Author: Eric Buechler

WASHINGTON — The Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Many small business employees may not be familiar with Code Section 1244 or 1202, but they should be.  These are the IRS Code Sections which allow for favorable gain exclusions or larger capital loss allowances on small business stock. 

IRC 1244 – Normally, stock is considered a capital asset and thus the loss is held to no more than $3,000 in any given year.  Section 1244 small business stock allows an owner to take up to a $50,000 loss on his or her stock.  Should both spouses co-own the business, losses up to a $100,000 can be taken.  Utilizing this code section can really help a small business owner’s cash flow!

IRC 1202 – 50% to 100% of the gain on this stock can be excluded from tax.  The rules and tax periods for which this code section can be utilized are tight, but what a great rule!  For example, stock options must be exercised and held for 5 years, not exercised and sold same day for instance.  Thus, one cannot use the grant date as the start date of their stock’s holding period. 

Maybe your stock sale qualifies, or qualified?

Midwest Farmers (MN, IA, SD, ND, NE, MO, AR) have a favorable ruling from 8th Circuit Court Case.  8th Circuit rules in favor of a couple leasing their farm acreage to their “farm corporation”, even though the couple actively participates in the farming activity.  That is, so long as the acreage is rented at it fair market rent.  This structure is set up to minimize the farm corporation’s exposure to self-employment tax and lower overall self-employment tax paid.  IRS disagrees; and will enforce in areas outside the 8th Circuit.

Small Business – S Corporation

 …IRS says, proper administration of your Health Reimbursement Arrangement (HRA) is crucial in obtaining the tax favored treatment when reimbursing shareholders for their medical expenses, including medical insurance premiums. 

 Many are unaware that Medicare premiums are a deductible HRA reimbursement! 

 Also, IRS states the shareholder must include their HRA reimbursements on their Form W-2 to be a valid deduction.

MN Law Change

After June 30, 2012, businesses are no longer required to withhold 2 percent from payments made to individual construction contractors. 

For details, go to our website (www.revenue.state.mn.us) and see “Law Change for Individual Construction Contractors” under the What’s New tab in Withholding Tax or click here.

Accountant Corner’s Comment – Not sure if this is a good thing, or bad?  Compliance was the aim of this law, not making it burdensome for taxpayers.  If compliance was elevated by this law, and more taxpayers paid their fair share, then tax rates should drop.  Simple, right?  Now we just have to create a similar law for politicians, “as of June 30th politicians are not allowed to overspend our hard-earned tax dollars!”

 Retirement Plan Contributions

• Simple IRA made per pay period
• 403(b)(7)/ Roth 403(b)(7) made per pay period
• 401(k)/ Roth 401(k) made per pay period
• Safe Harbor 401(k)/ Roth Safe Harbor 401(k) made per pay period
• Individual K/ Roth Individual K made per pay period

 

Businesses:

Monthly payroll deposits for May due on June 15

 

Retirement Plan Contributions

• Simple IRA made per pay period
• 403(b)(7)/ Roth 403(b)(7) made per pay period
• 401(k)/ Roth 401(k) made per pay period
• Safe Harbor 401(k)/ Roth Safe Harbor 401(k) made per pay period
• Individual K/ Roth Individual K made per pay period

 

Businesses:

Monthly payroll due for April on May 15

 

 Revenue Procedure 2012-26 provides the 2013 inflation adjusted deduction limitations for annual contributions made to a health savings account (HSA) under section 223.  These deduction limitations are updated annually pursuant to section 223(g) to reflect the cost-of-living adjustments.  

Annual contribution limitation

For calendar year 2013, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,250. For calendar year 2013, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $6,450.

High Deductible Health Plan

For calendar year 2013, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,250 for self-only coverage or $12,500 for family coverage.

Effective Date

This revenue procedure is effective for calendar year 2013.