Hurricane Sandy and Employers

As you are aware, Hurricane Sandy left a path of devastation across the East Coast. The IRS has provided an interesting way to help those affected rebuild.

If you are an employer, you may offer for your employees to donate their paid-time-off (sick, vacation, etc.) to a charity working in the area, from now until January 1, 2014.

Here’s how it would work:

Employee designates how many hours of leave they’d like to donate.
That leave would be cashed out directly to the charity.
This transaction would NOT be taxable to the employee (or the employer).
One note, because this is not taxable, the donation is also not tax-deductible to the employee.

If you are an employee, ask your employer if they will participate.

Please let us know if you have any questions. If we are your payroll company, we’d be happy to help you offer this to your employees.

Ref: IRS Notice 2012-69

Planes, Boats, and Automobiles

Have you seen an ad recently asking you to give your vehicle to charity?  They seem to be everywhere, and they promise big tax benefits.

Be sure to do your homework… more paperwork is required for auto donations than other donations.  Be aware these rules apply to boats (and airplanes) as well.

Is the charity qualified?  Check the list:

http://www.irs.gov/charities/article/0,,id=96136,00.html

Do you itemize your deductions?
Typically if you are paying on a mortgage, you itemize.  High medical expenses, charitable donations, or state income taxes may also cause you to itemize.  If you do not itemize normally, your auto donation may not help you.

How much is your vehicle worth?
While the Blue Book value is a good place to start, you need to know the Fair Market Value of your vehicle.  What would a willing buyer actually pay for your vehicle, considering its current condition?  If you paid less than the current fair market value, your cost is your maximum deduction.

Is your vehicle worth more than $250?
The charity must give you a receipt.  Keep this with your tax records.

Is your vehicle worth more than $500?
If the organization sold your vehicle after donation, you may deduct the lower of the sales price or the fair market value (or your cost).  The charity is required to provide you Form 1098-C, and this form must be attached to your tax return.  If you have not received it, you may need to file an extension.

Is your vehicle worth more than $5,000?
You need an appraisal within 60 days of the donation.  You must also have a signature from the charity on Section B of Form 8283, which must be attached to your tax return.  The Form 1098-C rules above still apply.

This article is intended as an overview of a complex tax area.  Please consult your tax advisor for advice specific to your situation.

CIRCULAR 230 DISCLAIMER:  Pursuant to U.S. Treasury Department Regulations, we are required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Sources:  IRS Publications 4303 and 526

Business Tax Updates

WA B&O Tax Rate Increase

The B&O Tax Rate for Services has increased from 1.5% to 1.8%, effective May 1, 2010.  Retail and other classifications are not affected.

HIRE Act – Incentives for hiring

There are two new tax benefits for hiring new “qualified” employees.

A “qualified” employee is:
– Hired between February 3, 2010 and January 1, 2011
– Not employed in the 60 days prior to their hire date
– Not hired to replace another employee (unless that employee had quit or been fired for cause)
– Not related to you

If you have (or intend to) hire a qualified employee, have them complete Form W-11 to certify they had been unemployed.

These employees qualify you for an exemption from the 6.2% employer social security tax on their wages through the end of 2010.

If a qualified employee are retained for at least 52 weeks, you will also be eligible for a credit up to $1,000 on your annual federal tax return.

Health Care Reform

While the Health Care Reform bills are big and involved, I’m just going to highlight a couple of points.

First, employers are not required to provide health insurance coverage.  After 2013, employers with 50 or more full-time employees will be penalized if they do not provide coverage.

In 2010 through 2013, small employers (less than 25 employees with average annual wages under $50,000) will be eligible for a tax credit for up to 35% of the health insurance premiums paid.  (Note, premiums paid from employees’ salary do not count.)

Last, in 2013, individuals earning over $200,000 per year and married filing jointly couples earning over $250,000 per year will start paying an additional .9% Medicare tax and a 3.8% tax on ‘unearned’ income (interest, dividends, rents, royalties, etc.).  While these are not taxes paid by businesses, business owners may need to take these new taxes into consideration when planning.

I hope this information has been helpful.  Please remember these are brief summaries of complex tax laws and should not be relied upon as tax advice.

Changes for 2010

Things in the tax world are constantly changing. For now, here are some things to look out for in 2010:

Home-buyer credit and recapture: If you took the first time home-buyer credit for a home purchased between April 8, 2008 and December 31, 2008, the 15 year repayment period begins in 2010. There is still an $8,000 credit available for first-time home purchases through April 30, 2010. If you enter into a binding contract by April 30, you have until June 30 to close. If you have owned and lived in your home at least 5 years and buy a new home by April 30, you may qualify for a $6,500 credit. Income limitations apply. Please note, if within three years the home ceases to be your main home, the credit will need to be repaid.

Roth IRA Conversions: You can now convert your Traditional IRA to a Roth IRA regardless of your income level. If you convert in 2010, you can opt to spread the tax over two years. Roth IRAs allow for tax-free income in retirement. If you’re thinking about converting, let us know. We’ll run tax projections for you.

Income Limitations: Typically, when your income exceeds certain levels, your itemized deductions and exemptions are reduced. For 2010 only, those reductions will not apply. This is good news not only for high-income individuals, but also for anyone considering converting their IRAs to Roths.

IRA Contributions: The maximum IRA contribution remains $5,000 ($6,000 if you are over 50). If you are interested in making a contribution, please ask how it will affect your tax situation and whether Traditional or Roth contributions would be more beneficial.

Gifts: The annual gift exclusion for 2010 is $13,000. You may gift anyone up to $13,000 without tax consequence (to you or the recipient).

If you have any questions about how these or other tax law changes affect you, please contact us for a complimentary planning appointment.

Changes for 2009

Important Tax Law Changes affecting Tax Year 2009

Long-term Capital Gains: Beginning in 2008, the 5% tax rate on long-term capital gains is reduced to 0. Yes, you read that right. Zero. This special rate is available to taxpayers in the 10 or 15% tax brackets. (This is taxable income (after deductions) of $33,950 or less, $67,900 or less on Married Filing Joint returns.) This rate will continue to apply through 2010. For taxpayers in higher tax brackets, the long-term capital gain rate is still 15%.

First time home-buyer credit: If you have not owned a home in the last two years and purchased a home between April 8, 2008 and December 31, 2008, you may choose to take a new credit up to $7,500. This credit is essentially an interest free loan, which must be repaid evenly over 15 years, beginning in 2010.  If you purchased a home between January 1, 2009 and December 1, 2009, the tax credit is $8,000 and it does NOT have to be repaid.  Income limitations apply.

Charitable Donations: This was new for 2007, but it’s worth repeating. All charitable donations MUST be supported by bank records (canceled checks) or receipts from the charity. Logs to track cash donations are no longer sufficient. For non-cash contributions (clothing, household goods, etc.), items must be in “good or better” condition in order to be deductible.

IRA Contributions: The maximum IRA contribution is $5,000 ($6,000 if you are over 50). If you are interested in making a contribution, please ask how it will affect your tax situation and whether Traditional or Roth contributions would be more beneficial.

Gifts: The annual gift exclusion for 2009 is $13,000. You may gift anyone up to $13,000 without tax consequence (to you or the recipient).

If you have any questions about how these or other tax law changes affect you, please contact us for a complimentary planning appointment.

Charitable Contributions

Donating to charity has many benefits. It’s good for the charity. It gives you that warm fuzzy feeling for contributing to a cause you believe in. It also may reduce your tax liability. Read on for answers to some of the most asked questions.

Can I deduct charitable donations?
If you itemize deductions, you can deduct contributions to qualified charities. Not sure if you itemize? Usually, if you pay mortgage interest, have significant medical expenses, or have significant unreimbursed job expenses, you itemize.

What is deductible?
You can deduct contributions to a qualified charity. The charity will be able to tell you if they are qualified. In general, qualified organizations include: religious organizations, non-profit schools, hospitals, war veterans’ groups, Salvation Army, Red Cross, United Way, Goodwill, etc.

You may deduct contributions of cash as well as non-cash contributions such as stock, property, and other material items (clothing, furniture etc.). You may also deduct your out-of-pocket expenses including mileage (14 cents per mile).

You may not, however, deduct the value of your time or services. You also may not deduct contributions to groups that are run for profit, political groups (including candidates for public office), or chambers of commerce.

Can I deduct gifts to an individual?
No. However, you are able to give any individual $12,000 per year with no tax consequence. This means you are not able to deduct it, but they are not required to report it as income either. If you gift more than $12,000 per year to any one individual, you will be required to file a Gift Tax return.

Do I need to have reciepts?
Always keep track of all charitable donations (including the date, organization, and amount). If you give a donation of $250 or more, you will need a receipt from the organization. Most contributions over $5,000 require a written appraisal, so please see your tax professional if you are considering a donation of this size. Be sure to get a receipt for any amount of actual cash donated.

How do I know what my non-cash contributions are worth?
It is up to you to determine the fair market value of non-cash donations. One way to determine this is to go to a thrift store to get an idea what they will be able to sell your items for. Another way is to use software like ItsDeductible, which has thousands of prices built in. If you are contributing a motor vehicle, please consult with a tax professional.

Are there limitations?
There are limitations to the total deductible charitable contributions in one year. If you donate more than 20% of your annual income, please see your tax professional for tax planning. This usually only occurs if you are giving stock or other property. Also be aware that non-cash charitable contributions (clothing, etc) must be in good or better condition.

Please note:
This article is intended to provide general information. Please see your tax professional for information specific to your tax situation.

Changes for 2008

Long-term Capital Gains: The 5% tax rate on long-term capital gains is reduced to 0.  Yes, you read that right.  Zero.  This special rate is available to taxpayers in the 10 or 15% tax brackets.  (This is taxable income (after deductions) of $32,550 or less, $65,100 or less on Married Filing Joint returns.)  This rate will continue to apply through 2010.  For taxpayers in higher tax brackets, the long-term capital gain rate is still 15%.

Kiddie Tax: If you have kids with investment income, this one’s for you.  If a child has investment income greater than $1,800, some of their income is taxable at their parent’s tax rate.  The definition of ‘child’ for this tax was formerly ‘under 14’.  Now it applies to kids under the age of 19 and kids under the age of 24 that are full time students at least 5 months of the year.

Charitable Donations: This was new for 2007, but it’s worth repeating.  All charitable donations MUST be supported by bank records (cancelled checks) or receipts from the charity.  Logs to track cash donations are no longer sufficient.  For non-cash contributions (clothing, household goods, etc.), items must be in “good or better” condition in order to be deductible.

IRA Contributions: In 2008, the maximum IRA contribution has risen to $5,000.  If you are interested in making a contribution, please ask how it will affect your tax situation and whether Traditional or Roth contributions would be more beneficial.

If you have any questions about how these or other tax law changes affect you, please contact us for a complimentary planning appointment.

Changes for 2007

Gifts of clothing and household items: Many people periodically clear out their closets and attics, donate unwanted items to charity, and claim a deduction for the value of the items. You can continue to do this in the future—but only if the items are in “good” or better condition. This new rule applies to donations of clothing, furniture, appliances, linens and similar household items.  (This applies for donations after August 17, 2006.)

Cash gifts: As a general rule, deductions for charitable donations must be substantiated by canceled checks or receipts from the charity. However, in the past, a log or other written record sufficed when cancelled checks or receipts were not readily available. So, for example, if you dropped a $20 bill in the Sunday collection plate or in a Christmas kettle outside of a department store, you could still claim a deduction as long as you kept a record of the donation. The new law eliminates this option starting in 2007. All charitable donations must be supported by bank records or receipts from the charities.  (Effective January 1, 2007)

Donations from IRA funds: The Pension Protection Act creates a new tax break for charity-minded individuals age 70 ½ or older. Distributions of up to $100,000 from an individual retirement account are tax-free if paid over to a charity. However, this new break is temporary; it applies only to distributions made in 2006 and 2007.

Credits for energy-efficient home improvements and the purchase of hybrid vehicles were new for 2006 and continue through 2007.

If you have any questions about how these or other tax law changes affect you, please contact us.