Masonry Magazine October 1972 Page. 21
TAXES
By MIRIAM MCD. MILLER
POLITICAL CONTRIBUTIONS
Being this is the year of elections, many taxpayers will be making contributions to the candidates of their choice. For the first time individual taxpayers may claim a credit or deduction on their income tax returns for political contributions of money.
Potentially eligible for the credit or deduction are political contributions made to: 1) individual candidates for national, state, or local elective office: 2) committees, associations, etc. organized and operated exclusively for influencing the nomination or election of one or more candidates for national, state, or local elective office; or 3) national, state, and local committees of national political parties.
The particular candidate involved must be an announced candidate and file a certain form with the IRS. Remember to get and keep a receipt for any contribution you make. Taxpayers may be called upon for more substantiation than a cancelled check. However, the IRS has said that if a taxpayer has a "special authorized receipt" the taxpayer will need nothing further to prove his contribution.
A taxpayer who uses the standard deduction can only use the tax credit, which is the lesser of 1) one-half of total contributions for the year, or 2) $12.50 ($25 on a joint return). However, a taxpayer who itemizes all of his deductions has the option of using either the tax credit or the tax deduction for his political contributions. The tax deduction is limited to the lesser of 1) total contributions for the year, or 2) $50 ($100 on a joint return).
The IRS has taken the position that the cost of tickets to political dinners and functions is eligible for the limited credit or deduction. Of course, such an event must be clearly in the course of a campaign of an announced candidate. Finally, it seems that the cost of admission to an inaugural event could apparently qualify for the tax credit or deduction if the funds are being used to defray expenses incurred during the campaign.
REVOLVING CHARGE ACCOUNTS
For every taxpayer who prepares his own return, the new ruling of the IRS on deductions of the finance charge is a most welcomed development. No more confusing formulas! According to the ruling, the retail store customers using "revolving charge accounts" can deduct finance charges as interest on their income tax returns.
Previously, a taxpayer could deduct the lesser of 6% of the average unpaid monthly balance or the actual charges for the year. The theory behind this was that there were two costs involved one was interest and that was deductible. The other was a service charge paid to compensate a lender for specific services performed with respect to a borrower's account and this was not deductible.
However, the IRS now reasons that the distinction is really one of terminology and not of fact. Since the finance charge is not fixed but varies on the size of the unpaid balance, it is indistinguishable from interest. Therefore, the amount charged to a customer's revolving charge account is solely for the privilege of deferring payment and is interest. As such, the IRS has now ruled, the entire charge is deductible. (T.L.R. No. 1180.)
EMPLOYEE'S EDUCATION EXPENSES
A taxpayer was employed as an engineering aide in the aerospace division of a corporation. While so employed, the taxpayer attended evening classes at a university, in which he had enrolled in a bachelor's degree program, listing as his major mechanical engineering.
The engineer's aide ran into trouble with the IRS when he deducted as "employee's business expenses" the amount he had spent for transportation, meals, tuition, and book expenses incurred in connection with his studies. The Tax Court ruled that this taxpayer could not deduct his education expenses because he was unable to show that the expenses were incurred in order to improve or maintain skills in his employment or to meet the express requirements of his employer without qualifying him for a new trade or business.
The Court explained that "while the taxpayer is not required to show how his job skills would be improved by each and every college course which he happens to take, he must establish a reasonably material relationship between his employment skills and the curriculum undertaken." These expenses were found to be nondeductible personal expenses of the taxpayer. (Warfsman v. Commissioner. T.C. Memo 1972-137.)
CIVIL RIGHTS ACT
A corporation was found by the Court to be in violation of the Civil Rights Act of 1964, which provides in part, that it is an unlawful employment practice for an employer to discriminate against any individual with respect to his compensation, terms, conditions or privileges of employment because of such individual's race, color, religion, sex or national origin.
The Court ordered the corporation to divide a specified sum equally among the employees who had suffered economic loss as a result of the corporation's employment practices. How was this amount to be treated from the tax viewpoint?
The IRS ruled that since the payments made by the corporation to the employees were based on compensation that they otherwise would have received, the amount of the payments are includable in their gross income as compensation. Further, since the payments were ordered as remuneration for services, they are "wages" for purposes of withholding and other employment taxes. (Rev. Rul. 72-341.)
PROFIT-SHARING PLAN
A company established a profit-sharing plan. According to the terms, a participant must contribute at least 2% of
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