Dear friends of RC Jones & Associates
Keeping detailed records of employee travel expenses is a hassle. But there's a way your business can simplify matters without any tax downside: Use the IRS-approved "per diem rates. This way, employees don't have to account for every last cup of coffee or cab ride. The reimbursements are tax-free to the employees up to certain prescribed limits.
Furthermore, your company can deduct the per-diem reimbursements in full. One exception: The usual 50% deduction limit on meal expenses still applies.
The per-diem allowances are actually the approved travel rates for U.S. government employees, but the IRS also allows companies to take advantage of them. However, the per diem rates cannot be used for an employee who owns more than 10% of the company.
Employers have a choice between two per diem rates. The first is based on the specific travel destination of the employee. The General Services Administration (GSA) sets the following each year:
• The per diem rates for the 48 states in the contiguous United States and the District of Columbia (the "CONUS" rates)
• The per diem rates for areas outside the contiguous United States such as Alaska, Hawaii, Puerto Rico and U.S. possessions (the "OCONUS" rates); and
• The per diem rates for areas in foreign countries.
The second method identifies each city as either a "high-cost" or "low-cost" area. The GSA adjusts the per diems for both areas each year. It recently announced the new rates and high-cost areas in effect for the government's 2010 fiscal year.
The IRS often challenges deductions for business travel expenses, so it’s extremely important to meet all the requirements in this area. If you’re unsure of the obligations or opportunities, Our staff can assist your firm in implementing the new per-diem rates.
Call us at (816) 792-9966 to streamline your recordkeeping procedures.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Wednesday, November 18, 2009
NEW MORTGAGE INTEREST BREAK
Dear friends of RC Jones & Associates
The tax law permits generous deductions for mortgage interest paid in connection with "acquisition debt" and "home equity debt" of a qualified residence. Now a new ruling from the IRS says that you can combine these two breaks on an initial mortgage (IRS Chief Counsel Advice 200940030).
Under the tax law, "acquisition debt" is any debt incurred to acquire, construct or substantially improve a qualified residence. The residence may be the principal residence or one other home like a vacation home. But qualified acquisition debt can't exceed $1 million ($500,000 for married taxpayers filing separately).
On the other hand, "home equity debt" is debt secured by the residence that is not acquisition debt, up to a limit of $100,000 ($50,000 for married taxpayers filing separately). Home equity debt can't exceed the difference between the property's fair market value and the amount of the acquisition debt. Unlike acquisition debt, home equity debt may be used for any purpose.
Generally, home equity debt is incurred after the original mortgage has been arranged. For instance, you may take out a home equity debt a few years after buying a home to pay for college, medical expenses or emergencies.
In the new ruling, a taxpayer purchased a principal residence for $1.5 million, paying $200,000 in cash and borrowing $1.3 million through a loan secured by the residence. After carefully examining the law, the IRS characterized an extra $100,000 above the $1 million threshold as home equity debt rather than acquisition debt. Therefore, the taxpayer can effectively deduct interest paid on up to $1.1 million of the initial mortgage debt.
Although this is an extreme example, there may be other tax-saving opportunities you are not aware of. Call us at (816) 792-9966 to arrange a personal consultation. We may be able to find tax savings that have been overlooked.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
The tax law permits generous deductions for mortgage interest paid in connection with "acquisition debt" and "home equity debt" of a qualified residence. Now a new ruling from the IRS says that you can combine these two breaks on an initial mortgage (IRS Chief Counsel Advice 200940030).
Under the tax law, "acquisition debt" is any debt incurred to acquire, construct or substantially improve a qualified residence. The residence may be the principal residence or one other home like a vacation home. But qualified acquisition debt can't exceed $1 million ($500,000 for married taxpayers filing separately).
On the other hand, "home equity debt" is debt secured by the residence that is not acquisition debt, up to a limit of $100,000 ($50,000 for married taxpayers filing separately). Home equity debt can't exceed the difference between the property's fair market value and the amount of the acquisition debt. Unlike acquisition debt, home equity debt may be used for any purpose.
Generally, home equity debt is incurred after the original mortgage has been arranged. For instance, you may take out a home equity debt a few years after buying a home to pay for college, medical expenses or emergencies.
In the new ruling, a taxpayer purchased a principal residence for $1.5 million, paying $200,000 in cash and borrowing $1.3 million through a loan secured by the residence. After carefully examining the law, the IRS characterized an extra $100,000 above the $1 million threshold as home equity debt rather than acquisition debt. Therefore, the taxpayer can effectively deduct interest paid on up to $1.1 million of the initial mortgage debt.
Although this is an extreme example, there may be other tax-saving opportunities you are not aware of. Call us at (816) 792-9966 to arrange a personal consultation. We may be able to find tax savings that have been overlooked.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
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