Deductibility Guidelines for Charitable Donations

Deductibility Guidelines for Charitable Donations

Do you enjoy making donations to charities and having the benefit of a tax write-off for your contribution? It’s important to understand the tax provisions that apply to these donations, especially contributions of clothing, household items, and monetary giving. Rules for Clothing and Household Items Clothing and household items must generally be in good condition including furniture, furnishings, electronics, appliances, and linens. Guidelines for Monetary Donations 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, and credit card statements which should show the name of the charity, the date, and the amount paid. 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. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of this year count for that year even if the credit card bill isn’t paid until later. If checks are postmarked by December 31, they still qualify...
2017 Federal FUTA Credit Reduction Rates Announced

2017 Federal FUTA Credit Reduction Rates Announced

Are you an employer who must take into consideration the credit reduction when filing your FUTA tax return for 2017? A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame. If a state has outstanding loan balances on January 1 for two consecutive years and does not repay the full amount of its loans by November 10 of the second year, the FUTA credit rate for employers in that state will be reduced until the loan is repaid. This year there are only two locations that must pay higher taxes above the regular FUTA rate for 2017. These are California and the Virgin Islands. Each must pay an additional 2.1% tax for each employee’s wages up to the $7000 limit. The Virgin Islands is also subject to the Benefit Cost Rate (BCR) additional credit reduction formula for having passed five consecutive January 1’s with an outstanding federal advance. The BCR add-on is an additional 1.1%. The standard FUTA tax rate is 6.0% on the first $7,000 of subject wages, but employers may receive a credit of 5.4% when they file their Form 940 Employer’s Annual Federal Unemployment Tax Return, to result in a net FUTA tax rate of 0.6% (6.0% – 5.4% = 0.6%). The FUTA credit reduction is reported on the annual 940 tax return. Any increased FUTA tax liability due to a credit reduction is considered incurred in the fourth quarter and is due by January 31 of the following year. If you...
10 Big Tax and Accounting Issues

10 Big Tax and Accounting Issues

Entrepreneurs usually aren’t surprised by the amount of work it takes to get a business up and running and become successful. But these same small business owners are often blindsided by the time and effort required for tax and accounting issues. It’s an important aspect that is often overlooked. Specifically, the following ten issues are critical to small business owners and might even “make or break” the operation. 1. Form of business: The business may be formed as a C corporation, a pass-through entity like an S Corporation, limited liability company (LLC) or partnership, or a sole proprietorship. Generally, C corps provide greater protection from creditors, but result in “double taxation” on earnings. 2. Estimated taxes: As with individual taxpayers, businesses must take a “pay-as-you-go” approach with tax liability, reporting and paying taxes on a quarterly basis. This applies regardless of the form of business ownership. 3. Ordinary and necessary expenses: The tax law provides current deductions for numerous “orderinary and necessary” business expenses ranging from paper clips to office furniture. But the law is also ridled with numerous special rules and requirements. 4. Independent contractors: Employers must pay payroll taxes on employee wages, but not on amounts paid to independent contractors, such as most outside workers hired for specified projects. The IRS often contests the employment status of workers. 5. Inventory valuation: The company must value the items included in its inventory. Initially, the value is the cost, but these figures are being constantly updated as items gets sold and restocked, with accompanying tax results. 6. Section 179/ depreciation: Under Section 179 of the tax code, a company...
ACA: IRS Releases 2017 Reporting Forms

ACA: IRS Releases 2017 Reporting Forms

Are you up to date with your knowledge on your company’s reporting requirements? An article shared by CalChamber informs employers about the 2017 Affordable Care Act (ACA) tax reporting forms and instructions. With no changes to the Affordable Care Act (ACA) on the horizon, employers must remember their reporting requirements. The Internal Revenue Service (IRS) recently released final forms and instructions for 2017 ACA tax reporting, as detailed below. It is federally mandated that employers with 50 or more full-time or full-time equivalent employees must report information about the health care coverage, if any, they offer. The updated forms and instructions to do so are: File 2017 Form 1094-C Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns with the IRS; Furnish 2017 Form 1095-C Employer-Provided Health Insurance Offer and Coverage to each full-time employee and file with the IRS; and Review the IRS’s Instructions for Forms 1094C and 1095-C for guidance. For employers that sponsor self-funded minimum essential coverage plans, the required forms and their instructions are: File 2017 Form 1094-B Transmittal of Health Coverage Information with the IRS; Furnish 2017 Form 1095-B Health Coverage to the enrollee and file with the IRS; and Review the IRS’s Instructions for Forms 1094-B and 1095-B for guidance. Deadlines For 2018, the deadline to furnish the 2017 Form 1095-B or Form 1095-C to the employees or individuals is January 31, 2018. The deadlines to file ACA forms with the IRS depend on whether you are filing a paper form or filing electronically. The deadline to paper file all 2017 Forms 1095-C or 1095-B, as well as the appropriate transmittal Form...
A Radical Proposal for Fighting Tax-Related ID Theft

A Radical Proposal for Fighting Tax-Related ID Theft

Are you concerned about your tax information being stolen? A recent article from TaxProToday.com, written by Roger Russell, brought to our attention how a new idea could help cut down on tax-related ID theft and protect taxpayers in the long run. Tax experts Roger Harris and Jeff Trinca have an idea to drastically cut down tax refund fraud — by making stolen taxpayer information worthless to thieves. The two talked to staffers on the Senate Finance Committee and the House Ways and Means Committee about the idea last week, and intend to speak with committee members when they return from the August recess next month. The IRS is making progress in fighting identity theft tax refund fraud, according to Harris, president of Padgett Business Services, and Trinca, vice president of Van Scoyoc Associates. They cite the decline in taxpayers reporting ID theft from 698,700 in 2015 to 376,500 in 2016, a 46 percent drop. And indications are that the number will decline further in 2017. Yet the lower number still reflects approximately a billion dollars a year in lost revenue. Fraudsters are relentless, and will likely adjust in future filing seasons. “Rapid refunds and refundable credits are part of the problem,” said Harris. They increase the incentive for ID theft by putting all taxpayers at risk with a system that only benefits a portion of the taxpayer population. Thieves don’t care if a taxpayer is due a refund or owes money; they just want the taxpayer’s information.” The solution, according to Harris, is a “Refund Lock.” “There is a large pool of returns that, due to the taxpayer’s expected...
Home Office Deduction: Which Method to Use?

Home Office Deduction: Which Method to Use?

Are you an entrepreneur using a home office? Are you aware there are two different ways to take the deduction for the use of your home for business purposes? Determining which is right for you is the topic of today’s blog. The IRS has very specific guidelines as what constitutes the use of your home for business. Regular and exclusive use – this means you can’t use your laptop on the kitchen table, but must have a specific place used only for business purposes. Generally, your home must be the principal place of business, although there are exceptions if you have a separate location. Since 2013, the IRS has had two different ways to calculate the home office deduction (originally there was just the actual expense method which is considered to be complicated). Since the simplified method has been introduced, it is much easier to determine the amount of the deduction. But which method should you use? The actual expense method allows you to write off a proportional amount of expenses based on the percentage of the home used for the business. These indirect expenses generally include rent/mortgage, real estate taxes, utilities, and repairs and insurance. You can also deduct direct expenses such as painting or buying equipment for your space. The simplified method allows a write off of $5 for every square foot of your home office up to 300 square feet for a total deduction up to $1500.00. With the actual expense method, you must keep copies of all paperwork proving actual costs to support the tax deduction taken, which is not required for the simplified method....

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