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Friday, December 28, 2012

IRS Tips for Charity Giving

Rules for Clothing To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens. Guidelines for Monetary Donations To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date. Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity. These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements. Reminders To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders: Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2012 count for 2012. This is true even if the credit card bill isn’t paid until 2013. Also, checks count for 2012 as long as they are mailed in 2012. Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on, lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2012 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more. The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return. If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return. And, as always it’s important to keep good records and receipts.

Proposition 30 - Governor’s tax increase measure – Passed

This measure is intended to provide temporary taxes to fund education and local public safety. Proposition 30 raises the sales/use tax rate by 1⁄4 cent for four years from January 1, 2013 through December 31, 2016. It also includes higher personal income tax (PIT) rates that will be raised for seven years effective January 1, 2012. The rates for high-income individuals will be: • 10.3% for singles making $250 – 300,000 • 11.3% for singles making $300 – 500,000 • 12.3% for singles making over $500,000 The additional marginal tax rates increase as taxable income increases. For joint filers, an additional 1 percent marginal tax rate is imposed on income between $500,000 and $600,000 per year, making the total rate 10.3 percent. Similarly, an additional 2 percent marginal tax rate is imposed on income between $600,000 and $1 million, and an ad- ditional 3 percent marginal tax rate is imposed on income above $1 million, increasing the total rates on these income brackets to 11.3 percent and 12.3 percent, respectively. These new tax rates affect about 1 percent of California PIT filers. These taxpayers currently pay about 40 percent of state personal income taxes. The tax rates will be in effect for seven years from January 1, 2012 through December 31, 2018

Sunday, August 21, 2011

What is AMT?

Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was created in 1969 when 155 taxpay- ers with income over $200,000 paid no tax. Congress wanted to make sure rich taxpayers couldn’t escape tax with deductions and credits. Now, over 40 years later, the AMT affects over 4 million ordinary taxpayers.

Why is that?

The AMT was never properly adjusted for inflation, and what was considered rich in 1969 is middle-income now. Each year, at the very last minute, Congress extends the current AMT exemption level and adjusts it a bit for infla- tion. Without this adjustment, an estimated 21 million taxpayers would be affected.

AMT is a big American tax problem. Congress realizes that it has gone way beyond its in- tended purpose, but it also creates revenue which must be offset if it is to be repealed.

How does AMT work?

Very simply stated, AMT starts with your taxable income (after deductions and exemptions) and makes you add back certain deductions to arrive at a new taxable income. A flat tax is figured on this new income and, if the result is higher than your regular tax, you have AMT.

What triggers AMT?

The common items you have to add back in the calculation of AMT are the following: • Mortgage interest on loans not used to buy, improve, or build your home • State and local tax deductions for income, real estate, and personal property tax
(including the sales tax on the purchase of a new vehicle) • Medical expenses in excess of 10% of your income are allowed in figuring AMT, so taxpayers deducting medical will have to add back a portion of their deduction. • Miscellaneous deductions for employee expenses and investment expenses • Exemptions for the taxpayer and his/her family • The standard deduction • Incentive stock options that are held instead of sold in the year exercised

Who is most likely to be a victim of AMT?

• Taxpayers with incomes under $47,450 (single) and $72,450 (married/joint) will not be affected because these amounts are exempt for 2010. As income increases, the chance of AMT becomes greater.
• Higher income taxpayers with home equity loans, employee expenses or investment ex- penses
• Taxpayers who live in a state with high income or high real estate tax
• T axpayers with large families
• Taxpayers who exercise and hold incentive stock options

To protect yourself from the effects of AMT, you might consider lowering your income, mov- ing to a lower taxed state, getting your employer to reimburse expenses, managing your own investment accounts, selling incentive stock options when exercised, curtailing the size of your family, or (the best option) calling your congressman.

Friday, June 18, 2010

What is an "Enrolled Agent"?

An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.

“Enrolled” means to be licensed to practice by the federal government, and “Agent” means authorized to appear in the place of the taxpayer at the IRS. Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department.

Only Enrolled Agents are required to demonstrate to the IRS their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all Enrolled Agents specialize in taxation. Enrolled Agents are the only taxpayer representatives who receive their right to practice from the U.S. government (CPAs and attorneys are licensed by the states).

Sunday, February 1, 2009

Self Employment Tax

What is Self-Employment Tax?

Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.

You figure SE tax yourself using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct half of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct social security and Medicare taxes.

SE tax rate. The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

Maximum earnings subject to SE tax. Only the first $102,00 of your combined wages, tips, and net earnings in 2008 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.

All your combined wages, tips, and net earnings in 2008 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax.
Fiscal year filer. If you use a tax year other than the calendar year, you must use the tax rate and maximum earnings limit in effect at the beginning of your tax year. Even if the tax rate or maximum earnings limit changes during your tax year, continue to use the same rate and limit throughout your tax year.

Self-employment tax deduction. You can deduct half of your SE tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your SE tax.

For more information or questions about self employment taxes, contact Robert.

Thursday, January 29, 2009

Tax Tips

Things to do to get your tax process started

The earlier you can start working on your taxes, the quicker it will be for you and your tax preparer to file and avoid the last-minute rush, when most filing mistakes are made. And the sooner the tax agency gets your return, the sooner it can process it and get your refund on its way to you.

So, here are some quick ways to get a jump on your taxes long before the April 15 deadline rolls around:
(1) Track down SSN, W-2s, and receipts
(2) Call your tax preparer and get your forms started
(3) Don't panic!

Keep the following items in mind:

Track down your rebate data. Did you get an economic stimulus payment last year? That amount really was an advance credit against your 2008 return. The amount you received in 2008 could affect your 2009 credit claim. If you got less than the maximum amount, which for most employed taxpayers was $600 per single filer ($1,200 for married couples filing jointly), you might be able to claim the rest of it this filing season. All versions of the individual tax return (Forms 1040, 1040A and 1040EZ) have a new line to claim the Recover Rebate Credit. You'll need the statement you got from the IRS in connection with your payment. That's the amount you'll use to determine if you can claim more on your 2008 return. So find that rebate statement now.

Get ready for the arrival of records. When your W-2s, investment statements and other tax-related documents start coming in, create a collection point and put them there. It could be as simple as a large envelope. You might have received a few documents in December, but most will arrive throughout January. Just make sure that whenever the material shows up you put it all together in an accessible place, so when you are ready to fill our your return you have all the data you need. Remember, the IRS gets a copy of most of these, too, so figures on those statements are critical to ensuring your return sails through the system.

Track down Social Security numbers. Before the IRS will process any return, the agency must have your correct Social Security number , as well as your spouse's, if you file jointly, and those of any dependents you claim. These numbers are crucial because so many transactions -- income statements, savings account interest, retirement plan contributions -- are keyed to them. The IRS also checks the identification numbers against any tax breaks you apply for, such as the Child Tax and Additional Child Tax credits, credits for educational expenses and the dependent care tax credit. So make sure everyone in your tax family has a valid Social Security number and that you have them written down correctly. It wouldn't hurt to put this information in that envelope where you're stashing your incoming tax statements.

Find your forms. The great thing about using a tax preparer is that all necessary forms will be provided for you and required schedules will be filled out accordingly. The other half who filed the old-fashioned way will get a tax packet in January, but it never hurts to have backup forms in case you make a mistake. Plus, your tax situation may have changed, meaning you need material other than what's in the IRS package, since it's based on your past filing history. A few of the most common forms are available at post offices and libraries. Most of the rest can be downloaded from the Internet.

Decide how you want to do your taxes. Gathering the appropriate tax forms goes hand in hand with how you plan to complete your return. Which preparation method fits your tax style? Are you a do-it-yourselfer or should you hire a pro? Do you prefer pen and paper or a computer? Now's the time to decide. By starting early, you have plenty of time to gather filing paperwork yourself, pick the perfect tax preparer or find the tax preparation software that fits your needs.
Consider electronic filing. If you decide to use your computer to calculate your taxes, consider taking the next step and file the forms electronically. Regardless of whether you file electronically or the old-fashioned paper way, this year have your refund check directly deposited into your bank account.

Don't panic. Tax filing makes everyone a little nervous, but when you start early, you've got time to get the answers and make sure you're taking full advantage of every tax break for which you're eligible. If you have a specific question, ask our tax expert . You also can visit the IRS Web site or call its TeleTax service at (800) 829-4477 to get recorded information on more than 140 tax topics.

Gifts to Charity New Rules...

Don't forget...

New rules require more diligent recordkeeping; Keeping the receipts from your charitable contributions just became more of a priority. Starting January 2007, you will not be allowed to deduct charitable contributions of any amount unless you have the proof. What does this mean for you? Starting in 2007, each cash contribution you make must be substantiated with a bank record, receipt, letter, or other written communication from the donee organization that states the name of the donee, the date the contribution was made, and the amount of the contribution. Without this substantiation, you will not be allowed to deduct the contribution on your tax return.

Cleaning Out Your Closets? Items you donate may not qualify for a deduction under new rules. It used to be that you could take all your unused clothing and household items to the local Goodwill, Salvation Army, or thrift store and reap a nice charitable contribution deduction. All you needed was a receipt stating the fair market value and the deduction was allowed. The rules have changed for any donation of non-cash items to charitable organizations after August 17, 2006. A charitable contribution deduction of clothing or household items will only be allowed if the item is in "good" used condition, or better, and you have a receipt. The IRS is to issue guideline defining "good condition." A good rule of thumb may be to write "good condition" next to every donated item on your list. The IRS can deny a deduction for any item that has little monetary value. There is an exception for single items that have a value of more than $500 and for which you have a qualified appraisal.

Get your tax return preparation process started now!!!

The first typical tax service for a new client is tax preparation of the previous year's federal and state tax returns, but our services do not stop there.

RTS also offers calculated projections of tax withholding and estimated taxes, to ensure our clients are paying the proper amount of taxes to the IRS throughout the year to avoid penalties and interest for underpayment, but also to ensure our clients are not paying in too much and giving the IRS an interest free loan over the course of the tax year.