: $5,227.50 plus 28% of the excess over $34,850; Over $84,350 but not over $176,000: $19,087.50 plus 31% of the excess over $84,350; Over $176,000 but not over $382,650: $47,499 plus 36% of the excess over $176,000; and Over $382,650: $121,893 plus 39.6% of the excess over $382,650

Married couples filing a joint return: If taxable income is not over $58,200: 15% of the taxable income; Over $58,200 but not over $140,600: $8,730 plus 28% of the excess over $58,200; Over $140,600 but not over $214,250: $31,802 plus 31% of the excess over $140,600; Over $214,250 but not over $382,650: $54,633.50 plus 36% of the excess over $214,250; and Over $382,650: $115,257.50 plus 39.6% of the excess over $382,650.

President Obama has asked Congress to permanently extend the current 10, 15, 25, and 28 percent rates. Under the president's proposal, these rates would continue for individuals without interruption after December 31, 2010. However, the president's proposal would allow the 33 percent rate bracket and the 35 percent rate brackets to become 36 percent and 39.6 percent, respectively, after December 31, 2010.

The president has also asked Congress to expand the tax rate bracket for the 28 percent rate so that individuals with less than $195,550 of taxable income in 2011 ($200,000 of AGI), assuming one personal exemption and the basic standard deduction, indexed from 2009) will not be subject to the 36 percent rate that applies after December 31, 2010. For married individuals filing joint returns and surviving spouses, the dollar threshold for the 36 percent bracket would be set so that married couples and surviving spouses with AGI below $237,300 of taxable income in 2011 ($250,000 of AGI, assuming two personal exemptions and the basic standard deduction, indexed from 2009), subject to the 33 percent rate in 2010, will not become subject to the 36 percent rate after December 31, 2010.

Capital gains/dividends

At the same time taxpayers are looking at higher individual marginal income tax rates, the capital gains and dividend tax rates will also increase after December 31, 2010. For 2010, the maximum capital gains and dividends tax rate is 15 percent (zero percent for taxpayers in the 10 and 15 percent brackets). Effective January 1, 2011, the tax rate on qualified long-term capital gains will be 20 percent and taxpayers will pay tax on dividends at the same rates that apply to ordinary income.

President Obama has asked Congress to impose a 20 percent capital gains and dividends tax rate on individuals with incomes above $200,000 (less the standard deduction and one personal exemption indexed from 2009). The 20 percent rate would also apply to married couples filing a joint return with income above $250,000 (less the standard deduction and two personal exemptions indexed from 2009). All other taxpayers would pay capital gains and dividends taxes of 15 percent unless they qualify for the zero percent tax rate.

If Congress does not act, the tax rate on dividends after December 31, 2010 will be the same as that currently for dividends failing to qualify for the current 15 percent rate; that is, the same as a taxpayer's personal income tax bracket.

Limitation on itemized deductions

Along with reducing the individual marginal income tax rates, EGTRRA also repealed the limitation on itemized deductions for 2010, but only for 2010. President Obama has asked Congress to allow the limitation on itemized deductions to return but to modify it for 2011 and beyond. Under the president's proposal, the limitation on itemized deductions would apply to an AGI threshold determined by taking a 2009 dollar amount and adjusting for subsequent inflation. The Obama administration has proposed a dollar amount of $200,000 for single individuals and $250,000 for married couples filing a joint return.

Also impacting higher-income taxpayers is repeal of the personal exemption phase-out. Under EGTRRA, the personal exemption phase-out is repealed for 2010 - but only for 2010.

What's next

Congress likely will vote on the administration's proposal to raise only the top two tax brackets this fall. Whether that vote will come in September or in a lame-duck session after the mid-term elections remains uncertain at this time, as does the outcome of that vote. In the interim, our office will continue to monitor the debate and, as Congress gets closer to a decision, prepare year-end tax strategies that respond most effectively to what Congress decides.

This data is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the content contained within this article, it is recommended that a Doeren Mayhew representative be contacted.

Friday, July 2, 2010

Brace yourself for a sea change in the tax law

A number of tax law changes are making their way through Congress, and many more on the way. These changes will affect both individual and business taxpayers alike. In 2010, it is expected that Congress will address the federal estate tax, and is currently working on small business and jobs "relief," as well as an extension of popular, but temporary tax incentives that expired at the end of 2009. This article provides a brief overview of what taxpayers can expect this year.

Individual and business tax extenders

Congress continues to debate the extension of a number of tax incentives for individuals and businesses that expired at the end of 2009. The tax breaks would be extended retroactively for one year, through December 31, 2010. A number of popular energy tax incentives and charitable deductions would be extended too. Among the individual incentives that would be extended are the popular additional standard deduction for real property taxes, the state and local sales tax deduction, and the higher education tuition deduction, as well as the teacher's classroom expense deduction.

For business taxpayers, some of the tax incentives to be extended include the research tax credit, New Markets Tax Credit, differential pay credit, and the 15-year recovery period under the Modified Accelerated Cost Recovery System (MACRS) for qualified leasehold improvements, and qualified restaurant and retail improvement property.

A host of charitable and energy tax incentives would also be extended through 2010. The charitable extenders include the ability to make a charitable IRA contribution of up to $100,000 for individuals age 70 1/2 and older, and the tax deductions for contributions of real property, food inventory, computer and book inventory to public schools, and S corporation charitable contribution deductions.

Small business tax relief/"jobs" bill

The House has twice passed a package of small business tax incentives. The bills includes three major incentives for small business: (1) a 100 percent exclusion of gain from the sale of qualified small business stock, (2) an enhanced deduction for start-up expenses, and (3) penalty relief for taxpayers that failed to disclose transactions with the potential for tax evasion. The Small Business Jobs Tax Relief Act of 2010, passed by the House in June, would increase the exclusion for qualified small business stock sold by an individual from 75 percent to 100 percent for stock acquired after March 15, 2010 and before January 1, 2012.

Increased start-up expenses. The bill increases the deduction for qualified start-up expenses from $5,000 to $20,000. It also increases to $75,000 the threshold amount by which the $20,000 deduction would be reduced.

Decreased Code Sec. 6707A penalties. The legislation would also provide for lower penalties under Code Sec. 6707A for taxpayers who fail to disclose "reportable transactions" in which they participate. This change is intended to help ameliorate the impact of the penalty on small businesses, which can currently reach a maximum of $200,000 for businesses failing to report listed transactions and $50,000 for failing to report reportable transactions. Many businesses have been assessed these penalties for engaging in transactions they did not know were tax shelters.

New limits on GRATs. To pay for the small business tax incentives, the bill places new limits on grantor retained annuity trusts (GRATs), a popular estate and gift planning vehicle. GRATs would be required to have a minimum 10-year term, carry a remainder interest with a value greater than zero, and prohibit any decreases in annuity payments during the GRAT's term. The new limits would be imposed for transfers after the date of enactment.

3.8 percent tax Medicare tax on investment income

The health care reform package (the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010) imposes a new 3.8 percent Medicare contribution tax on the investment income of higher-income individuals. The tax will apply to the lesser of net investment income or modified adjusted gross income above $200,000 for individuals and $250,000 for joint filers and surviving spouses, and $125,000 for married couples filing separate returns.

Although the tax will not take effect until 2013, it is important for individuals who will be affected by the tax to start examining ways to lessen the impact now. Net investment income includes interest, dividends annuities, royalties, rents, and other gross income attributable to passive activities. Gain from the sale of property not used in an active business (for example, your personal residence) and income from the investment of working capital are also treated as investment income. The tax won't apply, however, to nontaxable income such as tax exempt interest, or to veterans' benefits. An individual's capital gains income will be subject to the tax. This includes gain from the sale of a principal residence, unless the gain is excluded from income.

A significant exception to the 3.8 percent Medicare tax applies for distributions from qualified plans, 401(k) plans, tax-sheltered annuities, individual retirement accounts (IRAs), and eligible 457 plans. These will not be subject to the tax.

Interplay with other tax changes. In addition to the 3.8 percent Medicare tax, taxpayers also face other tax increases taking effect in 2011. The top two marginal income tax rates for individuals will rise from 33 and 35 percent to 36 and 39.6 percent, respectively. The maximum tax rate on long-term capital gains is set to increase from 15 to 20 percent. Dividends, which are currently capped at the 15 percent long-term capital gains tax rate, will be taxed at ordinary income tax rates.

Estate tax fix

The federal estate tax does not apply to decedents dying after December 31, 2009 and before January 1, 2011. Also, beginning in 2010, the stepped up basis at death rules are replaced with modified carryover basis at death rules applicable to estates holding assets with unrealized capital gains of more than $1.3 million. In December 2009, the House passed the Permanent Estate Tax Relief Act, which would permanently extend the top federal estate tax rate of 45 percent with a $3.5 million exclusion ($7 million for married couples). The Senate, however, has failed to take up the House bill. Some action this year is expected. The estate tax will revert to a 55 percent tax rate beginning in 2011. Proposals in Congress range from setting the exemption level at $5 million for individuals and reducing the tax rate to 35 percent.

Disclaimer: This data is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the content contained within this article, it is recommended that a Doeren Mayhew representative be contacted.

Monday, May 10, 2010

Doeren Mayhew Motorcycle ride benefits charity

Image via Wikipedia

A motorcycle ride Sunday, May 16, to the Downtown Hoedown sponsored by local CPA firm Doeren Mayhew of Troy promises a great time and also benefits a local charity.

“We love the ride down to the Hoedown, and helping The Rainbow Connection grant wishes to Michigan kids who are very sick just makes sense to us,” Bruce Knapp, a director at Doeren Mayhew said. “We have supported The Rainbow Connection for years and truly believe in the great work they are doing.”

For more information about the Doeren Mayhew Motorcycle charity ride, please visit the Oakland press. *Entire article originally appeared on the Oakland Press.

Monday, April 26, 2010

Doeren Mayhew Featured On Freep.com

Doeren Mayhew featured on Freep.com:

Michigan's ailing economy has forced many companies to find new ways to grow. One longtime local business, Doeren Mayhew, shows how it can be done.

The 79-year-old accounting and tax consulting firm in Troy is making acquisitions and expanding its services, both in Michigan and outside the state.

Last year, it formed a new venture called Doeren Mayhew Financial Advisors and opened a two-person office in Houston that now serves five large credit unions.

For more information, view the article on Freep.com or visit Doeren Mayhew.

Monday, March 8, 2010

Doeren Mayhew Expands

Downturn good for expanding accounting firms

By Tom Henderson

The economic downturn is providing opportunities for expansion for at least a few local accounting firms.

Doeren Mayhew, a Troy-based accounting and consulting firm, has kicked off an expansion campaign with the purchase of Troy-based R.W. Frickel Co., a seven-person firm with $2.5 million in revenue that focuses on the construction industry.

“It adds 50 contractors to our portfolio. It’s a really nice addition to one of our key niche areas,” said Mark Crawford, Doeren’s managing director. Doeren Mayhew also focuses on the construction industry.

Crawford said Doeren Mayhew, which began the year as the eighth-largest accounting firm in Southeast Michigan, with 200 employees, plans on “at least two more acquisitions and perhaps several” of small local firms this year and to announce a major expansion out of state in the next couple of months. He declined to name the city, but said it would fit in with plans announced last year to expand into the Southwest or Southeast.

Doeren Mayhew opened up a two-person office in Houston last November.

Crawford said Doeren Mayhew had revenue of about $36 million last year. He said he wanted to add $4 million in revenue through internal growth this year and $12 million through acquisitions.

“We’re about 75th in size in the U.S. now. Our goal is to get to about the 50-60 range. We don’t want to get any bigger than that,” he said.

He said that while the recession has lowered the price of doing deals, the chief driver behind acquisitions is the need for small firms such as Frickel to be able to add resources and a wider range of services for their existing clients, or risk losing them.

“It’s harder for small firms to keep up,” he said.

Crawford said that while Doeren Mayhew wants to grow its geographic footprint, “We’re firmly committed to Michigan. We’re doing mergers here and growing our practice here. We’re going to remain headquartered here.”

Another accounting and consulting firm, Saginaw-based Rehmann, whose Troy office is the seventh-largest in Southeast Michigan with 224 employees, kicked off a geographical expansion in January, when its Rehmann Financial business unit acquiredDawson Wealth Management, a Cleveland-based firm with $1.4 billion under management.

Rehmann Financial made a second Cleveland-area acquisition in February, of Cotter Advisory Group L.L.C., a boutique firm with $200 million under management, and has memoranda of understanding to acquire a third Cleveland firm and three in southern Florida.

Gordon Krater, managing partner for Southfield-based Plante & Moran P.L.L.C., the second-largest area firm with 840 employees as of the beginning of the year, said it’s a good time to expand through acquisition, and his firm expects to do so, as well.

“There are more opportunities out there with the downturn,” said Krater. He said Plante & Moran added 50 employees through an acquisition in Cincinnati last July and is looking to expand its Chicago operations through acquisitions.

“We’re looking at a couple of mergers there. We’re talking to people all the time,” he said.

Krater said the company also expects to expand into Kentucky and Tennessee to serve its Japanese-based auto parts suppliers.

Monday, December 14, 2009

Doeren Mayhew: The Worker, Homeownership, and Business Assistance Act of 2009 Signed Into Law

Enacted in November 2009, the Worker, Homeownership, and Business Assistance Act of 2009 contains many tax provisions that affect individual and business taxpayers. For individuals, the Act provides an expansion of the firsttime homebuyer tax credit by including existing homeowners who are "long-time residents." A number of other key measures contain changes for businesses, including an important new net operating loss provision.

Homebuyer Tax Credit Under Prior Law Prior to the new law's enactment, a refundable federal tax credit of up to $8,000 ($4,000 for a married taxpayer filing separately) was allowed for qualifying first- time homebuyers who purchased a home between April 8, 2008, and December 1, 2009. In order to qualify for the credit, a taxpayer must have had no ownership interest in a qualifying principal residence in the U.S. during the three-year period before the purchase of the home. Under prior law, the allowable credit was phased out for individual taxpayers whose modified adjusted gross income was between $75,000 and $95,000 (between $150,000 and $170,000 for married taxpayers filing jointly).

Homebuyer Tax Credit Under New Law The Worker, Homeownership, and Business Assistance Act generally extends the first-time homebuyer credit for contracts to purchase entered before May 1, 2010, and closed before July 1, 2010. The new law also liberalizes the credit by making it available to higher income taxpayers, as well as to those individuals who are not first-time homebuyers.

Generally, existing homeowners who are qualifying "long-time residents" may qualify for the tax credit if they contract to purchase another principal residence before May 1, 2010, and close before July 1, 2010. The Act provides that any individual who has maintained the same principal residence for any five-consecutive-year period during the eight-year period ending on the date of the purchase of a subsequent residence be treated as a "first-time homebuyer."

However, the maximum credit for long-time residents who qualify under the Act is the lesser of $6,500 ($3,250 for married individuals who file separate returns) or 10% of the purchase price of the principal residence. The credit now phases out for individual taxpayers whose modified adjusted gross income is between $125,000 and $145,000 ($225,000 and $245,000 for married taxpayers filing joint returns) for the year of purchase. For purchases after November 6, 2009, the first-time homebuyer tax credit cannot be claimed for the purchase of a principal residence if its purchase price exceeds $800,000.

Extension of Five-Year NOL Carryback The Act liberalizes rules relating to business net operating losses (NOLs) by extending the prior law's temporary fiveyear carryback of NOLs to apply to 2009 NOLs. The Act also provides an expansion of the five-year carryback's availability to include generally all businesses, not just eligible small businesses.

Under prior law, for NOLs arising in tax years ending after December 31, 2007, an eligible small business could temporarily elect to increase the NOL carryback period for an applicable 2008 loss from a previous limit of two years to up to five years. (This carryback allows a business to use the loss to offset net income realized in an earlier year, thus qualifying for a refund for that prior year.) Generally, an eligible small business is a trade or business whose average three-year annual gross receipts are $15 million or less, ending with the tax year in which the loss arises.

The Worker, Homeownership, and Business Assistance Act of 2009 liberalizes the previous NOL provision by extending the five-year election to most businesses, as opposed to limiting it to only eligible small businesses.

Subject to the "only one election" rule, an applicable NOL arising from a business's 2008 or 2009 calendar year, or that of a fiscal year beginning in 2007, 2008, or 2009, can be carried back to the third, fourth, or fifth preceding tax year. The NOL carryforward period of 20 years is not modified under the Act.

Limitation on NOL Amount The Act generally limits the amount of an NOL that can be carried back to the fifth tax year prior to the loss to 50% of the taxpayer's taxable income for that fifth preceding tax year.

Doeren Mayhew Can Help The Worker, Homeownership, and Business Assistance Act of 2009 contains other important tax provisions, including modifications to failure-to-file penalties for pass-through entities (such as partnerships), and an extension of the FUTA surtax. Our professionals can help you understand how the new law's provisions apply to you or your business. Please call Doeren Mayhew today at (248) 244-3000 for more information.

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Monday, November 16, 2009

Tax Rules Affecting Telecommuting: Doeren Mayhew

[Doeren Mayhew]

Increasingly, businesses across the country are finding that allowing employees to telecommute can be a win-win situation. Employees can gain more flexibility in their work life. Employers can reduce overhead expenses, secure talent beyond the business’ immediate geographic vicinity, and even accomplish contingency planning objectives. The value of these cost-saving measures and business enhancements are amplified during trying economic times. An overview of the federal tax rules applicable to telecommuters and those who employ them can help identify possible opportunities available when certain employees work off site.

Deducting Home Office Expenses

Types of Expenses. Federal income-tax rules generally categorize telecommuting expenses as either direct or indirect in nature. Direct expenses are those that relate only to the portion of the telecommuter’s home that is actually used as a home office. Such expenses may include improving or repairing the actual work space.

Indirect expenses may relate to both the personal portion of the home as well as the home office. Common examples of indirect expenses include real estate taxes, homeowner insurance premiums, and repairs benefiting the entire home.

Regular and Exclusive Use.

Various tests must be satisfied in order for an employee to be able to deduct the direct expenses and the business portion of indirect expenses relating to a home office. The tax law requires that the home office be used regularly and exclusively as a principal place of business or as a place to meet or deal with customers or clients in the ordinary course of business. As a practical matter, employees don’t commonly use a home office to meet with clients. Accordingly, deductions may be limited to situations where the home office is used regularly and exclusively as the employee’s principal place of business.

In situations where an employee works from home full-time, the principal-place-of-business test is usually easily met. However, if one’s time is split between the home and an outside office, federal tax rules generally state that the test is also satisfied if administrative or management activities are performed at the home office to the exclusion of other fixed locations.

For the Convenience of the Employer.

An employee must also be able to show that the use of a home office is for the convenience of the employer. This test is generally considered to have been met if the employer requests that the employee work from home. Alternatively, this test is also considered satisfied if the employee is not in the office on a regular basis due to the nature of his or her work.

Ultimately, the “convenience” test is determined by the facts and circumstances of the employment arrangement. In general, if the employee requests to telecommute, it commonly results in not having satisfied the test. However, the particular circumstances may show

that the arrangement was established for the benefit of the employer, despite the fact that the employee chose to telecommute. For example, if the employer looks for volunteers to telecommute for legitimate business purposes and the employee volunteers, that arrangement could qualify as being for the employer’s convenience.

How Tax Benefits Are Claimed

If an employee qualifies to claim various deductions relating to the business use of a home office, he or she would do so on Schedule A, Form 1040, as a miscellaneous itemized deduction subject to a 2%-of-adjusted-gross-income (AGI) floor. Tax rules limit the ability of a taxpayer-

employee to claim telecommuting expenses to the extent the business deductions exceed his or her gross income for the tax year.

An employer may choose to reimburse an employee for expenses incurred relating to office supplies and equipment, as well as for utilities and maintenance expenses allocable to the home office (with the employer potentially claiming a deduction for the reimbursements). Or the employer may provide the telecommuting employee with necessary supplies and equipment and, accordingly, claim an ordinary business expense deduction.

As a general rule, it is advantageous for an expense or reimbursement arrangement to qualify as an “accountable plan.” Otherwise, adverse income-tax consequences may flow to both your business and the employee.

Computers and Other Equipment

If a telecommuting employee purchases a computer or other equipment and uses it exclusively for business-related purposes, he or she may depreciate or expense the item, subject to a 2%-of-AGI limitation. If, on the other hand, the employer provides such equipment, the employer may claim appropriate deductions as if the item were located in the employer’s regular offices. Wholly unrelated expenditures, such as those relating to general landscaping or improving a room that is not used exclusively for home office purposes, are not deductible under the federal tax rules.

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Tuesday, November 10, 2009

Doeren Mayhew Employees Recognized For Philanthropic Activities

PHILANTHROPY AWARDS from Karmanos Cancer Institute

These awards recognize individuals who dedicate resources and talents to benefit the cause of breast cancer.

Dawn Jasinski and Sharon Hemmen
Sharon Hemmen and Dawn Jasinski – Individual Awards
Dawn Jasinski and Sharon Hemmen were co-workers at Doeren Mayhew. Hemmen, who lives in Sterling Heights, was involved in the Komen Detroit Race for the Cure® since 2004, after her treatment for breast cancer. Jasinski, an Oxford resident, signed up for the Breast Cancer 3-Day walk benefitting Susan G. Komen for the Cure in 2005 after her mother was diagnosed with breast cancer. That same year, a co-worker passed away from a long battle with breast cancer. When Doeren Mayhew agreed to match all employee donations, it took Jasinski’s and Hemmen’s fundraising to a level they never imagined. That was the kick-start of their enthusiasm for fundraising and in 2006, they started a small team with family members, called “D.A.S.H. for a Cure” (Dawn and Sharon’s Hope), which now has 11 members.

Quotes: “We are co-captains of our D.A.S.H. for a Cure team of breast cancer survivors and family members. Each year, we wonder if we will meet our goal, and each year we are amazed that we always exceed our expectations. The fantastic people on the race committee and the accomplishments of the brilliant doctors at Karmanos, along with the steady increase in survival rates, make our hard work all worthwhile!” – Sharon Hemmen

“Over the past five years, I have been involved with breast cancer fundraising (mainly Komen Detroit Race for the Cure® and the Breast Cancer 3-Day). I really got involved when my mother was diagnosed with breast cancer in 2005. Prior to that, my aunt, grandmother and my fundraising partner Sharon had also been diagnosed. It seemed I knew more and more people each year who were affected by this disease. It was then that I knew I had to help raise money to find a cure for breast cancer. In these economic times, I find it so hard to continue fundraising year after year. And then I see all the benefits and progress that is made through Karmanos and local fundraising groups. That is what keeps me going. The support and encouragement I get each year goes a long way – hopefully long enough to one day find a cure.” – Dawn Jasinski