Many people give to charities toward the end of the calendar year because they are in the giving spirit AND because they realize that they don’t have much more time to take advantage of tax deductions.

The following are some reminders about year-end giving.

• Make sure that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
• If at all possible, get a receipt from the charity when you are donating property such as clothing and household items. Ideally, the receipt should include 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.
• Charitable contributions are deductible in the year they are made. If you charge a donation to a credit card before the end of the year, but the credit card bill isn’t paid until the following year, you still get to claim the deduction for the year is which the charge was made. Also, checks count for the year they were written as long as they are mailed during that year and clear shortly thereafter.
• Only individual taxpayers who itemize their deductions on Form 1040 Schedule A may 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 2009 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
• 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.

If you have any questions about charitable donations and your taxes, contact a tax professional.

Daniel Stoica Accounting Professional

I shared this video called “May You Be Blessed” last year on Thanksgiving, and I want to share it with you again this year.  Happy Thanksgiving!

“Thanksgiving, after all, is a word of action.” ~W.J. Cameron

Daniel Stoica Accounting Professional

Did you know that there is still time take advantage of two home energy credits if you make energy-saving and green-energy home improvements this year?

Homeowners who install energy efficient improvements such as insulation, new windows and furnaces may qualify for the Nonbusiness Energy Property Credit. The credit is more limited than in the past years, but can still provide substantial tax savings.

The rate for the Nonbusiness Energy Property Credit is 10 percent of the cost of qualified energy efficiency improvements, such as energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.

The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

The Nonbusiness Energy Property Credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011. Qualifying improvements must be made and used in the taxpayer’s principal U.S. residence before January 1, 2012.

The Residential Energy Efficient Property Credit is designed to encourage homeowners to invest in alternative energy equipment.

The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.  No cap exists on the amount of credit available except for fuel cell property. Generally, labor costs are included when figuring this credit.

Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.

Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.

Daniel Stoica Accounting Professional

If you receive tips as part of your employment, you must claim all tip income that you receive.  This includes both the tips that you receive directly from a customer as well as tips that your employer pays to you when a customer makes a credit card payment.

Tip Requirements for Employees

Employees must use Form 4070, Employee’s Report of Tips to Employer, to report tip income. This report is due on the 10th day of the month after the month the tips are received. This statement must be signed by the employee and must show the following:

• Employee’s name, address, and SSN
• Employer’s name and address
• The month or period the report covers
• The total tips received

No report is required from an employee for months when tips are less than $20.

Both Forms 4070 and 4070-A, Employee’s Daily Record of Tips, are included in Publication 1244, Employee’s Daily Record of Tips and Report to Employer.

Daniel Stoica Accounting Professional

Although the upcoming holidays may be the biggest stress you’re thinking about right now, you can greatly reduce your holiday AND tax stress by getting organized and keeping good records.

Here are some tips to get you organized for tax time (and some are good tips for the holiday season as well).

Individual taxpayers should usually keep the following records that support their tax returns for at least three years:

• Bills
• Invoices
• Credit card and other receipts
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return
• Stocks and other investments
• Individual Retirement Arrangement transactions

Generally speaking, keep records relating to properties until at least three years after you sell or otherwise dispose of the property.

• A home purchase or improvement
• Rental property records

If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid.  Examples of important documents business owners should keep Include:

• Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
• Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
• Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
• Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks

Daniel Stoica Accounting Professional

Yesterday, Congress passed a portion of President Obama’s jobs plan that provides tax credits for companies who hire veterans.  Two bills, call the Wounded Warriors Tax Credit and the Returning Heroes Tax Credit, contain the following benefits:

• Give up to a $2,400 credit to companies that hire vets who have been unemployed for more than four weeks
• Give tax credits of up to $5,600 for employers hiring veterans who have been searching for work for at least six months
• Give tax credits of up to $9,600 for companies that hire disabled veterans who have job hunting for more than six months
• Give benefits to aging veterans for continued education
• Give troops the ability to apply for jobs before their military service is over

The bill will be moving on to the House of Representatives next week.  It is expected to pass without any problems.

According to the Labor Department, 12.1 percent of Iraq and Afghanistan veterans were unemployed in October, 2011.  This unemployment rate is 3 points higher than the overall national rate.

Daniel Stoica Accounting Professional

Did you know that the IRS has a YouTube channel?  It does, and the channel is here:  http://www.youtube.com/user/irsvideos

Check out this video to see how the IRS explains employers’ responsibilities to report employer-sponsored health insurance coverage on W-2s.

This particular video talks about the fact that the employer-sponsored health care benefits remain nontaxable to the recipients.  It also explains that the cost of the employer-sponsored health care may appear on 2011 W-2s and that the reporting is optional for all employers for 2011 and for small employers in 2012.  This video also refers viewers to the Affordable Care Act pages of IRS.gov for more information

You can watch this and other videos on the IRS YouTube Channel.  Several videos cover topics for small businesses, employers and employees.

Daniel Stoica Accounting Professional

College students who apply for all types of loans in order to pay for their education are often forced to apply for un-subsidized Stafford loans due to the high costs of college tuition. These types of loans are available to financially strapped students and students who have been able to prove they are unable to pay for school any other way. Interest on Stafford loans is figured from the first payment and continues until the last payment. The best part of these loans is that a student’s repayments can be put off until after graduation.

Anyone applying for a student loan must also remember that interest accumulates during deferment. Students can opt to make interest payments while in school or wait and begin making payments when they are out of school, but it’s important to remember that they may be at risk of defaulting if they are unable to find work after college. Defaulting on student loans is a lot like defaulting on taxes. If someone files for bankruptcy, student loans, like tax debt, cannot be claimed on bankruptcy filings, which means collections and wage garnishments.

When a borrower doesn’t pay for more than two months, they are considered in default. The lender will contact the borrower to remind them that payments need to be made and, in most cases, will offer deferment options. If a borrower is combative and simply refuses to pay, collection proceeding begin, which will cause wage garnishments, tax refunds taken and credit reports will reflect default. That, alone, will make it impossible to get any type of credit. The worst part, interest continues to accumulate and your loan gets bigger and bigger, making it nearly impossible to pay later on when the borrower may finally be able to being repayment.

When a borrower is in default, the lender is legally able to take 15% of any wages earned each month to repay what is owed. If the borrower holds a professional license, that, too, can be revoked. In extreme cases, the lender will take legal action against the borrower where the borrower is ordered to either begin making payments immediately, or ordered to pay the amount in full. The latter is ordered on rare occasions. This rule applies to all loans, including Stafford loans.

So, what can you do before going into default on a student loan?

Consider carefully all of your options before going into default. If you find that you are just unable to make payments, or are only able to make small payments, you should get in contact with your lenders to make arrangements for deferment or forbearance so you do not end up in default. There is nothing worse than owing money to the government, and many student loan funds come from the government.

Daniel Stoica Accounting Professional

If you have a tax debt, you may be able to settle your debt for less than the full amount that you owe. This is called an offer in compromise.  The IRS will consider your situation if you cannot pay your debt or if doing so would create a significant financial hardship.  The IRS will evaluate your ability to pay, your income, expenses and assets.

The IRS will approve an offer in compromise if you offer an amount that represents the most that they can expect to collect within a reasonable amount of time.  You must look at all payment options before you submit an offer in compromise.  Before the IRS will consider your offer, you must be current in your tax filing and payment requirements, and you will not be eligible if you are in an open bankruptcy proceeding.  In order to submit your offer to the IRS, you will need to follow instructions and fill out the forms in the Offer in Compromise Booklet (Form 656-B).

You will need to make an application fee and initial payment with your offer application.  This payment will be based on your offer and the payment option that you choose.  However, if you meet the Low Income Certification guidelines, you will not have to send an application fee or an initial payment while the IRS evaluates your offer.  The application package has all of the details.

Daniel Stoica Accounting Professional

When you owe money to the IRS and they feel that they have run out of options on collecting the money that you owe, they will deduct money from your paychecks until your debt has been paid.  The IRS uses this tax collection method (also called a wage levy) after sending multiple letters and notices that taxes are owed.  Wage garnishments can cause great hardship to those whose paychecks are being reduced by the IRS.

It is always best to work with the IRS if you are notified that you owe back taxes.  Do not ignore their notices.  Although they attempt to leave you with enough money to pay your bills, this does not always happen.  The IRS can actually garnish close to 80% of your wages until your debt has been paid.

The IRS can garnish salaries, bonuses, wages, commissions, pension earnings, retirement money and properties.  They are required to send you a final notice of their intent to garnish your wages as well as details about your right to have a hearing at least 30 days before they will begin to garnish your wages or seize property.

Of course, you can avoid a wage garnishment by filing and paying your taxes every year.  If you cannot afford to pay the IRS, you must stay in contact with them to arrange a payment agreement.  If you have questions or get into trouble with the IRS, it’s a good idea to work with a tax professional right away.  Tax professionals can help you make sense of IRS notices as well as negotiate with the IRS on your behalf.

Daniel Stoica Accounting Professional