The IRS issues its Standard Mileage Reimbursement Rate each year. The rate determines the amount that can be used as a deduction for business travel and serves as a guideline for employers who reimburse their employees for the same. It reflects not only fuel costs, but also factors in average wear and tear on a vehicle.

Beginning on January 1, 2014, the rate will change to 56 cents per business mile driven, a half cent lower than the 2013 rate. The rate for medical or moving expenses will also be reduced a half cent to 23.5 cents per mile. The rate for charitable purposes remains at 14 cents per mile.

While there are generally no Pennsylvania laws requiring employers to use the IRS rate, there are tax advantages for doing so. The IRS will deem employers who make qualifying reimbursements up to 56 cents per mile as meeting their accounting requirements, thus no income reporting or withholding is required for those reimbursements. However, employers need to make sure that their employees have provided adequate proof that the mileage was strictly for business use. Qualifying employees who are not reimbursed for their business mileage will be able to deduct 56 cents per mile on their individual tax returns.

As an interesting side note, AAA’s website offers a gas price tracker ("AAA Daily Fuel Gauge Report") that can be used to monitor gas price averages and compare averages in different geographical areas. This tool can be helpful in analyzing fuel expenses against reimbursement rates and keeping track of the fluctuation of gas prices.

According to the tracker, as of the date of this post, the national average for regular gas is $3.259 per gallon. Pennsylvania’s average is higher at $3.407 per gallon. At $3.395, the average in Lancaster County is also higher than the national average, but a fraction lower than the state average.

One of the more popular shows on televisions is Modern Family.  For those of you who have not seen it, the comedy revolves around three interrelated households facing the trials and tribulations of "modern" life.  One of the households belong to Cam and Mitchell, two same-sex partners who have adopted an adorable little girl from Vietnam.  Now, while plotlines featuring them tend to be quite amusing, I can understand that how Cam and Mitchell file their taxes is probably not at the forefront of most viewers’ minds.  However, a recent decision by the Internal Revenue Service regarding its treatment of same-sex couples actually made me consider the notion.

The IRS has recently decided that, for federal tax purposes, it will recognize a same-sex marriage if it is valid where the marriage was entered into, regardless of where the couple actually resides.  This means that even though same-sex unions are not recognized in Pennsylvania, a same-sex couple living in Pennsylvania can be deemed married by the IRS as long as they obtain their marriage in another state where same-sex unions are legally recognized.

This means that legally married same-sex couples will be able to file their 2013 federal income tax returns using either the married filing jointly or married filing separately designations. In addition, they will also be able to file amended returns for prior tax years choosing to be treated as married during those years, as long as those years follow the date of the legal marriage. This treatment will be applied to all federal taxes, including estate, gift and generation skipping taxes. 

Continue Reading IRS Treatment of Same Sex Marriage For The Modern Family

Following up on my recent post on Elaine Benes, the Soup Nazi and potential trade secrets theft, I had the opportunity to speak with Colin O’Keefe of LXBN on the topic. In the quick interview, I explain why what Elaine did was probably illegal and whether or not the way in which the trade secrets were obtained makes a difference. 

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When my friends and colleagues find out that I am a huge fan of the television show Seinfeld, many ask which is my favorite episode.  While I don’t know if I can pinpoint just one (there are too many hilarious installments to choose from ), I can say that one of my favorites is the Soup Nazi episode.

For those of you not familiar with the show, the episode revolves around an irascible chef who runs a small, take-out restaurant in Manhattan that is renowned for its delicious soup. Nicknamed the "Soup Nazi", the chef is obsessed with forcing his customers to line up and follow his strict, no-nonsense ordering policy.  A customer’s failure to strictly obey provokes the Soup Nazi to shout "no soup for you!" and refuse service.  Nonetheless, the soup is so tasty that customers are lined up around the block.

Elaine Benes, a regular character on the show, unwisely flouts the Soup Nazi’s rules and he bans her from buying his soup for one year.  Through another regular character, Cosmo Kramer, the Soup Nazi gives away an armoire, not knowing that Elaine is the intended recipient.  Elaine later tries to thank the Soup Nazi, but he rebukes her, angrily declaring that if he knew the armoire was for her, he never would have given it away. A distraught Elaine returns home only to find a collection of the Soup Nazi’s recipes stashed away in the armoire. Elaine returns to the restaurant to flaunt her discovery and threaten to ruin his business by exposing the recipes. Feeling resigned to his fate, the Soup Nazi closes his restaurant for good.

As funny as the episode is, in real life Elaine could have subjected herself to a lot of grief in exchange for her plot for revenge. This is because those recipes would likely be deemed trade secrets, and Elaine could be accused of misappropriating or even stealing them.

Continue Reading Lessons from “No Soup For You!” Was Elaine Benes Guilty of Stealing Trade Secrets?

The National Transportation Safety Board caused a stir recently when it recommended lowering the blood alcohol level for driving under the influence to .05 percent nationwide.  The legal limit in Pennsylvania, as well as in almost every other state, is currently .08 percent.  A recent article from the Pittsburgh Post-Gazette, and other online sources, made some interesting points related to the NTSB’s announcement.

The primary point of the Post -Gazette’s article is that even if the change is made, it would not likely be made soon and could perhaps take decades.  Even the Executive Director of the Pennsylvania DUI Association, which supports the lower BAC change, admits that making the change could take "awhile". 

You may remember that back in 2003 the Pennsylvania Legislature reduced the legal limit from .10 to .08.  Pennsylvania was one of the last states to lower its BAC to .08 and it did so only in response to the federal government’s announcement that if it did not do so, it would lose highway funds.  One of the more interesting aspects brought up by the article was that the reduction to .08 percent was the result of a two decade process.  One of the primary concerns back then was that the lower limit would target people having drinks with dinner instead of highly intoxicated drivers who cause the majority of DUI-related accidents. 

The Post-Gazette article also states that while Pennsylvania is reviewing the NTSB’s recommendation, there are no current plans to lower the standard to .05. Moreover, a recent piece by USA Today states that the Governor’s Highway Safety Association supports the current .08 alcohol threshold, citing that when the limit was at .10 it was very difficult to get it lowered to .08.  The Agency also does not expect any state to go to .05 percent.  

Continue Reading Lowering Blood Alcohol Content Levels for DUI

We have previously written that one of the most important advantages of the Alternative Rehabilitative Disposition option when facing a DUI is that it will not count as a criminal conviction. Further, once you complete the ARD program, you can have the charges completely expunged from your record. Some of my clients ask me why it is so important to have a clean criminal record (and by clean, I mean having no convictions for misdemeanors or felonies). The following is a list of areas to illustrate how having a criminal record can have a negative impact on your life:

Employment

Employers can generally use your criminal record as a determining factor in hiring and firing, and most employers prefer not to employ those with criminal records. An ARD is no guarantee that the charges or conduct which supported the charges will not be a problem in employment, but there is no question that it is preferable to a conviction or guilty plea that cannot be expunged.

Travel

A criminal record can make it difficult for you to travel outside of the country. Some countries refuse to allow entry and others require you to deal with red tape, such as filling out waivers, releases, and other documents, before they will let you enter.

Housing

A criminal record could also affect your ability to live in a particular place or building. This is not the general rule, but some condominium and planned communities have restrictions preventing sales of real property to persons with criminal records.

Credit

A criminal record can also have a negative impact on your credit score. Primarily, the impact comes from the employment problems discussed above limiting or reducing your income, but it could also impact your ability to obtain certain loans, especially those subsidized with government funds.

Privacy

In Pennsylvania, it is possible to research the criminal court docket in almost every criminal case, including ARD cases. Thus, anyone could go online and find a person’s case, the charges against the person and the outcome of the case. Most people are not comfortable with that information being so public.

Family

If you are currently going through custody or a divorce proceeding, this could have a negative impact on your position.

There are various other effects a criminal record can have on your life. If you are charged with DUI, consider speaking with an attorney who can guide you through the process of determining whether you qualify for the ARD program.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including DUI/ARD.

There is good news for taxpayers who have recently adopted a child or are planning to adopt a child in the near future: the adoption tax credit, which I have discussed in previous posts, has survived the fiscal cliff. The American Taxpayer Relief Act of 2012, which was passed by Congress and signed by President Obama on January 1, 2013, permanently extends the adoption tax credit. 

In general, the credit allows parents to apply the ordinary and necessary expenses involved with adoption, including attorney fees, travel expenses, adoption fees and court costs, against their federal tax liability. Because the maximum amount of the applicable credit is indexed for inflation, the amount changes from year to year. For 2012, the maximum credit is $12,650 per adopted child.

There are, however, some income restrictions. The tax credit begins to phase out at income levels that reach $189,710. Any taxpayer with an adjusted gross income over $229,710 is prohibited from utilizing the credit.

One potentially negative change is that the credit is no longer “refundable”, which means that it can only be applied toward existing tax liability. For example, if your tax liability for 2012 is $8,000, the credit can be used against that entire amount. However, because the credit is not refundable, the taxpayer will not receive a refund of the additional $4,650 that the credit provides for. If the credit were refundable, which it was for tax years 2010 and 2011, the taxpayer would receive additional $4,650 as a refund from the IRS.

Care should be taken when claiming the credit because there are numerous procedural steps that need to be met. In addition, there are expense substantiation requirements, however the substantiation rules are relaxed to some extent with regard to taxpayers who adopt children with special needs. Moreover, taxpayers who claim the credit will increase the likelihood that they will face an Internal Revenue Service audit. As a result, I strongly suggest consulting with a tax professional to determine how to calculate the credit and properly claim it on your tax return. For more information, please see the IRS website.

 

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree and LL.M. in Taxation from Villanova University

One challenge many nonprofit organizations face is competing against for-profit businesses to attract key employees and administrators to run their operations. More often than not, nonprofits just do not have the funds to match their for-profit counterparts. Fortunately, there are plenty of qualified administrators out there who are willing to take a lower salary from a nonprofit because they believe in that organization’s mission. However, there is another incentive that most nonprofits have that is not available to for-profit businesses:  Section 457 Deferred Compensation Plans (“457 Plans”). 

As the name suggests, 457 Plans are authorized by Section 457 of the Internal Revenue Code. This section allows tax-exempt organizations and government agencies to establish a deferred compensation plan for key employees. Each year the nonprofit can divert a portion of the employee’s salary (up to $17,500 in 2013) into the 457 Plan instead of paying it directly to the employee. Because those funds go into the Plan the employee is not taxed at that time. Instead, taxes on the amount diverted into the Plan are postponed until the Plan is authorized to dispense funds from the 457 Plan to the employee.

The Plan then acts similarly to a pension or 401K plan in that the money accumulates from year to year in the Plan and generates income on investments. As a result, these Plans are extremely helpful in helping a nonprofit’s key employees plan and save for retirement. Another advantage of a 457 Plan is that the tax on the income on those investments is also postponed until the employee actually starts receiving benefits from the Plan.

Continue Reading Nonprofits and Deferred Compensation Plans

In a previous post, Disclaimer Trusts – a Flexible Option in an Uncertain Estate Planning World, I discussed the uncertainty that the then looming “fiscal cliff” crisis created in the estate planning world.  Now that the “fiscal cliff” has been averted through the American Taxpayer Relief Act of 2012 (the “Act”), which was approved by Congress on January 1, 2013, such uncertainty has been eliminated.

Prior to the Act, in 2012 estates valued below $5,120,000 were shielded from the federal estate tax by the estate tax credit. If the Act had not been approved by Congress, beginning in 2013, the credit against the estate tax was scheduled to fall to only $1,000,000.  This created some confusion with clients who did not know if the estate tax would apply to them because their estate values fall somewhere between $1,000,000 and $5,120,000.

The Act did several things to clear up such uncertainty.  First, the Act has permanently set the credit against the federal estate tax at $5,000,000, indexed for inflation.  Thus, my clients whose estates are between the $1,000,000 and $5,000,000 values now know that the federal estate tax will not apply to them.

The Act also made the “portability” of the credit permanent.  The portability provisions essentially allow the estate of a decedent to make an election permitting his or her surviving spouse to transfer the unused portion of the decedent’s credit against the estate tax to the surviving spouse.  The surviving spouse can then use that additional credit against lifetime gifts and against the estate tax at his or her death. 

For example, if Bob passes and his estate uses only $2,000,000 of his credit, his estate can transfer his $3,000,000 unused credit to Betty, his surviving spouse.  Adding that amount to the $5,000,000 credit she already had, Betty now has an $8,000,000 credit that she can use against lifetime gifts or against the estate tax at her death.

Continue Reading The Effect of Fiscal Cliff Legislation on Estate Planning

The IRS issues its Standard Mileage Reimbursement Rate each year. The rate determines the amount that can be used as a deduction for business travel and serves as a guideline for employers who reimburse their employees for the same. It reflects not only fuel costs, but also factors in average wear and tear on a vehicle.

Beginning on January 1, 2013, the rate will be raised to 56.5 cents per business mile driven, one cent higher than the 2012 rate. The rate for medical or moving expenses will also be raised one cent to 24 cents per mile. The rate for charitable purposes remains at 14 cents per mile.

While there are generally no Pennsylvania laws requiring employers to use the IRS rate, there are tax advantages for doing so. The IRS will deem employers who make qualifying reimbursements up to 56.5 cents per mile as meeting their accounting requirements, thus no income reporting or withholding is required for those reimbursements. However, employers need to make sure that their employees have provided adequate proof that the mileage was strictly for business use. Qualifying employees who are not reimbursed for their business mileage will be able to deduct 56.5 cents per mile on their individual tax returns.

As an interesting side note, AAA’s website offers a gas price tracker ("AAA Daily Fuel Gauge Report") that can be used to monitor gas price averages and compare averages in different geographical areas. This tool can be helpful in analyzing fuel expenses against reimbursement rates and keeping track of the fluctuation of gas prices.

According to the tracker, as of the date of this post, the national average for regular gas is $3.426 per gallon. Pennsylvania’s average is higher at $3.626 per gallon. At $3.550, the average in Lancaster County is also higher than the national average, but a fraction lower than the state average.