We are celebrating ten years in business this week. On March 31, 2003, Jansen & Jansen, dba Padgett Business Services, a Colorado entity, was incorporated while we lived in Massachusetts. Diana, my wife, and I had decided to make Colorado Springs our home and we were going to start a business. Diana has helped me out in a limited capacity since. We are happy to have served the small business community in Colorado Springs for ten years, and we could not have done it without you, our clients.
Thank you for permitting us to be of service.
In Chief Counsel Advice (CCA), the IRS has determined that mobile billboards are tangible personal property and thus qualify for the Code Sec. 199 domestic production activities deduction. For 2012, the domestic producer deduction is 9% of the lesser of the business's qualified production activities income or taxable income, and the domestic producer deduction cannot exceed 50% of the wages paid and reported on form W-2s by the business for the year.
The following are examples of activities that qualify for the domestic producer deduction: Manufacture, production, growth or extraction of tangible personal property (e.g. goods, food, agricultural products), computer software, production of electricity, natural gas, construction or substantial renovation of residential and commercial buildings and infrastructure by taxpayer engaged in the construction business.
Back to billboards: Traditional and modern billboards are real property and hence not qualified for the deduction.
The sale of a principal residence is typically not reported on a taxpayer’s return because the taxpayer can exclude up to $250,000 ($500,000 if married) of gain from the sale of the personal residence. In short, if the individual(s) have owned and used the residence for at least two of the five years prior to the sale, the gain ($250,000 if single or $500,000 if married) is excluded. If married, either or both of the spouses must have owned the principal residence for at least two of the last five years prior to the sale.
Similarly or maybe because the gain is not taxable, a loss is not deductible. However, there are exceptions. For example, in the case where part of your home is rented or used exclusively for your business.
Many income tax forms are not yet ready from the Internal Revenue Service. The one that affects most of our clients is form 4562 for depreciation and amortization. This will simply mean that the income tax returns cannot be filed until the forms are released. For your convenience, below is a list of forms on hold at this time.
• Form 3800 General Business Credit
• Form 4136 Credit for Federal Tax Paid on Fuel
• Form 4562 Depreciation and Amortization (Including Information on Listed Property)
• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
• Form 5735 American Samoa Economic Development Credit
• Form 5884 Work Opportunity Credit
• Form 6478 Credit for Alcohol Used as Fuel
• Form 6765 Credit for Increasing Research Activities
• Form 8820 Orphan Drug Credit
• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
• Form 8844 Empowerment Zone and Renewal Community Employment Credit
• Form 8845 Indian Employment Credit
• Form 8864 Biodiesel and Renewable Diesel Fuels Credit
• Form 8874 New Markets Credits
• Form 8900 Qualified Railroad Track Maintenance Credit
• Form 8903 Domestic Production Activities Deduction
• Form 8908 Energy Efficient Home Credit
• Form 8909 Energy Efficient Appliance Credit
• Form 8910 Alternative Motor Vehicle Credit
• Form 8911 Alternative Fuel Vehicle Refueling Property Credit
• Form 8912 Credit to Holders of Tax Credit Bonds
• Form 8923 Mine Rescue Team Training Credit
• Form 8932 Credit for Employer Differential Wage Payments
• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit
The IRS has announced a simplified safe harbor method that individuals may use to compute the home office deduction. I like this alternative for the business owners with a home office. It will make it much simpler and result in less busy work which will help you focus on growing your business instead of spending it on documenting expenses. The safe harbor is an alternative to the calculation and allocation of actual expenses otherwise required under IRC Sec. 280A . The new optional deduction is limited to $1,500 per year based on a rate of $5 multiplied by the square footage of the home used for business purposes up to 300 square feet.
Under the safe harbor, (1) no depreciation deduction for the portion of the home used in a business is allowed for the year, (2) [here is a trap] disallowed amounts carried over from a prior tax year where the taxpayer calculated and substantiated actual expenses may not be deducted in a year in which the safe harbor is used, (3) taxpayers may elect the method from year to year, and (4) all requirements of Section 280A must continue to be satisfied in determining eligibility to claim a deduction. More than three million taxpayers took advantage of the home office deduction.
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