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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Tax Tips for the Summer

  1. Taxes and Summer Jobs
    • Students working summer jobs may be exempt from withholdings.  If the student didnot owe any tax last year and they do not expect that to change, they should not have any income tax withheld.
    • If the student can be claimed as a dependent on their parents’ return, total income cannot exceed $6,100 and unearned (investment) income cannot exceed $350, if they want to avoid the income tax withholding. If unearned income does exceed $350, then the limit on total income is lowered to $1,000.
    • You are still subject to FICA and FUTA withholdings.  Sorry.
  2. Old W-4s No Longer Valid
    • Regardless of the number of exemptions claimed and the amount of withholdings taken out of your check, your employer needs to renew the W-4 on file.  The W-4s from 2012 are no longer valid, and employers face penalties for not taking out withholdings.
  3. Hiring your Children Can Lower your Tax Bill
    • If you are either a Sole Proprietor or a Husband-and-Wife Partnership, you can hire your children who are under 18 for the summer, and you are not required to withhold FICA taxes.  Also, as long as they are under 21, you do not pay FUTA on their wages, which means more money in your pocket.
    • Additionally, these tactics lower the parent/employer’s income and SECA taxes.
    • These rules also apply to Single-Member LLCs which are disregarded for tax purposes.

Brian J. Munson, J.D., LL.M. Taxation
Attorney at Losavio & DeJean, LLC
Derived from The Kiplinger Tax Letter, Vol.88, No. 10.  May 10, 2013.

Americans in denial about long-term care

It’s not a topic that’s considered even barely enjoyable, but it’s something that must be faced by every American in the age of modern medicine. We’re now living much longer than our ancestors, and we’ll require care for a much longer period of time than our great great grandparents did.

New polls indicate that among people over 40, two-thirds of them have done absolutely nothing to prepare for a transition to comfortable senior living, even though about half of the people surveyed had already served as caregivers for an older relative. For more of the dirty details, head over to this article at NBC News.

The attorneys of Losavio & DeJean possess the expertise and experience to help you plan ahead, making sure that when you’re no longer able to care for yourself, you’ll have the means to get the help you need.  Not only do we help people qualify for Medicaid regardless of the wealth they’ve accumulated over their lifetimes, we can also help solidify decisions that will need to be made in the future by drafting a Will and Powers of Attorney. In addition, we help protect assets during life and after death, and we can help eligible Veterans receive the benefits that they deserve for their service to our country. And it’s all more affordable than you probably think.

Take the first step in planning your future by calling us to set up an appointment.

Tips for Taxpayers Who Missed the Deadline

Brian J. Munson | Attorney at Law | Master of Laws in Taxation

  1. File as soon as possible. If you owe federal income tax, you should file and pay as soon as you can to minimize penalty and interest charges. There is no penalty for filing a late return if you are due a refund.
  2. Penalties and interest may be due. If you missed April 15, you may have to pay penalties and interest both for late filing and for late payment.
    1. The law generally does not allow a waiver of interest charges.
    2. However, the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late.
  3. E-file is your best option. IRS e-file programs are available through Oct. 15.
    1. With e-file, you will receive confirmation that the IRS has received your tax return.
    2. If you e-file and are due a refund, the IRS will normally issue it within 21 days.
  4. Free File is still available. Free File is available only through IRS.gov.
  5. Installment Agreements are available. If you need more time to pay your federal income taxes, you can request a payment agreement with the IRS. Apply online using the IRS Online Payment Agreement Application tool or file Form 9465, Installment Agreement Request.

Adapted from IRS Tax Tip 2013-56

When a creditor keeps calling you AFTER you’ve filed for bankruptcy

by Kent S. DeJean

Once you have filed a Chapter 7 or Chapter 13 bankruptcy, automatic stay orders are issued by the bankruptcy court, prohibiting your creditors from attempting to collect their debts after your bankruptcy is file

Sometimes the attempted collection is an honest mistake. Creditors are often large companies. If you are approached for the first time, tell them you have filed bankruptcy. Often times, the creditor will end the communication immediately if they are reputable and knowledgeable.

If a creditor who you do not wish to re-pay, continues to attempt to communicate with you to collect their debt after you have filed, you should refer them to your attorney and contact your attorney immediately. This is a very serious offense since violating creditors could be subject to fines and imprisonment for being in contempt of the automatic stay orders.

If you have any questions concerning bankruptcy, you should consult with an experienced bankruptcy attorney.

Do You Need More Time To File your Tax Return?

Brian J. Munson | Attorney at Law | Master of Laws in Taxation

The April 15 tax-filing deadline is fast approaching. Some taxpayers may find that they need more time to prepare and file their tax returns.

  1. Automatic Extension. If you need extra time, you can get an automatic six-month extension from the IRS. You may request an extension of time to file your federal tax return to get an extra six months to file, until Oct. 15.
    1. Use Free File to request an extension. Everyone can use IRS Free File to e-file their extension request. Free File is available exclusively through the IRS.gov website. You must e-file the request by midnight on April 15. If you e-file your extension request, the IRS will acknowledge receipt of your request.
      1. Electronic funds withdrawal. If you e-file an extension request, you can also pay any balance due by authorizing an electronic funds withdrawal from a checking or savings account. To do this you will need your bank routing and account numbers.
    2. Use Form 4868 if you file a paper form. You can request an extension of time to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You must submit this form to the IRS by April 15. Form 4868 is available on IRS.gov.
  2. NOT extra time to Pay. Although an extension will give you an extra six months to get your tax return to the IRS, it does not extend the time you have to pay any tax you owe. You will owe interest on any amount not paid by the April 15 deadline. You may also owe a penalty for failing to pay on time.
  3. File on time EVEN IF YOU CAN’T PAY. If you complete your return but you can’t pay the full amount due, do not request an extension.
    1. File your return on time and pay as much as you can. You should pay the balance as soon as possible to minimize penalty and interest charges.
    2. If you need more time to pay, you can apply for a payment plan using the Online Payment Agreement tool on IRS.gov.
    3. You can also send Form 9465, Installment Agreement Request, with your return.
    4. If you are unable to make payments because of a financial hardship, the IRS will work with you.

Adapted from IRS Tax Tip 2013-52

 

More audits on the classification of employee vs. independent contractor

Brian J. Munson | Attorney at Law | Master of Laws in Taxation

The US Dept. of Labor wants to survey approximately 10,000 workers in various industries. The point of the survey is to determine the workers’ employment status.

As a result of the survey, tax professionals are predicting new regulations. These would be issued by the Dept. of Labor, not the IRS, and would be included in the “Right to Know” information employers are required to provide. Employers would, therefore, be required not only to inform their workers of their status as either an employee or an independent contractor, but also would be required to tell them why.

Firms who misclassify workers will soon see an end to the currently relaxed rules. In 2012, the IRS began a voluntary compliance program for companies not filing the required 1099s for prior periods. Under the program, companies can fix the errors with modest penalties, and treat the workers as employees for future periods. This program is set to expire June 30. Currently, misclassification of workers costs the Federal Government billions of dollars every year.

5 Tips for the Self-Employed

Brian J. Munson | Attorney at Law | Master of Laws in Taxation

When you are self-employed, it typically means you work for yourself, as an independent contractor, or own your own business.

  1. Self-employment income can include pay that you receive for part-time work you do out of your home. 
    1. This could include income you earn in addition to your regular job.
  2. Self-employed individuals file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040.
  3. If you are self-employed, you generally have to pay self-employment tax as well as income tax.
    1. Self-employment tax includes Social Security and Medicare taxes.
    2. You figure this tax using Schedule SE, Self-Employment Tax.
  4. If you are self-employed you may have to make estimated tax payments. 
    1. People typically make estimated tax payments to pay taxes on income that is not subject to withholding.
    2. If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return. 
    1. The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.
  5. When you file your return, you can deduct some business expenses for the costs to run your trade or business.
    1. You can deduct most business expenses in full, but some costs must be “capitalized,” meaning you can deduct a portion of the expense each year over a period of years.
    2. You may deduct only the costs that are both ordinary and necessary.
      1. An ordinary expense is one that is common and accepted in your industry.
      2. A necessary expense is one that is helpful and appropriate for your trade or business.

Adapted from IRS Tax Tip 2013-46

5 Tips on Estimated Tax Payments

Brian J. MunsonAttorney at Law | Master of Laws in Taxation
Adapted from IRS Tax Tip 2013-49

Some taxpayers may need to make estimated tax payments during the year depending on the type of income you receive.

  1. If you do not have taxes withheld from your income, you may need to make estimated tax payments.
    1. This may apply if you have income such as self-employment, interest, dividends or capital gains (typical bank account interest is generally insufficient to require estimated payments).
    2. It could also apply if you do not have enough taxes withheld from your wages.
  2. If you are required to pay estimated taxes during the year, you should make these payments to avoid a penalty.
    1. You may need to pay estimated taxes in 2013 if you expect to owe $1,000 or more in taxes when you file your federal tax return.
    2. Other rules apply, and special rules apply to farmers and fishermen.
  3. When figuring the amount of your estimated taxes, you should estimate the amount of income you expect to receive for the year.
    1. Try to make your estimates as accurate as possible.
    2. You should also include any tax deductions and credits that you will be eligible to claim.
    3. Be aware that life changes, such as a change in marital status or a child born during the year can affect your taxes.
    4. You should use Form 1040-ES, Estimated Tax for Individuals, to figure your estimated tax.
  4. You normally make estimated tax payments four times a year.
    1. The dates that apply to most people are:
      • April 15,
      • June 17,
      • Sept. 16 in 2013, and
      • Jan. 15, 2014.
  5. You may pay online, by phone, by check, by money order, or by credit or debit card.
    1. You’ll find more information about your payment options in the Form 1040-ES instructions.
    2. Also, check out the Electronic Payment Options Home Page at IRS.gov.
    3. If you mail your payments to the IRS, you should use the payment vouchers that come with Form 1040-ES.

5 Facts about the AMT

  1. You may have to pay the tax if your taxable income plus certain adjustments is more than the AMT exemption amount for your filing status.
  2. The 2012 AMT exemption amounts for each filing status are:
    • Single and Head of Household = $50,600;
    • Married Filing Joint and Qualifying Widow(er) = $78,750; and
    • Married Filing Separate = $39,375.
  3. AMT attempts to ensure that some individuals and corporations who claim certain exclusions, tax deductions and tax credits pay a minimum amount of tax.
  4. You figure AMT using different rules than those you use to figure your regular income tax. IRS e-file software will determine if you owe AMT, and if you do, it will figure the tax for you.
  5. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.