Tax Info Blog

IRS Shortens Extension Deadline for Partnerships

The IRS announced this week that they will be shortening the extension deadline for partnerships by one month, from October 15th to September 15th for calendar-year partnerships.  The reason is that partnerships must issue K-1 forms when their 1065 form is filed.  Until now, a partner (who needs the K-1 form to file his own return) might get the vital K-1 form after his own extended deadline.

By having the partnership deadline end a month earlier, that problem is avoided.  Partners will now have at least a month before their extended deadline in which to incorporate their K-1 forms.

This change is effective for partnerships whose years end on or after September 30, 2008.

New HSA Guidance Released

Click here to read.  The biggest piece of news is a new animal: the post-deductible FSA (or HRA).  According to the guidance, you can use an FSA or an HRA to pay for medical expenses that occur over the deductible, but before the out of pocket maximum.

As an example, suppose you have an HSA with a $2000 deductible and a $3500 maximum.  This provision would allow you to contribute the usual $2850 to your HSA.  If you hit your deductible, you would drain your HSA by $2000 that year.  If you continued to face medical expenses while you were inside the gap between the $2000 deductible and the $3500 OOP max, you'd have three sources to meet them:

1. Your own pocket.  This also gives you the right to draw on HSA assets later.
2. Excess funds remaining in your HSA
3. You can now draw on an FSA or HRA until the out of pocket max is reached

This is a big deal.  It makes it more likely that those who have access to multiple health savings vehicles can coordinate them advantageously.  My first impression would be that a plan with a low deductible and a high out of pocket max now makes more sense, assuming that an FSA is available.  What do you think?

IRS Increases Standard Mileage Rate

The IRS announced today that they have increased the standard mileage rates.  For miles driven between July 1, 2008 and December 31, 2008:

• The business mileage rate increases from $0.505 to $0.585 per mile
• The medical/moving mileage rate increases from $0.19 to $0.27 per mile
• The charitable mileage rate is set by statute at $0.14 per mile

Itemized Deductions on Overseas Properties

Q: Can I take a deduction for mortgage interest and property taxes on an overseas home?
Robert

A: Yes, assuming that you meet all the other qualifications.  Since worldwide income is taxable, worldwide expenses are deductible. 

Click here to read my post on the mortgage interest deduction.

Click here to read my post on all itemized deductions.

How to Claim the Foreign Earned Income Exclusion The Year You Move Home

Q: For the past several years, I have been working overseas and claiming the Foreign Earned Income Exclusion.  I move home for good this July 1st.  How do I claim the exclusion this year?
Mark

A: For those that need a refresher, start with my post on the Foreign Earned Income Exclusion.

In order to claim the exclusion, you must be working outside the United States for any 330 of a consecutive 365 day period.  Up until now, you've probably been using Jan 1-Dec 31 as that period.  However, you are free to use any 365 day period you want.

I would suggest you pick the latest possible day in 2008 that still gets you 330 overseas days, looking retrospectively to the preceding 365 days.  You then see what percent of 2008 the days since Jan 1, 2008 represent.  Let's say it's 55% of the year.  You would be eligible to claim 55% of the full year's allowable exclusion amount for 2008.

We're Back Up!

One of my sidebar widgets has been crashing the page for the past couple of days, as many of you no doubt have noticed.  The widget has been removed, which seems to have solved the problem.  Thanks for your patience, and I'll have this week's post up later today.

Day Care Expenses of A Sole Proprietor

Q: My wife is a sole proprietor.  Can she deduct our day care expenses as a business expense, or are we limited to the dependent care tax credit?
Ray

A: Those not familiar with my posts on sole proprietors and the day care credit should read them first.

I'm afraid you're stuck with the conventional child care credit.  It's only C-corporations that can have the company pay for the care or offer a potentially more lucrative fringe benefit.  You can't get around the fact that this is not considered an ordinary and necessary business expense, but rather a personal expense.