2011 Tax Tips on the Ilyce Glink Show

Today on the Ilyce Glink Show, we talked about the importance of having a killer website that reflects your company’s business values, and provides interesting information showcasing your business passion in order to increase visitors and communicate more efficiently and effectively with your customers and clients.

One of my companies, Think Glink Publishing, does just that, providing consulting services and architecting communications strategies to companies across America and creating unique content to drive traffic, increase sales, educate and nurture customers and clients.

One of my big projects at the moment is the Equifax Personal Finance Blog, where we provide exceptionally smart folks who have mastered the five pillars of personal finance (credit, tax, insurance, investing/retirement, and real estate) and provide all sorts of fantastic, free information so that you can make smarter decisions with your money.

If you haven’t checked it out yet, you should.

Today’s callers

Some Sunday mornings, I feel as though we need to have a regular team of tax experts on staff. I can tell that everyone has a lot of tax questions these days – and why not? The tax code is complex and changing all the time.

We had a call from a truck driver passing through Atlanta. He wanted to know about deductions for truck drivers and what companies had to do.

IRS Publication 1542: Per Diem Rates contains helpful information about how much an over-the-road driver is entitled to ($59 per day). This is allowable up to 80 percent (those subject to DOT Rules get a benefit of 80% deductible).

Here’s some additional information: IRS Provides Guidance on Per Diem Expense Reimbursements Paid By Employers

IR-2006-175, Nov. 9, 2006 (this is the current information)

WASHINGTON — The Internal Revenue Service today issued guidance emphasizing the need for employers to track the amount of expense reimbursement allowances paid to employees on a per diem basis.

Revenue Ruling 2006-56 tells employers that if they routinely pay per diem allowances in excess of the federal per diem rates, but do not track the allowances and do not require the employees either to actually substantiate all the expenses or pay back the excess amounts, and do not include the excess amounts in the employee’s income and wages, then the entire amount of the expense allowances is subject to income tax and employment tax.

Generally, amounts employers pay employees to reimburse them for substantiated business expenses are not subject to income tax or employment tax. For reimbursements for expenses for meals and other incidentals associated with business travel, employees get this exclusion for reimbursements for each day of travel up to the federal per diem rates without having to actually substantiate the amounts of the expenses. However, if an employer pays expense allowances that exceed the federal per diem rates, the excess amounts are subject to income tax and employment tax if they are not repaid to the employer, unless the employee actually substantiates all of the expenses covered by the per diem allowance.

The revenue ruling illustrates when a per diem allowance arrangement that fails to track the excess amounts and does not include the unsubstantiated, unrepaid excess amounts in the employee’s income and wages constitutes a pattern of abuse of the rules for tax-free expense reimbursements. The finding that the arrangement is abusive causes all allowances paid under the arrangement to be subject to income tax and employment tax, not just the excess amounts. While the revenue ruling uses a scenario in the trucking industry because of the industry’s widespread use of per diem allowances, the analysis in the revenue ruling applies to any employer in any industry that uses per diem allowances to reimburse employee expenses.

IRS Revenue Ruling 2006-56 is effective immediately upon issuance. However, the IRS recognizes that employers may need some time to adjust their systems so they can track excess allowances and account for them correctly. The IRS is issuing instructions to its agents not to apply the results under the revenue ruling for taxable periods ending on or before Dec. 31, 2006, in the absence of intentional noncompliance.

IRS Rules on Deducting Legal Fees

We also had a question about when attorneys’ fees would be deductible. Our caller had to defend himself in a criminal investigation that was ultimately dropped. He owed $60,000.

*IRS Publication 529: Miscellaneous Deductions addresses legal fees paid. *

Here’s a simple example: You get a speeding ticket and pay a fine. The fine is NOT tax-deductible; if you hire a lawyer to get the fine lowered or removed, NOT tax-deductible.

But if legal fees are paid to generate taxable income, they are deductible as non-reimbursed business expenses subject to 2 percent Floor on adjusted gross income (AGI). Lawyer fees to get alimony are deductible, for example.

My thanks to Bill Nemeth, EA, current president of the Georgia Association of Enrolled Agents, and John Donovan, EA.

10 Credit Trends to Watch Out For in 2011

  1. Changes in financial behaviors: When will we see a return to traditional behaviors?

  2. Consumers’ adaptability: How will consumers adapt to the new credit environment?

  3. Consumers’ state of mind: Where is the lingering financial malaise?

  4. Credit originations: Specifically subprime credit originations. I’ll be looking at the pace of credit-origination growth and consumer behaviors when credit demand exceeds supply, such as using credit substitutes

Click through to see the other 6 important credit trends.

READ MORE: 10 Credit Trends to Watch Out For in 2011

Equifax Personal Finance Blog