|
US Tax
Court Rules Against MBA's
Under Section
162 of the IRS code, a taxpayer can deduct education expenses, including
tuition, books, supplies, similar items and certain travel costs incurred
if the coursework maintains or improves skills required in the taxpayer's
current employment or if the education is required to keep their present
salary, status or job. Such expenses are treated as miscellaneous itemized
deductions subject to the 2% of adjusted gross income (AGI) floor.
However, expenses that relate to the minimum
educational requirements for qualification for a job or would qualify the
taxpayer for a new trade or business are not tax deductible. Therefore,
career switchers cannot deduct such expenses. Similarly, doctors and
lawyers would be precluded from deducting their education expenses because
they need to have earned medical and law school degrees to work as
professionals in their fields.
Taxpayers who pursue a master's degree in
business to enhance their skills in a current job or in jobs they left to
go to school have generally been able to deduct such education expenses,
which can be substantial, since one does not usually need an MBA to work in
business. However, in a recent Tax Court case, the Court found that the
taxpayer's MBA was necessary to meet the minimum education requirements to
be an investment banker. Even though she worked as an analyst at an
investment bank prior to school, she hadn't technically established herself
as an investment banker because an MBA was required to become an associate
in the industry at the time. Further, the taxpayer didn't return to
investment banking after graduation but started work in a general management
program where the MBA was a requirement. The court pointed out that the
degree qualified her to perform significantly different tasks and
activities than she performed before the education and as such, qualified
her for a new trade or business.
Although each case has its own facts and
circumstances, one must be cognizant of the IRS' increased scrutiny of
education deductions. Those who pursue an MBA on a part-time basis or who
return to their former employer upon graduation enhance their position.
Further, those who plan to switch careers may want to start work in the new
field prior to obtaining the MBA. Showing continuity between the job you
take after graduation and the job you held prior to the coursework will
further your argument for allowance of the deduction.
Read more...
|
|
|
Greetings!
As the summer comes to an imminent conclusion, we
focus on some recently enacted laws and tax cases. We try to keep you
current, as we wonder how the summer went by so fast.
|
|
|
|
|
|
|
|
· New York State
and New Jersey
Tax Law Changes
|
|
|
 As part of the
2004-2005 NYS budget recently signed into law, there are several tax
provisions of note: (1) the reinstatement of the sales and use tax
exemption for clothing and footware costing less than $110 has been
postponed to May 31, 2005. However, a one- week sales tax exemption has
been added, beginning on January 31, 2005; (2) the corporate fixed dollar
minimum tax has been modified for 2004 and 2005: for gross payroll
between $500,001 and $1,000,000, the fixed dollar amount is $325; for
gross payroll of $500,000 or less, the fixed dollar amount is $100,
except that for gross payroll of $1,000 or less, with total receipts of
$1,000 or less and where the average value of gross assets are $1,000 or
less, the fixed amount is $800; (3) the amount of the long-term care
credit increases from 10% to 20% of the premium paid during the taxable
year; (4) NY personal income tax is now imposed on gains recognized by
nonresidents from the sale or disposition of shares in a cooperative
housing corporation. Additional provisions require the remitttance of
estimated tax on such gains; and (5) for years beginning after 2003, NYC
is authorized to enact an earned income credit equal to 5% of the federal
earned income tax credit.
New Jersey enacted tax
legislation as part of its 2005 Budget. Some of the more pertinent
provisions include: (1) an additional tier in the graduated gross income
tax for taxpayers with taxable income above $500,000-that portion of
income exceeding $500,000 is to be taxed at a rate of 8.97%; (2)
increased property tax relief benefits for homeowners and tenants based
on varying income levels; (3) limited net operating loss deductions for
the 2004 and 2005 tax years; and (4) new estimated tax provisions for nonresidents
who derive income from the sale of New Jersey real property.
|
|
|
|
· New Overtime
Rules
|
|
|
Although not a tax topic, we thought it would be a good idea
to provide a brief overview of the new overtime rules. The rules, which
were enacted in April and went into effect as of August 23rd, will have a
significant impact, particularly on small businesses. The significant
changes include: (1) executive, administrative, professional, outside
sales and certain computer employees are exempt. To qualify for
exemption, employees must generally meet certain tests regarding their
job duties (title does not matter) and be paid on a salary basis at not
less than $455 per week; (2) blue collar, non-management workers
automatically qualify for overtime; and (3) highly paid employees,
defined as those making at least $100,000 per year, are automatically
exempted as long as they are non-manual labor workers or regularly
perform at least one of the duties of an exempt executive, adminstrative
or professional employee identified in the standard tests for exemption.
Because
of the complexity and importance of these rules, it is strongly
recommended that you visit the Labor Department's website at the link
noted below to ensure your compliance.
Read more...
|
|
|
|
· When is a Theft
not a Theft (Loss)?
|
|
|
The IRS has recently advised that it intends to disallow
theft losses for declines in stock value due to the disclosure of
accounting fraud and other misconduct by a corporation's officers and
directors. Penalties may be imposed on those taxpayers taking such a position.
Under Section 165 of the Code, an ordinary loss deduction is allowed for
any loss sustained during the year not compensated for by insurance. The
loss must be evidenced by a closed and completed transaction. Further,
that Section's Regulations provide for no deduction solely on account of
a decline in stock value due to market fluctuation or other similar
cause. However, a deduction is allowed if the stock is worthless and has
no recognizable value. A decline in stock value is not allowed as a deduction
until the tax year in which the loss is actually sustained as a result of
a sale or exchange or the stock becoming worthless. In such cases, a
capital loss is allowed.
In cases
involving stock purchased on the open market, the courts have consistently
disallowed theft loss deductions, i.e. ordinary losses, for a decline in
stock value due to corporate officers misrepresentations, fraud, etc. The
courts have noted that the taxpayers did not purchase the stock from the
corporate officers who made the misrepresentations, but on the open
market. As such, they would be entitled only to a capital loss and only
in the year in which the stock was sold or became worthless. Therefore,
it matters not at all that you feel that you have been
"taken"--you will not have a theft loss but only capital losses
against, primarily, your capital gains
|
|
|
|
· The September
15th Deadline
|
|
|
For those calendar year corporate entities that filed an
Application for Automatic Extension of Time to File on or before March
15, 2004, the deadline for filing those returns is rapidly approaching.
No further extension of time is allowed beyond the September 15th
deadline.
|
|
|
|
