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The Minnesota Department of Revenue is calling a time-out for its computer systems this weekend.

The tax-collecting agency has announced that its e-Services and other online systems will be down for “scheduled maintenance” from 8 a.m. Saturday (12/6) to noon on Sunday (12/7).

So, if you were planning to work online with Revenue, you might want to just log off and take a rest from all those numbers.

Just so you know, DOR says the downtime does not affect any deadlines for filing and paying taxes. They all still apply.

Of course, feel free to browse at the EricJohn Ltd. website this weekend.

We’ve entered December and the season for filing 2014 taxes looms just ahead.

But what if you have dawdled too long with your 2013 income tax return? Can you still file by computer?

Well, that depends on your type of return.

Before Nov. 23, an individual taxpayer still could have submitted a federal 1040 electronically – although he/she probably would have to pay a late penalty along with any taxes owed.  Now, the IRS has closed the e-filing window for those 2013 returns.

However, businesses, partnerships, etc., still can catch up. They can e-file 2013 income tax returns before Dec. 26.

Why the deadlines?  The Internal Revenue Service needs to update its computers to process 2014 tax forms, which will start arriving in January.

Check with us at EricJohn Ltd. or your tax advisor for more details about filing times, future or past!

On Veterans Day, we remember that many thousands of soldiers, sailors, Marines and Air Force and Coast Guard members are drawing pensions and disability payments following their service to our country.

Eric recently helped a veteran sort out the tax issues involved in that military-related pay. We thought we’d pass this guidance along to others who might be thinking ahead to their 2014 tax returns.  It’s a summary of benefits and taxability from the U.S. Army’s Web site.

Our client had retired from the regular Army. But this site also offers fact sheets for Army reservists and for Army National Guard members in active status, as well. You can find them at http://myarmybenefits.us.army.mil/Home/Benefit_Library/Federal_Benefits_Page/Federal_Taxes_on_Veterans_Disability_or_Military_Retirement_Pensions.html.

Like so many other Americans, we also thank any military veterans who might be reading this for their service and sacrifices!

Here’s the U.S. Army’s fact sheet about retirement and disability pay.

Federal Taxes on Veterans Disability or Military Retirement Pensions

Summary:

Military retirement pay based on age or length of service is considered taxable income for federal income taxes. However, military disability retirement pay and veterans benefits, including service-connected disability pension payments, may be partially or fully excluded from taxable income.

Eligibility:

Soldiers with service-connected disabilities may be eligible for Federal income tax exclusions of veterans’ benefits and disability pension payments.

Benefit Highlights:

Military Retirement Pay

Military retirement pay based on age or length of service is taxable and must be included as income for federal income taxes. The amount a retiree pays to participate in the Survivors Benefit Plan (SBP) is excluded from taxable income. For Social Security tax purposes, military retirement pay is not considered earned income and no Social Security payroll taxes (also known as Federal Insurance Contributions Act (FICA) taxes) are withheld from military retirement pay.

Military Disability Retirement Pay received as a pension, annuity or similar allowance for personal injury or sickness resulting from active service in the armed forces should not be included in taxable income if any of the following conditions apply:

1.    You were entitled to receive a disability payment before September 25, 1975;

2.    You were a member of the military (active or reserves) or were under a binding written commitment to become a member on September 24, 1975;

3.    You receive disability payments for a combat-related injury. This is a personal injury or sickness that:

• Resulted directly from armed conflict,
• Took place while you were engaged in extra-hazardous service,
• Took place under conditions simulating, including training exercises such as maneuvers, or
• Was caused by an instrumentality of war.

4.    You would be entitled to receive disability compensation from the Department of Veterans Affairs (VA) if you filed an application for it (the exclusion under this condition equals the amount you would be entitled to from the VA).

Veterans Benefits

Veterans benefits are also excluded from federal taxable income. The following amounts paid to veterans or their families are not taxable:

• Education, training, and subsistence allowances.
• Disability compensation and pension payments for disabilities paid either to veterans or their Families.
• Grants for homes designed for wheelchair living.
• Grants for motor vehicles for veterans who lose their sight or use of their limbs.
• Veterans insurance proceeds and dividends paid either to veterans or their beneficiaries, including the proceeds of a veteran’s endowment policy paid before death.
• Interest on insurance dividends left on deposit with the VA.
• Benefits under a dependent-care assistance program.
• The death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001.
• Payments made under the compensated work therapy program.
• Any bonus payment by a state or political subdivision because of service in a combat zone.

Retroactive VA disability determination

If you retire from the Army based on years of service and are later given a retroactive service-connected disability rating by the VA, your retirement pay is excluded from income up to the amount of the VA disability benefits you would have been entitled to receive. You can claim a refund on any taxes paid on the excludable amount by filling an amended return on Form 1040x for each previous year during the retroactive period (subject to statute of limitations).

You may exclude 100% of any severance benefit from your income if you receive a lump-sum disability severance payment and are later awarded VA disability benefits. However, any lump-sum readjustment or other non-disability severance payment you receive upon your release from active duty must be included in your income even if you are later given a retroactive disability rating by the VA.

The statute of limitations for claims of retroactive disability is generally within 3 years of when a tax return was filed. However, in cases where a retroactive service-connected disability rating determination is received, the statute of limitations is extended by a 1-year period from the date of determination for claims for credit or refund that are filed after June 17, 2008. This special statute does not apply to any tax year that began more than 5 years prior to the date of determination.

Additional Information:

For more information, please visit Internal Revenue Servuce Publication 525, “Taxable and Nontaxable Income,” Special Rules for Certain Employees/Military regarding fderal taxes on military retirement pay or veterans benefits maintained by the Internal Revenue Service. See http://www.irs.gov/publications/p525/index.html

RV really does mean “recreational vehicle” to the Internal Revenue Service. An RV probably can’t make the grade as a business office – at least not if it’s lived in.

The owners of Dell Jackson Insurance Services of California tried to persuade the IRS that their business dealings at motor home rallies qualified them for tens of thousands of dollars in deductions on their RVs in both 2006 and 2007. The write-offs included more than $60,000 for depreciation of a new Winnebago in 2007.

The couple clearly was doing business. Dellward and Judith Jackson strung up a Dell Jackson Insurance banner on the RV, set up a table at the weekend events,   gathered sales leads and eventually generated insurance policies from contacts. In fact, the U.S. Tax Court (which decided their case in August) actually figured that the insurance-selling couple spent about two-thirds of their time on business during the rallies.

BUT, they also lived in their RV while at the rallies. Their stays were longer than 14-day limit allowed for business use in federal tax code, making the RV a personal dwelling. In fact, “Any personal use, including watching TV in the RV, makes the entire day a personal day,” the Tax Court’s ruling said. In tax terms, that means no deductions allowed.

Of course, if an RV qualifies as a dwelling, there still might be an exception for a home office, the rule that allows a taxpayer to carve out part of a dwelling for business use. But, the area must be “exclusively used” for business, and the insurance entrepreneurs clearly couldn’t make that argument, according to the decision.

The Tax Court did give some perspective in its ruling.  “Section 280A (the law) casts a wide net in this regard and sometimes catches taxpayers, like petitioners, who in addition to their personal use had genuine business purposes.”

But the decision was straightforward. The RV may have been helpful, but it wasn’t deductible. And, by the way, the couple also owed accuracy-related penalties to the IRS as well as the late taxes.

The case, which was reported by tax information provider Western CPE, is Dellward R. Jackson and Judith N. Jackson v. Comm., T.C. Memo 2014-60.

Whether it’s business on the road or an office at home, we at EricJohn Ltd. can help creative businesses sort out what’s appropriate, tax-wise. Owner Eric Buechler is an enrolled agent recognized by the IRS in tax matters.

The Minnesota Department of Revenue doesn’t make cold calls for tax payments. BUT someone masquerading as a DOR tax collector apparently is dialing numbers in the state.

The tax agency is warning that a phone scammer is calling people and demanding payment of money supposedly owed to the state. The caller also threatens to send police to the person’s home if he/she does not send money by credit card or money order during the call.

You easily can guess that the state doesn’t work that way. The con artist is prospecting for money and, probably, credit card numbers.

The DOR alert sent out an email alert this week about the latest scam. Here are some red flags that scammers are at work on the phone or in emails. The tax agency announced it will NOT:
•Call about an account balance due without first sending mail.
• Demand payments without first sending mail.
• Require payment information over the phone.
• Threaten to involve police in a collection.

 If your shopping cart is piled high with notebooks, pens and other school supplies in the next few weeks, save those cash register receipts – even after the charges have cleared your bank account. There’s a good chance you’ll be able to lower your state tax bill or a receive a bigger refund with them when you file your 2014 tax return.

Minnesota families with children attending grade schools and high schools, as well as home schools, can subtract costs of school supplies and other expenses from incomes on state tax returns.

Even better, some families with limited incomes can qualify for tax credits, the most powerful state tax breaks available. Credits offset state taxes on a dollar-for-dollar basis.

 Most expenses directly related to schooling qualify for either a subtraction or a tax credit. For example, tutoring expenses and rental fees for instruments for music lessons are among the approved items. But non-academic expenses don’t qualify, even if they have a direct connection to the school.  So, athletic gear and team uniforms – except for clothing required for gym classes – don’t make the cut.  There is a $200 limit for computer hardware/ and software expenses, too.

 Those receipts for educational expenses can produce a good-sized return of Minnesota taxes. Using the subtraction, parents can lower income as much as $1,625 or each grade school student and $2,500 per child for junior high and high school students. Taxpayers eligible for credits can reduce their taxes as much as 75 cents for every $1 spent on school supplies. They also can file for refunds even if they do not owe any taxes.

 For a broad look at the education tax breaks, type “K-12” in the search box for the Minnesota Revenue Web site, www.revenue.state.mn.us. It leads to a specialized Web page about them.

 How do you know which expenses will work and which won’t?  Minnesota Revenue offers two fact sheets to help with those details. Look online for Income Tax Fact Sheet 8, called “K-12 Education Credit and Subtraction.”  Eligible expenses for home schooling are spelled out in Income Tax Fact Sheet 8a.

 If you’ll be visiting the Minnesota State Fair this month, you might want to stop in at the Minnesota Revenue booth in the EducationBuilding. The state tax people are offering a special envelope to help parents/guardians hold on to receipts from school supply shopping.

We at EricJohn Ltd. suggest another handy way to track those education expenses. Snap photos of receipts with a cellular phone and store them in an electronic folder for easy reference at tax time.

 

 

 

You might have heard talk about the revival of “bonus,” or special, depreciation for big business purchases. It was lucrative. Until it ended last Dec. 31, taxpayers were able to take a 50 percent write-off from the cost of business equipment in the first tax year of use, far more than normal depreciation.

The U.S. Senate did move to bring it and many other federal tax breaks back to life through 2015 with the Expiring Provisions Improvement, Reform and Efficiency Act of 2014 – nicknamed “EXPIRE” for fun.  The bill even won a motion putting it up for consideration in the full Senate.

But nothing has happened since May. It seems the Senate’s attention to EXPIRE has expired for the time being.

So, while 50 percent bonus depreciation still is possible, it also is languishing a long way from your 2014 business tax return.  You may want to factor that in to equipment buying decisions in the last half of the year.

P.S. In recent years, Minnesota business taxpayers were required to add back 80 percent of this depreciation to state tax returns.

Want to explore some equipment buying scenarios for your 2014 taxes? We’re ready to help. Call or email us at EricJohn Ltd.

 

Soldiers and sailors from Minnesota who served recently in combat zones should keep Oct. 15 in mind. It’s the deadline for claiming a special state tax credit worth $120 for each month in harm’s way.

This year’s filing deadline is the last chance for armed forces members stationed in combat zones any time during 2010. Those serving from 2011 through 2013 still can apply on an ongoing basis, Minnesota Revenue announced.

The tax credit applies to both veterans and to service members on active duty. There are three main requirements:

• Minnesota is the soldier/sailor’s home of record.
• He/she must have served in a combat zone or hazardous duty area during the year of application. (The Internal Revenue Service lists eligible areas at http://www.irs.gov/uac/Combat-Zones.)
• The member must have received combat pay.

Applying takes a single form, M99 (Credit for Military Service in a Combat Zone), for the year involved. The form is available at the Minnesota Revenue Web site. The form asks for proof of service, which members already have or can obtain.

The 2010 credit is $120 for each month in the combat zone, and a partial month counts. So, even a day can qualify for a full month’s benefit! The tax credit can mean hundreds of dollars for active duty, Reserve, National Guard, retired and discharged military men and women from Minnesota. Survivors also can apply on behalf of deceased military members who qualify.

For a complete description of the combat zones tax credit, go to: http://www.revenue.state.mn.us/individuals/individ_income/Pages/Credit_for_Military_Service_in_a_Combat_Zone.aspx.
Minnesota Revenue also details other tax breaks for military on its Web site. .

EricJohn Ltd. can help both active duty members and veterans claim the tax gratitude Minnesota offers for their service.