The IRS Provides Tax Relief to Victims of Hurricane Irene

The Internal Revenue Service is providing tax relief to individual and business taxpayers impacted by Hurricane Irene.

The IRS has announced that certain taxpayers in Connecticut, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Puerto Rico and Vermont will receive tax relief. Other locations are expected to be added in coming days following additional damage assessments by the Federal Emergency Management Agency (FEMA).

The tax relief postpones certain tax filing and payment deadlines to Oct. 31, 2011. It includes corporations and businesses that previously obtained an extension until Sept 15, 2011, to file their 2010 returns and individuals and businesses that received a similar extension until Oct, 17. It also includes the estimated tax payment for the third quarter of 2011, which would normally be due Sept. 15.

Full details, including the start date for the relief in various locations and information on how to claim a disaster loss by amending a prior·year tax return, can be found in tax relief announcements for individual states.

The tax relief is part of a coordinated federal response to the damage caused by the hurricane and is based on local damage assessments by FEMA For information on disaster recovery, individuals should visit the government’s disaster assistance website.

So far, IRS filing and payment relief applies to the following Northeastern counties and municipalities:

  • New York: Albany, Clinton, Delaware, Dutchess, Essex, Greene, Montgomery, Nassau, Orange, Otsego, Rensselaer, Rockland, Saratoga, Schenectady, Schoharie, Sullivan, Suffolk, Ulster, Warren and Westchester
  • Connecticut: Fairfield, Hartford, Litchfield, Middlesex, New Haven, New London, Tolland and Windham
  • New Jersey: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren
  • Massachusetts: Berkshire and Franklin

Mixing Business and Pleasure With Travel

Although business is business and pleasure is pleasure, the world rarely adheres to absolutes. Thus, this time ofyear you may want to mix some vacation days with your business travel. With a little planning, you can get Uncle Sam to subsidize your downtime. Here are the strategies for doing just that.

Combine Business and Vacation Plans for Domestic Travel

If you go on a business trip within the U.S. and add on some vacation days, you know you can deduct some of your expenses. The only question is how much. First, let’s cover just the pure transportation expenses. By this, we mean the costs of getting to and from the scene ofyour business activity, which includes travel to and from your departure airport, the airfare itself, baggage fees and tips, cabs to and from the destination airport, and so forth. Costs for rail travel or to drive your personal car also fits into this category. The bottom line is your domestic transportation costs are 100% deductible, as long as the primary reason for the trip is business rather than pleasure. On the other hand, jf vacation is the primary reason for your travel, none ofyour transportation expenses are deductible.

The IRS doesn’t specify how to determine if the primary reason for domestic travel is business. Obviously, the number of days spent on business versus pleasure is the key factor. We can look to the rules covering foreign travel for guidance on this issue. They say your travel days count as business days, as do weekends and holidays if they fall between days devoted to business, and it would be impractical to return home. “Standby days,” when your physical presence is required, also count as business days, even if you’re not called upon to work on those days. Any other day principally devoted to business activities during normal business hours is also counted as a business day, and so are days when you intended to work, but couldn’t due to reasons beyond your control (local transportation difficulties, power failure, etc.).

For domestic trips, you should be able to claim business was the primary reason for a sojourn whenever the business days exceed the personal days. Be sure to accumulate proof about this and keep the proof with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or training seminar, keep the program and take some notes to show you attended the sessions.

Once at the destination, your out-of-pocket expenses for business days are fully deductible. Out-of-pocket expenses include lodging, hotel tips, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. Expenses for personal days are nondeductible (except in the “Saturday Night Stayover” situation explained later in this letter).

Example: You are a sole proprietor. You arrange a business meeting with an important client in San Francisco on Wednesday morning. You fly out Sunday evening and spend all day Monday sight­ seeing. Tuesday you spend most of the day preparing for the meeting, attend the meeting the next morning, take the client to lunch, and return home Wednesday night. So, Sunday, Tuesday, and Wednesday count as business days. The business meeting obviously necessitated the trip, and you clearly didn’t spend an unreasonable amount of time on personal activities. Therefore, you can deduct your airline tickets, plus your lodging for Sunday and Tuesday nights, 50% of your meals for Sunday, Tuesday, and Wednesday, your other out-of-pocket expenses for those days, and 50% of the cost of lunching with your client.

Maximizing the Tax Benefits of a Saturday Night Stayover

A great way to maximize deductions for the personal portions of a trip is with a Saturday night stayover that reduces the overall cost ofthe trip. Ifyou can show staying the extra day or two costs less (or no more) than coming back home immediately after the business meeting is over, the IRS allows you to deduct your additional meal and lodging expenses (subject to the 50% disallowance rule for meals) for the extra day(s). Naturally, you still must have a dominant business purpose for making the trip in the first place. Be sure to document that your airfare savings equaled or exceeded the out-of-pocket costs of staying the extra day(s). Keep the proof with your tax records.

Example: You have a business meeting in New York on Monday morning. You and your spouse fly into town Saturday morning and spend the weekend sightseeing. Your round trip airfare is only $400 versus $1,200 if you carne in Sunday night and left Monday. In this situation, Saturday is a personal day since you would normally fly in Sunday. No problem. As long as your meal and lodging expenses for Saturday are no more than $800, you can write-offyour whole trip (subject to the 50% disallowance rule for meals). Of course, you generally can’t deduct the additional costs for your spouse (his or her airfare and meals and any extra charges for having two people instead of one in the hotel room), and you can’t deduct purely personal expenses like show tickets and baseball games. Still, this is a great deal taxwise.

Deducting Foreign Travel Costs

When you travel outside the U.S. primarily for business reasons, the general rule is that you must allocate all your travel expenses, including transportation, between business and personal. However, there are two big exceptions, and you often can plan ahead to take advantage of them. You can deduct 100% of your transportation expenses ifthe trip is primarily for business and you meet either ofthe following rules:

The One-week Rule. You’ll meet this rule if your business trip is a week or less, not counting the day you leave, but counting the day you return. In this case, you can deduct 100% of your transportation costs and 100% of your other out-of-pocket expenses for business days (subject to the 50% disallowance rule for meals). You cannot deduct out-of-pocket costs incurred on vacation days. The good news: Weekends and holidays falling between business days count as business days. Ditto for an intervening weekday between two business meeting days. “Standby days” when your physical presence is required for business also count, even if you spend most of your time on personal pursuits during those days. Finally, business days include the day ofyour return trip plus days you intended to work, but couldn’t due to reasons beyond your control.

The 25% Rule. You can also deduct 100% ofyour transportation expenses for trips lasting over a week, as long as you spend less than 25% of your days on vacation. For this purpose, count the day of departure and day of return as business days, as long as you are traveling to or from the business destination. Also, count all the other types of business days mentioned tinder the one-week rule above. Once again, however, you cannot deduct meals, lodging, and other expenses allocable to personal days.

Even if you don’t qualify for either of the above two exceptions, you (or, more likely, your employer) can still deduct 100% of your transportation costs if you’re traveling on behalf of your employer under a reimbursement or travel allowance arrangement and you’re not a managing executive of the company or related to your employer. Finally, in sort of a catchall provision, 100% of your transportation costs to foreign destinations are deductible ifyou can prove a personal vacation was not a consideration in choosing to make the trip.

If 100% of your transportation expenses aren’t deductible under any of the above rules, the business percentage of your transportation costs are still deductible-assuming the trip is primarily for business. ToPage 2calculate the business percentage, divide the days spent principally on business activities by the total number ofdays outside the country, counting departure and return days. The travel days count as business days, just as the other types of days are considered business days for purposes o f the one-week rule and 25% rule. You can also deduct the out-of-pocket expenses allocable to your business days (subject to the 50% disallowance rule for meals).

Example: On Thursday, you fly to Paris for customer meetings on Friday and Monday. You vacation the following Tuesday through Friday and return home Saturday. The two travel days, the two meeting days, and the weekend days in between count as business days. However, the four vacation days amount to 40% of your time, so you fail the 25% test. Therefore, you must allocate your airfare between business and personal. You can deduct 60% of your airfare, plus your out-of-pocket expenses for the six business days.

Example: Same as above, except this time you have only two vacation days (20% ofyour total days). Remember, the weekend days between your business meetings also count as business days. Now you can deduct 100% of your airfare because you pass the 25% test. You can also deduct your out-of­ pocket expenses for the eight business days.

Example: Same as above, except this time you return home on Thursday, three days after concluding your business meetings. Now, your trip is considered to last only a week (the departure day doesn’t count). So, you can deduct 100% of your airfare under the one-week rule. You also deduct your out-of­ pocket expenses for all the business days.

Travel to Attend Foreign Conventions

If the reason for a trip outside North America is to attend a business convention directly related to your trade or business, you may qualify for deductions. However, you must follow all of the foreign travel rules just discussed plus show it was just as reasonable for the meeting to be held on foreign soil as in North America and that the time spent in business meetings or activities was substantial when compared to that spent sight-seeing and other personal activities. Otherwise, you can only deduct the registration fees and other costs directly related to business while on your trip. Regardless of the location, you cannot deduct travel costs to attend investment or financial planning conventions and seminars.

Fortunately, the stricter rules for foreign conventions are inapplicable in many cases because the definition of ”North America” for this purpose is very liberal. It includes Canada, Mexico, Puerto Rico, the U.S. Virgin Islands, American Samoa, the Northern Mariana Islands, Guam, the Marshall Islands, Micronesia, Palau, Netherlands Antilles, Bahamas, Aruba, Antigua, Barbuda, Barbados, Bermuda, Costa Rica, Dominica, Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, Trinidad and Tobago, Midway Islands, Palmyra Atoll, Baker Island, Howland Island, Jarvis Island, Johnston Island, Kingman Reef, and Wake Island.

Conventions on Cruise Ships

Deductions related to conventions directly related to your trade or business that are held aboard cruise ships are limited to $2,000 per individual per calendar year. In addition, the ship must be a U.S. registered vessel, and all of its ports-of-call must be in the U.S. or its possessions. Finally, the following information must be attached to your return in the year the deduction is claimed:

1. A signed statement showing the total days of the trip (excluding travel to and from the ship), the number of hours each day spent attending scheduled business activities, and the program of the convention’s scheduled business activities.

2. A statement signed by an officer of the sponsoring organization that includes a schedule of each day’s business activities and the number o f hours you attended those activities.


There you have it. We hope this helps you plan some lovely trips that also deliver some nice tax breaks. However, we realize the rules explained here are rather complicated. Please give us a call if you have questions or want more information. These are just a few suggestions to get you thinking. Please call us at (212)387-7880 if you’d like to know more about them or want to discuss other ideas.

Roth IRAs for Kids

If you have a teenage child who works, consider encouraging the child to use some of the earnings for Roth IRA contributions. All that’s required to make a Roth IRA contribution is having some earned income for the year. Age is completely irrelevant. Specifically, for both the 2010 and 2011 tax years, your child can contribute the lesser of: (1) earned income or (2) $5,000.

Modest Contributions at an Early Age Can Amount to Big Bucks by Retirement Age

By making Roth IRA contributions for just a few years, your child can potentially accumulate quite a bit of money by retirement age. Realistically, however, most kids won’t be willing to contribute the $5,000 annual maximum even when they have enough earnings to do so. Be satisfied if you can convince your child to contribute at least a meaningful amount each year. Here’s what can happen. If your 15-year-old contributes $1,000 to a Roth IRA each year for four years starting now, in 45 years when your “child” is 60 years old, the Roth IRA would be worth about $33,000 if it earns a 5% annual return or $114,000 if it earns an 8% return.

If your child contributes $1,500 for each of the four years, after 45 years the Roth IRA would be worth about $50,000 if it earns 5% or about $171,000 if it earns 8%. If the child contributes $2,500 for each of the four years, after 45 years the Roth IRA would be worth about $85,000 if it earns 5% or a whopping $285,000 if it earns 8%. You get the idea. With relatively modest annual contributions for just a few years, Roth IRAs can be worth eye-popping amounts by the time your “kid” approaches retirement age.

Why the Roth IRA Is Usually the Better IRA Option for Kids

For a child, contributing to a Roth IRA is usually a much better idea than contributing to a traditional IRA for several reasons. The child can withdraw all or part of the annual Roth contributions-without any federal income tax or penalty-to pay for college or for any other reason. (However, Roth earnings generally cannot be withdrawn tax-free before age 59 1/2.) In contrast, if your child makes deductible contributions to a traditional IRA, any subsequent withdrawals must be reported as income on your child’s tax returns.

Advice: Even though a child can withdraw Roth IRA contributions without any adverse federal income tax consequences, the best strategy is to leave as much of the account balance as possible untouched until retirement age in order to accumulate a larger federal-income-tax-free sum.

What about tax deductions for traditional IRA contributions? Isn’t that an advantage compared to Roth IRAs? Good questions. There are no write-offs for Roth IRA contributions, but your child probably won’t get any meaningful write-offs from contributing to a traditional IRA either. That’s because an unmarried dependent child’s standard deduction will automatically shelter up to $5,700 of earned income (for 2010) from federal income tax. Any additional income will probably be taxed at very low rates. Unless your child has enough taxable income to owe a significant amount of tax (not very likely), the advantage of being able to deduct traditional IRA contributions is mostly or entirely worthless. Since that’s the only advantage a traditional IRA has over a Roth IRA, the Roth option almost always comes out on top for kids.

Again, these are just a few suggestions to get you thinking. Please call us at (212)387-7880 if you’d like to know more about them or want to discuss other ideas.

Daniel Silvershein Esq. is a Specialist in Tax and Bankruptcy Law

An experienced bankruptcy and tax attorney, Daniel Silvershein Esq. has helped numerous individuals and businesses deal with tax problems and the elimination of debt simply and painlessly through bankruptcy.

Whether you are a private citizen or a business, Daniel Silvershein can help guide you through tax problems with the IRS or help you exercise your constitutional rights to reorganize your finances through the U.S. Bankruptcy laws in the most cost-effective way possible.

As a client of Daniel Silvershein, you’ll tackle tax and financial problems head on and begin to free yourself from burdensome debt. Call 212-387-7880 today for a free consultation.

Tax Treatment of Timeshare Units

As summer comes to an end, no doubt many who paid top dollar at hotels and resorts for vacations are considering timeshare units. One question, however, always comes up: How does this impact my income taxes?

Because the answer depends on whether you rent your unit for at least part of your allotted time, we’ll address each situation separately.

When the Unit Isn’t Rented

If you use a timeshare rather than rent it out (which, after all, is presumably why you bought it in the first place,) the property taxes that are generally buried in your annual maintenance fees are deductible as long as you itemize your deductions.

Mortgage interest is also deductible if you itemize deductions and you choose to make the timeshare your second residence (You can only claim an interest deduction for one second residence). That’s about as far as the tax deductions go. The other items buried in the maintenance fee such as utilities and association membership charges are nondeductible personal expenses.

When the Unit is Rented

If you rent your unit for at least part of the time you’re allotted, things become more complicated. All of your rental income normally is reported as taxable income, but generally only part of your expenses are deductible. The tax law expects you to determine the deductible portion of the expenses based on usage of the unit by all the owners and renters during the year.

However, because it’s typically impossible to get the necessary information from the other owners, most timeshare owners presumably base their calculations on how the unit was used during just their time period. For example, if you own two weeks in a unit, leased it for one, and took your family there during the second week, 50 percent of your expenses (for property taxes, interest expense, maintenance fees etc.) should be deductible up to the amount of your rental income.

Although the other 50 percent of the property taxes can be claimed as an itemized deduction, your remaining expenses are generally nondeductible personal expenses. The remainder of the interest expense, however, could be deductible if you used the unit for personal purposes for the greater of 14 days or 10 percent of the days it was rented during your time period.


As you can probably tell, a timeshare’s tax benefits are nothing to get too excited about. However, that doesn’t mean acquiring a unit is a bad ideal as long as you’re happy with the purchase from a personal standpoint. The lack of significant tax benefits simply means Uncle Sam isn’t going to bail you out if you make a poor decision on which unit to buy.

Financial Problems Can Happen to Anyone, Including the Rich & Famous

If you have financial problems, don’t feel alone. With our economy still in the doldrums after three years, many individuals and companies are feeling the pinch—either from too much debt or problems with the tax man.

Super-star photographer Annie Leibovitz has been in the headlines with her financial woes, putting up her entire body of work in order to borrow $24 million. Actor Nicholas Cage, even with a chain of hit movies, has owned millions in back taxes to the IRS. Actor Stephen Baldwin filed for bankruptcy in New York—owing more than $2 million.

Lenny Dykstra, the former New York Mets and Philadelphia Phillies centerfielder, filed for bankruptcy in California, while Willie Aames, former star of the 1970s and 80s hit television shows “Eight is Enough” and “Charles in Charge” held a garage sale in Kansas City to sell memorabilia from his career. He also filed for bankruptcy.

There is no shame in filing for bankruptcy if creditors are pursuing you day and night, making you afraid to answer your own telephone. Don’t allow debt to take over your life. Call Daniel Silvershein’s law office today to exercise your constitutional rights and begin to take control of your financial situation.