The Top Tax Questions Asked and Answered
Our long-time tax contributor Julian Block regularly receives commentary about his posts, as well as a multitude of emails from other practitioners. Here he has compiled a list of Q&As around many of the latest tax-related issues from other practitioners and business owners.
We hope you find it informative and, as ever, feel free to add your own comments and questions to this as well.
I’ve received emails from accountants on how to craft responses to questions from clients related to the above issue. I’ve edited and condensed the questions for clarity and brevity. – Julian Block
Q. My company will reimburse several new employees for their moving expenses. Does the tax code excuse an employer from withholding income and Social Security taxes from these payments?
A. Internal Revenue Code Section 3401(a)(15) says that these withholding exemptions apply only to the extent that an employer “reasonably believes” an employee qualifies for the moving-expense deduction. For example, these exemptions don’t cover reimbursements for such nondeductible outlays of an employee as a loss on the sale of a personal residence, or “indirect” moving expenses for pre-move house-hunting trips or temporary quarters at the new job site.
Q. I recently started a business and soon will need some extra help. I’m thinking about hiring my husband or asking my two daughters to help out after school. Is it true that I don’t have to pay Social Security taxes on their wages?
A. You might be off the hook for one or both of your daughters, but not for your husband. There’s one set of rules for them and another for him.
Generally, the wages you pay your daughters and other employees are subject to Social Security (6.2 percent) and Medicare taxes (1.45 percent) that aggregate 15.30 percent (7.65 percent for both employer and employee). But Code Section 3121(b)(3)(A) authorizes an exemption from these taxes for wages you pay to your under-age-18 sons or daughters.
The exemption applies when you do business as (1) a sole proprietorship (IRS lingo for the lone owner of a full-time or part-time business that isn’t formed as a corporation or a partnership with a partner other than your spouse) or (2) a husband-and-wife partnership.
No exemption at all in the case of your husband. You’re stuck with those taxes on wages paid to him, just the same as any other person you employ.
Q. My daughter receives child support payments from her former husband. What are the tax rules?
A. She doesn’t have to report the payments, and he can’t deduct them.
Q. Can a call girl who poses as a stenographer claim depreciation of her typewriter?
A. No, says the IRS. Use it or lose it.
Q. Is an estate entitled to a charitable deduction for a bequest of scholarships when religion or sex enters into selection of the recipients?
A. Yes, according to IRS rulings. One will established a fund for deserving Jewish students with high academic ability. Another favored male Protestant graduates of a specified high school. Still, the IRS allowed the deduction in both cases.
Q. I’ll be paid for a talk that I’ll give at a conference. Is a charitable deduction available to a speaker who declines an honorarium and asks that the money be donated to a charity he or she picks?
A. Yes. But the speaker still has to declare the honorarium as income. Note that you derive no benefit from a donation deduction if you pass up itemizing on Schedule A of Form 1040 for contributions and the like because it’s more advantageous to use the standard deduction.
If you anticipate that you’re going to claim the standard deduction, decline the honorarium before you become entitled to it and required to declare it. Assign the payment to your favorite philanthropy.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 225 and counting).