Carol McAtee's Blog

McAtee & Associates, CPAS

As a follow-up to our last post, we think you will find this information from a recent Bloomberg article by Ben Steverman helpful….

           How to Boost Your Social Security Check by 85 Percent

For Americans, few decisions are as financially consequential, or as hard, as choosing when to take Social Security.

While you can tap retirement benefits as early as age 62, the federal government offers big financial incentives to wait. The rules are complicated, however, books have been writtenon Social Security’s intricacies. And choosing to delay activation raises some arguably existential questions: If you maximize your benefit by waiting until age 70, what are you supposed to live on in the meantime? And what if you die earlier than you expected?

Here’s some guidance, touching on a few new studies, for those looking down the barrel at their golden years.

Postponing Social Security may be even more lucrative

For every year you delay taking Social Security, the program boosts your monthly check by 7 percent. (In addition to any cost-of-living increases over those years.) By waiting until age 70, workers can get a guaranteed, inflation-adjusted income stream that’s 76 percent higher for the rest of their lives.

That figure–76 percent–is often quoted by Social Security experts. But according to a new study, it “sells short how much delayed claiming can increase Social Security income, especially among women.”

It’s more like 85 percent for older Americans who stay in the workforce, according to Matthew Rutledge and John Lindner of Boston College’s Center for Retirement Research. The extra 9 percent comes from how Social Security calculates the amount of money each retiree should get. Since the program bases benefits on a worker’s best 35 years of employment income, it penalizes those whose careers had periods of low earnings, or years when they earned nothing. Almost half of women–who often interrupt their careers to raise children– have at least one year with zero earnings among their top 35, for example.

By working longer, these workers can replace some of those low-earning years with higher-earning ones. An extra year of work would boost the average woman’s monthly benefit by 8.6 percent per year, Rutledge and Lindner calculate, rather than 7 percent. Because men tend to have longer careers than women, they get a smaller boost, of 7.8 percent for each extra year they work. Those are just averages, however, and the benefit of working longer could be much higher for workers who have had shorter or less lucrative careers.  Many more Americans seem to be taking this advice.

The improving economy helped make this possible. With the unemployment rate down from over 9 percent in early 2011 to below 5 percent today, it’s become far easier for an older American to get a job or keep a job. Indeed, more Americans are working past age 65 than at any point in the last 50 years.

Certain groups, though, should think twice about waiting

Getting the most out of Social Security comes down to a terrible, generally unanswerable question: When are you going to die? If you’re going to live to 101, delaying Social Security is pretty much a no-brainer. If you’re destined to die at 71, you might as well take the money as soon as possible.

The average U.S. life expectancy isn’t much help to retirees pondering their demise. One reason is rising inequality: Even as the well-off are living ever longer lives, the latest data show the average American’s health is getting worse.

A key variable is education, according to another study released this month by the Center for Retirement Research. Researchers Geoffrey Sanzenbacher and Jorge Ramos-Mercado calculated the best times for various demographic groups to take Social Security if they want to maximize the expected present value of their benefit stream.

“More educated workers have more incentive to delay claiming than less educated workers, and non-blacks have more incentive to do so than blacks,” they write. Black and white men without college degrees tend to get the most benefits by claiming before the full retirement age, the authors find—though they’re careful to say that their calculations shouldn’t be taken as advice.

There are usually no simple answers

There are lots of reasons why someone might want to claim later, or earlier, even if their demographic profile suggests it isn’t the ideal strategy.

“Any one of us is going to die just once,” Boston University economist Laurence Kotlikoff said in an interview. Unlike an insurance company or a government program, “we’re not going to be able to average over lots of outcomes. We have to be mindful of the worse-case scenario.”

The worst-case scenario—at least when it comes to our finances—is the expensive prospect of living to age 100 or beyond. A healthy retiree might want to insure against that risk by delaying Social Security and boosting their monthly check for the rest of their lives, even if other factors suggest they’re likelier to die by their 80s.

Adding to the confusion, there are incentives to stop working and retire earlier, thanks to taxes and government rules regarding benefit programs. In a National Bureau of Economic Research study issued this fall, Kotlikoff and three other researchers calculated how older Americans are affected by federal and state taxes, Medicare and Social Security rules, and eligibility for Medicaid, food stamps, and other benefit programs. They found many seniors face a serious disincentive to work in their 60s and 70s because much of the money they earn can end up being lost to higher taxes or reduced benefits. Social Security’s complicated earnings test is a “particularly significant” deterrent to working, they find.

But there is one clear no-brainer

In at least one situation, delaying Social Security is the obvious choice, according to another NBER paper published this month. Doing so could save high-income seniors as much as $250,000, the authors find.

The calculations apply to retirees who are planning to eventually buy an annuity, or take a defined-benefit pension instead of a lump sum from their employer. In those cases, there’s a clear “arbitrage opportunity” because delaying Social Security is an efficient way to boost benefits, the researchers state. Such retirees should live off their savings in the meantime rather than put all their assets into a private annuity.

It also may make sense to take part of a defined-benefit pension as a lump sum, and use that money to live while delaying Social Security benefits. “Employers could help employees integrate their pensions with Social Security deferral by offering annuities that provide higher payments through age 70 and lower payments thereafter,” the authors suggest.

So, you don’t know when you’re going to die, and complicated government rules muddy your options even more. However, one thing is clear enough: If you’re faced with a choice of which income stream to rely on for the rest of your life, Social Security is almost certainly the most powerful choice.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

With today’s post, we want to share….  

                   6 Costly Social Security Traps to Avoid

Hidden deep within Social Security’s Handbook and Program Operations Manual System are lots of what we call “gotchas.” Some may be familiar. Others won’t. Take a look if you want reassurance that you aren’t falling into any of the system’s traps.

If your blood pressure rises, bear in mind that the folks at Social Security aren’t to blame. They didn’t design this maddening system, which despite its many deep flaws has done enormous good over the decades for hundreds of millions of Americans. No one at Social Security is trying to get us to make the wrong decisions and end up with lower benefits than possible. But very few people at Social Security know the rules well enough to guide us to the right choices. So, as the old saying goes, forewarned is forearmed.

1. If You Take Two Benefits at Once, You Lose One of the Two

Social Security won’t pay you two different benefits at the same time. Instead it will pay you the larger of the two benefits (or something pretty close to this amount). For example, if you are married and take or are forced to take your retirement benefit when you take your spousal benefit, you’ll lose your retirement benefit if your spousal benefit is larger. Social Security won’t say it has eliminated your retirement benefit. Instead, it will claim it’s giving you your retirement benefit plus the difference or excess between the two. But, in reality, it has used the spousal benefit to wipe your retirement benefit. You can receive two different benefits, but not at the same time.

Spouses and qualified divorced spouses who were 62 before January 2, 2016, can receive two different benefits (their retirement and their spousal/divorced spousal benefits), but not at the same time. Those spouses who were widowed before taking their retirement benefit can take their widow(er) benefit before or after they take their retirement benefit. The same holds for qualified divorced widow(er)s.

2. You Can Contribute to Social Security Your Entire Working Life and Receive Nothing Whatsoever in Extra Benefits

Suppose you start working at age 16 and continue working through full retirement age (FRA). Every week, week in and week out, you and your employer pay 12.4% of every dollar you earn in Social Security payroll (FICA) taxes. Also, suppose you earn relatively little in absolute terms and also relative to your spouse. Then you may do best to wait to collect your spousal benefit starting at FRA (spousal benefits don’t increase after FRA), assuming your partner has filed for his or her retirement benefit.

At age 70, you file for your own retirement benefit, but now you get hit by Gotcha #l. And if your spousal benefit exceeds your age – 70 retirement benefit (that is, inclusive of the Delayed Retirement Credits), your total payment will continue to equal just your spousal benefit. Yes, Social Security will describe your total check as consisting of your own age – 70 retirement benefit plus your excess spousal benefit. But the sum of these two components will just equal your spousal benefit. So, you’ll get nothing in extra benefit s for all the years you contributed. Furthermore, when your spouse dies, you’ll collect a survivor benefit based on their earnings record, which will be even larger than your spousal benefit, which is larger than your own retirement benefit.

3. Suspending Your Retirement Benefits Can Cost You Big Bucks

This gotcha pertains to those whose auxiliary benefit is larger than their retirement benefit even inclusive of the maximum amount of Delayed Retirement Credits that can be accumulated. For these people, the amount by which their auxiliary benefit exceeds their retirement benefit is treated by Social Security as their excess auxiliary benefit.

Now suppose you are in this boat and you decide to suspend your retirement benefit and restart it at 70. Under the new “Bipartisan Budget Act of 2015” signed by President Obama in November, you can’t collect any excess benefit of any kind during the period your benefit is suspended. So you get nothing whatsoever until you reach 70. At 70, you restart your retirement benefit only to find that the total payment is no larger than you would have received during the suspension period had you not suspended. Yes, your retirement benefit is larger thanks to the Delayed Retirement Credits. But, given the assumption that your excess benefit at 70 is still positive, this excess benefit is lower by exactly the amount by which your retirement benefit is larger. Hence, suspending in this situation is simply a decision not to take benefits for the period of suspension. It does nothing to raise your total benefit payment.

In other words, you would have suspended for nothing, losing potentially thousands of dollars in lifetime benefits. If you realize you made a mistake in suspending your retirement benefit (and seeing no change in your monthly payment is the clincher), you may be able to undo the mistake and recover all your suspended payments. But, it appears, only if you suspended before April 30, 2016.

4. If You are Forced to Take Your Retirement Benefit at the Same Time as Your Spousal or Divorcee Spousal Benefit, Your Retirement Benefit Will Generally Wipe Out Your Spousal or Divorced Spousal Benefit

The formula that takes your Average Indexed Monthly Earnings and turns it into your Primary Insurance Amount (PIA)—your full retirement benefit—is highly progressive. Benefits paid to lower paid workers are a much higher percentage of their pre-retirement incomes than is the case for highly paid workers. Consequently, even if you’ve earned relatively low covered wages during your working years, taking your retirement benefit will likely mean never receiving a spousal benefit because 1)taking your retirement benefit keeps you from ever taking another benefit by itself and 2) spousal benefits are at best only half of your spouse’s PIA, so your retirement benefit will likely exceed your spousal or divorced spousal benefit and, therefore, wipe it out. 

Stated differently, excess spousal benefits or divorced spousal benefits are generally zero or very small if we’re talking about two spouses or two ex-spouses who earned even modest levels of wages.

5. Being Deemed Before Age 70 Leads to Permanently Reduced Retirement Benefits

Apart from those grandfathered against post-FRA deeming, being deemed whether before or after FRA, but before age 70, forces you to take your retirement benefit earlier than 70, which means your retirement benefit will permanently fall below its value were you to start it at age 70. Furthermore, if your excess spousal benefit is zero, you’ll receive only your reduced retirement benefit.

Yes, you can undo some of the damage by suspending your retirement benefit at FRA and starting it up again at 70 at a 32% higher real (after inflation) level. But this 32% kicker coming from the Delayed Retirement Credit will be applied to your reduced retirement benefit, not to your full retirement benefit. So once this gotcha gets you, you are gotten for life.

6. You Need To Get It in Writing

It’s one thing to ask Social Security for a benefit to which you are eligible and to start receiving it when you want. It’s another thing to actually get what you asked for when you ask for it. If you don’t specify in writing on your benefit application form in the Remarks section exactly what benefits you are filing for and which benefits you aren’t filing for and precisely when you want to receive the benefits for which you are applying, you won’t have any legal proof to appeal a mistake by Social Security if it makes one. It’s very hard to write anything on an application form over the phone. You can file over the phone for some but not all benefits, and Social Security will send you a copy of your application perhaps with the Remarks section properly filled in based on your dictation. The safest way, though, would be to visit your local office and make sure your wishes are properly noted by the claims rep in the Remarks section and make sure you leave with a dated (in effect, time-stamped) copy of your application.

Excerpted from Get What’s Yours–Revised And Updated (Simon & Schuster,  2016)
by Laurence J.Kotlikoff, Philip Moeller and Paul Solman.

 

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

As a follow-up to our last post, The Home-Based Business: Basics to Consider, we suggest you use today’s post to assist you in determining if you may qualify for a home office deduction for your home-based business; or, if you are an employee, for a business office for the benefit of your employer…

         Do You Qualify for the Home Office Deduction?

If you use part of your home for business, you may be able to deduct expenses for the business use of your home, provided you meet certain IRS requirements.

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

• as your principal place of business, or
• as a place to meet or deal with patients, clients or customers in the normal course of your business, or
• in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

If you’re not sure whether you qualify for the home office deduction, please contact us. Help is only a phone call away.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

With the tremendous growth in home-based businesses, this is a timely topic to review in this week’s blog. . .

     The Home-Based Business: Basics to Consider

More than 52 percent of businesses today are home-based. Every day, people are striking out and achieving economic and creative independence by turning their skills into dollars. Garages, basements, and attics are being transformed into the corporate headquarters of the newest entrepreneurs–home-based businesspeople.

And, with technological advances in smartphones, tablets, and iPads as well as rising demand for “service-oriented” businesses, the opportunities seem to be endless.

Is a Home-Based Business Right for You?

Choosing a home business is like choosing a spouse or partner: Think carefully before starting the business. Instead of plunging right in, take the time to learn as much about the market for any product or service as you can. Before you invest any time, effort, or money take a few moments to answer the following questions:

• Can you describe in detail the business you plan on establishing?
• What will be your product or service?
• Is there a demand for your product or service?
• Can you identify the target market for your product or service?
• Do you have the talent and expertise needed to compete successfully?

Before you dive head first into a home-based business, it’s essential that you know why you are doing it and how you will do it. To succeed, your business must be based on something greater than a desire to be your own boss, and involves an honest assessment of your own personality, an understanding of what’s involved, and a lot of hard work. You have to be willing to plan ahead and make improvements and adjustments along the way.

While there are no “best” or “right” reasons for starting a home-based business, it is vital to have a very clear idea of what you are getting into and why. Ask yourself these questions:

• Are you a self-starter?
• Can you stick to business if you’re working at home?
• Do you have the necessary self-discipline to maintain schedules?
• Can you deal with the isolation of working from home?

Working under the same roof that your family lives under may not prove to be as easy as it seems. It is important that you work in a professional environment. If at all possible, you should set up a separate office in your home. You must consider whether your home has space for a business and whether you can successfully run the business from your home. If so, you may qualify for a tax break called the home office deduction.  Please contact us for details on this potential tax deduction.

Compliance with Laws and Regulations

A home-based business is subject to many of the same laws and regulations affecting other businesses, and you will be responsible for complying with them. There are some general areas to watch out for, but be sure to consult an attorney and your state department of labor to find out which laws and regulations will affect your business.

Zoning

Be aware of your city’s zoning regulations. If your business operates in violation of them, you could be fined or closed down.

Restrictions on Certain Goods

Certain products may not be produced in the home. Most states outlaw home production of fireworks, drugs, poisons, sanitary or medical products, and toys. Some states also prohibit home-based businesses from making food, drink, or clothing.

Registration and Accounting Requirements

You may need the following:

• Work certificate or a license from the state (your business’s name may also need to be registered with the state)
• Sales tax number
• Separate business telephone
• Separate business bank account

If your business has employees, you are responsible for withholding income, social security, and Medicare taxes, as well as complying with minimum wage and employee health and safety laws.

Planning Techniques

Money fuels all businesses. With a little planning, you’ll find that you can avoid most financial difficulties. When drawing up a financial plan, don’t worry about using estimates. The process of thinking through these questions helps develop your business skills and leads to solid financial planning.

Estimating Start-Up Costs

To estimate your start-up costs include all initial expenses such as fees, licenses, permits, telephone deposit, tools, office equipment and promotional expenses.

In addition, business experts say you should not expect a profit for the first eight to ten months, so be sure to give yourself enough of a cushion if you need it.

Projecting Operating Expenses

Include salaries, utilities, office supplies, loan payments, taxes, legal services and insurance premiums, and don’t forget to include your normal living expenses. Your business must not only meet its own needs but make sure it meets yours as well.

Projecting Income

It is essential that you know how to estimate your sales on a daily and monthly basis. From the sales estimates, you can develop projected income statements, break-even points, and cash-flow statements. Use your marketing research to estimate initial sales volume.

Determining Cash Flow

Working capital–not profits–pays your bills. Even though your assets may look great on the balance sheet, if your cash is tied up in receivables or equipment, your business is technically insolvent. In other words, you’re broke.

Make a list of all anticipated expenses and projected income for each week and month. If you see a cash-flow crisis developing, cut back on everything but the necessities.

If a home-based business is in your future, a tax professional can help. Don’t hesitate to give us a call for assistance setting up your business and making sure you have the proper documentation in place to satisfy the IRS.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAS

McAtee & Associates, CPAS

This week, we want to share with you a quick look at what nonprofits need to know about tax compliance…

Tax Compliance Issues for Nonprofit Organizations

Whether you’ve just started a nonprofit, recently submitted your organization’s first Form 990, or are the executive director, it’s important not to lose sight of your obligations under federal and state tax laws. From annual filing and reporting requirements to taxes on business income and payroll compliance, here’s a quick look at what nonprofits need to know about tax compliance.

Annual Filing and Reporting Requirements: Form 990

Once you’ve applied for and received tax-exempt status under Section 501(c)(3) and filed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and received your exemption letter from the IRS, your organization is officially a nonprofit, and is exempt from federal income tax under section 501(c)(3). Tax exempt status refers to exemption from federal income tax on income related to the organization’s mission, as well as the ability to receive tax-deductible contributions from donors.

The next step is to comply with annual filing and reporting requirements, specifically, Form 990, Return of Organization Exempt from Income Tax.

Generally, tax-exempt organizations are required to file annual returns. If an organization does not file a required return or files late, the IRS may assess penalties. In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status.

Note: Certain organizations such as churches (including church-affiliated organizations and schools operated by a religious order) as well as organizations affiliated with a governmental unit are not required to file Form 990. Refer to your IRS exemption letter if you’re not sure.

There are four different Forms 990; which form an organization must file generally depends on its gross receipts. Forms 990-EZ or 990 are used for organizations with gross receipts of less than $200,000 and with total assets of less than $500,000. Form 990 is used for nonprofits with gross receipts greater than or equal to $200,000 or total assets greater than or equal to $500,000.

When gross receipts are less than or equal to $50,000, certain small organizations may file an annual electronic notice, the Form 990-N (e-Postcard); however, organizations eligible to file the e-Postcard may choose to file a full return. Private foundations file Form 990-PF regardless of financial status.

Form 990 is submitted to the IRS five and a half months after the end of an organization’s calendar year. For example, for nonprofits whose calendar year ends on December 31st, the initial return due date for Form 990 is May 15. If a due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.

Extended due dates of three and six months are available for Forms 990; however, for Form 990-N the due date is the “initial return due date,” e.g. May 15 and extended due dates do not apply.

NOTE: Unlike individual tax returns filed with the IRS, which may be postmarked on April 15, Forms 990 must be received (not postmarked) by the IRS before the May 15 due date.

Unrelated Business Income Taxes (UBIT)

Unrelated business income is defined as income from a trade or business which is regularly carried on and is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption.

While it may come as a surprise to some, nearly all tax-exempt organizations are required to pay taxes on unrelated business income, which might include proceeds from an annual holiday card sale or souvenirs related to an educational exhibit in support of the nonprofit’s mission.

If the IRS determines that a nonprofit is significantly underreporting income from unrelated business activities, it may lose its tax-exempt status.

Employment and Payroll Compliance

Similar to for-profit companies, nonprofit organizations must comply with both federal and state payroll reporting requirements. Federal tax withholding, social security taxes, and Medicare taxes must be deposited through the Electronic Federal Tax Payment System (“EFTPS”), and the organization must file Form 941 on a quarterly basis. Nonprofits are also required to report reimbursements to employees for out-of-pocket expenses; however, nonprofits that create an accountable reimbursement plan or ARP that meets IRS guidelines are able to avoid these reporting requirements.

State Tax Compliance

Most nonprofit organizations incorporate before applying to the IRS for tax exempt status. As such, they must comply with state laws such as annual or periodic registrations. Each state has different laws, but in general, nonprofit organizations must update basic contact information including mailing address, names of responsible parties, and registered agents. Some states require that charitable organizations apply for sales/use or property tax exemptions as well.

Further, charitable organizations that solicit donations in a particular state are subject to state solicitation laws that require the nonprofit to register with the state(s) and to report on the nonprofit’s fundraising activities. For nonprofits that solicit donations from residents in more than one state, compliance is often challenging. Organizations that fail to register are subject to hefty penalties.

Stay Informed

These are just a few of the tax-compliance issues facing nonprofit organizations. If you have any questions, would like more information, or need help setting up an accountable reimbursement plan that meets IRS requirements, please give us a call.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

McAtee & Associates, CPAs

As a follow-up to last week’s post, this week we want to share more tax planning tips with you…….

                 Six Facts About Charitable Donations

If you give money or goods to a charity in 2016, you may be able to claim a deduction on your federal tax return. Here are six important facts you should know about charitable donations.

1. Qualified Charities. You must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. An exception to this rule is contributions under the Slain Officer Family Support Act of 2015. To check the status of a charity, use the IRS Select Check tool found on IRS.gov.

2. Itemize Deductions. 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, you may have to reduce your deduction. 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.

4. Type of Donation. If you give property instead of cash, your deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market. If you donate used clothing and household items, they generally must be in good condition, or better, to be deductible. Special rules apply to cars, boats and other types of property donations.

5. Form to File and Records to Keep. You must file Form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year.  The type of records you must keep depends on the amount and type of your donation. To learn more about what records to keep, please call our office for assistance.

6. Donations of $250 or More. If you 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 you received any goods or services in exchange for the gift.

Once again, please call our office with questions about and assistance with properly filing your return to claim deductions for your charitable donations. We’re here to help.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.