Tag Archives: IRS

Tax Tips: I Do Declare

Did you know that there are hundreds of little things that you should be declaring on your tax returns? Here are some of the most important items that must be declared on your federal and state tax return.

All Sources of Income
The tax code of the Internal Revenue Service (IRS) requires that all income earned or received must be reported on your income tax returns. The categories of income recognized by the IRS include the following:

•    Wages, salaries and tips
•    Interest on bank accounts, certificates of deposit, bonds and other investments
•    Capital gains
•    Business income
•    Alimony
•    Income from bartering
•    Dividends
•    Annuities, pensions and lump-sum distributions
•    Rental revenues
•    Gambling income
•    Earnings from agriculture and fishing
•    401(k)
•    Unemployment benefits

Each of these types of income must be declared on your income tax return. In some cases, losses in a particular category can be used to offset income earned in that category.

Certain Gifts

Depending on the amount of the gift and the identity of the recipient, you may need to report gifts to others on your income tax return and may be required to pay taxes on these transactions. Unlike donations to charitable organizations, which are generally tax-exempt, gifts directly to someone else are subject to an annual gift limit. The limit is currently set at $13,000. Couples can make gifts of up to $26,000 without incurring tax liabilities for these gifts. Certain types of gifts are not subject to the gift limit; these include the following:

•    Payments directly to universities for college tuition
•    Direct payments to hospitals, clinics and other healthcare facilities for medical procedures
•    Gifts to one’s spouse
•    Political contributions

Individuals and couples can choose to exclude additional amounts from the gift tax requirements by taking advantage of the Unified Credit. Currently capped at $1,772,800, the Unified Credit allows a greater degree of flexibility when giving gifts to your network of friends and family.

Itemizing Deductions

If you are required to declare gifts on your federal tax return, you must typically itemize your deductions as well. Itemized deduction categories include the following:

•    Mortgage points and interest
•    Medical and dental fees
•    Interest expenses
•    Contributions to charities
•    Business and education expenses
•    Depreciation of cars, trucks and other vehicles used in the course of business
•    Losses due to accidents, disasters, thefts and other critical events

The standard deduction amount may actually provide greater tax savings for your particular situation. Nonetheless, if you are declaring gifts on your tax return, you should usually itemize your deductions as well. This process can be challenging and typically requires the help of a skilled and knowledgeable tax preparer for optimal results. Some studies suggest that itemizing deductions can also increase the chances of an audit. Your tax preparer can assist in your defense if an audit does occur.

Declaring all sources of income and all sizable gifts is required by the tax code. Maintaining compliance with these legal requirements is your best defense against audits, penalties and other consequences that may arise from failure to incorporate these items into your tax return.

 

Form 990 Redesign for Tax Year 2008 (Filed in 2009)

On December 20, 2007, the IRS released a redesigned Form 990, Return of Organization Exempt from Income Tax, for tax year 2008 (to be filed in 2009 and later years). The new form incorporates comments and suggestions from the over 650 e-mails and letters received during the comment period, which closed on September 14, 2007.

The redesign of Form 990 is based on three guiding principles: enhancing transparency, promoting tax compliance, and minimizing the burden on the filing organization.

Additional information:

  • Press release (IR-2007-204)
  • Overview of Form 990 redesign
  • Background paper on Form 990 redesign
  • Form 990 Redesign Forms and Highlights
  • Frequently Asked Questions
  • Discussion Draft (June 14, 2007)

Experts Say Charitable Tax Deduction is Safe from Congress

According to experts from the nonprofit sector, charitable tax deduction laws will likely remain unscathed from Congress in the near future. However lawmakers are still dealing with several charitable tax break issues that expired in 2013 and there is uncertainty on whether such tax breaks for charities will continue to exist.

President Barack Obama has consistently tried to limit the amount of tax savings the rich get for itemized deductions and will likely mention this issue is his upcoming proposed budget. However individual adjustments in tax policy typically don’t stand a chance in getting passed unless they’re grouped together

Charitable Tax Deduction

Ron Wyden and Nancy Bass Wyden by David Shankbone (Photo credit: Wikipedia)

with other tax items. Experts say creating such a large tax bill likely won’t happen before midterm election in November.

Adding to the difficulty of altering charitable tax deduction policy is the probable change in Congress. Democrat of Montana and chairman of the Senate Finance Committee, Sen. Max Baucus, is soon leaving Washington to become the ambassador to China and his likely replacement, Sen. Ron Wyden, is a strong supporter of charitable deduction. Baucus was expected to pass a broad tax overhaul before his retirement at the end of the year, but now people think it’s unlikely to happen because Wyden is expected to work at a slower pace.

According to Andrew Schulz, executive vice president of Foundation Source (a group that advises private foundations), “There’s zero percent chance any significant tax reform will happen this year.” Others who work with charities and nonprofits feel the same way.

Steve Tyler, senior vice president for public policy at United Way Worldwide, says 1,000 United Way leaders will be “vigilant” when talking with lawmakers if charitable tax deductions are discussed when they’re in Washington in May.

Documenting Donations for 2014

As long as proper documentation is provided, both individuals and businesses can deduct donations from taxable income. It is always best to check with the Internal Revenue Service (IRS) if you’re wondering what documentation is required. The IRS has strict guidelines for submitting charitable contributions as a write-off, which is an expense that gets deducted from your taxable income. You can learn more about tax smart contributions here.

If you want a donation to be seen by the IRS as a write-off, you’ll need proper documentation. This can be a cancelled check, credit card statement, bank records, or a receipt. The receipt must have the charity’s name on it as well as the amount you donated.

If you plan on donating to a charity and wish to submit it to the IRS as a tax write-off, you need to make sure the charity you’re supporting is approved by the IRS. Charities approved by the IRS are usually those that offer some kind of relief or are associated with religious and educational organizations. In a lot of cases local volunteer organizations such as animal rescue groups are approved by the IRS.

However don’t assume you’ll receive a tax break from the IRS without checking to see if the charity is approved. Just because the IRS’ list of approved charities is long doesn’t mean the organization you’re donating to will be on it.

Avoid IRS Scam Pitch When Filing Tax Returns

Brett Doubikin, a 43 year-old Morrow County contractor, received a phone message informing him that the IRS was investigating him. Fear made him return the call while he tried to remember if he missed something when he filed his taxes.

Internal Revenue Service

Internal Revenue Service (Photo credit: LendingMemo)

What Doubikin later realized is that the call was part of a sophisticated phone scam involving fake IRS employees who present fraudulent claims in order to get money from people with little or no tax knowledge. The charlatans posing as IRS employees are known to threaten people with either jail or deportation if these victims fail to deliver the declared debt amount. Part of these scammers’ scheme was to inform victims that their taxes were not paid, which must hence be settled through wire transfer or by using a pre-paid debit card. To make things appear legitimate, the callers use false IRS badge numbers, acquire the last four digits in the Social Security numbers of target victims, utilize technology that labels caller IDs as the IRS, and make follow-up calls as well as bogus emails.

The IRS has officially stated that this intricately structured phone scam was often directed at immigrants. A nationwide alert about the scam was already issued last fall by the IRS.

To help avoid this kind of scam when filing your 2014 taxes, there are free software downloads that will assist you in calculating your tax returns, recording your financial data, and checking it with updated tax laws and regulations. Turbo Tax 2013 does all these and more to help cover whatever unique situation you’re in. At $23.95, you get a basic fed and Efile download, a step-by-step guidance and a Deduction Maximizer to aid you in filing a 1040EZ or other simple tax return.

Top Five Reasons To Adjust Your Withholding

Adjust Your Withholding

taxes (Photo credit: 401(K) 2013)

Your withholding is the amount of money you have taken out of each paycheck to apply toward income taxes.  When your taxes are filed at the end of the year, any amount that the Internal Revenue Service withheld is credited toward your tax bill.  I, like many others, am unable to afford my own certified public accountant, and just hope that  the amount withdrawn from my income will match up to the total taxes I owe.  Usually that isn’t the case, but luckily, up until this point, I’ve only overpaid and earned a refund back from the IRS.  Those who underpay end up getting a stiff bill, and may end up having to pay penalties as well.

According to the IRS, the average individual tax refund in 2012 was $2700.  That calculates out to an average individual overpayment to the IRS of $225 per month.  I have learned through a friend who uses a CPA from Burkett, that though some of us are accustomed to settling up during tax season, it is usually more beneficial for a taxpayer to calculate a withholding amount accurately in the beginning of the year.  If you got a refund this tax season, you were, essentially, giving the government an interest-free loan.  They wouldn’t do you a favor like that! This money may serve you better throughout the year paying down debt or accruing interest in a savings account.  On the flipside, if you calculated your withholding amount improperly and you had to pay money out of pocket to the IRS during tax season, you may have suffered financially for it.

If you are having trouble determining how to make your withholding amount more accurate, or if you are receiving payment from anything other than a standard paycheck (such as distributions eligible to be rolled over into a qualified retirement or annuity plan) you may want to discuss your situation with a qualified CPA.  Though it can be expensive, in some cases it can also be worth it.  Certified public accountants with tax experience can make sure that you’re doing the right things to put yourself in the best position when tax season rolls around, whether that’s adjusting your withholding, or something else altogether.  Sometimes being self-employed, owning your own business, or are dealing with corporate taxes can make things get a little bit muddy, and it can be helpful to address them with a qualified business CPA.  I am a strong believer in the “better to be safe than sorry” approach.

Your withholding amount may have come reasonably close to the amount that you owed for the year, and if that’s the case, you probably don’t need to take any action now.  However, there are a few major life events that can drastically affect the taxes you’ll owe for the year.  If they occur, you will need to remember to file a new W-4 form with your employer to reflect them.  Here are the top five events that may mean you need to fine-tune your withholding:

–          When you get married or divorced.  Married couples are usually eligible for a lower tax rate and certain deductions.  A divorce can mean higher taxes for the earning spouse, and if you do not have enough withheld on your paycheck, you could face penalties and interest. This is one of those situations that can get a little hairy, so definitely consider a tax advisor or CPA if you’re struggling.

–          When you have a child.  Children can be claimed as dependents, and you may also be eligible for certain tax credits.

–          When you can no longer claim a dependent.  If one or more of your children is no longer eligible to be claimed as a dependent, you will lose an exemption and a tax credit.

–          When your employment status changes.  If you get a new job, a second job, become self-employed or become unemployed, the exemptions you want to claim may change.  Depending on how drastic of a change you’re facing, it may be best to consult with a CPA.

–          You purchase a home.  If your mortgage interest and property-tax payments are higher, you may need to increase your allowances.

Whether you’re aiming to increase your withholding or reduce it, submitting a new W-4 to your employer will initiate a change that you should be able to see in your paycheck within a month.  I submitted mine and saw the change on my very next paycheck!  Of course, I am no professional, just a blogger sharing my experience, so if you do have any questions about how you should adjust your withholding amounts, definitely contact a trusted tax advisor or CPA.

Majority Of Americans Against Cheating On Taxes

Majority Of Americans Against Cheating On 2013 Taxes

Each year as tax time rolls around we are forced to take a hard look at our financial records and situations.  Some of us are happy at this time of year as we know we will be receiving a refund from the Internal Revenue Service.  Others are not as happy as they know they will owe the IRS money.  With the IRS only auditing a mere one percent of all individual tax returns each year, it can be tempting to cheat on your taxes in an effort to not owe as much money to the federal government or to receive more money back.

Cheating On 2013 Taxes

Tax (Photo credit: 401(K) 2013)

If your own ethics and morals do not stop you from cheating on your tax return, perhaps a little peer pressure will.  A recent random telephone poll conducted by the IRS Oversight board shows that 87 percent of American adults feel that is it never okay to cheat on your taxes.  Most respondents felt that personal integrity was their number one reason for being honest and not cheating on their taxes.  Only 11 percent of respondents felt it was okay to cheat a little bit or sometimes on 2013 taxes.  As the same tax laws apply to all Americans, most Americans feel we all need to play by the rules.

Even if you intentionally choose not to cheat on your 2013 taxes, sometimes errors and omissions do occur.  Sometimes the unintentional errors and omissions benefit you, and sometimes they benefit the IRS.  Using a tax program, such as TurboTax, on your 2013 taxes can maximize the accuracy of your tax return.  Computer tax programs that you can use in the convenience of your own home and on your own time schedule are less expensive and more convenient than hiring an accountant to do your taxes.  Computer tax programs like TurboTax walk you through everything you need to know and consider when doing your 2013 taxes.  Using TurboTax can potentially even help increase the amount of your tax refund.  Increasing the accuracy of your tax return can also reduce the chances that you will be audited.

Tax Return Processing Begins Late

2013 Tax Return Processing

IRS, formally known as the Internal Revenue Service, announced the 2013 filing season will open on January 30.  Individual income tax returns will not be reviewed until this date.

The IRS previously planned on allowing individuals to take part in electronic filing eight days earlier, on January 22.  The US congress approved new tax laws which in turn has delayed the start date for filing.  The new tax laws are due to the fact the US has been faced with great financial difficulties.  ATRA, an abbreviation for the American Taxpayer Relief Act, is the bill that was formed and agreed upon between the president and House of Representatives republicans.

2013 Tax Return Processing Begins Late

Taxes (Photo credit: Tax Credits)

The IRS is busy updating tax forms and “completing programming and testing of its processing systems.”  The update and intended improvements should allow the majority of US tax payers to file their tax returns starting January 30.  Some individuals will need additional forms pertaining to business credits, energy credit claims, and property depreciation when filing.  People who need to file regarding these issues can do so in late February or early March.

Steven Miller, commissioner of the IRS has expressed the IRS has worked hard to start tax season as soon as possible.  He continued to say the January 30 date allows ample time for IRS to update their own processing systems. The IRS also made it clear that tax payers who file electronically receive refunds quicker than those who mail in paper forms.