Choose the Tax Form that Best Fits Your Needs

IRS TAX TIP 2010-05

To file your 2009 individual tax return, you’ll have to decide which form to use…unless you e-file. If you file electronically, the software automatically selects the simplest and best form for you. Whether you use e-file or prepare on paper, using the simplest form will help avoid costly errors or processing delays. And remember, if you file electronically, it speeds up the processing of your tax return and the delivery of your refund.

Stuart Rohatiner, CPA, JD

Here are things to consider when deciding which IRS form to file.

Use the 1040EZ if:

•             Your taxable income is below $100,000

•             Your filing status is Single or Married Filing Jointly

•             You and your spouse – if married — are under age 65 and not blind

•             You are not claiming any dependents

•             Your interest income is$1,500 or less

•             You are not claiming the additional standard deduction for real estate taxes, taxes on the purchase of a new motor vehicle, or disaster losses

Use the 1040A if:

•             Your taxable income is below $100,000

•             You have capital gain distributions

•             You claim certain tax credits

•             You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees

               If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. You must use the 1040 if:

•             Your taxable income is $100,000 or more

•             You claim itemized deductions

•             You are reporting self-employment income

•             You are reporting income from sale of property

              All IRS forms, instructions and information about e-file can be found on IRS.gov. 

Resources:

•             Form 1040EZ, Individual Income Tax Return

•             Form 1040A, Individual Income Tax Return

•             Form 1040, Individual Income Tax Return  

 Join our Google Group: Tax Deadlines & Forms! Get all the April 15 information without having to navigate the IRS website. Ask a question, make a comment or a request. You will get help without anyone asking you to buy or download products, newsletters, etc. All inquiries are welcomed!

Stuart Rohatiner, CPA, JD 305-868-3600
www.StuartRohatiner.com
www.CPA4GPR.com
666 71 Street
Miami Beach, FL 33141

Income tax brackets: 2009 Income Tax Rates for Filing Personal Income Taxes

April 15th is just around the corner and many Americans are starting to get serious about filing their 2009 personal income taxes. While preparing your taxes, many Americans are interested in how the tax system works and how the amount of taxes that they are paying is configured. Tax brackets were created by the IRS to determine how much each individual is required to pay in income taxes.

There are six different tax brackets that were created for the 2009 tax year. Each tax bracket has a corresponding tax rate that ranges from 10% up to 35%. The amount that you pay in taxes each year is dependent on the amount that you earned in gross income. One thing is true year after year- the more money that you earn, the more money Uncle Sam will take. The people who file with the highest taxable income are who carry the majority of the tax burden.

As mentioned, there are six different tax brackets with six different tax rates. The tax rates are 10%, 15%, 25%, 28%, 32% and 35%. As your income increases, you will move into a higher tax bracket and pay a higher percentage of tax for the portion your income falls into. Your taxes are calculated based on the dollar amount in each bracket. Calculating the amount that you are required to pay in taxes does not take much time when you use a tax table.

General Income Tax Brackets: What You Should Know

The IRS provides a pdf with tables outlining all the different tax brackets. Any that are not listed you can calculate. The materials are attached for your convenience. You will need this to file you 2009 income tax properly. They give the following example on how to use the attached tax tables:

Example. Mr. and Mrs. Brown are filing a joint return. Their Tax Table taxable income on Form 1040, line 43, is $25,300. First, they find the $25,300–25,350 taxable income line. Next, they find the column for married filing jointly and read down the column. The amount shown where the taxable income line and filing status column meet is $2,964. This is the tax amount they should enter on Form 1040, line 44.

To read more about the federal income tax brackets, visit the official IRS website. Or you can leave a comment/question and it will be answered promptly. The official IRS website has lots of valuable information that can be helpful when filing your 2009 personal income taxes.

Don’t wait until the last minute!
Next: Free filing software: open source tax filing software. No hooks, pitches or anything to buy!

More information is on my website at StuartRohatiner.com where you can join our Google group Tax Deadlines &Forms  and keep up with all the information you will need to be ready to file on or before April 15!

Information on How to E-File Directly From the IRS

 

Stuart Rohatiner, CPA, JD

e-file Using a Computer

IRS e-file is the fastest most accurate way to file your taxes.

Filing your federal tax return using IRS e-file is easier and more convenient than ever before! Most taxpayers can use this program. Access to a personal computer and the Internet is necessary to conveniently, quickly and safely transmit your return and receive proof of acknowledgement. You decide the manner of tax preparation to quickly and conveniently e-file your Form 1040, Form 1040A, Form 1040EZ or Form 1040SS (PR) using a personal computer. You can: 

• Purchase commercially available software from a retailer,

• Download software from an Internet site and prepare your return offline, or

• Prepare and file your return online. 

NOTE: IRS cannot compete with private enterprise and does not offer free e-file software or direct filing. A number of companies, tested and approved by the IRS, do offer free use of their software and free filing, while others will charge nominal fees. Terms and conditions vary among companies and you are advised to review the information on each company’s web site and choose the product that is right for you.

Anyway you choose, it’s a simple process. As always, IRS e-file means a more accurate return, fast refunds – in half the time compared to filing a paper return – and even faster and safer with Direct Deposit! IRS e-file also offers the convenience of filing your tax return early and delaying payment up until the due date.

The Self-Select PIN is the only IRS e-file signature method available to you when filing online. This requirement makes electronic filing more secure and paperless!

And don’t forget, in 37 states and in the District of Columbia you can simultaneously e-file your Federal and state tax returns. Your personal computer and IRS e-file does it all!

NOTE: Prior Year 1040 series returns may not be filed electronically. 

________________________________________

Here is how the IRS e-file option works:

You prepare your tax return on a personal computer and transmit the information via the Internet to an electronic return transmitter. You can transmit a maximum of five returns using tax preparation software, so you can prepare returns for family and friends as well.

The electronic return transmitter converts the file you send to a format that meets IRS specifications, and transmits it to the IRS. IRS checks the return and notifies the transmitter (who then informs you) whether the return has been accepted or rejected. Approximately 89 percent of returns are accepted the first time they are transmitted.

NOTE: The IRS does not charge a fee for e-file. However, an electronic return transmitter offering this service to taxpayers may charge a fee for transmission. Check out the Free File Home or IRS e-file Partners web page to learn about free and low cost e-file opportunities. If you have additional questions, you can also contact IRS toll-free customer service at 1-800-829-1040.

If you have supporting documents that are required to be submitted to the IRS, you will need to mail in Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, within 3 business days after you have received acknowledgement that the IRS has accepted your electronically filed tax return. Include your name, address and social security number on the Form 8453. If you filed a joint return, the name and social security number of your spouse is also required.

Mail Form 8453 with supporting documents to:

Internal Revenue Service

Attn: Shipping and Receiving, 0254

Receipt and Control Branch

Austin, TX 73344-0254

Acceptable attachments to Form 8453 include:

Appendix A, Statement by Taxpayer Using the Procedures in Rev. Proc. 2009-20 to determine a theft Loss Deduction Related to a Fraudulent Investment Arrangement

Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes (or equivalent contemporaneous written acknowledgment)

Form 2848, Power of Attorney and Declaration of Representative (or POA that states the agent is granted authority to sign the return)

Form 3115, Application for Change in Accounting Method

Form 3468, Investment Credit (attach a copy of the first page of NPS Form 10-168a, Historic Preservation Certificate Application (Part 2-Description of Rehabilitation), with an indication that it was received by the Department of the Interior or the State Historic Preservation Officer, together with proof that the building is a certified historic structure (or that such status has been requested)

Form 4136, Credit for Federal Tax Paid on Fuels (attach the Certificate for Biodiesel and, if applicable, Statement of Biodiesel Reseller or a certificate from the provider identifying the product as renewable diesel and, if applicable, a statement from the reseller)

Form 5713, International Boycott Report

Form 8283, Noncash Charitable Contributions Section A, (if statement or qualified appraisal is required) or Section B, Donated Property, and any related attachments (including any qualified appraisal or partnership Form 8283)

Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent (or certain pages from a divorce decree or separation agreement, that went into effect after 1984 and before 2009) (see instructions).

Form 8858, Information Return of U.S. Persons With Respect To Foreign Disregarded Entities

Form 8864, Biodiesel and Renewable Diesel Fuels Credit (attach the Certificate for Biodiesel and, if applicable, Statement of Biodiesel Reseller or a certificate from the provider identifying the product as renewable diesel and, if applicable, a statement from the reseller)

Form 8885, Health Coverage Tax Credit (and all required attachments)

Schedule D-1, Continuation Sheet for Schedule D (Form 1040) (or a statement with the same information), if you elect not to include your transactions on the electronic short-term capital gain (loss) or long-term capital gain (loss) records

NOTE: There is no requirement to attach Forms W-2, Wage and Tax Statement, Forms W-2G, Certain Gambling Winnings, Forms W-2GU, Guam Wage and Tax Statement and Forms 1099-R, Distribution From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., with the Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return.  However, we advise you to keep copies of these attachments with a copy of your tax return for your records.

For filing season 2010, Tax Year 2009, individual income taxpayers across the nation will have until Thursday, April 15, 2010, to file their 2009 returns and pay any taxes due.

If your return is not accepted, the electronic return transmitter will provide you with customer support to correct your return and resubmit it. Retransmissions for rejected Form 1040 series returns to all Centers must be accepted by the IRS on or before April 20, 2010 to be considered timely filed.

Refunds will be issued within three weeks after the acknowledgement date. 

If you owe money, you can use an electronic payment option that provides an immediate acknowledgement when your payment is accepted by the IRS or mail a check or money order (made out to the United States Treasury) using form 1040-V, Payment Voucher.

Stuart Rohatiner, CPA, JD Certified Public Accountant
305-868-3600 ext. 3101
StuartRohatiner.com
Senior Tax Manager, Gerson Preston Robinson & Co., Miami Beach, FL

 

Common Tax Schemes

Tricks of the Trade 

Income tax returns are soon due to the IRS.  If you’re like most people, you’re hoping for a nice lump sum refund.  However, as you prepare your forms, be aware that others are plotting ways to steal your hard-earned money.  Avoid falling into common tax traps by reading up on some of the ways con artists are targeting their victims. 

The Miami-Dade Consumer Services Department lists some of the common schemes to steer clear of. 

Common Rip-offs 

·         Making Work Pay Refund.  This phishing e-mail, which claims to come from the IRS, references the president and the Making Work Pay provision of the 2009 economic recovery law. It says that there is a refundable credit available to workers, consumers and retirees that can be paid into the recipient’s bank account if the recipient registers their account information with the IRS. The e-mail contains links to register the account and to claim the tax refund.

In reality, most taxpayers receive their Making Work Pay tax credit, which was designed for wage earners, in their paychecks as a result of decreased tax withholding, not as a lump sum distribution from a federal fund. Additionally, consumers and retirees who are not wage earners are not eligible for this tax credit. 

·         Instant Rebate Scams. Some unscrupulous and predatory tax preparers prey upon low-income earners with promises of “fast money” at tax refund time.  Their victims often do not realize that an instant refund is actually a “refund anticipation loan” that could drain away as much as half their refunds in the form of interest rates and fees.  

Consumer Smarts 

·         Taxpayers do not have to complete a special form to obtain a refund. Taxpayer refunds are based on the tax return they submit to the IRS.   

·         The IRS does not initiate taxpayer contact via unsolicited e-mail or ask for personal identifying or financial information via e-mail. If you receive a suspicious e-mail claiming to come from the IRS, take the following steps:

*         Do not open any attachments to the e-mail, in case they contain malicious code that will infect your computer.

*         Do not click on any links, for the same reason. Also, be aware that the links often connect to a phony IRS Web site that appears authentic and then prompts the victim for personal identifiers, bank or credit card account numbers or PINs. The phony Web sites appear legitimate because the appearance and much of the content are directly copied from an actual page on the IRS Web site and then modified by the scammers for their own purposes.

·         Be cautious when choosing a tax preparer.  Filing false income tax returns with inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions could result in penalties.  Regardless of whether the preparer is responsible for manipulating income figures, it is ultimately the taxpayer who is faulted and required to pay additional taxes.  

·         The IRS advises:

*         Avoid tax preparers who claim they can obtain larger refunds than other preparers.

*         Ask about service fees and be wary of preparers who base their fee on a percentage of the   amount of the refund.

*         Use a reputable tax professional who signs your tax return and provides you with a copy for  your records.

*         Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.

*         Review your return before you sign it and ask questions on entries you don’t understand.

*         Find out the preparer’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.

*         Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

Contact the IRS at 1-800-829-1040 to determine whether the IRS is trying to contact you.  If you think you have been targeted by a fraudulent tax scheme, forward the suspicious e-mail or URL address to the IRS mailbox phishing@irs.gov, then delete the e-mail from your inbox. 

You can learn the status of your refund by going to the IRS.gov website and clicking on “Where’s my refund?”

How $1 trillion hides in plain sight

By Jeanne Sahadi, senior writerMarch 5, 2010: 7:30 AM ET

Stuart Rohatiner, CPA, JD

NEW YORK (CNNMoney.com) — The government does without roughly a trillion dollars a year because of a slew of tax breaks — everything from the mortgage-interest deduction, to education and child credits, to low rates on investments.

The irony is that all those breaks can translate into higher tax rates and a federal budget that is much bigger than advertised, according to tax experts Len Burman, a professor at Syracuse University, and Edward Kleinbard, a professor at University of Southern California.

Anyway you slice it, a cool trill is not chump change. In fact, it’s equal to nearly a third of the federal budget.

But you won’t actually see that highlighted in the federal budget process every year. That’s because lawmakers focus on the money the government will spend and how much it will raise in taxes. But “total revenue passed up” doesn’t really come up.

Burman and Kleinbard think tax breaks should be treated as a form of spending.

“Like direct spending programs, tax expenditures crowd out other spending and require higher tax rates than otherwise needed,” Burman wrote in a paper co-authored with Eric Toder and Christopher Geissler.

Even though tax breaks lower the tax bite for eligible individuals and corporations, they end up raising taxes on others.

“Targeted tax relief is just another name for government spending, in which taxes extracted from those of us who are not targeted fund hidden spending on those who are,” said Kleinbard, who used to run the Joint Committee on Taxation, in a speech last fall.

If lawmakers did treat tax breaks as spending, the size of the federal budget — defined by how much the government will spend in a year — would be more like $4.6 trillion, not $3.6 trillion.

Tax breaks on auto pilot

The number of tax breaks has quadrupled since 1972. No one advocates that all tax breaks be abolished. But Burman has suggested lawmakers cap how much they spend on them.

Done right, such breaks can advance government-favored activities such as giving to charities, boosting retirement savings or purchasing health insurance.

But even when the mission is clear, lawmakers’ aim isn’t always dead-on. For example, a tax break might encourage behavior that would have happened without a government subsidy.

Done wrong, tax breaks can squander resources that could be put to better use.

“These revenues could be used to lower marginal tax rates, fund more social programs, improve infrastructure, eliminate budget deficits, or promote various other purposes,” Burman and his colleagues wrote.

The problem, Kleinbard and Burman say, is that most tax breaks don’t get much scrutiny once they become law. By contrast, Congress each year must review discretionary spending, such as that on defense, education and infrastructure.

Some tax breaks, of course, have expiration dates. But even then they’re often lumped together with other expiring tax breaks and renewed en masse.

“If we can force tax expenditures into the sunlight, by subjecting them to the full rigor of the budget process, we can make better choices,” Kleinbard said.

Aiming for fiscal stability

In view of the country’s looming fiscal shortfalls, the discussion about tax breaks isn’t just academic.

Tax experts have been saying for years that streamlining tax breaks and simplifying their rules is key to reforming the tax code. And let’s face it, you’d have to pay someone an obscene amount of money to say without laughing that the code, with its mind-bending complexity, is just fine.

As it is, tax breaks can increase the sense that the tax code is unfair and make people feel better about cheating. It’s always the other guy it seems who’s getting more breaks and the wealthiest corporations getting the sweetest deals.

Among the benefits of rethinking tax breaks: it could lead to a broader base of people paying into the federal income tax system.

Today, because of the multitude of tax breaks, nearly half of all tax filers will end up owing no federal income tax, according to Roberton Williams, a senior fellow at the Tax Policy Center.

With fewer tax breaks, more people will end up with some federal income tax liability. But with more people paying in, that could also mean tax rates wouldn’t need to be as high as they otherwise might be.

To learn about more tax breaks, and how to do this year’s taxes, visit my website, StuartRohatiner.com.

IRS Extends Moratorium on Tax Shelter Enforcement

By Paul Bonner December 28, 2009

IRS Commissioner Doug Shulman announced in a letter to Sen. Chuck Grassley, R-Iowa, that the IRS is extending until March 1, 2010, a moratorium on collection enforcement of the IRC § 6707A penalty for failure to disclose tax shelters and other reportable transactions.

Shulman first announced the moratorium July 6 in response to congressional concerns that the penalty amounts—$100,000 for individuals and $200,000 for other taxpayers—in many instances far exceed the tax benefit of the targeted transactions. The moratorium, which applies to cases in which the annual tax benefit from the transaction is less than the otherwise applicable penalty, initially ran until Sept. 30, 2009, which Shulman said would give Congress time to amend the statute. Shulman later extended the moratorium to Dec. 31, 2009.

On Nov. 16, 2009, Rep. John Lewis, D-Ga., introduced the Small Business Penalty Relief Act of 2009, HR 4068. An identical bill, S. 2771, was introduced in the Senate by Sen. Max Baucus, D-Mont.

The bills would limit the penalty for listed transactions to the lesser of the current statutory amounts or 75% of the tax benefit shown on the return as a result of the transaction. Listed transactions would carry a minimum penalty of $5,000 for individuals and $10,000 for other taxpayers. The 75%-of-tax-benefit limit would also apply to other reportable transactions, for which the maximum penalty would be the current statutory penalty amounts under section 6707A(b)(1) of $10,000 for individuals or $50,000 for other taxpayers (with no minimum penalty amounts). The bills would apply to penalties assessed after Dec. 31, 2006.

Both bills were still in committee as Congress adjourned last week.

In a letter last week to Shulman and Treasury Secretary Timothy Geithner, Grassley protested what he said was the IRS’ continuing to place liens on small businesses despite the moratorium, and he threatened in a press release to block nominations of Treasury officials until the issue was resolved.

Shulman responded on Dec. 23, further extending the moratorium.  He also said that earlier in December, the IRS stopped filing new lien notices where the amount due was solely related to a section 6707A penalty and would refrain from placing such liens through the latest extension period. Grassley’s office has told the The Washington Post that he will allow the Treasury nominations to go forward.

Tax Burdens, Around the World: You Think Your Taxes are High? Read This!

The Organization for Economic Cooperation and Development today released new data on tax burdens in its 30 member countries. Across the organization, overall tax revenue totaled an estimated 35.2 percent of gross domestic product in 2008, down half a percentage point from 2007. The organization expects that tax burdens will fall further in 2009.

Denmark had the highest total tax revenue as a percentage of G.D.P., at 48.3 percent, followed by Sweden at 47.1 percent. Turkey and Mexico had the smallest tax burdens, at 23.5 percent and 21.1 percent, respectively.

In the United States, tax revenues represented 26.9 percent of total output last year.

The Incredible Shrinking Estate Tax

by Bob Williams on Thu 22 Oct 2009 08:00 AM EDT
The estate tax is only a faint shadow of its former self. In 2009, less than one-quarter of one percent of deaths—just 5,500 decedents—will leave taxable estates, the smallest percentage since at least the Great Depression. In part, that tiny fraction reflects the current recession’s devastation of assets—the Fed estimates that the total value of household and nonprofit assets fell by about one-sixth between 2007 and the first quarter of 2009. But changes in estate tax rules over the past decade have played a much larger role than economic swings.

The Economic Growth Tax Relief and Reconciliation Act of 2001 (EGTRRA), best known as the Bush tax cuts, phases the estate tax out over a decade. The act raised the effective exemption incrementally from $675,000 in 2001 to $3.5 million in 2009 and dropped the top tax rate from 55 percent to 45 percent. The levy disappears entirely in 2010, only to return in 2011 under pre-EGTRRA law—a $1-million exemption and 55-percent top rate. The Obama administration has proposed making the 2009 parameters permanent and indexing them for inflation. Others would set a higher exemption and a lower tax rate.

So what’s happened?

For decades before 1976, only estates worth $60,000 or more owed estate tax. That threshold remained constant in nominal terms, so more and more estates had to pay the tax as economic growth and inflation boosted household wealth. In 1943, just under 1 percent of deaths led to estate tax payments; by 1976, that share had grown to 7.65 percent (see graph).

Congress doubled the effective exemption to $120,000 in 1977 and raised it gradually to $600,000 in 1987, where it stayed for ten years. As the exemption rose, the share of estates owing tax fell to just 0.9 percent in 1987 before growing again because of the fixed exemption. In 1997, when a bit more than 2 percent of estates owed tax, Congress again enacted a series of increases in the exemption that would have reached $1 million in 2006. Deaths resulting in estate tax liability stabilized until EGTRRA set off the latest inexorable drop in taxable estates.

So what’s next? The share of estates owing tax is scheduled to drop to zero in 2010, thanks to the one-year repeal. Except Congress won’t let that happen. Smart money says Congress will extend the 2009 law for 2010—a $3.5-million exemption and a 45-percent tax rate—and then consider a permanent fix when they deal with the scheduled 2011 sunset of almost all of the Bush tax cuts. Senators John Kyl (R-Az) and and Blanche Lincoln (D-AR) want to shrink the tax below its 2009 level—they want a $5-million exemption and a 35-percent tax rate.

Few lawmakers now call for total repeal, though such a proposal would surely get lots of votes. Opinion polls show significant numbers of voters saying they would more likely vote for a candidate who favors repeal. Maybe they all think they’ll win the lottery or their next great idea will become another Google. In the real world, we’re spending a lot of time worrying about a tax that fewer than three in a thousand of us will pay. And, when we do, we’ll be dead.

graph

IRS Releases Annual Inflation Adjustments, Many Unchanged for 2010

IRS Releases Annual Inflation Adjustments, Many Unchanged for 2010

Oct. 16, 2009
The IRS has released its annual revenue procedure updating the tax bracket amounts and making inflation adjustments for various credits and other tax items (Revenue Procedure 2009-50). Because inflation has been minimal, many of the numbers are unchanged from 2009 or have only been adjusted slightly. The Social Security Administration also announced that the Social Security wage base will remain unchanged for 2010, at $106,800.

For tax years beginning in 2010, the standard deduction amounts are as follows: unmarried taxpayers, $5,700; married taxpayers filing jointly, $11,400; married taxpayers filing separately, $5,700; and heads of households, $8,400. For dependents, the standard deduction cannot exceed the greater of $950 or the sum of $300 plus the individual’s earned income.

Also updated are amounts for the kiddie tax; the earned income credit; the child tax credit; the adoption credit; the Hope scholarship, lifetime learning, and the new American opportunity credits; and more than 30 other items.

The IRS also announced that the annual benefit limit for defined benefit plans will remain unchanged at $195,000 for 2010. The annual benefit limit for defined contribution plans will also stay the same for 2010, at $49,000.

IRS has Issued New Rules for Reimbursing of Expenses for Employees and Self-Employed While Away from Home

In a new revenue procedure released on September 30, 2009 and to go into effect October 1, 2009, the IRS has issued new rules for reimbursing of expenses for employees and self-employed while away from home.

These new rules provide for a new additional method under which the amount of ordinary and necessary business expenses of an employee for lodging, meal, and incidental expenses, or for meal and incidental expenses, incurred while traveling away from home are deemed substantiated under a per diem allowance or other expense allowance arrangement to pay for the expenses.

In addition, this revenue procedure provides an optional method for employees and self-employed individuals who are not reimbursed to use in computing their expenses while traveling away from home.

Use of the new method as described in the revenue procedure is not mandatory, and a taxpayer may use actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation i.,e. for the most part it you’re allowed to keep doing what you were doing before, assuming it was a legitimate method.

Previously , self employed people could only substantiate their expenses using their actual expenses incurred. One observation is that it appears that the IRS will now allow self-employed individuals to use an amount equal to or less than the Federal per diem rate for the particular area of the country they are in.

Similarly, in cases where only incidental expenses are being reimbursed, it appears the IRS will allow an allowance of $5 a day.

None of these changes affect other parts of substantiation i.,e you still need to have the time, place and business purpose before an expense can be deductible.

As you can imagine, since this was literally just released several days ago, we are still trying to get our arms around the impact of this new procedure , and how it will affect our small business clients.