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.”

Congratulations Graduates! Welcome to Your New Tax Bracket.

By Nellie Williams on

May 15, 2014

- contribution, Deductions

I remember my first graduation. We all thought it was the end, the end of the school year. We didn’t understand it was only the beginning. A new chapter in our lives was about to commence. Was it high school, trade school or college that you have completed? What is your next step? Why do you have to weave TAXES into every aspect of life? Because lets face it, taxes do impact every aspect of our lives. Maybe you are beginning a new career. Do you already have a job lined up? Will you be looking for your first job? Will you be moving to a new area? A new city? A new state? Will there be a deduction for you? When you are looking for a NEW job in a NEW trade or business, there is NO deductible job-seeking expense. Even if you get a new job, you cannot deduct any of your job-seeking expenses. When you look for a new job in your present line of work, your expenses may be deductible on Schedule A as Miscellaneous Itemized Deductions. What kind of deductible expenses might you have when looking for work?

Fees paid to employment agencies and executive recruiters
Cost of typing, printing and mailing resumes
Cost of assembling portfolios of work
Transportation costs to job interviews
Newspapers and business publications bought for employment ads
Out-of-town travel expenses, including meals, lodging, local transportation as long as the main reason for your trip is to look for a new job.
If you travel for personal reasons, none of the travel expenses are deducible, but out-of-pocket job hunting expenses at your destination are still deductible.

To protect your deductions, keep a log of your activities. Keep a calendar of who you interviewed with, on what dates and any follow-up phone calls you made. Do you want to claim the expenses of buying and caring for uniforms or special clothing? They must:

Be required as a condition of employment AND
NOT be adaptable to everyday, general wear

What kind of clothing qualifies as a deductible?

Uniforms of professional athletes, firefighters, police, nurses, jockeys
Special shoes, shirts, ties, hats with a company logo or other clothing designed strictly for the workplace
Protective clothing such as safety boots, safety glasses, hard hats and safety gloves
Special theatrical clothing if not suitable for everyday general wear

So when I said congratulations graduate, welcome to your new tax bracket, it was all true. I hope you have great prospects for your future. I hope your education will allow you to make a great future and more money than before. Your tax brackets are determined by your marital status and how much money you make. The lowest tax bracket in 2014 is 10%. The highest tax bracket in 2014 is 39.6%. There are a lot of factors to consider and calculations to be made before your bottom line tax liability is known. The more money you make, the higher your tax bracket may be. I wish for you and for all of my clients, that you pay your lowest legal tax. But I also say, “I hope you have to pay a lot of tax. Because that means you will have made a LOT of money.” 🙂

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.