IRS TAX TIPS FOR DEDUCTING GIFTS TO CHARITY

The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:

1. Give to qualified charities. You can only deduct gifts you give to a qualified charity. Use the IRS Select Check tool to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.

2. Keep a record of all cash gifts.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods must be in good condition.  Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Additional records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts.  Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.

6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file another form with your tax return. Use Form 8283, Noncash Charitable Contributions to report these gifts. For more on these rules, visit IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

 

 

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6 Advantages of Real Estate Investing for Savvy Entrepreneurs

I’ve had numerous conversations with entrepreneurs lately who have come to the conclusion that they need to start diversifying their business profits into more than just a savings account. If this is you – pay close attention.

Being a real estate investor isn’t always glamorous but it is one of the best ways to build wealth over the long-haul, especially for the entrepreneurial-minded. Here are six reasons why you should consider investing in rental properties.

1. Cash flow.

Many people invest in rental properties simply because of the cash flow – the extra money that is left after all the bills have been paid. The cash flow can provide ongoing, monthly income that is mostly passive, allowing you to spend your time building a business, traveling or reinvesting in more real estate.

Cash flow from real estate is stable and far more predictable than most other businesses. That’s great for entrepreneurs enduring the ups and downs of start-up life. The cash flow can help float you though the bad times and live well during the good times.

2. Tax benefits.

Let me ask you a quick question: if you earn $100,000 at your own business and I earn $100,000 through rental properties, who get’s to keep more?

That’s right: I do. Because the government rewards rental property owners.

Not only is the cash flow received from your rentals not subject to self-employment tax, the government offers tax benefits including depreciation and significantly lower tax-rates for long-term profits.

3. The loan pay down.

When you buy a rental property using a mortgage, your tenant is actually the one paying the mortgage payment, thus increasing your net worth each month. Because of the loan pay down a rental property is essentially a savings account that grows automatically, without you depositing money each month.

Today you might owe $200,000 on a rental property, but next year you might only owe $195,000 because the tenant is making the payment for you, making you $5,000 richer. Thirty years down the road, or whatever the term of your loan, it’s paid down to $0. You own a significant asset that you can sell or continue renting, all thanks to your tenant paying the mortgage.

4. Appreciation.

While the loan is being paid down the value of real estate, generally, goes up. Yes, I know, recessions do happen. Values do go up and down. People buy at the wrong time of the market.  I get it.

However…

Over time, values do climb higher and higher. That’s why I’m not in this real estate game just for a year or even a decade. I’m in this for life. I know my properties will continue to climb so that 30 years from now, everything will be worth far more than I’m paying for it today.

5. A hedge against inflation.

Can you imagine paying ten dollars for a gallon of milk? Or five dollars for a candy bar? While those prices seem exorbitant to you, this is the future because of inflation. Inflation is the process by which prices increase due to the value of money decreasing.

While most people fear inflation, as a rental property owner, I look forward to it!

When the price of a gallon of milk hits ten bucks a gallon, guess what else is going to shoot through the roof? Everything, including rents and property values! The one thing that won’t increase, however, is my fixed-rate mortgage payment. As inflation pushes the cost of living higher and higher, my cash flow will only increase. This is why real estate is often called “a hedge against inflation.” When inflation hits – I’m ready!

6. Control.

I don’t like my destiny tied to a board room on Wall Street or a nervous CEO in Silicon Valley.

This is why I choose to invest most of my income in real estate, knowing that I am the one who is responsible for my success or failure.

  • If I want a better deal, I need to hustle to find it.
  • If the rental market gets more competitive, I can compensate by increasing my advertising.
  • If values drop, I can choose to wait it out or improve the property to drive the value back up.

In other words, I get to control the situation, and my financial future, with my own two hands. And that suits me just fine.

Don’t think that just by owning some rentals you are instantly going to begin building wealth. Real estate is powerful – but only if you work it right.

You must learn how to find great deals, how to evaluate a real estate investment, and how to finance any properties you want to buy. Additionally, you must treat it like a business and nurture it as it matures. It’s likely not going to be totally passive up front, but as millions of individuals throughout history have discovered, the payoff is well worth the journey.

Boost Your Tax Knowledge with a Free Learning Program from the IRS

The IRS has a free program for anyone who wants to learn about taxes. “Understanding Taxes” is available 24/7 on IRS.gov. It was designed by the IRS and teachers to help you learn the “how’s” and “why’s” of taxes. The program can make learning about federal taxes as easy as A-B-C.
o Accessible (web-based)
o Brings learning to life
o Comprehensive
Here are six more reasons to study up on it:
1. Lessons on IRS.gov. Teachers and students will find that the nearly 40 lessons on IRS.gov are easy, relevant and fun!
2. User friendly site map. You can quickly look through the program and skip to the part you want.
3. Tutorials, tests and more. A series of tax tutorials guide you through the basics of tax preparation. Another feature is a chance to test your knowledge through tax trivia. There’s also a glossary of tax terms.
4. Customize to fit your style. If you’re a teacher, you can make the interactive program fit your style. Use your own lesson plans and plan your own activities. It’s easy to add to your school’s curriculum.
5. No need to register. You don’t need to register or login to use the program. You can take a break and return to where you left off whenever you choose. Just take note of the page and lesson number before you leave the page.
6. The how’s and why’s of taxes. Learn the basic concepts of taxes. Self-paced modules offer a step-by-step approach to tax preparation. The lessons are also a great way to learn about the history and theory of taxes in the USA.
You may use the program anytime during the year. Visit IRS.gov and type “Understanding Taxes” in the search box. The application contains lessons and practice problems based on 2014 tax law.
For more current tax law training, visit Link and Learn Taxes on IRS.gov. The IRS will update this program later this year. The Web address is http://apps.irs.gov/app/vita/. You can also find it if you type “Link and Learn” in the search box.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

What Information Must a Health Coverage Provider Report to the IRS

For purposes of the health care law, the information that health coverage providers, including employers that provide self-insured coverage, report to the IRS includes the following:
• The name, address, and employer identification number of the provider
• The responsible individual’s name, address, and taxpayer identification number – or date of birth if a TIN is not available
• If the responsible individual is not enrolled in the coverage, providers may, but are not required to, report the TIN of the responsible individual
• The name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program and the months for which the individual was enrolled in coverage and entitled to receive benefits
• For coverage provided by a health insurance issuer through a group health plan, the name, address, and EIN of the employer sponsoring the plan, and whether the coverage is a qualified health plan enrolled in through the Small Business Health Options Program – known as SHOP – and the SHOP’s identifier
A taxpayer identification number is an identification number used by the IRS in the administration of tax laws. Taxpayer identification numbers include Social Security numbers.
Reporting of TINs for all covered individuals is necessary for the IRS to verify an individual’s coverage without the need to contact the individual.
If health coverage providers are unable to obtain a TIN after making a reasonable effort to do so, the provider may report a covered individual’s date of birth in lieu of a TIN. A health coverage provider will not be subject to a penalty if it demonstrates that it properly solicited the TIN.
In addition to the information it reports to the IRS for each covered individual listed on the information return, a health coverage provider must include a phone number for the provider’s designated contact person – if any – that the individual recipient of the statement can contact for answers to questions about information on the statement.
For information about when and how to report this information, see our Questions and Answers on Information Reporting by Health Coverage Providers on IRS.gov/aca.

Top 10 Tips about Tax Breaks for the Military

If you are in the U. S. Armed Forces, special tax breaks may apply to you. For example, some types of pay are not taxable. Certain rules apply to deductions or credits that you may be able to claim that can lower your tax. In some cases, you may get more time to file your tax return. You may also get more time to pay your income tax. Here are the top 10 IRS tax tips about these rules:
1. Deadline Extensions. Some members of the military, such as those who serve in a combat zone, can postpone some tax deadlines. If this applies to you, you can get automatic extensions of time to file your tax return and to pay your taxes.
2. Combat Pay Exclusion. If you serve in a combat zone, certain combat pay you get is not taxable. You won’t need to show the pay on your tax return because combat pay is not part of the wages reported on your Form W-2, Wage and Tax Statement. If you serve in support of a combat zone, you may qualify for this exclusion.
3. Earned Income Tax Credit or EITC. If you get nontaxable combat pay, you can include it to figure your EITC. Doing so may boost your credit. Even if you do, the combat pay stays nontaxable.
4. Moving Expense Deduction. You may be able to deduct some of your unreimbursed moving costs. This applies if the move is due to a permanent change of station.
5. Uniform Deduction. You can deduct the costs of certain uniforms that you can’t wear while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.
6. Signing Joint Returns. Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse. In other cases when your spouse is absent, you may need a power of attorney to file a joint return.
7. Reservists’ Travel Deduction. If you’re a member of the U.S. Armed Forces Reserves, you may deduct certain costs of travel on your tax return. This applies to the unreimbursed costs of travel to perform your reserve duties that are more than 100 miles away from home.
8. ROTC Allowances. Some amounts paid to ROTC students in advanced training are not taxable. This applies to allowances for education and subsistence. Active duty ROTC pay is taxable. For instance, pay for summer advanced camp is taxable.
9. Civilian Life. If you leave the military and look for work, you may be able to deduct some job search expenses. You may be able to include the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.
10. Tax Help. Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after April 15.
For more, refer to Publication 3, Armed Forces’ Tax Guide. It is available on IRS.gov/forms at any time.

Get to Know the Small Business Health Care Tax Credit

If you are a small employer, you might be eligible for the Small Business Health Care Tax Credit, which can make a difference for your business.   To be eligible for the credit, you must:

  • have purchased coverage through the Small Business Health Options Program – also known as the SHOP marketplace
  • have fewer than 25 full-time equivalent employees
  • pay an average wage of less than $50,000 a year
  • pay at least half of employee health insurance premiums

For tax years beginning in 2014:

  • The maximum credit increases to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
  • To be eligible for the credit, you must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program  Marketplace or qualify for an exception to this requirement.
  • The credit is available to eligible employers for two consecutive taxable years.   Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

There is good news for small tax-exempt employers, too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability. Refund payments issued to small tax-exempt employers claiming the refundable portion of credit are subject to sequestration.

Finally, if you can benefit from the credit even if you forgot to claim it on your 2014 tax return; there’s still time to file an amended return. Generally, a claim for refund must be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires later. For tax years 2010 through 2013, the maximum credit is 35 percent of premiums paid for small business employers and 25 percent of premiums paid for small tax-exempt employers such as charities.

You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. For detailed information on filling out this form, see the Instructions for Form 8941. If you are a small business, include the amount as part of the general business credit on your income tax return.

If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. You must file the Form 990-T in order to claim the credit, even if you don’t ordinarily do so.

For more information about the credit, visit the Small Business Health Care Tax Credit page on IRS.gov/aca.

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Don’t Overlook the Child and Dependent Care Tax Credit this Summer

IRS Special Edition Tax Tip 2015-12

  1. Day camps are common during the summer months. Many parents pay for them for their children while they work or look for work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are the top ten tips to know about the Child and Dependent Care Credit:
    1. Care for Qualifying Persons. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.
    2. Work-related Expenses. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
    3. Earned Income Required. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.
    4. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
    5. Type of Care. You may qualify for it whether you pay for care at home, at a daycare facility or at a day camp.
    6. Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income.
    7. Expense Limits. The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
    8. Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:
    • Overnight camps or summer school tutoring costs.
    • Care provided by your spouse or your child who is under age 19 at the end of the year.
    • Care given by a person you can claim as your dependent.
    1. Keep Records and Receipts. Keep all your receipts and records for when you file your tax return next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on Form 2441, Child and Dependent Care Expenses.
    2. Dependent Care Benefits. Special rules apply if you get dependent care benefits from your employer. See Publication 503 for more on this topic.

Remember that this credit is not just a summer tax benefit. You may be able to claim it for qualifying care that you pay for at any time during the year.

Additional IRS Resources:

Small Business Retirement Plan Penalty Relief Expires Soon

You still have time to file retirement plan tax returns for your small business. Under the IRS special penalty relief program, you can avoid stiff penalties for filing late. However, you must act soon. Here are some key points you should know about this program:
• Late Filing Penalties. Plan administrators and sponsors who fail to file required forms can face penalties of up to $15,000 per return. The plan usually must file Form 5500-EZ each year.
• Penalty Relief Deadline. A special program provides penalty relief for late filers. Those who are eligible can avoid these penalties by filing late returns by June 2, 2015.
• Relief to Certain Plans. In general, this program is open to certain small business plans. These include owner-spouse plans, plans of business partnerships (together, “one-participant plans”) and certain foreign plans.
• Penalty Already Assessed. If you have already been assessed a penalty for late filings you are not eligible for this program.
• One-Year Pilot. The IRS launched this program on June 2, 2014, as a one-year pilot. It can help small businesses that may have been unaware of their plan’s filing requirements. So far, the IRS has received about 6,000 late returns under the program.
• Multiple Late Returns. You may apply for relief for multiple late returns in a single submission under this program.
• No Fee Required. The IRS does not charge a filing fee or require a payment to apply for this relief.

Report Changes in Circumstances that could Affect Your 2015 Premium Tax Credit

If you have enrolled for health coverage through the Health Insurance Marketplace and receive advance payments of the premium tax credit in 2015, it is important that you report changes in circumstances, such as changes in your income or family size, to your Marketplace.
Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Marketplace. Having at least some of your credit paid in advance directly to your insurance company will reduce the out-of-pocket cost of the health insurance premiums you’ll pay each month.

However, it is important to notify the Marketplace about changes in circumstances to allow the Marketplace to adjust your advance payment amount. This adjustment will decrease the likelihood of a significant difference between your advance credit payments and your actual premium tax credit. Changes in circumstances that you should report to the Marketplace include, but are not limited to:

  • An increase or decrease in your income
  • Marriage or divorce
  • The birth or adoption of a child
  • Starting a job with health insurance
  • Gaining or losing your eligibility for other health care coverage
  • Changing your residence

For the full list of changes you should report, visit HealthCare.gov/how-do-i-report-life-changes-to-the-marketplace.

If you report changes in your income or family size to the Marketplace when they happen in 2015, the advance payments will more closely match the credit amount on your 2015 federal tax return.  This will help you avoid getting a smaller refund than you expected, or even owing money that you did not expect to owe.