Election Season

September 5, 2014

- Charitable Giving, contribution, Deductions, IRS Audit, IRS penalties

It is election time again and everybody has their hand out. They want your money. They want your contribution. That is natural. .. We just had our primary elections to determine who will be on the ballot in November. Candidates often spend a TON of money and there is not even a guarantee of winning. (Or there shouldn’t be.) Everyone is asking for money, but you need to know this: contributions to political candidates and political campaigns are NOT deductible. Those $1000 a plate dinners are NOT deductible. .. Just what is a contribution? It is a donation or a gift made voluntarily with no expectation of receiving anything in return. It is a donation or gift to a qualifying organization or to be used by a qualifying organization. You must itemize your deductions on Schedule A of the Form 1040 Individual Income Tax Return in order to claim these deductions, but don’t let the requirement to itemize keep you from giving where you feel moved to give. .. We are a nation of givers…some are more generous than others. The INTERNAL REVENUE SERVICE knows that some of you also tell tall tales when it comes to your deductions for charitable contributions. A few bad apples have spoiled it for everyone; in other words, you need to be sure to document your deductions. Safeguard yourself with good record keeping. That might sound boring now, but how glad will you be when your return is audited and you have EVERYTHING you need to keep you from owing more tax. .. Not every contribution is deductible. But don’t let that stop you from giving to someone in need. If you want to keep it just between you and God, and don’t have the receipts to support your deduction, then keep this donation from the Internal Revenue Service, too, and leave it off your return. .. How do you know if yours is a qualifying organization? The IRS has a list of most of them in their Publication 78 found at www.irs.gov. You can search by the organization name, city and state. It is easiest to search if you know the EIN or Entity Identification Number of the organization. If they have a number, they were qualified once. If they are still on the IRS list, and you have your proof of giving, then you can safely claim that deduction. .. Don’t let the tax laws rule your life. Just let the tax laws rule your tax return. Don’t let the tax laws keep you from giving where you want to give. Just know when it can go on your income tax return and when it cannot.

Ten Things to Know About the Child and Dependent Care Credit

By Nellie Williams on

June 18, 2014

- Charitable Giving, contribution, Deductions

School’s Out For Summer – What does that mean for your income tax return? The following is taken directly from IRS.gov for you: “IRS Tax Tip 2011-46, March 7. 2011 If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses. 1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return. 2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work. 3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves. 4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return. 5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child. (Nellie says married filing separately cannot claim this credit.) 6. The qualifying person must have lived with you for more than half of the calendar year. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. 7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income. (Nellie says this can range from 20% to 35% depending on your income.) 8. You may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. (Nellie says this dollar amount can change from year to year, but has remained the same for several years now.) 9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income. 10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.”

APRIL 15th Is Over – Now What? (Part Three)

By Nellie Williams on

April 30, 2014

- April 15, Charitable Giving, contribution, Deductions, IRS Audit Help, Tax Audit

“Contributions” is one of the deductions the Internal Revenue Service likes to audit, examine, or verify. Why is that? Because not everyone is honest. Some people take more of a deduction than they actually give. People ask me, what is the standard? What is the average? The only standard is the standard deduction based on your filing status and your age if you are 65 or older.. If you choose to itemize your deductions, there is no automatic deduction. You are allowed to claim a deduction for what you actually gave. BUT you need to be able to prove your deduction. You must have evidence for what you are claiming. That is not difficult when you get a receipt from the qualified charitable organization. You cannot verity the cash you leave in the donation plate or collection kettle. You can show cancelled checks and credit card statements, but those are not sufficient proof for the IRS. The Tax Auditor wants to see a receipt from the charity. Too many people have cheated on their tax returns and so the IRS tightened the rules. How can you verify what you give in the form of NON-CASH contributions? Just what is a non-cash contribution? I use the technical term “Stuff”. We all have stuff that is crowding our closets or cluttering our homes. And our “trash” is often someone else’s “treasure”. Used clothing and household items must be in good condition or better to be deductible. Charities will receive anything you want to give them. What they cannot use themselves, they will give to another organization. Give, just don’t try to deduct items in less than good condition. The fair market value of used personal items is usually much less than the original cost and depends on the condition and usefulness of the item donated. Favorite websites I recommend to help determine the fair market values are www.salvationarmyusa.org and www.goodwill.org. When you decide to give away the good stuff you no longer need or want, take these simple money saving steps to support your deduction. 1. Make a list of the items you set aside BEFORE you put them in the box or bag

a. What are you giving away (Describe each item.)

b. What condition is each item? (Good? Excellent? New?)

c. What is this thing worth today? (Use garage sale or thrift store values.)

d. How many of each type of thing are you giving away?

e. What is the name and address of the charitable organization?

f. What is the date of this contribution? (Note each date you donate.)

2. Take a photo of what you are giving away to support the list you are making. We know a picture is worth a thousand words, but you need the list, too. This list is required when your non-cash contributions are more than $500. But even if your non-cash contributions are $500 or less, the IRS can still audit your deduction. Protect yourself. Protect your wallet. Protect your deduction. Make all the contributions you want. Don’t let the tax laws turn you into a “Grinch”. If you feel this is too much work for you, you can skip the paperwork. But if you choose to skip the paperwork, you should skip the deduction, too.

Adjusting Your W2 Income Tax Withholding

By Nellie Williams on

May 2, 2013

- Charitable Giving, IRS Audit Help, Tax Audit, Tax Audit Help

how-to-run-a-marathon-finish-it-and-live-to-tell-the-tale

We have just celebrated the end of the “1040 Marathon”. But that does not mean that income tax season is over. Have you filed your return or are you “on extension?” Or maybe you are just going to file your tax return later this year. This blog is “a day late and a dollar short” for filing 2012 tax returns. But it is right on time for 2013 tax planning! Even if you are afraid you will owe tax, I do recommend you file your return before April 15th. Especially if you are going to owe tax. When you owe more than $1000 when you file your return, the Internal Revenue Service will assess you a late-filing penalty of 5% per month. That’s 5% of the tax due. The only good news about this is that the maximum penalty is 25%. Well, 25% of $1000 is $250. PLUS the IRS must charge you interest on top of the penalty. If you think you are going to owe tax and you request an extension of time to file, pay some money with that extension to keep that extension valid. If you don’t pay your tax by April 15th, the IRS must assess that late penalty. Here’s a tip you can start using right away. If you are self-employed it is up to you to estimate your taxes. You make quarterly estimated tax payments. If you don’t pay enough, and you don’t pay enough on the date the quarterly estimated tax payments are due, you can be assessed a late-payment penalty. This is different from the late-filing penalty I talked about earlier. If you are an employee, you should have taxes withheld from your paycheck. That income tax withholding is considered paid evenly throughout the year. If you have more withheld in November and December than in the earlier months, your total withholding for the year is still considered paid evenly all through the year. You can adjust your withholding any time during the year. Does your payroll department restrict how many times they will adjust your paycheck? Just be careful that if you are not taking enough out in the first part of the year, that you don’t run out of paychecks before the end of the year. You want to have enough withheld to make your total enough to cover your tax bill on April 15th. Once January comes around you are already into the next year. You may have other income that is taxable, like interest or dividends, rental income or sale of property. You might want to or need to make estimated tax payments. Estimated tax payments are due April 15th, June 15th, September 15th and January 15th. If you want more information on how to estimate your taxes, shoot me an email. Remember this. Failing to plan is planning to fail. Nobody ever PLANS to pay more than they have to. So keep you eyes open on your own tax situation to keep the IRS out of your wallet. Always to your lowest legal tax, Nellie T Williams, EA

Political Contributions and IRS Audit Help

By Nellie Williams on

September 6, 2012

- Charitable Giving, IRS Audit Help

It is election time again and everybody has their hand out. They want your money. They want your contribution. That is natural. We are a nation of givers. Some are more generous than others. And the INTERNAL REVENUE SERVICE knows that some of you also tell tall tales when it comes to your deduction for charitable contributions. A few bad apples have spoiled it for everyone. That means you need to be sure to document your deductions. Safeguard yourself with record keeping and keep it handy in case you need IRS audit help. That might sound boring now, but how glad will you be when your return is audited and you have EVERYTHING you need to keep form owing more tax. So back to contributions. Not every contribution is deductible. But don’t let that stop you from giving to someone in need. If you want to keep it just between you and God, and don’t have the receipts to support your deduction, then keep this donation from the Internal Revenue Service, too, and leave it off your return. We just had our primary elections to determine who will be on the ballot in November. One candidate for the Arizona State Senate spent multiple millions of dollars. And he lost! Everyone is asking for money. But you need to know this: contributions to political candidates and political campaigns are NOT deductible. Those $1000 a plate dinners are NOT deductible. Don’t let the tax laws rule your life. Just let the tax laws rule your tax return. Don’t let the tax laws keep you from giving where you want to give. Just know when it can go on your income tax return and when it cannot. You can check the box on the front of your 1040 to say “YES!” I want to give $3 to the Presidential Election Campaign Fund. Both taxpayer and spouse can each decide to check their box or not. One of you can check the box and the other can leave it blank. Checking these boxes does not increase your tax nor does it decrease your refund. It comes out of the tax you will have already paid on this particular tax return. It is also not deductible. It is not your money. You’ve already given it to the IRS and I tell my clients, “It is the only money you can tell the government how to spend.” 🙂 Just what is a contribution? It is a donation or a gift made voluntarily with no expectation of receiving anything in return. It is a donation or gift to a qualifying organization to be used by a qualifying organization. You must itemize your deductions on Schedule A of the Form 1040 Individual Income Tax Return in order to claim these deductions. But don’t let the requirement to itemize keep you from giving where you feel moved to give. How do you know if yours is a qualifying organization? The IRS has a list of most of them in their Publication 78 found at www.irs.gov. You can search by the organization name, city and state. It is easiest to search if you know the EIN or Entity Identification Number of the organization. If they have a number, they were qualified once. If they are still on the IRS list, and you have your proof of giving, then you can safely claim that deduction. So when you send an extra check to the IRS to help pay the Public Debt, or when we check the box on the Arizona State tax return to give to the “I didn’t pay enough” fund, those are deductible contributions! You also need to document your donations. In our voluntary system of reporting our income and deductions, you must be able to prove you really did make that gift. When you give cash, you will want to get a receipt to verify your cash contribution. Can you get a receipt from the Salvation Army Kettle Bell Ringer? Keep a log of your donations. Write a check, use a credit card, get that written verification. For further information, you can click here to read my blogpost “Charitable Giving Can Give Rise to a Deduction”. To you lowest legal tax, Nellie Williams, EA Bullet Proof Your Taxes Image: FreeDigitalPhotos.net

Charitable Giving Can Give Rise to a Deduction

By admin on

December 14, 2011

- Charitable Giving, IRS Tax Problems

We have opportunities to make charitable deductions all year long. If you are one who itemizes your deductions, you may be able to deduct your contributions. But let me say this first. Do not let the tax law interfere with your giving heart. Make the contributions you are guided to make. You can identify which contributions are deductible when you know the rules I am about to share with you. What makes a contribution deductible? Your gift must be given to a recognized charitable organization. An individual is not a recognized charity and a gift to an individual is not deductible. Do not let the tax law govern how you live your life. The tax law just governs what you put on your tax return. GIVE as your heart is led to give. Churches, synagogues, temples, mosques, and other religious organizations; federal, state and local governments (if the contribution is for public purposes only); nonprofit schools, hospitals and volunteer fire companies; public parks and recreation facilities; public charities like Salvation Army, Red Cross, CARE, Goodwill Industries, United Way, Boy/Girl Scouts, Boys/Girls Clubs of America, etc; and war veterans’ groups are just some of the kinds of organizations that qualify for your deductible contribution. Cash Counts Too! Your contribution can be cash. You may not receive anything in return or you are not really making a gift. If you give to your public television station during their appeal for funds and you receive any kind of product for your gift, the value of that product is not deductible. The station will give you a receipt for your deduction which is the amount of your payment that is more than the value of that product you received. For example, when I give $150 to KAET and I get a Suzy Orman DVD and book valued at $50, my deductible contribution is $100. When I give KAET $200 and get nothing in return, I deduct the full $200. I must be able to document this gift. I want to be sure to keep a copy of my cancelled check or my credit card statement showing KAET as the organization who received my payment. A letter from the charitable organization acknowledging my gift is certainly helpful and is required when your gift is $250 or more on any one day. Protect yourself and keep your documentation with your copy of your tax return. Be sure to watch for my blog about recordkeeping. Examples of Non Cash Contributions Your contribution can be non-cash. In my Tax Organizer I send my tax clients every year I call non-cash contributions “stuff.” Stuff is

what you have in your closets, your drawers, your garage. You are not using your “stuff” anymore but it is still useful to someone else. When your “stuff” is in good or better condition, and you give it to a qualified organization like Salvation Army, Goodwill Industries, your church, synagogue, mosque or another similar organization, you can take a deduction for the value of what you give. How do you determine the value? One guideline is to determine what it would sell for in their thrift store. What would it sell for in a garage sale or a yard sale? The used couch that once cost you $500 or more will not bring that much at the thrift store. For their valuations guidelines go to www.goodwill.org or www.salvationarmyusa.org. You Must Provide Proof It is your responsibility to substantiate or prove your deduction. In addition to the name of the receiving organization (the donee), you will need to list the date of your contribution, list the items you gave on that date, the values your assigned to those items and what method you used, and your cost or other basis in the property given. If you are deducting over $500 of non-cash contributions you must also have a written receipt from the donee and you must attach an additional form to your tax return. Take photos of what you are giving to help document your deduction. Giving a car or boat is another whole discussion for another blog. Giving something that has increased in value, called appreciated property is also another discussion. More Charitable Contributions If you use your car for your charity, like the church treasurer making the bank deposits, or the food bank volunteer picking up or delivering food, keep track of those miles driven for charitable purposes. The standard rate for deducting charitable mileage is 14 cents per mile. That rate is set by law and has remained unchanged for many, many years. Examples of Non Deductible Expenses Money or property given to civic leagues, social and sports clubs, labor unions and chambers of commerce; foreign organizations (certain Canadian, Mexican and Israeli charities qualify); groups that are run for personal profit; groups whose purpose is to lobby for changes in the law; homeowners’ associations; individuals, and political groups or candidates for public office are not deductible contributions. Purchasing (the key word here is purchase or buy) raffle, bingo or lottery tickets does not give you a deductible gift. Dues, fees or bills paid to a country club, lodge, fraternal order or similar groups are not deductible. Tuition to either secular or religious schools is also not deductible. I am a regular blood donor. I know I am helping others. But the only deduction I can claim for that donation is 14 cents per every mile I drive to the blood bank. The Hidden Benefit of Giving

Our time is our greatest gift, but the value of our time or services is not deductible. Do not let the words “not deductible” keep you from giving your time to anyone or any organization. They need what you can do for them or it wouldn’t touch your heart. You be the gift that keeps on giving.