Top Tax Tips about Deducting Charitable Contributions

When you give a gift to charity, it not only helps others in need, it may also help you at tax time.  You may be able to claim the gift as a deduction that may lower your tax.  Here are tips you should know about deducting your gifts to charity.

1.       Qualified Charities.  You must donate to a qualified charity if you want to deduct the gift.  You can't deduct gifts to individuals, political organizations or candidates.  To check the status of a charity, use the IRS Select Check tool.

2.       Itemized Deduction.  To deduct your contributions, you must file Form 1040 and itemize deductions.  File Schedule A, Itemized Deductions, with your federal tax return.

3.       Benefit in Return.  If you get something in return for your donation, your deduction is limited.  You can only deduct the amount of your gift that is more than the value of what you got in return.  Examples of benefits include merchandise, meals, tickets to an event or other goods and services.  The cost of raffle tickets is not deductible.

4.       Donated Property.  If you gave property instead of cash, the deduction is usually that item's fair market value.  Fair market value is generally the price you would get if you sold the property on the open market or at a thrift store.

5.       Clothing and Household Items.  Used clothing and household items must be in at least good condition to be deductible in most cases.  Special rules apply to cars, boats and other types of property donations.

6.       Form 8283.  You must file Form 8283, Noncash Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7.       Records to Keep.  You must keep records to prove the amount of the contributions you made during the year.  The kind of records you must keep depends on the amount and type of your donation.  For example, you must have a written record (receipt or acknowledgement letter) of any cash you donate, regardless of the amount, in order to claim a deduction.

8.       Donations of $250 or More.  To claim a deduction for donated cash or goods of $250 or more, you must have a written statement from the charity.  It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com

Are You Exempt From the Health Insurance Penalty?

As you’re probably well aware, the requirement under the Affordable Care Act (ACA) for individuals to obtain at least minimal health insurance coverage went into effect in January 2014. If you didn’t purchase a health insurance policy, you may have to pay a penalty with your 2014 federal income tax return.

But not everyone is required to pay the penalty. In fact, the list of exemptions is extensive. Here is a brief explanation of common exemptions.

●  Unaffordable coverage. The minimum amount you would have paid for employer-provided coverage or a “bronze level” plan exceeds 8% of your actual household income for the year.

●  Short coverage gap. You didn’t have coverage for less than three consecutive months during the year.

●  Income below filing threshold. Your gross income or household income is less than the applicable minimum threshold for filing a tax return.

●  Citizens living abroad and certain noncitizens. This exempts certain U.S. citizens, including those who spent more than 330 days abroad during a 12-month period and qualified noncitizen residents.

●  Incarcerated individuals. The requirement doesn’t apply to someone in a jail, prison, or similar penal institution.

●  Unaffordable aggregate self-only coverage. The aggregate cost of self-only employer-provided coverage for two or more family members exceeds 8% of household income.

●  Coverage gap. If you had a gap in your coverage at the beginning of 2014 but enrolled in the marketplace before May 1, you’re exempt.

●  General hardship. Circumstances such as homelessness, eviction, foreclosure, domestic violence, death of a close family member, or unpaid medical bills prevented you from obtaining coverage.

This list is not all-inclusive. For more information, call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

Is Paying Zero Tax A Good Idea for Your Corporation?

When you run your business as a regular C corporation, it can make sense to pay a little tax this year to avoid large estimated tax payments next year.

According to the general rule for corporate estimated taxes, the IRS won’t charge a penalty as long as a company pays current-year estimated tax of at least the amount that was owed on the preceding year’s return. However, this “safe harbor” is available only when at least some tax was owed for the prior year. If a company shows zero tax liability in a given year, the next year’s estimated payments must equal 100% of the expected tax liability for that year. As a result of this quirk in the law, you might want to plan corporate income and deductions so that you always show at least some taxable income and some tax liability.

Example. Your corporation will incur a small operating loss this year. Next year is likely to be more profitable, with the company projected to owe about $100,000 in federal income tax. If you do no planning, you may be required to pay next year’s tax bill in full via quarterly installments of $25,000 each, creating a potential cash flow crunch just when your company might need liquidity.

However, if your company were to report, say, $10,000 of taxable income this year (perhaps by delaying deductible expenditures or selling an appreciated asset), this year’s tax bill would be $1,500 (15% of $10,000). Next year, you would be required to prepay a total of only $1,500, reducing your quarterly installments to $375 each. The remainder of your tax bill would be due on the filing date for next year’s return, but in the meantime, you have the use of your cash.

Warning: If this planning strategy might apply in your situation, be aware that the safe harbor exception is only available to corporations with taxable income of less than $1 million for the preceding three years.

Call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com

Tax Scams in 2015 Released

Tax Scams in 2015 Released

The Internal Revenue Service recently released the 2015 list of tax scams.  Here is information on four of them:

·         Identity theft:  Tax-related identity theft occurs when someone uses your stolen Social Security number (SSN) to file a tax return claiming a fraudulent refund.  Taxpayers need to watch out for identity theft especially around tax time.  The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else's Social Security number.  The IRS is making progress on this front but taxpayers still need to be extremely careful and do everything they can to avoid becoming a victim.  Here are a few tips:

o   Don’t carry your Social Security card or any documents that include your SSN or Individual Taxpayer Identification Number (ITIN).

o   Don’t give a business your SSN or ITIN just because they ask.  Give it only when required.

o   Protect your financial information.

o   Check your credit report every 12 months.

o   Review your Social Security Administration statement annually.

o   Secure personal information in your home.

o   Protect your personal computers by using firewalls and anti-spam / virus software, updating security patches and changing passwords for internet accounts.

o   Don't give personal information over the phone, through the mail or the internet unless you have initiated the contact or you are sure you know who you are dealing with.

·         Phishing:  Taxpayers need to be on guard against fake emails or websites looking to steal personal information.  The IRS will not send you an email about a bill or refund out of the blue.  Don't click on one claiming to be from the IRS that takes you by surprise.  Taxpayers should be wary of clicking on strange emails and websites.  They may be scams to steal your personal information.

·         Phone scams:  Aggressive and threatening phone calls by criminals impersonating IRS agents remains an ongoing threat to taxpayers.  The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, license revocation and other things.  The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

·         Fake charities:  Taxpayers should be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors.  Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities.  IRS.gov has the tools taxpayers need to check out the status of charitable organizations.  Be wary of charities with names that are similar to familiar or nationally known organizations.

Call us at (219) 769-3616 with your questions, or email them to tlynch@swartz-retson.com.

Information from www.irs.gov.

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