Masonry Magazine February 1972 Page. 13
TAXES
By MIRIAM MCD. MILLER
WINTER CASUALTIES
Even if this winter continues to be mild, certain winter casualties may occur. Freezing may cause pipes to burst, motors to freeze, skidding into car damage, plants and trees to be ruined.
Section 165(a) (3) of the Code is the section that provides tax relief for nonbusiness losses: a deduction for the net amount of actual property loss resulting from storm or other casualty, to the extent the loss exceeds $100 for each casualty.
The IRS has defined a casualty to be "the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected, or unusual nature."
Smog was found by the IRS to be of such an unusual nature. A taxpayer suffered damage to the exterior of his home when smog containing an unusual concentration of chemical fumes suddenly descended upon the locality in which he lived. The exterior surface of the taxpayer's home, which had been recently painted, was eaten through overnight by the smog. The paint blistered and peeled from the wood.
In ruling that this was an identifiable event of a sudden, unexpected, or unusual nature, the IRS made the point that, "This sudden change is different from the progressive damage that is sometimes caused by smog over a long period of time. The IRS ruled that here the taxpayer had a deductible loss. (Rev. Rul. 71-560.)
Remember, if you do experience a casualty loss, it is the taxpayer who must furnish the proof that 1) a casualty loss was sustained and 2) the amount of the loss. For example, the basis for the deduction for damaged trees or shrubbery is not the cost of replacing the plantings. It is the difference in the value of the real property before and after the casualty.
Newspaper stories describing the particular event (e.g. a snow storm) should be clipped and kept. If you do not have a picture of your home as it is now you might want to take one. Then, in the event the landscaping is damaged by a storm, you can easily photograph the "after" for your tax file.
WITHHOLDING TABLES
By the time you read this you should have received the new withholding tables to be used for wages paid after January 15, 1972. The new tables reflect the changes resulting from the Revenue Bill of 1971. The $750 personal exemption, the increase in the low-income allowance to $1,300 and the increase in the standard deduction to 15% (with a maximum of $2,000) are included in these tables.
If you do not have it on hand, you may wish to request the IRS 1972 Circular E, "Employers Tax Guide." There is no charge for this publication. The Revenue Act of 1971 has made changes in the income tax withholding system. Remember, all employees should be given the opportunity to furnish a revised Form W-4.
AUTOMATIC EXTENSION
The IRS is adding something new this year, and if you become interested check with your local IRS center. An individual may now request an automatic two-month extension of time to file his 1971 Form 1040.
A request for the two-month extension should be made on Form 4868. According to the IRS, individuals will get the two-month extension if they make a tentative estimate of the entire tax due for the year and pay the estimated balance upon the proper and timely filing of a Form 4868.
Commissioner of Internal Revenue Johnnie Walters regards this automatic two-month extension of filing time to be "a milestone in tax administration."
MEDICAL REIMBURSEMENT
Employers, particularly those who are also employees, would be wise to make note of the tax consequences of medical reimbursement plans. Approval by the courts of well-constructed plans seems to be on the upgrade. Briefly, an employer can pay the medical expenses of an employee and get a full deduction (business expense deduction). Then, the employee who is reimbursed for his medical expenses is entitled to exclude that amount from his income.
While medical expenses are deductible, they must first be paid. Should an owner-employee be able to have his company pay his (or his family's) medical expenses, income taxes would not first have to be paid by the owner-employee on the money that actually pays for the medical expenses. Tax-free money actually pays the bill. The company then gets a full business deduction on the amount of money paid to the owner-employee.
But check with your tax adviser on this. There must be a plan. It is doubtful if a non-written policy would pass the IRS inspection. The purpose of the plan clearly must be to cover all employees and not to cover just the owner-employee. For instance, one such set-up was disapproved by the court where the plan was for the benefit of "all officers, other than those who own no stock." (Larkin v. Commissioner, 48 TC 629.)
Again, where a company was formed so that an individual could enjoy this tax advantage the court disallowed the deductions on the ground that the plan was devised to cover the individual as an owner and not as an employee. (Smithback v. Commissioner, 28 TCM 709.)