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Making a Charitable Gift Before Year End? Tips to Ponder

December 28, 2014 Leave a comment

If you’re thinking about making a charitable donation during the holiday season this year and want to claim a tax deduction for your gifts, you must itemize your deductions. This is just one of several tax rules that you should know about before you give. Here’s what else you need to know:

1. Qualified charities. You can only deduct gifts you give to qualified charities. Give us a call if you’re not sure if the group you give to is a qualified organization. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies.

2. Monetary donations. 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. Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. 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. You can 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 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.

6. Special rules. Special rules apply if you give a car, boat or airplane to charity. For more information about this and other questions about charitable giving, please contact our office.

Categories: Accounting

Rent Out Your Vacation Home – The Details

September 7, 2014 Leave a comment

Tax rules on rental income from second homes can be complicated, particularly if you rent the home out for several months of the year, but also use the home yourself.

There is however, one provision that is not complicated. Homeowners who rent out their property for 14 or fewer days a year can pocket the rental income, tax-free.

Known as the “Master’s exemption,” it is used by homeowners near the Augusta National Golf Club in Augusta, GA who rent out their homes during the Master’s Tournament (for as much as $20,000!). It is also used by homeowners who rent out their homes for movie productions or those whose residences are located near Super Bowl sites or national political conventions.

Tip: If you live close to a vacation destination such as the beach or mountains, you may be able to make some extra cash by renting out your home (principal residence) when you go on vacation–as long as it’s two weeks or less. And, although you can’t take depreciation or deduct for maintenance, you can deduct mortgage interest, property taxes, and casualty losses on Schedule A.

In general, income from rental of a vacation home for 15 days or longer must be reported on your tax return on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to the net investment income tax. You should also keep in mind that the definition of a “vacation home” is not limited to a house. Apartments, condominiums, mobile homes, and boats are also considered vacation homes in the eyes of the IRS.

Further, the IRS states that a vacation home is considered a residence if personal use exceeds 14 days or more than 10 percent of the total days it is rented to others (if that figure is greater). When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income.

Example: Let’s say you own a house in the mountains and rent it out during ski season, typically between mid-December and mid-April. You and your family also vacation at the house for one week in October and two weeks in August. The rest of the time the house is unused.

The family uses the house for 21 days and it is rented out to others for 121 days for a total of 142 days of use during the year. In this scenario, 85 percent of expenses such as mortgage interest, property taxes, maintenance, utilities, and depreciation can be written off against the rental income on Schedule E. As for the remaining 15 percent of expenses, only the owner’s mortgage interest and property taxes are deductible on Schedule A.

Questions about vacation home rental income? Give us a call. We’ll help you figure it out.

Categories: Accounting, Financial, Taxes

Starting a Business? Five Things You Need to Know

June 26, 2014 Leave a comment

Starting a new business is a very exciting and busy time. There is so much to be done and so little time to do it in. If you expect to have employees, there are a variety of federal and state forms and applications that will need to be completed to get your business up and running. That’s where we can help.

Employer Identification Number (EIN)
Securing an Employer Identification Number (also known as a Federal Tax Identification Number) is the first thing that needs to be done, since many other forms require it. EINs are issued by the IRS to employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes.

The fastest way to apply for an EIN is online through the IRS website or by telephone. Applying by fax and mail generally takes one to two weeks. Please note that as of May 21, 2012 you can only apply for one EIN per day. The previous limit was 5.

State Withholding, Unemployment, and Sales Tax
Once you have your EIN, you need to fill out forms to establish an account with the State for payroll tax withholding, Unemployment Insurance Registration, and sales tax collections (if applicable).

Payroll Record Keeping
Payroll reporting and record keeping can be very time consuming and costly, especially if it isn’t handled correctly. Also keep in mind, that almost all employers are required to transmit federal payroll tax deposits electronically. Personnel files should be kept for each employee and include an employee’s employment application as well as the following:

Form W-4 is completed by the employee and used to calculate their federal income tax withholding. This form also includes necessary information such as address and social security number.

Form I-9 must be completed by you, the employer, to verify that employees are legally permitted to work in the U.S.

If you need help setting up the paperwork for your business, give us a call. Letting our experts handle this part of your business will allow you to concentrate on running your business.

Categories: Accounting

Check Out These Tax Breaks

March 13, 2014 Leave a comment

Confused about which credits and deductions you can claim on your 2013 tax return? You’re not alone. Here are six tax breaks that you won’t want to overlook.

1. State Sales and Income Taxes

Thanks to the fiscal cliff deal last January, the sales tax deduction, which originally expired at the end of 2011, was reinstated in 2013 (retroactive to 2012). As such, taxpayers filing their 2013 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.

If you bought a big ticket item like a car or boat in 2013, it might be more advantageous to deduct the sales tax, but don’t forget to figure any state income taxes withheld from your paycheck just in case. If you’re self-employed you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2012 tax return in 2013, you can include the amount when you itemize your state taxes this year on your 2013 return.

2. Child and Dependent Care Tax Credit

Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent–such as an elderly parent–who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35percent of $3,000 of eligible expenses per dependent.

3. Job Search Expenses

Job search expenses are 100percent deductible, whether you are gainfully employed or not currently working–as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2percent of your adjusted gross income (AGI).

4. Student Loan Interest Paid by Parents

Typically, a taxpayer is only able to deduct interest on mortgages and student loans if he or she is liable for the debt; however, if a parent pays back their child’s student loans the money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.

5. Medical Expenses

Most people know that medical expenses are deductible as long as they are more than 10 percent of AGI for tax year 2013. What they often don’t realize is what medical expenses can be deducted, such as medical miles (24 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.

Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.

If you’re self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct them as well.

6. Bad Debt

If you’ve ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.

Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.

Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are…but maybe you’re not. Why take a chance? Make an appointment with us today and we’ll make sure you get all of the tax breaks you deserve.

Another Option for the Home Office Deduction 2013 Taxes

February 17, 2014 Leave a comment

Starting with their 2013 tax return, taxpayers who claim deductions for business use of a home (“the home office deduction”) now have another option. Taxpayers claiming the home office deduction are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.

Taxpayers claiming the optional deduction will complete a significantly simplified form. The new optional deduction is capped at $1,500 per year based on $5 per square foot for up to 300 square feet. Give us a call if you’d like more information on the simplified home office deduction for 2013.

 

Saver’s Tax Credit Explained

January 18, 2014 Leave a comment

Low and moderate-income workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2013 tax return.

Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply and helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. Taxpayers have until April 15, 2014, to set up a new individual retirement arrangement or add money to an existing IRA for 2013.

Most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Note: Elective deferrals (contributions) must have been made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees.

The saver’s credit can be claimed by:

  • Married couples filing jointly with incomes up to $60,000 in 2014;
  • Heads of Household with incomes up to $45,000 in 2014; and
  • Married individuals filing separately and singles with incomes up to $30,000 in 2014.

The saver’s credit can increase a taxpayer’s refund or reduce the tax owed. The maximum saver’s credit is $1,000 for single filers and $2,000 for married couples and is based on filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs.

Other special rules that apply to the saver’s credit include the following:

  • Eligible taxpayers must be at least 18 years of age.
  • Anyone claimed as a dependent on someone else’s return cannot take the credit.
  • A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

In tax-year 2011, the most recent year for which complete figures are available, saver’s credits totaling just over $1.1 billion were claimed on nearly 6.4 million individual income tax returns. Saver’s credits claimed on these returns averaged $215 for joint filers, $166 for heads of household and $128 for single filers.

Year End Planning for Section 179 Deductions

December 17, 2013 Leave a comment

The IRS is making changes regarding the annual election under Section 179 of the Internal Revenue Code (the “Code”), often referred to as the “Section 179 election” or the “Code Section 179 election.” For 2013 tax returns, the allowable 179 expense election is $500,000. For 2014, the allowable 179 expense election will be reduced to $25,000. This represents a significant decrease in allowable 179 deduction available for you in 2014. This reduction should be taken into consideration for 2013 year-end planning and budgets for the subsequent 2014 year. Please consult your tax advisor regarding your specific situation and how you can plan accordingly.

Section 179 Overview

Generally, the cost of property placed in service in a trade or business can’t be deducted in the year it’s placed in service if the property will be useful beyond the year. Instead, the cost is “capitalized” and depreciation deductions are allowed for most property (other than land), but are spread out over a period of years. Capitalization delays the tax benefits of business expenditures. For example, you may spend $50,000 on a new computer system today, but must spread your depreciation deductions over several years. That’s why the election to take immediate deductions is valuable.

Give To Your Favorite Cause Before Year End – Some Useful Tips

December 4, 2013 Leave a comment
Gifts

Gifts (Photo credit: Guudmorning!)

As the end of 2013 approaches, donors are likely thinking about their
favorite charity or ministry and what they may be able to do in the way
of support.

I know I am.  I am always encouraged when I think
about the important mission of these organizations and how lives are
being changed as a result of what they are doing.  After all, that is
why we give.  We give because we are taking part in something bigger
than we are.  We give because we believe in the mission of these great
organizations.  We give because we believe in the power of giving to
transform lives, maybe even our own.

So, after dwelling on the good stuff it is then time to consider how to give.  Should I give cash?  Should I donate stock?  Should I do something else?

Having served in some nonprofits, I know we were always thankful for unrestricted
gifts in whatever form they came to us.  This might be your first
consideration and I would recommend making your gifts unrestricted so
that the organization can put it to use in the best way possible.

Next, if your cash position is good you will certainly want to share the wealth.   Here are a few reminders about cash gifts–

  • Make sure you are donating to a qualified organization if you want a tax deduction.
  • Make sure to get an official receipt for your gift, especially if it is over $250.
  • For tax purposes, cash donations generally have a deductible limit of 50% of your AGI.
  • You must make your gift before the end of the year or make sure it is postmarked December 31 if mailed.

If you want to make stock gifts at the end of 2012, this is a positive
time to do so.  The stock market has performed well over the past couple
of years and you may have stocks that you feel have appreciated
significantly.  Also, the fiscal cliff that has been the focus of the
post-election likely will see income tax rates and capital gains tax
rates rise after 2012.  With this in thought, making a stock gift seems
like the right and prudent thing to do.  Here are some reminders about
making stock gifts–

  • You can take a tax deduction for the fair market value of the stock at the time of the gift.
  • For tax purposes, stock gifts and other capital gain property gifts are limited to 30% of your AGI.
  • Make sure to give the stock directly to the charity (don’t sell it yourself and then give the cash).

Of course, make sure you consult your professional advisor as you plan your year-end giving.

No matter what your situation, you have the ability to make a difference
through your giving to nonprofits.  Keep that in mind as you move
forward into this holiday season.

Year End Tax Planning – Charitable Contributions

November 17, 2013 Leave a comment

 

Property, as well as money, can be donated to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses, however.

 

Keep in mind that a written record of charitable contribution is required in order to qualify for a deduction. A donor may not claim a deduction for any contribution of cash, a check or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

 

Tip: Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

Year End Tax Planning Tips – More Tips

November 12, 2013 Leave a comment

Accelerating Income and Deductions

Accelerating income into 2013 is an especially good idea for taxpayers who anticipate being in a higher tax bracket next year or whose earnings are close to threshold amounts ($200,000 for single filers and $250,000 for married filing jointly) that make them liable for additional Medicare tax or NIIT (see below).

Here are several examples of what a taxpayer might do to accelerate deductions:

  • Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.
  • Pay your entire property tax bill, including installments due in year 2014, by year-end. This does not apply to mortgage escrow accounts.
  • Try to bunch “threshold” expenses, such as medical and dental expenses (10% of AGI starting in 2013) and miscellaneous itemized deductions. For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

    Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2013, depending on your situation.

The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Caution: Taxpayers close to threshold amounts for the Net Investment Income Tax (3.8% of net investment income) should pay close attention to “one-time” income spikes such as those associated with Roth conversions, sale of a home or other large assets that may be subject to tax.

If you know you have a set amount of income coming in this year that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

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