Category Archives: IRS Tax Tips

Non-Cash Contributions – Have your Documentation

From Western CPE

eTax Alert™

 

Court Shows No Charity in Disallowing $37,315 of Non-cash Contributions (Kenneth Kunkel, TCM 2015-71)

Kenneth and Susan Kunkel claimed a $37,315 charitable deduction for non-cash contributions on their 2011 tax return. The Kunkels claimed to have donated property to four organizations: their church, Goodwill, Purple Heart, and Vietnam Veterans. They had no receipts, photos, or other documentation for the contributions, but claimed that they didn’t need receipts because each donation was less than $250.

What documentation is required?

$250 or more. For all contributions of $250 or more, the taxpayer generally must obtain a contemporaneous written acknowledgment from the donee (§170(f)(8)).

Less than $250. “Separate contributions of less than $250 are not subject to the requirements of Subscribe Share Past Issues Translate §170(f)(8), regardless of whether the sum of the contributions made by a taxpayer to a donee organization during a taxable year equals $250 or more” (§1.170A-13(f)(1)).

$500 or more. Additional substantiation requirements are imposed for contributions of property with a claimed value exceeding $500 (§170(f)(11)(B)).

More than $5,000. Still more rigorous substantiation requirements, including the need for a “qualified appraisal,” are imposed for contributions of property with a claimed value exceeding $5,000 (§170(f)(11)(C). “Similar items of property” must be aggregated in determining whether gifts exceed the $500 and $5,000 thresholds (§170(f)(11)(F)).

What are “similar items?” The term “similar items of property” is defined as “property of the same generic category or type,” such as clothing, jewelry, furniture, electronic equipment, household appliances, or kitchenware (§1.170A-13(c)(7)(iii)).

The court categorized similar items from Kunkel’s list of non-cash items.

Clothing – $21,920
Books – $8,000
Furniture – $3,090
Household items – $1,653
Toys – $1,072
Telescopes – $800
Jewelry – $780

No appraisals and no receipts equal no deduction.
Clearly the clothing and book donations exceeded the $5,000 value and required appraisals to properly substantiate the deduction. All other categories exceeded $250 and required receipts. The court agreed with the IRS’s disallowance of all non-cash contributions.

Tax practitioner idea. Claiming a $6,000 contribution of “household goods” would require an appraisal. Claiming a $3,000 donation of furniture and a $3,000 donation of clothing would not. Categorize the donations carefully.

 

© Vern Hoven and Sharon Kreider 

Western CPE

If you have additional questions about this post or any other, please contact us directly at 928-778-0079.

Schutte & Hilgendorf is a leading Prescott CPA firm, offering superior client service to individuals, small businesses, non-profit organizations, and homeowners associations.

Our services include accounting, bookkeeping, audit, review, tax return preparation, tax planning, payroll and QuickBooks consulting.  We are located in Prescott and serve all of Yavapai County, and Northern Arizona.


2015 Standard Mileage Rates

The Internal Revenue Service just issued the 2015 standard mileage rates used to calculate the deductible cost of operating a vehicle for business, charitable, medical or work related moving purposes.

 

Beginning January 1, 2015, the standard mileage rates for the use of a car, van, pickup, or panel truck will be:

  •             57.5 cents per mile for business purpose miles driven, up from 56 cents for 2014
  •             23 cents per mile driven for medical or moving for work purposes, down from 23.5 cents
  •             14 cents per mile driven for charitable organization purposes, the same as previous years

 

Taxpayers always have the option of claiming actual costs of operating a vehicle rather than the standard mileage. If you have claimed depreciation on a vehicle in prior years, you cannot use the business standard mileage rate for that vehicle – you must use actual expenses.

Taxpayers must have accurate mileage logs for all business mileage and the total mileage of the vehicle if used part of the time for personal use, for both methods of cost calculations.


GOOD ACCOUNTING HABITS FOR SMALL BUSINESS OWNERS

Most small business owners we come in contact with do not like the paper work side of running a business. They are very good at building houses, fixing vehicles, landscaping, or whatever the specialty is, but paperwork is often the last thing they want to do and /or they just do not have the time. They often do not realize what a benefit it would be to their business if they had up-to-date and accurate financial information available to help in business decisions and just to see how they are doing.

Here are some tips to help keep your books in order and up-to-date:

  1. Keep it Separate – You should have a separate bank account and credit card(s) just for the business AND use them for just business expenses. When you use these accounts for personal expenses, it becomes much more difficult to separate items when it comes time to prepare your tax returns, you do not have an accurate running account of business costs, and the IRS frowns deeply upon this practice. If your returns were picked for an audit, the IRS could give you a very bad time.
  2. Schedule a time – actually enter it into your appointment calendar to set aside some time every week for doing paperwork and organize your finances. You can then make informed financial decisions and you will be ready for tax filings deadlines.
  3. Employees make your business run – you have successfully grown your business and now cannot do it alone. Labor is often the biggest expense a small business has. You have to make sure you are keeping track of the costs of wages, benefits, overtime, payroll taxes and payroll reporting and making accurate payments to the IRS for payroll taxes. Accurate recording of labor cost will allow you to track if you are over-spending on labor costs or if you can give incentives or bonuses to employees to help market your business.
  4. Are you getting paid? – Keep an accurate running balance of customers/clients who owe you money. Knowing each month who has outstanding invoices can enable you to do follow up calls. By knowing who is perpetually late paying, you can put policies in place to have those pre-pay or require a retainer up front.
  5. Call in a Professional – CPA’s can be trusted allies in running your small business. They actually like to “keep books” and have the expertise to do it correctly. A CPA will find allowable deductions you may have not thought of and will keep you timely and penalty –free in filing reports. You may think you cannot afford a CPA, but they will save you from headaches and stress and it may be more cost effective than you think.

Some things to consider as another year comes to a close and you are faced with a year’s worth of receipts/deposit slips and invoices stacked up somewhere waiting for you to get to.


A Simplified Home Office Deduction

Do you work at home or have a home-based business?  If so, you should be aware that beginning this year, the IRS has created a simpler option for calculating the deduction for the business use of your home.  The new option makes recordkeeping easier because instead of maintaining records of specific home office expenses, you can use a standard rate per square foot.  The rate is $5 per square foot (up to a maximum of 300 square feet or $1,500) for qualifying business use space in place of taking a pro rata percentage of items such as mortgage interest, taxes and repairs.

Keep in mind there are good and bad aspects to this “simpler” method.  The new method gives you back your full interest and tax deduction on Schedule A, but you will lose your depreciation and loss carryover deductions.  Of course, you must still use your home office regularly and exclusively for business.  This may be a welcome relief for some taxpayers, but it might not be the best choice for others.

Is it the right choice for you?  Contact us today and let’s decide together.

 

 

 

 


Job Hunting? You May Be Able to Deduct the Expenses

Did you know that if you are trying to find work in your current occupation, the costs of your search, including expenses for preparing and sending resumes, employment agency fees and related travel expenses, should be deductible?

The deductions aren’t available in all cases.  For example, you’re not eligible to use them if you are seeking employment in a new field or if this will be your first job.  If it’s been a long time since you left your last job, your costs also may not qualify.

Don’t try to navigate the rules on your own.  If you want to learn more about these deductions, or ask any questions about your tax situation, contact us today.


2014 Mileage Rates

Mileage rates for 2014 were recently released by the IRS.  Deductible expenses for business use vehicles can be calculated using the mileage rates provided by the IRS.  Rates for 2014 have decreased by 1/2 cent.

 

Business mileage – $.56 per mile

 

Medical or moving mileage – $.235 per mile

 

Charitable organization mileage – $.14 per mile

 

If you have questions related to any of the above, please contact us.


Reasons to Stay in Touch With Your Tax Prepare Throughout the Year

You got married.  You got a job, had a baby, lost a job, bought a house or moved.  Your life shifted in ways that once you couldn’t have imagined.  The last thing on your mind is taxes.

Most taxpayers look up a professional tax preparer once a year, as deadline day looms.  But during a year, a lot of taxpayers also experience circumstances when they should contact their preparer; marriage or divorce, birth of a child, retirement, career change or a notice from the Internal Revenue Service (IRS) or other tax authority.  Next March or April may be too late to fix nasty tax situations.

If any of the below changes or event occur in your life, contacting us is a good idea:

 

Marital:  If you’re going through a divorce, find a tax preparer to discuss ramifications of dependents, alimony, childcare, or division of property.  Divorce decrees also sometimes contain landmine wording that produces a different, often unpleasant, tax result.

If you changed your name as a result of a recent marriage or divorce, make sure the name on your tax return matches the name registered with the Social Security Administration (SSA).  If you took your spouse’s last name, or if both spouses decide to hyphenate their last names, you may run into complications with the IRS if you don’t notify the SSA.  Informing the SSA of a name change requires filing a Form SS-5, Application for a Social Security Card, at the nearest SSA office.

Family Size:  The birth or adoption of a child can affect tax returns, and as children get older their parents may lose certain credits.  In most cases, a child can be claimed as a dependent in the year in which he or she was born.  The child must have a Taxpayer Identification Number (TIN); for children born in the U.S., the TIN is generally a Social Security Number (SSN).  Parents may be eligible for a tax credit for qualifying expenses paid to adopt a child, and credits may increase if the expenses involve adoption of a child with special needs.

Career:  Not all tax changes due to career result from a raise and a bump to a higher tax bracket.  You must also consider whether your employment is full time, part time, or contract.  Pension opportunities or excludable benefits, such as cafeteria plans and dependent care benefits, also mean you should contact a tax professional, as do any changes in work-related deductions.

Unemployment compensations generally includes state unemployment insurance benefits and benefits paid to you by the Federal Unemployment Trust Fund.  If you received unemployment compensation during the year, next spring you should receive a Form 1099-G showing the amount you were paid.  Unemployment compensation must be included in your taxable income.

Retirement:  Kicking off the golden years, whether it was your decisions or that of your former employer, may trigger penalties for early withdrawal from retirement funds or ignite taxes on Social Security benefits.  Did your company present you with an early retirement proposal or are you considering early retirement?  You may be eligible for a tax credit if you contribute to an employer-sponsored retirement plan or to an individual retirement arrangement.  Discuss options with a preparer before you sign anything.

Moving:  Consider everything from mileage rates for the moving vans to change-of-address forms to the IRS.  Generally, you can deduct moving expenses if your move is closely related to the start of work.  Your move meets the IRS distance test if your new main job location is at least 50 miles farther from your former home than your old main job location was.  Qualifying taxpayers must also meet a time test, working full time for at least 39 weeks during the first 12 months after arriving in the general area of the new job location.  Different rules may apply to members of the Armed Forces or a retiree or survivor moving to the U.S.  Your best bet is to check with a tax professional.

IRS Notifications:  If the IRS mailed you a notice after last tax season and you tossed it in a drawer, realize that the notice never really disappeared.  If you’ve received a letter from the IRS, call your tax preparer immediately.  Putting off responding will only bring more IRS letters and, likely, larger penalties.

With the right help from a tax professional, you can easily navigate the proper tax process for filing after recent changes in your life.  For more information contact us at 928-778-0079.

 

 

 


5 Most Asked Questions Regarding Social Security

1.  WHAT IS “NORMAL” RETIREMENT AGE?

Up until 1999, the normal age, i.e. the age when a person received full SS benefits, was 65.  In 2000 this age increases gradually until it reaches age 67 as the “normal” age. In 2013, we are at the level of birth years 1943 – 1954 your “normal” age to collect full benefits is 66.                                                                             

 

 2.  HOW MUCH DO I LOSE IF I RETIRE EARLY?

Those who start SS benefits at age 62,63, or 64 receive a reduced amount throughout retirement. For example, if Joe, born in 1960, when full retirement reaches age 67, decides to retire at 62, he will receive 70% of full benefits throughout retirement.

 

3.  SUPPOSE I GO BACK TO WORK?

As of April 7, 2000, there is no SS earnings test for seniors aged 65-69 – unless the person retired early.  REMEMBER – Even if you are drawing Social Security, you will still be subject to full SS and Medicare tax withholdings if you return to work.

 

4.  HOW MUCH MORE DO I GET FOR WAITING?

Social Security benefits, which are based on lifetime earnings as well as retirement age, increase by a set percentage each year a retiree waits up to age 70, after which there is no increase.  For those born in 1943 and later will see benefits increase by 8%.  EXAMPLE:  Joe, who was born in 1937, could have retired in 2002 at age 65 and collected benefits of $1,200/month.  If he had waited until he was 66, his benefits would have been $1,278/month; had he waited until age 79 it would have gone to $1,590/month.

This example does not take into effect, the additional increases from COLA’s.

 

5.  CAN MY SOCIAL SECURITY BENEFITS BE TAXED?

Yes, depending on non-Social Security income. There is a formula used when your tax return is prepared to compute the taxable SS amount.  It can up taxed up to 85% of the gross amount of Social Security received.                                                                                                                       


Latest News from IRS Regarding Homeowner Associations

The IRS recently posted this information regarding the tax-exempt status of Homeowners’ Associations.  There is often confusion between Non-Profit Status in the eyes of the Arizona Corporation Commission and in the eyes of the IRS.  Most homeowners associations will not be granted tax-exemption by the IRS, and are expected to file an 1120 or 1120H.  Click on the link below for more information:

TAX EXEMPT STATUS OF HOMEOWNERS’ ASSOCIATIONS

 

Schutte & Hilgendorf CPAs has over 20 years experience invested in the complex accounting and tax treatment of Homeowners’ Associations. We provide audit, review and compilations to homeowners association to help them meet the annual Arizona statutory requirement.  In addition, we provide tax planning and preparation services to Associations all year around.  Call us today to schedule your free initial consultation 928-778-0079.


Are my Social Security Benefits Taxable?

We get a lot of clients that ask us when their Social Security Benefits become taxable.  The following information is provided bythe Social Security Administration and clearly explains when your Social Security Benefits become taxable.  This is also available by

 

CLICKING HERE

 

Should you need assistance or have questions about your Social Security Benefits and their taxability, contact Schutte & Hilgendorf, CPAs, providing tax planning and preparation, auditing, accounting and QuickBooks consulting to the greater Yavapai County. Call us at 928-778-0079 or email at info@prescottaccountants.com

Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.

No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:

  • file a federal tax return as an “individual” and your combined income* is
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.
  • file a joint return, and you and your spouse have a combined income* that is
    • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
    • more than $44,000, up to 85 percent of your benefits may be taxable.
  • are married and file a separate tax return, you probably will pay taxes on your benefits.

*Note:

Your adjusted gross income

+ Nontaxable interest

½ of your Social Security benefits
= Your “combined income

Each January you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.

If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

For more information about taxation of benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.