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You May Need a Protective Claim Before July 15
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Article Highlights: Pending Supreme Court Case Past ACA Taxes May be Invalidated Who May be Impacted by the Court Ruling 2016 Tax Statute of Limitations Protective Claim for 2016 Refund Taxpayers who in the last few years have paid the extra 0.9% Medicare tax on wages or self-employment income, or the 3.8% tax on net investment income, both taxes that were created as part of the 2010 Patient Protection and Affordable Care Act (ACA; often called Obamacare), may be able to claim a refund of these taxes. However, it will be up to the Supreme Court as to whether anyone will qualify for a refund. Currently before the Court is a case challenging the legality of the ACA. Here’s what the case is about. The ACA included a requirement for individuals to have health insurance coverage starting in 2014 and imposed a penalty if they didn’t. As part of the Tax Cuts and Jobs Act (TCJA) of 2017, Congress set the penalty rate at 0% starting in 2018, effectively repealing this part of the ACA. However, other parts of the health care law were left intact, including the additional Medicare tax and the net investment income tax. The additional Medicare tax of 0.9% is paid by workers when their wages (or a self-employed individual’s income) exceed $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately, and $200,000 for all others. The net investment income tax is 3.8% of the lesser of (1) an individual’s net investment income or (2) the excess of the individual’s modified adjusted gross income (MAGI) over $250,000 for a joint return, $125,000 for married taxpayers filing separately, and $200,000 for most other returns. The issue in the current court case of whether eliminating the individual mandate makes all or part of the ACA unconstitutional has been making its way through the courts, and the case (California v Texas) is now at the Supreme Court, which isn’t likely to rule on the case until late this year or possibly not until 2021. If the Court does find that the ACA is unconstitutional, taxpayers may be entitled to refunds for the taxes imposed by the ACA. If so, refunds would only be able to be claimed for years when the statute of limitations is still open. Usually, a claim for refund must be made within three years of the due date of the return, so that date would be July 15, 2020 for 2016 returns (since the regular April due date has been extended because of the COVID-19 pandemic). However, you can lock in your right to a possible refund for 2016 by filing what’s called a protective claim by July 15, 2020. If you filed your 2016 return after April 15, 2017 because you were on extension, the deadline is three years from the date it was filed. Usually, a claim for refund of an individual’s income tax is made on IRS Form 1040-X, but a protective claim can be done less formally by writing to the IRS. So, if you wish to make a protective claim for 2016, you can use the format below – be sure that both you and your spouse have signed if you filed a married joint return. Also, be sure to get a proof of mailing since it is so close to the deadline, and keep the proof of mailing and a copy of the letter with your tax records.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
