The IRS has issued proposed and temporary regulations under Code Sec. 530A, regarding general requirements for Trump accounts, the establishment of an initial account, including automatic enrollment by the Secretary of the Treasury, and qualified general contributions. Proposed regulations issued in March 2026 (NPRM REG-117270-25) that provided guidance on establishing Trump accounts, but did not establish automatic enrollment due to time constraints in resolving legal and administrative issues, are withdrawn. The temporary regulations apply to tax years beginning on or after January 1, 2026, and expire on September 30, 2029.

The IRS has issued proposed and temporary regulations under Code Sec. 530A, regarding general requirements for Trump accounts, the establishment of an initial account, including automatic enrollment by the Secretary of the Treasury, and qualified general contributions. Proposed regulations issued in March 2026 (NPRM REG-117270-25) that provided guidance on establishing Trump accounts, but did not establish automatic enrollment due to time constraints in resolving legal and administrative issues, are withdrawn. The temporary regulations apply to tax years beginning on or after January 1, 2026, and expire on September 30, 2029.

General Requirements and Establishment of an Account

A Trump account is either (1) an initial Trump account, created or organized by the Treasury Secretary for an eligible individual or (2) a rollover Trump account, which is an account created during the growth period and funded by a qualified rollover contribution from the account beneficiary's existing Trump account. The written governing instrument of a Trump account must generally meet the rules of Code Sec. 408(a)(1) through (6) and Code Sec. 530A(b)(1)(C)(i) through (iii). Any person approved by the IRS as of December 31, 2025, to be a nonbank trustee of an IRA would have automatic approval to act as a trustee of a Trump account. The written instrument must clearly identify the account as a Trump account at the time of creation.

The Secretary may make an election to establish an auto account for a qualifying individual. Another person may elect to establish a Trump account for an eligible individual by filing Form 4547 or via the electronic application or webpage made available by the Secretary. A person may claim an auto account pursuant to Temp. Reg. §1.530A-1T(d)(1)(iv) by establishing a claimed initial Trump account and having the funds in the auto account transferred to the claimed initial Trump account. On or about October 1, 2026, the Secretary shall establish an auto account for each person whom the Secretary has determined to meet the requirements of Temp. Reg. §1.530-A-1T(b)(2) to be an eligible individual, and from whom no prior election has been made. Periodic elections to establish accounts for eligible individuals will be made after that date.

Administration of an auto account is the Secretary's responsibility. During the growth period, an account may only accept qualified general contributions under Code Sec. 530A(f) and a $1,000 pilot program contribution. An auto account's only investment must be its equitable interest in the master group trust, which is a trust established for the exclusive benefit of account beneficiaries of auto accounts for purposes of holding investments of those auto accounts and meets the applicable requirements of Rev. Rul. 81-100, as modified, and is exempt from tax under Code Sec. 408(e).

Qualified General Contributions and Qualified Stock Contributions

Temp. Reg. §1.530A-7T establishes the framework for qualified general contributions to Trump accounts. A qualified general contribution must originate from an eligible donor, be accepted by the Secretary through a Treasury acceptance agreement, be made to beneficiaries within an approved class, and be allocated equally among all beneficiaries in that class. An approved class must include at least 5,000 account beneficiaries and include all account beneficiaries who are still in their growth period, reside in the specified geographic location, and born in one or more years identified in the Treasury acceptance agreement.

The regulations also create rules for qualified stock contributions, allowing eligible donors to contribute certain publicly traded stock issued by domestic corporations directly to Trump accounts. Such stock is generally subject to a minimum holding period ending on the earlier of five years after contribution or the beneficiary’s growth period ending.

Contributions made to qualifying Code Sec. 501(c)(3) organizations to fund general funding contributions are deductible under applicable charitable deduction rules, and gifts to eligible donor organizations are treated as qualifying charitable transfers. A Code Sec. 501(c)(3) organization furthers its exempt purposes by making a qualifying general funding contribution, whether directly or through a donor-advised fund. In addition, such contributions are treated as expenditures for charitable purposes and generally are not considered grants or distributions to individuals for purposes of the private foundation and donor-advised fund expenditure responsibility rules.

T.D. 10056

CC-00226466-26

The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

• 1. the special transportation industry meal and incidental expenses (M&IE) rates,
• 2. the rate for the incidental expenses only deduction,
• 3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

• 1. the special transportation industry meal and incidental expenses (M&IE) rates,
• 2. the rate for the incidental expenses only deduction,
• 3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates

The special M&IE rates for taxpayers in the transportation industry are:

• $80 for any locality of travel in the continental United States (CONUS), and
• $86 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate

The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method

For purposes of the high-low substantiation method, the 2026-2027 special per diem rates are:

• $329 for travel to any high-cost locality, and
• $230 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

• $86 for travel to any high-cost locality, and
• $74 for travel to any other locality within CONUS

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

• $86 for travel to any high-cost locality, and
• $74 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

Notice 2025-54, I.R.B. 2025-41, 479 is superseded.

Notice 2026-60

For 2027, the Social Security wage cap will be $192,300, and Social Security and Supplemental Security Income (SSI) benefits will increase by 3.6 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2027, the Social Security wage cap will be $192,300, and Social Security and Supplemental Security Income (SSI) benefits will increase by 3.6 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2027, the wage base is $192,300. Thus, OASDI tax applies only to the taxpayer’s first $192,300 in wages or net earnings from self-employment. Taxpayers do not pay OASDI tax on earnings that exceed $192,300.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2027

For workers who earn $192,300 or more in 2027:

• an employee will pay a total of $11,922.60 in social security tax ($192,300 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $23,845.20 in social security tax ($192,300 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2027

Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2027 by 3.6 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

Social Security Fact Sheet: 2027 Social Security Changes

SSA Press Release: Social Security Announces 3.6 Percent Benefit Increase for 2027

The IRS established the IRA Compliance Resolution System (ICRS) to permit IRA owners and custodians to correct failures related to individual retirement arrangements by submitting a request to the IRS. Failures eligible for ICRS include required minimum distribution failures and nonspouse beneficiary rollover failures. The revenue procedure will also govern requests for waivers from the 60-day rollover requirement from IRAs as well as qualified employer-sponsored plans. The revenue procedure is effective May 1, 2027.

The IRS established the IRA Compliance Resolution System (ICRS) to permit IRA owners and custodians to correct failures related to individual retirement arrangements by submitting a request to the IRS. Failures eligible for ICRS include required minimum distribution failures and nonspouse beneficiary rollover failures. The revenue procedure will also govern requests for waivers from the 60-day rollover requirement from IRAs as well as qualified employer-sponsored plans. The revenue procedure is effective May 1, 2027.

Self-Correction Not Available

The new system implements provisions of the SECURE 2.0 Act of 2022, P.L. 117-328, requiring expansion of the Employee Plans Compliance Resolution System (EPCRS) for qualified retirement plans to allow IRA custodians to address eligible inadvertent failures involving IRAs. The new ICRS consists of the IRA Voluntary Correction Program (IVCP), although additional correction programs may be introduced later. Self-correction of IRA failures is not currently available under ICRS. Instead, the IRA custodian or owner must make a submission to the IRS using the provided procedures and pay a fee on the Pay.gov website.

60-Day Rollover Waiver Requests

The procedure also establishes a process for requesting waivers of the 60-day rollover requirement under Code Secs. 402 and 408 through ICRS. During 2027, eligible applicants may request waivers through either ICRS or the existing private letter ruling process. Beginning in 2028, the IRS anticipates that such requests will be permitted only under ICRS.

Waiver requests may involve eligible rollover distributions from IRAs, qualified retirement plans, annuity plans, tax-sheltered annuities and governmental deferred compensation plans. Automatic waivers and waiver relief under previous guidance remains available.

Rev. Proc. 2026-33

The IRS updated the Employee Plans Compliance Resolution System (EPCRS), its comprehensive system of corrections programs for employer-sponsored qualified retirement plans. The updates reflect significant changes to EPCRS made by the SECURE 2.0 Act (P.L. 117-328) and subsequent guidance. Former procedures under Rev. Proc. 2021-30 are modified and superseded. The revised procedures are effective October 22, 2026.

The IRS updated the Employee Plans Compliance Resolution System (EPCRS), its comprehensive system of corrections programs for employer-sponsored qualified retirement plans. The updates reflect significant changes to EPCRS made by the SECURE 2.0 Act (P.L. 117-328) and subsequent guidance. Former procedures under Rev. Proc. 2021-30 are modified and superseded. The revised procedures are effective October 22, 2026.

The bulk of the changes in the revised procedures reflect the SECURE 2.0 Act’s expansion of EPCRS’s Self Correction Program component to permit self-correction of eligible inadvertent failures, including plan loan failures. Other changes made by SECURE 2.0 and incorporated into the revised EPCRS include safe harbor corrections under Code Sec. 414(cc) and the recovery of retirement plan overpayments under Code Sec. 414(aa).

Other changes made in the revised revenue procedure include:

• References to the availability of a separate compliance resolution system for IRA failures.
• Updates reflecting changes to the determination letter and opinion letter programs.
• Revisions to correction methods for SEPs and SIMPLE IRA plans.
• Revisions to procedures for locating lost participants.
• Revisions to the correction principle for failure to obtain spousal consent.
• Changes to the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP), such as revised procedures for a group submission under VCP.

Rev. Proc. 2026-34

The IRS has issued final regulations under Code Sec. 6311 implementing changes made by the Taxpayer First Act. The regulations permit the IRS to pay fees under contracts for processing tax payments by credit or debit card, provided the fees are fully recouped from taxpayers making those payments. The regulations remove restrictions on the IRS’s payment of fees under such contracts and on the imposition of reimbursement fees on persons paying taxes by credit or debit card.

The IRS has issued final regulations under Code Sec. 6311 implementing changes made by the Taxpayer First Act. The regulations permit the IRS to pay fees under contracts for processing tax payments by credit or debit card, provided the fees are fully recouped from taxpayers making those payments. The regulations remove restrictions on the IRS’s payment of fees under such contracts and on the imposition of reimbursement fees on persons paying taxes by credit or debit card.

Payment Processing Fees

The regulations authorize the IRS to enter into contracts for receiving tax payments by credit or debit card if the contracts are cost beneficial to the government. Under certain contracts, the IRS may pay fees, charges, or other monetary consideration to payment processors. If the IRS pays fees under these contracts, it must recoup the full amount from taxpayers making payments by credit or debit card. The reimbursement fees are payable at the time of, and in addition to, the tax payment and are limited to the amounts paid by the IRS under the contracts. The IRS must seek to minimize the fees paid under these arrangements.

Under other contracts, the IRS may elect not to pay fees to payment processors. Such arrangements do not prohibit card issuers, financial institutions, or other persons participating in the transactions from imposing their own fees or charges. The IRS may not receive any portion of those fees.

Error Resolution Procedures

Payments of taxes by credit or debit card, including reimbursement fees paid under the regulations, are subject to applicable error-resolution procedures under the Truth in Lending Act, the Electronic Fund Transfer Act, or similar state or local laws. These procedures apply to errors relating to the credit or debit card account but do not apply to disputes, errors, or adjustments concerning the underlying tax liability. Reimbursement fees paid under the regulations are not taxes imposed by the Internal Revenue Code and are not eligible for refund or credit under Code Sec. 6402.

Applicability

The final regulations amend existing regulations under Code Sec. 6311 to implement changes made by the Taxpayer First Act. The rules apply to tax payments and reimbursement fees made on or after the date of publication in the Federal Register.

T.D. 10060

The IRS has issued proposed and temporary regulations providing guidance on the new federal scholarship tax credit under Code Sec. 25F. Beginning after 2026, an individual may claim a nonrefundable federal income tax credit for contributions to certified scholarship granting organizations (SGOs) issuing scholarships to students in K-12 schools. The regulations clarify how the credit is calculated, including the treatment of state tax credits, credit carryforwards, and substantiation requirements. They also establish immediate administrative rules for SGOs and states that opt into the program and identify SGOs.

The IRS has issued proposed and temporary regulations providing guidance on the new federal scholarship tax credit under Code Sec. 25F. Beginning after 2026, an individual may claim a nonrefundable federal income tax credit for contributions to certified scholarship granting organizations (SGOs) issuing scholarships to students in K-12 schools. The regulations clarify how the credit is calculated, including the treatment of state tax credits, credit carryforwards, and substantiation requirements. They also establish immediate administrative rules for SGOs and states that opt into the program and identify SGOs.

Credit Eligibility and Calculation

An individual may claim a credit for qualified cash contributions made directly to eligible SGOs. The annual credit is generally limited to $1,700 per taxpayer or $3,400 for married individuals filing jointly. Contributions made through pass-through entities, including partnerships and S corporations, are not eligible for the credit. The taxpayer must reduce the federal tax credit by the amount of any state tax credit attributable to the same contribution before applying the federal limitation. Unused credit amounts may be carried forward for up to five years.

A taxpayer claiming the credit may not claim a charitable contribution deduction for the same contribution and must satisfy specified substantiation and reporting requirements. This includes use of a unique donor identification number on new Form 8525. The taxpayer donor must designate contributions as eligible for the credit at the time they are made. Once made, the designation is irrevocable.

A taxpayer may contribute to an eligible SGO regardless of their state of residence, allowing them to support qualifying SGOs across participating states.

Scholarship Granting Organizations

To qualify as an SGO, an organization must be recognized as a tax-exempt public charity, maintain separate accounts for qualified contributions and scholarship funds, and devote at least 90 percent of required expenditures to scholarships. SGOs must verify student eligibility, ensure scholarship funds are used solely for qualified elementary and secondary education expenses, and adopt procedures to prevent scholarships from benefiting disqualified persons. The regulations also require SGOs to register with the IRS, furnish acknowledgments to contributors, file annual reports, and maintain records demonstrating compliance with federal requirements.

State Participation

A state may elect to participate the federal scholarship tax program either through an advanced election or through the submission of a state SGO list. A state seeking to participate must annually certify eligible SGOs and provide the IRS with information demonstrating that the organizations satisfy federal requirements. The IRS will maintain and publish a nationwide list of eligible SGOs upon which taxpayers may generally rely when making contributions and claiming credits.

Applicability

Taxpayers, SGOs, and states may rely on the proposed regulations for qualified contributions beginning on or after January 1, 2027. The temporary regulations apply on or after September 1, 2026, and expire on October 1, 2029.

T.D. 10057

Proposed Regulations, NPRM REG-117199-25

IR 2026-117

The Treasury Department and IRS have issued proposed regulations under Code Sec. 1062 governing the election to pay tax attributable to gain from qualified sales or exchanges of qualified farmland property in four annual installments. The proposed regulations define qualified farmland property and qualified farmers, provide rules for making the election, and address pass-through entities and acceleration events.

The Treasury Department and IRS have issued proposed regulations under Code Sec. 1062 governing the election to pay tax attributable to gain from qualified sales or exchanges of qualified farmland property in four annual installments. The proposed regulations define qualified farmland property and qualified farmers, provide rules for making the election, and address pass-through entities and acceleration events.

Qualified Farmland Property

Qualified farmland property generally is U.S. real property that was used by the taxpayer as a farm for farming purposes, or leased to a qualified farmer for farming purposes, during substantially all of the 10 years preceding the sale or exchange. The property also must be subject to a covenant prohibiting nonfarm use for 10 years following the sale or exchange. A copy of the covenant must be attached to the taxpayer's return for the taxable year of the sale or exchange.

The proposed regulations provide that certain periods of nonuse will be disregarded in applying the 10-year farming use requirement. These include periods during which property is removed from production under a government program, pursuant to recognized farming practices, or because of unforeseen events outside the taxpayer's control, provided the property continues to be maintained for farming purposes.

Election and Installment Payments

Taxpayers would make the election by filing Form 1062, Deferral of Tax on Gain from the Sale or Exchange of Qualified Farmland Property to Qualified Farmers, and Schedule A (Form 1062). Once made, the election generally may be revoked only by paying the remaining unpaid applicable net tax liability. Each installment payment equals 25 percent of the taxpayer's applicable net tax liability. The first installment generally must be paid by the return due date, determined without regard to the extensions, for the taxable year of the sale or exchange.

Pass-Through Entities and Acceleration Events

Under the proposed regulations, partners, S corporation shareholders, beneficiaries, and other owners generally may make the election with respect to applicable net tax liability arising from a qualified sale or exchange by a pass-through entity. Pass-through entities must furnish Schedule A information and the covenant to owners and beneficiaries and report each owner's allocable share of gain.

The proposed regulations also provide rules accelerating unpaid installment payments following certain events. Acceleration events include failure to timely pay an installment, the death of an individual taxpayer, and certain liquidations, dispositions of substantially all assets, and other specified events involving corporations, trusts, and estates. The proposed regulations also provide procedures under which an eligible transferee may assume the remaining installment obligations in certain transactions.

The proposed regulations would apply to qualified sales and exchanges occurring in taxable years ending after publication of final regulations in the Federal Register. Taxpayers may rely on the proposed regulations for qualified sales and exchanges occurring in taxable years beginning after July 4, 2025, provided they apply the rules consistently and in their entirety. Treasury and the IRS requested comments on the proposed regulations and requests for a public hearing within 60 days after publication in the Federal Register.

Proposed Regulations, NPRM REG-117095-25

IR 2026-115

As the excitement of understanding what artificial intelligence can do for the tax profession starts to subside, the conversation is beginning to shift to risk management and risk assessment. To that end, the American Institute of CPAs has launched a new initiative – the Council on AI Risk in Tax (CART) – to help tax professionals manage risk.

As the excitement of understanding what artificial intelligence can do for the tax profession starts to subside, the conversation is beginning to shift to risk management and risk assessment. To that end, the American Institute of CPAs has launched a new initiative – the Council on AI Risk in Tax (CART) – to help tax professionals manage risk.

CART was born out of a risk assessment framework recently developed by former IRS Commissioner Daniel Werfel that was published by AICPA after asking representatives of state tax authorities what he could do for them following his departure from the IRS.

“They said, ‘you know Danny, we are seeing so many interesting, exciting demos of AI products that really have paradigm-shifting productivity … but we don’t know what the risks are. We don’t know what questions we should ask ourselves to make sure that, as a tax authority, we are ready to deploy these powerful AI tools responsibly,” Werfel, senior fellow at Johns Hopkins University School of Government & Policy, said in an interview, adding that they also inquired about questions they should be asking vendors about safety features and other risks they should be looking out for.

“I did some immediate research and learned that there wasn’t an AI risk framework or risk register specific to tax,” he added, leading him develop version one of the recently published risk framework.”

From there, he approached AICPA as the place to publish the framework and through those conversations, created CART as a place for tax professionals and state tax administrators to collaborate on AI risk and further refine the framework.

“With AI, it’s obviously new,” Melanie Lauridsen, AICPA vice president of tax policy and advocacy, added. It’s ever evolving. There’s a huge interest. There’s a lot of unknowns, and there’s nothing really out there right now beyond what I have seen what Danny put forward to help guide people in this area.”

The Framework

The published framework states that it is more than a simple list of “relevant risks. The formulation and activation of the list means the organization has learned to:

• Define how risks show up in practice;

• Assign controls;

• Establish indicators; and

• Make course corrections as the environment evolves.

In this way the register is part of a broader risk governance framework to help organizations chart a sensible path forward from strategy to implementation.”

The publication includes distinct frameworks for both tax authorities and tax preparers. For tax authorities, the publication highlights 20 risk areas across four categories:

• Information integrity – The wrong information reaching taxpayers at scale.
• Fairness and legitimacy – Disparate or unfair treatment across groups.
• Security and data – Compromised systems, corrupted data, or the exploitation of sensitive taxpayer information at AI systems aggregate, surface, or make newly accessible to band actors.
• Institutional capacity – Loss of the knowledge and capacity by the institution needed to govern AI responsibility over time.

For tax preparers, there are 15 risk areas across 5 categories:

• Technical – Incorrect or unreliable AI outputs that establish the conditions for downstream errors.
• Practice – Failures of professional judgement, documentation, or oversight.
• Legal and regulatory – Increased exposure to legal liability (e.g., malpractice claims, regulatory sanctions).
• Business – Erosion of client trust and firm relationships.
• Workforce and Strategic – Loss of the expertise and institutional knowledge needed to practice responsibly.

The framework “establishes a notional risk register for tax authorities and presents that side-by-side with a distinct register for tax preparers,” the framework document states. “It also identifies important areas of overlap across the two.”

A Living Framework

Werfel noted that this is not intended to be a one-and-done framework, but rather a living document that he anticipates will be updated on a regular basis.

“I wanted to give myself six months of feedback and iteration,” he said. “I told CART at our kickoA meeting [that] once we issue version two after six months, then I think it’s an annual [update] from there. But in this form, version one to version two, I wanted to put a little bit more accelerated because that’s the highest risk point for it missing something big in the risk register itself.”

Lauridsen add that convening CART regularly and discussing risks and best practices associated with those risks and updating the framework “is the right approach” as opposed to trying to build a firm set of standards for risk assessment and risk management of AI.

“We don’t know what it’ll be in a month, two months, much less six months or a year,” Lauridsen said, noting the fast evolution AI is currently experiencing. “I think it would be a disservice to come forward with a standard right now.”

She continued: “Right now, it’s more best practices. Everybody’s trying to get their minds and arms around it and how to implement it.”

Werfel added that the feedback will be very important when the framework goes through future iterations, as the CART members will be able to report back when the framework works and more importantly, when it “missed the bullseye” by the cross section of accounting, law firms, government associations and AI vendors.

“My hope is that if it’s oA bullseye, we’ll hear about it and update it,” Werfel said.

He did not rule out seeing the framework converted into an industry standard somewhere down the line, but for now, the focus is to just keep this a framework that users can use as a best practices guide to assessing risks of AI tools that states and practitioners are considering for implementation.

In the near term, Werfel said that an idea was floated to CART to make a voluntary pledge to follow the framework that CART produces. It would be completely voluntary, but a pledge to follow it would be “hopefully helpful to rally attention to AI risk.”

By Gregory Twachtman, Washington News Editor

The IRS has released the 2017 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2017, and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2017.

The IRS has released the 2017 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes. The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2017, and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2017.

Business mileage rate

Beginning on January 1, 2017, the standard mileage rates for the use of a car, van, pickup or panel truck used in a business is:

• 53.5 cents per mile for business miles driven (down from 54 cents in 2016);
• 17 cents per mile for medical and moving expenses (down from 19 cents in 2016); and
• 14 cents per mile for miles driven for charitable purposes (permanently set by statute at 14 cents).
• Comment. The business rate had increased by 1.5 cents in 2015 and then dropped 4 cents in 2016, while the medical and moving rates dropped slightly (by 0.5 cents) in 2015 and then more significantly by four cents in 2016. With gas prices dropping and vehicle prices holding steady in 2016, when statistics for the 2017 rates are gathered, the optional mileage rates for business expenses for 2017 dropped to their lowest levels over five years.

Comment. As an alternative to the optional mileage rates, taxpayers can use the actual expense method. Actual expenses include expenditures for gas, oil, repairs, tires, insurance, registration fees, licenses, and other qualified costs, including depreciation. Other items, however, such as parking fees and tolls may also be deductible. A taxpayer may not use the business standard mileage rate after using a depreciation method under Code Sec. 168 or after claiming the Code Sec. 179 first-year expensing deduction for that vehicle. A taxpayer also may not use the business rate for more than four vehicles at a time.

Other amounts

For automobiles used for business, a taxpayer must use 23 cents per mile as the portion of the standard mileage rate treated as depreciation for 2017 for purposes of later determining any gain or loss on a subsequent sale. For prior years, these amounts are 24 cents for 2016 and 2015; 22 cents for 2014; and 23 cents for both 2012 and 2013.

To compute the allowance under a fixed and variable rate (FAVR) plan for 2017, the standard automobile cost may not exceed $27,900 for cars or $31,300 for trucks and vans (down from $28,000 for cars for 2016 but up slightly for trucks and vans from $31,000 for 2016).

The Surface Transportation Act of 2015: Tax Provisions (enacted on Jul. 31, 2015) provided for major changes in certain tax return deadlines. To allow for a transition period for taxpayers to adjust to the new due dates, the new filing deadlines carried a delayed effective date: for tax returns for tax years starting on or after January 1, 2016. As a result, the upcoming 2017 filing season is the first year these changes will take place.

The Surface Transportation Act of 2015: Tax Provisions (enacted on Jul. 31, 2015) provided for major changes in certain tax return deadlines. To allow for a transition period for taxpayers to adjust to the new due dates, the new filing deadlines carried a delayed effective date: for tax returns for tax years starting on or after January 1, 2016. As a result, the upcoming 2017 filing season is the first year these changes will take place.

Partnerships

The due date for partnerships to file Form 1065, U.S. Return of Partnership Income and Schedule K-1s, Partner's Share of Income, is moving this year from April 15 to March 15 (or to the 2½ months after the close of its tax year). This will be the same filing deadline now in place for S corporations.

The shift to a March 15 deadline will better enable partners, like current S corporation shareholders, to receive their Schedules K-1 in time to report that information on their Form 1040 before its April 15 due date. Many partners in the past had been forced to file for a six-month extension to file their Form 1040s.

Note: The traditional April 15, 2017 deadline falls on a Saturday and because Washington, D.C., will celebrate Emancipation Day the following Monday, April 17, 2017, the filing deadline has been pushed to Tuesday, April 18, 2017.

C Corporations

The filing deadline for regular C corporations is moving this year from March 15 (or the 15^th day of the 3^rd month after the end of its tax year) to April 15 (or the 15^th day of the 4th month after the end of its tax year). One exception: For C corporations with tax years ending on June 30, the filing deadline will remain at September 15 until tax years beginning after December 31, 2025, when it will become October 15.

Further, an automatic six-month extension will be available for C corporations, except for calendar-year C corporations through 2025, during which an automatic five-month extension until September 15 will generally apply. The stop-gap bill also instructs the IRS to modify regulations to provide for a variety of extensions-to-file rules, including, among others, a 6-month extension of Form 1065 to September 15 for calendar-year partnerships; and 5½ months ending September 30 for calendar-year trusts filing Form 1041.

FBARs

The new law also aligns the FBAR (Report of Foreign Bank and Financial Accounts) due date with the due date for individual returns, moving it from June 30 to April 15.

A new year may find a number of individuals with the pressing urge to take stock, clean house and become a bit more organized. With such a desire to declutter, a taxpayer may want to undergo a housecleaning of documents, receipts and papers that he or she may have stored over the years in the event of an IRS audit. Year to year, fears of an audit for claims for tax deductions, allowances and credits may have led to the accumulation of a number of tax related documents—many of which may no longer need to be kept.

A new year may find a number of individuals with the pressing urge to take stock, clean house and become a bit more organized. With such a desire to declutter, a taxpayer may want to undergo a housecleaning of documents, receipts and papers that he or she may have stored over the years in the event of an IRS audit. Year to year, fears of an audit for claims for tax deductions, allowances and credits may have led to the accumulation of a number of tax related documents—many of which may no longer need to be kept.

However, it is of extreme importance for tax records to support the income, deductions and credits claimed on returns. Therefore, taxpayers must keep such records in the event the IRS inquires about a return or amended return.

Return-related documents

Generally, the IRS recommended that a taxpayer keep copies of tax returns and supporting documents at least three years. However, the IRS noted, there are some documents that should be kept for up to seven years, for those instances where a taxpayer needs to file an amended return or if questions may arise. As a rule of thumb, taxpayers should keep real estate related records for up to seven years following the disposition of property.

Health care related documents

Although health care information statements should be kept with other tax records, taxpayers are to remember that such statements do not need to be sent to the IRS as proof of health coverage. Records that taxpayers are strongly encouraged to keep include records of employer-provided coverage, premiums paid, advance payments of the premium tax credit received and the type of coverage held. As with other tax records, the IRS recommended that taxpayers keep such information for three years from the time of filing the associated tax return.

Last year’s return

Taxpayers are encouraged to keep a copy of last year’s return. The IRS, in efforts to thwart tax related identity theft and refund fraud, continues to make changes to authenticate and protect taxpayer identity in online return-related interactions. Beginning in 2017, some taxpayers who e-file will need to enter either the prior-year adjusted gross income or the prior-year self-select PIN and date of birth—information associated with the prior year’s return—to authenticate their identity.

Good recordkeeping is essential for individuals and businesses before, during, and after the upcoming tax filing season.

Good recordkeeping is essential for individuals and businesses before, during, and after the upcoming tax filing season.

First, the law actually requires taxpayers to retain certain records for a specified number of years, for example tax returns or employment tax records (for employers).

Second, good recordkeeping is essential for taxpayers while preparing their tax returns. The Tax Code frequently requires taxpayers to substantiate their income and claims for deductions and credits by providing records of various profits, expenses and transactions.

Third, if a taxpayer is ever audited by the IRS, good recordkeeping can facilitate what could be a long and invasive process, and it can often mean the difference between a no change and a hefty adjustment.

Finally, business taxpayers should maintain good records that will enable them to track the trajectory of their success over the years.

Here you will find a sample list of various types of records it would be wise to retain for tax and other purposes (not an exhaustive list; see this office for further customization to your particular situation):

Individuals

Filing status:

Marriage licenses or divorce decrees – Among other things, such records are important for determining filing status.

Determining/Substantiating income:

State and federal income tax returns – Tax records should be retained for at least three years, the length of the statute of limitations for audits and amending returns. However, in cases where the IRS determines a substantial understatement of tax or fraud, the statute of limitations is longer or can remain open indefinitely.

Paystubs, Forms W-2 and 1099, Pension Statements, Social Security Statements – These statements are essential for taxpayers determining their earned income on their tax returns. Taxpayers should also cross reference their wage and income reports with their final pay stubs to verify that their employer has reported the correct amount of income to the IRS.

Tip diary or other daily tip record – Taxpayers that receive some of their income from tips should keep a daily record of their tip income. Under the best circumstances, taxpayers would have already accurately reported their tip income to their employers, who would then report that amount to the IRS. However, mistakes can occur, and good recordkeeping can eliminate confusion when tax season arrives.

Military records – Some members of the military are exempt from state and/or federal tax; combat pay is exempt from taxation, as are veteran’s benefits. (In many cases, a record of military service is necessary to obtain veteran’s benefits in the first place.)

Copies of real estate purchase documents – Up to $500,000 of gain from the sale of a personal residence may be excludable from income (generally up to $250,000 if you are single). But if you own a home that sold for an amount that produces a greater amount of gain, or if you own real estate that is not used as your personal residence, you will need these records to prove your tax basis in your home; the greater your basis, the lower the amount of gain that must be recognized.

Individual Retirement Account (IRA) records – Funds contributed to Roth IRAs and traditional IRAs and the earnings thereon receive different tax treatments upon distribution, depending in part on when the distribution was made, what amount of the contributions were tax deferred when made, and other factors that make good recordkeeping desirable.

Investment purchase confirmation records – Long-term capital gains receive more favorable tax treatment than short-term capital gains. In addition, basis (generally the cost of certain investments when purchased) can be subtracted from gain from any sale. For these reasons, taxpayers should keep records of their investment purchase confirmations.

Substantiating deductions:

Acknowledgments of charitable donations – Cash contributions to charity cannot be deducted without a bank record, receipt, or other means. Charitable contributions of $250 or more must be substantiated by a contemporaneous written acknowledgment from the qualified organization that also meets the IRS requirements.

Cash payments of alimony – Payments of alimony may be deductible from the gross income of the paying spouse . . . if the spouse can substantiate the payments and certain other criteria are met.

Medical records – Disabled taxpayers under the age of 65 should keep a written statement from a qualified physician certifying they were totally disabled on the date of retirement.

Records of medical expenses – Certain unreimbursed medical expenses in excess of 10 percent of adjusted gross income may be deductible. Caution: a pending tax-reform proposal may change the deductibility of these expenses.

Mortgage statements and mortgage insurance – Mortgage interest and real estate taxes have generally deductible for taxpayers who itemize rather than claim the standard deduction. Caution: a pending tax-reform proposal may change the deductibility of these expenses.

Receipts for any improvements to real estate – Part or all of the expense of certain energy efficient real estate improvements can qualify taxpayers for one or more tax credits.

Keeping so many records can be tedious, but come tax-filing season it can result in large tax savings. And in the case of an audit, evidence of good recordkeeping can get you off to a good start with the IRS examiner handling the case, can save time, and can also save money. For more information on recordkeeping for individuals, please contact our offices.

Businesses

Taxpayers are required by law to keep permanent books of account or records that sufficiently substantiate the amount of gross income, deductions, credits and other amounts reported and claimed on any their tax returns and information returns.

Although, neither the Tax Code nor its regulations specify exactly what kinds of records satisfy the record-keeping requirements, here are a few suggestions:

State and federal income tax returns – These and any supporting documents should be kept for at least the period of limitations for each return. As with individual taxpayers, the limitations period for business tax returns may be extended in the event of a substantial understatement or fraud.

Employment taxes – The Tax Code requires employers to keep all records of employment taxes for at least four years after filing for the 4th quarter for the year. Generally these records would include wage payments and other payroll-related records, the amount of employment taxes withheld, reported tip income, identification information for employees and other payees; employees’ dates of employment; income tax withholding allowance certificates (Forms W-4, for example), fringe benefit payments, and more.

Business income – These would go toward substantiating income, and could include cash register tapes, bank deposit slips, a cash receipts journal, annual financial statements, Forms 1099, and more.

Inventory costs – Businesses should keep records of inventory purchases. For example, if an electronics company purchases a certain number of widgets for resale or a manufacturer purchases a certain number of ball bearings for use in the production of industrial equipment that it manufactures and sells. The costs of these goods, parts, or other materials can be deducted from sales income to significantly reduce tax liability.

Business expenses – Ordinary and necessary expenses for carrying on business, such as the cost of rental office space, are also generally deductible from business income. Such expenses can be substantiated through bank statements, canceled checks, credit card receipts or other such records. The cost of making certain improvements to a business, such as through buying equipment or renovating property, can also be deductible.

Electronic back-up

Paper records can take up a great deal of storage space, and they are also vulnerable to destruction in fires, floods, earthquakes, or other natural phenomena. Because records are required to substantiate most income, deductions, property values and more—even when they no longer exist—taxpayers (and especially business taxpayers) should digitize their records on an electronic storage system and keep a back-up copy in a secure location.

Business taxation can be extremely complicated, and the requirements for recordkeeping vary greatly depending on the size of the business, the form of organization chosen, and the type of industry in which the business operates. For more details on your specific situation, please call our offices.

You may have done some spring cleaning and found that you have a lot of clothes that you no longer wear or want, and would like to donate to charity. Used clothing that you want to donate to charity and take a charitable deduction for, however, is subject to a few rules and requirements.

Under IRS guidelines, clothing, furniture, and other household items must be in good used condition or better, to be deductible. Shirts with stains or pants with frayed hems just won't cut it. Furthermore, if the item(s) of used clothing are not in good used condition or better, and you wish to deduct more than $500 for a single piece of clothing, the IRS requires a professional appraisal.

For donations of less than $250, you must obtain a receipt from the charity, reflecting the donor's name, date and location of the contribution, and a reasonably detailed description of the donation. It is your responsibility to obtain this written acknowledgement of your donation.

Used clothing contributions worth more than $500

If you are deducting more than $500 with respect to one piece of used clothing you donate, you must file Form 8283, Noncash Charitable Contributions, with the IRS. For donated items of used clothing worth more than $500 each, you must attach a qualified appraisal report is to your tax return. The Form 8283 asks you to include information such as the date you acquired the item(s) and how you acquired the item(s) (for example, were the clothes a holiday gift or did you buy the items at the store).

Determining the fair market value of used clothing

You may also need to include the method you used to determine the value of the used clothing. According to the IRS, the valuation of used clothing does not necessarily lend itself to the use of fixed formulas or methods. Typically, the value of used clothing that you donate, is going to be much less than you when first paid for the item. A rule of thumb, is that for items such as used clothing, fair market value is generally the price at which buyers of used items pay for used clothing in consignment or thrift stores, such as the Salvation Army.

To substantiate your deduction, ask for a receipt from the donor that attests to the fact that the clothing you donated with in good, used condition, or better. Moreover, you may want to take pictures of the clothing.

If you need have questions about valuing and substantiating your charitable donations, please contact our office.

The IRS allows taxpayers with a charitable inclination to take a deduction for a wide range of donated items. However, the IRS does provide specific guidelines for those taxpayers contributing non-cash items, from the type of charity you can donate to in order to take a deduction to the quality of the goods you contribute and how to value them for deduction purposes. If your summer cleaning has led, or may lead, you to set aside clothes and other items for charity, and you would like to know how to value these items for tax purposes, read on.

Household items that can be donated to charitable, and for which a deduction is allowed, include:

• Furniture;
• Furnishings;
• Electronics;
• Appliances;
• Linens; and
• Similar items.

The following are not considered household items for charitable deduction purposes:

• Food;
• Paintings, antiques, and other art objects;
• Jewelry; and
• Collections.

Valuing clothing and household items

Many people give clothing, household goods and other items they no longer need to charity. If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value (FMV) of the property at the time of the contribution. However, if the property has increased in value since you purchased it, you may have to make some adjustments to the amount of your deduction.

You can not deduct donations of used clothing and used household goods unless you can prove the items are in "good," or better, condition; and in the case of equipment, working. However, the IRS has not specifically set out what qualifies as "good" condition.

Fair market value is the amount that the item could be sold for now; what you originally paid for the clothing or household item is completely irrelevant. For example, if you paid $500 for a sofa that would only get you $50 at a yard sale, your deduction for charitable donation purposes is $50 (the sofa's current FMV). You cannot claim a deduction for the difference in the price you paid for the item and its current FMV.

To determine the FMV of used clothing, you should generally claim as the value the price that a buyer of used clothes would pay at a thrift shop or consignment store.

Comment. In the rare event that the household item (or items) you are donating to charity has actually increased in value, you will need to make adjustments to the value of the item in order to calculate the correct deductible amount. You may have to reduce the FMV of the item by the amount of appreciation (increase in value) when calculating your deduction.

Good faith estimate

All non-cash donations require a receipt from the charitable organization to which they are donated, and it is your responsibility as the taxpayer, not the charity's, to make a good faith estimate of the item's (or items') FMV at the time of donation. The emphasis on valuation should be on "good faith." The IRS recognizes some abuse in this area, yet needs to balance its public ire with its duty to encourage legitimate donations. While the audit rate on charitable deductions is not high, it also is not non-existent. You must be prepared with reasonable estimates for used clothing and household goods, high enough so as not to shortchange yourself, yet low enough to prevent an IRS auditor from threatening a penalty.

In any event, if the FMV of any item is more than $5,000, you will need to obtain an appraisal by a qualified appraiser to accompany your tax form (which is Form 8283, Noncash Charitable Contributions). When dealing with valuables, an appraisal helps protect you as well as the IRS.

If you have questions about the types of items that you can donate to charity, limits on deductibility, or other general inquiries about charitable donations and deductions, please contact out office.

If you've made, or are planning to make, a big gift before the end of 2009, you may be wondering what your gift tax liability, if any, may be. You may have to file a federal tax return even if you do not owe any gift tax. Read on to learn more about when to file a federal gift tax return.

When you must file

Most gifts you make are not subject to the gift tax. Generally, you must file a gift tax return, Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply to gifts you have made, or will make, in 2009:

• Gifts you give to another person (other than your spouse) exceed the $13,000 annual gift tax exclusion for 2009.
• You and your spouse are splitting a gift.
• You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy or receive income from until some time in the future.

Remember, filing a gift tax return does not necessarily mean you will owe gift tax.

Gifts that do not require a tax return

You do not have to file a gift tax return to report three types of gifts: (1) transfers to political organizations, (2) gift payments that qualify for the educational exclusion, or (3) gift payments that qualify for the medical payment exclusion. Although medical expenses and tuition paid for another person are considered gifts for federal gift tax purposes, if you make the gift directly to the medical or educational institution, the payment will be non-taxable. This applies to any amount you directly transfer to the provider as long as the payments go directly to them, not to the person on whose behalf the gift is made.

Unified credit

Even if the gift tax applies to your gifts, it may be completely eliminated by the unified credit, also referred to as the applicable credit amount, which can eliminate or reduce your gift (as well as estate) taxes. You must subtract the unified credit from any gift tax you owe; any unified credit you use against your gift tax in one year will reduce the amount of the credit you can apply against your gift tax liability in a later year. Keep in mind that the total credit amount that you use against your gift tax liability during your life reduces the credit available to use against your estate tax.

Let's take a look at an example:

In 2009, you give your nephew Ben a cash gift of $8,000. You also pay the $20,000 college tuition of your friend, Sam. You give your 30-year-old daughter, Mary, $25,000. You also give your 27-year-old son, Michael, $25,000. Before 2009, you had never given a taxable gift. You apply the exceptions to the gift tax and the unified credit as follows:

• The qualified education tuition exclusion applies to the gift to Sam, as payment of tuition expenses is not subject to the gift tax. Therefore, the gift to Sam is not a taxable gift.
• The 2009 annual exclusion applies to the first $13,000 of your gift to Ben, Mary and Michael, since the first $13,000 of your gift to any one individual in 2009 is not taxable. Therefore, your $8,000 gift to Ben, the first $13,000 of your gift to Mary, and the first $13,000 of your gift to Michael are not taxable gifts.
• Finally, apply the unified credit. The gift tax will apply to $24,000 of the above transfers ($12,000 remaining from your gift to Mary, plus $12,000 remaining from your gift to Michael). The amount of the tax on the $24,000 is computed using IRS tables for computing the gift tax, which is located in the Instructions for Form 709. You would subtract the tax owe on these gifts from your unified credit of $345,800 for 2009. The unified credit that you can use against the gift tax in a later year (and against any estate tax) will thus be reduced. If you apply the unified credit to the amount of gift tax owe in 2009, you may not have to pay any gift tax for the year. Nevertheless, you will have to file a Form 709.

Filing a gift tax return

You must report the amount of a taxable gift on Form 709. For gifts made in 2009, the maximum gift tax rate is 45 percent. You can make an unlimited number of tax-free gifts in 2009, as long as the gifts are not more than $13,000 to each person or entity in 2009 (or $26,000 if you and your spouse make a gift jointly), without having to pay gift taxes on the transfers.

If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses, you may be able to write-off a larger percentage of your business-related automobile costs.

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If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses, you may be able to write-off a larger percentage of your business-related automobile costs.

Regardless of the type of record keeper you consider yourself to be, there are numerous ways to simplify the burden of logging your automobile expenses for tax purposes. This article explains the types of expenses you need to track and the methods you can use to properly and accurately track your car expenses, thereby maximizing your deduction and saving taxes.

Expense methods

The two general methods allowed by the IRS to calculate expenses associated with the business use of a car include the standard mileage rate method or the actual expense method. The standard mileage rate for 2017 is 53.5 cents per mile. In addition, you can deduct parking expenses and tolls paid for business. Personal property taxes are also deductible, either as a personal or a business expense. While you are not required to substantiate expense amounts under the standard mileage rate method, you must still substantiate the amount, time, place and business purpose of the travel.

The actual expense method requires the tracking of all your vehicle-related expenses. Actual car expenses that may be deducted under this method include: oil, gas, depreciation, principal lease payments (but not interest), tolls, parking fees, garage rent, registration fees, licenses, insurance, maintenance and repairs, supplies and equipment, and tires. These are the operating costs that the IRS permits you to write-off. For newly-purchased vehicles in years in which bonus depreciation is available, opting for the actual expense method may make particularly good sense since the standard mileage rate only builds in a modest amount of depreciation each year. For example, for 2017, when 50 percent bonus depreciation is allowed, maximum first year depreciation is capped at $11,160 (as compared to $3,160 for vehicles that do not qualify). In general, the actual expense method usually results in a greater deduction amount than the standard mileage rate. However, this must be balanced against the increased substantiation burden associated with tracking actual expenses. If you qualify for both methods, estimate your deductions under each to determine which method provides you with a larger deduction.

Substantiation requirements

Taxpayers who deduct automobile expenses associated with the business use of their car should keep an account book, diary, statement of expenses, or similar record. This is not only recommended by the IRS, but essential to accurate expense tracking. Moreover, if you use your car for both business and personal errands, allocations must be made between the personal and business use of the automobile. In general, adequate substantiation for deduction purposes requires that you record the following:

• The amount of the expense;
• The amount of use (i.e. the number of miles driven for business purposes);
• The date of the expenditure or use; and
• The business purpose of the expenditure or use.

Suggested recordkeeping: Actual expense method

An expense log is a necessity for taxpayers who choose to use the actual expense method for deducting their car expenses. First and foremost, always keep your receipts, copies of cancelled checks and bills paid. Maintaining receipts, bills paid and copies of cancelled checks is imperative (even receipts from toll booths). These receipts and documents show the date and amount of the purchase and can support your expenditures if the IRS comes knocking. Moreover, if you fail to log these expenses on the day you incurred them, you can look back at the receipt for all the essentials (i.e. time, date, and amount of the expense).

Types of Logs. Where you decide to record your expenses depends in large part on your personal preferences. While an expense log is a necessity, there are a variety of options available to track your car expenditures - from a simple notebook, expense log or diary for those less technologically inclined (and which can be easily stored in your glove compartment) - to the use of a smartphone or computer. Apps specifically designed to help track your car expenses can be easily downloaded onto your iPhone or Android device.

Timeliness. Although maintaining a daily log of your expenses is ideal - since it cuts down on the time you may later have to spend sorting through your receipts and organizing your expenses - this may not always be the case for many taxpayers. According to the IRS, however, you do not need to record your expenses on the very day they are incurred. If you maintain a log on a weekly basis and it accounts for your use of the automobile and expenses during the week, the log is considered a timely-kept record. Moreover, the IRS also allows taxpayers to maintain records of expenses for only a portion of the tax year, and then use those records to substantiate expenses for the entire year if he or she can show that the records are representative of the entire year. This is referred to as the sampling method of substantiation. For example, if you keep a record of your expenses over a 90-day period, this is considered an adequate representation of the entire year.

Suggested Recordkeeping: Standard mileage rate method

If you loathe recordkeeping and cannot see yourself adequately maintaining records and tracking your expenses (even on a weekly basis), strongly consider using the standard mileage rate method. However, taking the standard mileage rate does not mean that you are given a pass by the IRS to maintaining any sort of records. To claim the standard mileage rate, appropriate records would include a daily log showing miles traveled, destination and business purpose. If you incur mileage on one day that includes both personal and business, allocate the miles between the two uses. A mileage record log, whether recorded in a notebook, log or handheld device, is a necessity if you choose to use the standard mileage rate.

If you have any questions about how to properly track your automobile expenses for tax purposes, please call our office. We would be happy to explain your responsibilities and the tax consequences and benefits of adequately logging your car expenses.

No, taxpayers may destroy the original hardcopy of books and records and the original computerized records detailing the expenses of a business if they use an electronic storage system.

Business often maintain their books and records by scanning hardcopies of their documents onto a computer hard drive, burning them onto compact disc, or saving them to a portable storage device. The IRS classifies records stored in this manner as an "electronic storage system." Businesses using an electronic storage system are considered to have fulfilled IRS records requirements for all taxpayers, should they meet certain requirements. And, they have the freedom to reduce the amount of paperwork their enterprise must manage.

Record-keeping requirements

Code Sec. 6001 requires all persons liable for tax to keep records as the IRS requires. In addition to persons liable for tax, those who file informational returns must file such returns and make use of their records to prove their gross income, deductions, credits, and other matters. For example, businesses must substantiate deductions for business expenses with appropriate records and they must file informational returns showing salaries and benefits paid to employees.

It is possible for businesses using an electronic storage system to satisfy these requirements under Code Sec. 6001. However, they must fulfill certain obligations.

Paperwork reduction

In addition, using an electronic storage system may allow businesses to destroy the original hardcopy of their books and records, as well as the original computerized records used to fulfill the record-keeping requirements of code Sec. 6001. To take advantage of this option, taxpayers must:

(1) Test their electronic storage system to establish that hardcopy and computerized books and records are being reproduced according to certain requirements, and

(2) Implement procedures to assure that its electronic storage system is compliant with IRS requirements into the future.

Our firm would be glad to work with you to meet the IRS's specifications, should you want to establish a computerized recordkeeping system for your business. The time spent now can be worth considerable time and money saved by a streamlined and organized system of receipts and records.