Professor Can't Use Mileage Log Created After-the-Fact:
Here's a story from a recent tax court case that should be a lesson for us all (Daniel-Berhe v. Comm'r, T.C. Summary 2013-33 (4/29/13)).
A professor, who taught at five different schools, could not deduct vehicle expenses related to traveling to the various schools because he did not adequately substantiate the remainder of his car and truck expenses. A mileage log created after the year at issue could not be used to substantiate his travel expenses. The mileage had to be entered at the time the vehicle was used, the court stated. In addition, the taxpayer provided no evidence to corroborate entries in the mileage log for random trips to the schools other than testimony that he made various trips to prepare for the semester. The court was unable to verify whether these trips were for business or were personal and thus denied the related expense deductions. However, the court concluded that the taxpayer had a genuine misunderstanding of the law and thus held that the taxpayer was not liable for the accuracy-related penalties. [Code Sec. 162].
The Code and Regulations clearly state that a contemporaneous log must be maintained for your mileage records, not one created a year after-the-fact. Here the court clearly upheld the letter of the IRS Regulations and denied the deduction for business travel expenses. Lesson learned!
The Fiscal Cliff Tax Bill
Congress has sent what I'm calling the Fiscal Cliff Tax Bill to the President for his signature this morning. I expect that he will sign the bill and it will become tax law. Here are some of the important areas that are included in the bill.
Congress passed a permanent Alternative Minimum Tax (AMT) patch, adjusted for inflation! This patch is made retroactive to 2012 and it is an important, permanent, change to the AMT formula; and making provisions of the AMT adjust for inflation means that this alternative-tax system we have will likely not be a middle-income tax problem in the future.
Now, looking at the changes for 2013 and beyond, the top income tax rate goes to 39.6% (from 35%) and it will be imposed on individuals making more than $400,000 at year ($450,000 for a married couple). The capital gains reported by those affected by the higher rates will now be taxed at 20% (instead of 15%). Also, gone immediately, is the 2% Social Security reduction for everyone. This means that if you are an employee the Social Security withheld from your wages beginning January 1st will be the full 6.2% instead of the lower 4.2% of 2012.
For taxpayers who itemize, the old "itemized deduction phase-out" is reinstated as is the personal exemption phase-out. The thresholds where these phase-outs happen is different than it was in the past. For 2013 the phase outs begin with Adjusted Gross Income (AGI) of $300,000 for married, joint filing taxpayers, $275,000 for head of household and $250,000 for single filers.
The estate tax system will continue forward and the exemption is an inflation-adjusted $5 million (effectively $10 million for married couples). The tax rate on estates will now go to 40%, which is up from the 2012 rate of 35%,
The following tax credits were extended: the $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit and the enhanced American Opportunity Tax Credits are all extended through 2017.
In addition to the above items, these deductions and exclusions are extended through 2013:
o Discharge of qualified personal residence exclusion;
o $250 above-the-line teacher deduction;
o Mortgage insurance premiums treated as personal residence interest:
o Deduction for state and local taxes;
o Above-the-line deduction for tuition; and
o IRA-to-Charity exclusion (plus special provisions allowing transfers made in January 2013 to be treated as made in 2012).
The legislation also included the following business provisions –
o The Research Credit and the production tax credits, among others, will be extended through 2013;
o 15-year depreciation and Section 179 expensing allowed on qualified real property through 2013;
o Work Opportunity Credit extended through 2013;
o Bonus depreciation extended through 2013; and
o Section 179 deduction limitation is $500,000 for 2012 and 2013.
This is a typical tax bill in that it contained lots of completely non-tax provisions and so-called port-barrell spending but, hey, they got something out! As we analyze the bill's provisions in more depth we will keep you informed and alerted to tax planning and saving moves you can make.
Taxpayers can deduct automobile expenses as ordinary and necessary costs of doing business and the Internal Revenue Code and Regulations allow either itemized expenses to be deducted or a standard mileage rate to be deducted. Each year, sometimes more than once, the IRS updates the standard rate for businesses and other deductible automobile uses. For 2013, the IRS has said that the following mileage allowance will be used: 56.5 cents per mile for business miles driven. The 2013 rate is 1 cent higher than the 2012 rate. So you have the option of computing the actual costs of using your vehicle or using the 56.5 cents per mile standard rate in 2013.
There are some specific rules, of course, that you need to follow in order to be able to use the standard mileage rate, so we suggest that you consult your tax adviser before making any changes to what you are doing for 2012.
There are standard mileage rates for other than business use of your car, and those other standard rates and uses are as follows:
Medical or moving expenses: 24 cents per mile
Charitable use of your personal vehicle: 14 cents per mile