Carol McAtee's Blog

Carol McAtee & Associates, CPAs

. . . . .continued from last week’s post,

Never too Early to Start Thinking About Filing the Next Tax Return

It’s Time for You to Begin Discussing Your Tax and Financial Issues with Your Spouse

My years in practice have allowed me to witness certain family roles and responsibilities between spouses. In many cases I find that only one of the spouses has an understanding of the tax and financial issues. With the hectic busy lives that we live, it is difficult to grasp much of what is going on in our lives on a daily basis when it comes to money. The financial environment has changed dramatically. Payroll checks are directly deposited into a bank account; mortgage payments, car payments, utility bills, etc. are paid via electronic fund transfers. Food, clothing, gasoline, travel and entertainment are paid with credit cards and the credit cards are paid automatically out of the checking account on the due date each month whether it is a stated monthly amount or paid in full.

We have become a cashless society and when we do have cash we get it from an ATM and take it out in the form of $20 bills which disappear like raindrops. Many people do not reconcile their bank accounts and as a result they are not taking that important time to periodically review their financial lives and discuss that life with their spouse. Some individuals are frightened by financial and tax issues because they have never been taught about the importance of them or because they feel it is out of their realm of comprehension. Even worse, some individuals live in total denial of their financial responsibilities and the underlying consequences.

The reason I bring this up is that there are always life changes which will impact the need to know about your financial life. I have dealt with clients whose life was changed in a heartbeat because of the death, illness or divorce of a spouse and they had little or no idea about the money issues that they now needed to face. Some of them had not written a check in years, had no idea how much debt existed, did not know what assets they owned and how much money was in bank. Clients who are faced with the illness of a spouse also need to be aware of the finances, because now they also need to understand the health insurance coverage that is available, the deductibles that they must absorb, the amount of the co-pays, restrictions, etc. of the policy.

Many times the spouse who is “in-charge” of the finances is handicapping themselves, their spouse and their family when they do not take the time to get everything organized. Nothing is promised to anyone and everything is temporary and when a life change takes place you want to be ready for it the best you can. In order to get ready start with a 3 ring binder and fill it with the following information:

• List the names of your lawyer, accountant, financial planner, stockbroker, insurance agent and every other important outside party with whom you have financial ties. Make sure to include their contact data such as address, phone numbers, e-mail addresses, etc.

• Insert a copy of your will, living trust, insurance policies, including life, health, disability, umbrella policies, auto, homeowners, etc.

• List all assets including bank accounts, brokerage accounts, ownership in any business, IRAs, pensions, social security benefit statements, homes, cars, boats, land, collectibles, etc. Include college savings plans that you have established for children, grandchildren, etc. If there are assets which are not in joint ownership you need to determine if there is a need to have the assets transferred to a joint account. You may even have to determine if jointly owned assets should be separated.

• List all debts including mortgages, lines of credit, credit cards, auto loans, school loans, business debts, etc. Make sure you list how these debts are paid and the dates they are due for payment as well as a priority list as to which debts should be paid before others in case of liquidity shortages.

• In some situations spouses may be planning on having the financial affairs turned over to a 3rd party such as a trusted individual who is skilled in financial issues, such as an adult child, other family member, close friend or a professional who is hired to take over the finances. In any case, the spouse should be made aware of the plan so that they are in the loop and know who to contact and who will be taking responsibility for their financial life. Informing the spouse about the skills and capabilities of these individuals or institutions is important.

If you would like to discuss these types of financial and tax issues, contact me soon so that you can feel confident that the stress to you and your loved ones is reduced.

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.

Carol McAtee & Associates, CPAs

Never too Early to Start Thinking About Filing the Next Tax Return

We are now in the last quarter of 2015, and most of us have filed our 2014 tax return, or will be doing so by October 15th. And, now is really the time to begin getting ready for the next return.

Proper planning is important and positioning yourself to pay the smallest possible tax is an ongoing process. If you owed money on your 2014 return, then we should be discussing what caused the shortage. If your withholding wasn’t sufficient on your salary, IRA, pension or social security distributions, then we should get together to structure how the shortage can be eliminated or minimized for 2015.

Because our U.S. tax system is based on a marginal bracket structure and dependent on filing status, the last dollars included in your gross income can be taxed at a much higher rate than your effective tax rate. When you have federal income tax withheld, the amount is based on the number of exemptions you provided to your employer when you filled out your W-4 form or the dollar amount or percentage of the distribution submitted to the IRA or pension plan administrator. Maybe the number of exemptions that you claimed was too many. The more exemptions you claim on Form W-4 lessens the federal tax withheld which gives you a smaller tax credit against the total tax liability. The other item to keep in mind is that your withholding with your employer assumes that this is the only source of income that you have for tax filing purposes. In addition, when both spouses have W-2 income, the other employer’s withholding isn’t designed to take that into account. If you have other sources includible in your gross income such as interest, dividends, capital gains, gambling winnings, prize winnings, rental income, self-employment income, etc., then you could be underpaid when it comes time to file your 2015 tax return in April 2016. If you are receiving IRA distributions, pension distributions and/or social security benefits and do not have any federal income tax withheld or have less than your marginal bracket withheld, then you may be cutting a check when you file that return and that check could include a penalty for the underpayment of estimated taxes.

In order to avoid the payment of a penalty for under withholding, the law requires that taxpayers pay in a minimum amount of tax in the form of withholding and/or estimated payments by January 15 of the year following the close of the tax year. For the 2015 tax year this is January 15, 2016. The rule provides that in order for the taxpayer to avoid any penalty they must pay in the lesser of 100% of the prior year tax (2014 tax) or 90% of the current year tax (2015 tax).

As an example, if your total tax liability in 2014 was $10,000, then you must have $10,000 paid in via withholding and/or quarterly estimated payments. If your 2015 tax is going to be $12,000, then your estimated amount would be $11,800 (90% – $12,000). As a result, you would only be required to pay $10,000 by January 15, 2016, but you are writing a check on April 15, 2016 for the $2,000 balance. If your 2015 tax is $9,000, then you would only be required to pay only $8,100 in the form of withholding and/or estimated taxes by January 15, 2016, and then still write a check for $900 on April 15, 2016. Even if you are not subject to the penalty, you want to know how much you are short prior to the end of the year so that you can be ready to pay the balance when you file your return.

In order to do better planning on withholding and estimated payments and avoid penalty, call me today to set up an appointment to discuss this and other important issues.

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.

Carol McAtee & Associates, CPAS                                      

                                                 PREPARE FOR A DISASTER

As we go through the summer season, which includes hurricane season and increased risk for forest fires, tornados and other anomalies of nature, it is wise to make a plan to keep your records secure and accessible, whether you use a cloud based backup system or take advantage of the cloud based software programs such as QuickBooks Online, Drake Online Tax Software, or storage options such as DropBox or eFileCabinet. The IRS does not require that you keep a paper copy of your receipts and documents – an electronic copy is allowable – so use the scanning and online storage programs to maintain your document retention.

The following tips from the IRS can help you with establishing a document retention plan that will safeguard your books and records and/or help with recovery from disaster:

Use Electronic Records: You may have access to bank and other financial statements online. If so, your statements are already securely stored there. You can also keep an additional set of records electronically. One way is to scan tax records and insurance policies onto an electronic format. You may want to download important records to an external hard drive, USB flash drive or burn them onto CD or DVD. Be sure you keep duplicates of your records in a safe place. For example store them in a waterproof container away from the originals. If a disaster strikes your home, it may also affect a wide area. If that happens you may not be able to retrieve the records that are stored in that area.

Document Valuables: Take photos or videos of the contents of your home or business. These visual records can help you prove the value of your lost items. They may help with insurance claims or casualty loss deductions on your tax return. You should also store these in a safe place. For example, you might store them with a friend or relative who lives out of the area. DropBox and Facebook both provide a source for maintaining photos and videos.

Continuity of Operations Planning for Businesses: How quickly your company can get back to business after a disaster often depends on emergency planning done today. Start planning now to improve the likelihood that your company will survive and recover. Review your emergency plans annually. Just as your business changes over time, so do your preparedness needs. When you hire new employees or when there are changes in how your company functions, you should update your plans and inform your people.
There are real benefits to being prepared for disasters. The following preparedness strategies are common to all disasters. You plan only once, and are able to apply your plan to all types of hazards.

• Get informed about hazards and emergencies and learn what to do for specific hazards.

• Develop an emergency plan.

• Learn where to seek shelter from all types of hazards.

• Back up your computer data systems regularly.

•  Decide how you will communicate with employees, customers and others.

• Use cell phones, walkie-talkies, or other devices that do not rely on electricity as a backup to your telecommunications system.

• Collect and assemble a disaster supplies kit. Include a portable generator.

• Identify the community warning systems and evacuation routes.

• Include required information from community and school plans.

• Practice and maintain your plan.

Update Emergency Plans: Emergency plans should be reviewed annually. Personal and business situations change over time and so do preparedness needs. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio (this is the most accurate, reliable source of information – do not rely on the commercial media), keep a supply of fresh batteries handy in their original container. These can be for both your communications needs and for flashlights. Make sure you know what you should do if threatening weather approaches.

The IRS has disaster loss workbooks for individuals (Publication 584, Casualty, Disaster, and Theft Loss Workbook) and businesses (Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook) that can help you compile a room-by-room list of your belongings or business equipment. This will help you recall and prove the market value of items for insurance and casualty loss claims.

One option is to photograph or videotape the contents of your home and/or business, especially items of greater value. You should store the photos with a friend or family member who lives away from the geographic area at risk. You can also contact friends and family who have been in your home and may have photographed holidays and celebrations.
These photos may also contain items in your home that you may have forgotten about.

Reconstructing Your Records: Reconstructing your records after a disaster may be essential for tax purposes, getting federal assistance or insurance reimbursement. Records that you need to prove your loss may have been damaged or destroyed in a casualty. While it may not be easy, reconstructing your records may be essential for:

• Tax purposes – You may need to reconstruct your records to prove you have a casualty loss and the amount of the loss. To compute your casualty loss, you need to determine: 1) the decrease in value of the property as a result of the casualty and 2) the adjusted basis of the property (usually the cost of the property and improvements). You may deduct the smaller of these two amounts, minus insurance or other reimbursement. See Publication 547 for further information on figuring your casualty loss deduction.If you repair damage caused by the casualty or spend money for cleaning up, keep the repair bills and any other records of what was done and how much it cost. You cannot deduct these costs, but you can use them as a measure of the decrease in fair market value caused by the casualty if the repairs are actually made, are not excessive, are necessary to bring the property back to its condition before the casualty, take care of the damage only, and do not cause the property to be worth more than before the casualty.

• Insurance reimbursement: Accurate reporting with the insurance carrier will facilitate the full payment of your claim for all losses incurred.

• Federal Emergency Management Agency (FEMA) and Small Business Administration aid – The more accurately you estimate your loss, the more loan and grant money there may be available to you.

The following tips may help to reconstruct your records to prove loss of personal-use or business property:

Personal Residence/Real Property

• Be sure to take photographs as quickly as possible after the casualty to establish the extent of the damage.

• Contact the title company, escrow company or bank that handled the purchase to obtain copies of escrow papers. Your real estate broker may also be able to help.

• Use the current property tax statement for land vs. building ratios, if available; if not available, get copies from the county assessor’s office.

• Check with appraisal companies to locate a library of old multiple listing books. These can be used for “comps” to establish a basis or fair market value. “Comps” are comparable sales within the same neighborhood.

• Check with your mortgage company for copies of any appraisals or other information they may have about cost or fair market value.

• Tax records – Immediately after the casualty, file Form 4506, Request for Copy of Tax Return, to request copies of the previous four years of income tax returns. To obtain copies of the previous four years of transcripts you may file a Form 4506-T, Request for Transcripts of a Tax Return. Write the appropriate disaster designation, such as “HURRICANE KATRINA,” in red letters across the top of the forms to expedite processing and to waive the normal user fee.

• Insurance Policy – Most policies list the value of the building to establish a base figure for replacement value insurance. If you are unsure how to reach your insurance company, check with your state insurance department at http://www.naic.org/state_web_map.htm.

• Improvements – Call the contractor(s) to see if records are available. If possible get statements from the contractors verifying their work and cost.Get written accounts from friends and relatives who saw your house before and after any improvements. See if any of them have photos taken at get-togethers.If a home improvement loan was obtained, obtain paperwork from the institution issuing the loan. The amount of the loan may help establish the cost of the improvements.

• Inherited Property – Check court records for probate values. If a trust or estate existed, contact the attorney who handled the estate or trust.

• No other records are available – Check at the county assessor’s office for old records about the property.  Look for assessed valued and ask for the percentage of assessment to value at the time of purchase. This is a rough guess, but better than no records at all.

Vehicles

Kelley’s Blue Book, NADA and Edmunds are available on-line and at most libraries. They are good sources for the current fair market value of most vehicles on the road.

• Call the dealer and ask for a copy of the contract. If not available, give the dealer all the facts and details and ask for a comparable price figure.

• Use newspaper ads for the period in which the vehicle was purchased to determine cost basis. Use ads for the period when it was destroyed for fair market value. Be sure to keep copies of the ads.

• If you’re still making payments, check with your lien holder.

Personal Property

The number and types of personal property may make it difficult to reconstruct records. One of the best methods is to draw pictures of each room. Draw a floor plan showing where each piece of furniture was placed. Then show pictures of the room looking toward any shelves or tables. These do not have to be professionally drawn, just functional. Take time to draw shelves with memorabilia on them. Do the same with kitchens and bedrooms. Reconstruct what was there, especially furniture that would have held items — drawers, dressers, shelves. Be sure to include garages, attics and basements.

• Get old catalogs. These catalogs are a great way to establish cost basis and fair market value. Online catalogues change frequently and may not have the historical values. Many of the online retail stores still produce written catalogs that are mailed on a regular basis.

• Check the prices on similar items in your local thrift stores to establish fair market value. EBay or Craig’s List may also provide a resource to check pricing. Walk through the stores and look at comparable items, especially items such as kitchen gadgets. Look for odds and ends you may have had but forgotten because of infrequent use.

• Use your local “advertiser” as a source for fair market value. Keep copies of the issues handy and copy pages used for specific items to put with your tax records file on the disaster.

• Check local newspaper want ads for similar items. Again keep a copy of any you use for comparison with the tax file.

• If you bought items using a credit card, contact your credit card company.

• Check with your local library for back issues of newspapers. Most libraries keep old issues on microfilm. The sale sections of these back issues may help establish original costs on items such as appliances.

• Go to a used bookstore with a tape measure and the diagram of the destroyed property. Measure severalrows of used books and count the number of books per shelf. Add up the prices of those books and determine anaverage cost per shelf. Then count the number of shelves you had in your home and multiply by the average cost per shelf. This will help determine the value of your books before the loss.

Business Records

• Inventories – Get copies of invoices from suppliers. Whenever possible, the invoices should date back at least one calendar year.

• Accounts Receivables – one of the key components to getting your business up and running. An effective backup system of your customer records is critical to collecting outstanding monies. Your vendors will always contact you for payment, but your customers may not be so forthcoming.

• Income – Get copies of bank statements. The deposits should closely reflect what the sales were for any given time period. ° Obtain copies of last year’s federal, state and local tax returns including sales tax reports, payroll tax returns and business licenses (from city or county). These will reflect gross sales for a given time period.

• Furniture and fixtures – Sketch an outline of the inside and outside of the business location. Then start to fill in the details of the sketches. (Inside the building — what equipment was where; if a store, where were the products/inventory located. Outside the building — shrubs, parking, signs, awnings, etc.)If you purchased an existing business, go back to the broker for a copy of the purchase agreement. This should detail what was acquired.If the building was constructed for you, contact the contractor for building plans or the county/city planning commissions for copies of any plans.

The IRS has several resources available to help you plan for a disaster or information for disaster assistance:

• Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property)

• Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook

• Publication 547, Casualties, Disasters, and Thefts

• Publication 583, Starting a Business and Keeping Records

While there are a multitude of online services available to help with your document retention and retrieval, there are still circumstances that may require physical retention of important or irreplaceable documents. If your physical surroundings do not allow for a secure safe installation then invest in a safe deposit box. A disaster from natural
causes, fire, or other unforeseen circumstance may level the physical building but it does not have to dismantle your personal or business records. With a little planning and foresight most businesses can be up and running within a short period of time.

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.

Carol McAtee & Associates, CPAS

Which Moving Expenses are Deductible?

If you move due to a change in your job or business location or because you start a new job or business, you may be able to deduct your reasonable moving expenses.

Additionally, if you meet the requirements of the tax law for the deduction of moving expenses, you can deduct allowable expenses for a move to the area of a new main job location within the United States or its possessions. Your move may be from one United States location to another or from a foreign country to the United States.

Note: The rules applicable to moving within or to the United States are different from the rules that apply to moves outside the United States. These rules are discussed separately.

To qualify for the moving expense deduction, you must satisfy three requirements.

Under the first requirement, your move must closely relate to the start of work. Generally, you can consider moving expenses within one year of the date you first report to work at a new job location. Additional rules apply to this requirement. Please contact us if you need assistance understanding this requirement.

The second requirement is the “distance test”; your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. For example, if your old main job location was 12 miles from your former home, your new main job location must be at least 62 miles from that former home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.

The third requirement is the “time test.” If you are an employee, you must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in the general area of your new job location.

If you are self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months immediately following your arrival in the general area of your new work location.

There are exceptions to the time test in case of death, disability and involuntary separation, among other things.

If your income tax return is due before you have satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test.

Note: If you are a member of the armed forces and your move was due to a military order and permanent change of station, you do not have to satisfy the “distance or time tests”.

What Are “Reasonable” Expenses?

You can deduct only those expenses that are reasonable under the circumstances of your move. For example, the cost of traveling from your former home to your new one should be by the shortest, most direct route available by conventional transportation. If during your trip to your new home, you make side trips for sight-seeing, the additional expenses for your side trips are not deductible as moving expenses. And, you cannot deduct your travel meal costs.

You can deduct the cost of packing, crating and transporting your household goods and personal property, and you may be able to include the cost of storing and insuring these items while in transit. You may also deduct costs of connecting or disconnecting utilities.

Tip: You can include the cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day your things are moved from your former home and before they are delivered to your new home.

Tip: You can deduct the cost of shipping your car and your pets to your new home.

Nondeductible expenses. You cannot deduct as moving expenses any part of the purchase price of your new home, the costs of buying or selling a home, or the cost of entering into or breaking a lease. Don’t hesitate to call us if you have any questions about which expenses are deductible.

Reimbursed expenses. If, at a later date, your employer reimburses you for the costs of a move for which you took a deduction, you may have to include the reimbursement as income on your tax return. Report any taxable amount on your tax return in the year you get the payment.

Travel Expenses – How to Calculate the Deduction

If you use your car to take yourself, members of your household, or your personal effects to your new home, you can figure your expenses by deducting either:

1. Your actual expenses, such as gas and oil for your car, if you keep an accurate record of each expense, or
2. The standard mileage rate is 23 cents per mile for miles driven during 2015.

Tip: If you choose the standard mileage rate you can deduct parking fees and tolls you pay in moving. You cannot deduct any general repairs, general maintenance, insurance, or depreciation for your car.

You can deduct the cost of transportation and lodging for yourself and members of your household while traveling from your former home to your new home. This includes expenses for the day you arrive. You can include any lodging expenses you had in the area of your former home within one day after you could not live in your former home because your furniture had been moved. You can deduct expenses for only one trip to your new home for yourself and members of your household; however, all of you do not have to travel together.

Member of Your Household

You can deduct moving expenses you pay for yourself and members of your household. A member of your household is anyone who has both your former and new home as his or her home. It does not include a tenant or employee, unless you can claim that person as a dependent.

Reporting Address Changes

When you move, be sure to update your address with the U.S. Post Office as well as the IRS. Use Form 8822, Change of address, when notifying the IRS of an address change.

In addition, if you purchased health insurance coverage from the Health Insurance Marketplace, you may receive advance payment of the premium tax credit in 2014. It is important that you report changes in circumstances, such as when you move to a new address, to your Marketplace.

Questions?

If you’re still not sure whether your moving expenses are deductible, please give us a call. 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.

Carol McAtee & Associates, CPAS

Good Records Key to Claiming Gifts to Charity

Keeping good records is key to qualifying for the full charitable contribution deduction allowed by law. In particular, this includes ensuring that they have received required statements for two contribution categories–each gift of at least $250 and donations of vehicles. Therefore, taxpayers planning to claim charitable donations should make sure they have the records they need before filing their 2014 tax returns.

First, to claim a charitable contribution deduction, donors must get a written acknowledgment from the charity for all contributions of $250 or more. This includes gifts of both cash and property. For donations of property, the acknowledgment must include, among other things, a description of the items contributed.

In addition, the law requires that taxpayers have all acknowledgements in hand before filing their tax return. These acknowledgments are not filed with the return but must be retained by the taxpayer along with other tax records.

Second, special reporting requirements generally apply to vehicle donations, and taxpayers wishing to claim these donations must attach any required documents to their tax return. The deduction for a car, 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.

Only donations to eligible organizations are tax-deductible so taxpayers must also be sure that any charity they are giving to is a qualified organization. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible even if they are not listed in the tool’s database.

Only taxpayers who itemize their deductions on Form 1040 Schedule A can claim gifts to charity. Thus, taxpayers who choose the standard deduction cannot deduct their charitable contributions. This includes 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 2014 Form 1040, Schedule A to determine whether itemizing is better than claiming the standard deduction.

Besides Schedule A, taxpayers who give property to charity usually must attach a special form for reporting these noncash contributions. If the amount of the deduction for all noncash contributions is over $500, a properly completed Form 8283 is required.

Additionally, there are special rules that apply to charitable contributions of used clothing and household items, monetary donations, and year-end gifts. These include:

Rules for Charitable Contributions of Clothing and Household Items

• This includes furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. 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.

Guidelines for Monetary Donations

• A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of the amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union 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.

Year-End Gifts

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn’t paid until 2015. Also, checks count for 2014 as long as they were mailed in 2014.

And, here’s some more valuable information on getting the best tax benefit from your charitable giving . . .

Tips on Travel While Giving to Charity

Do you plan to donate your services to charity this year? Will you travel as part of the service? If so, some travel expenses may help lower your taxes when you file your tax return next year. Here are five tax tips you should know if you travel while giving your services to charity.

1. You can’t deduct the value of your services that you give to charity, but you may be able to deduct some out-of-pocket costs that you pay to give your services–including the cost of travel. Out-of pocket costs must be:

• unreimbursed,
• directly connected with the services,
• expenses you had only because of the services you gave, and
• not personal, living or family expenses.

2. Your volunteer work must be for a qualified charity. Most groups other than churches and governments must apply to the IRS to become qualified. Ask the group about its IRS status before you donate. You can also ask us to check the group’s status. We are happy to do so.

3. Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or a vacation.

4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

5. Deductible travel expenses may include:

• air, rail and bus transportation,
• car expenses,
• lodging costs,
• the cost of meals, and
• taxi or other transportation costs between the airport or station and your hotel.

Please contact us if you have any questions regarding tax deductions for charitable services.

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.

Carol McAtee & Associates, CPAS

Lost Your Job? There Could Be Tax Consequences

As a followup to last week’s posting, What Income is Taxable, and given current economic conditions, you may be faced with tax questions surrounding a job loss and unemployment issues.

Unemployment compensation you receive under the unemployment compensation laws of the United States or of a state are considered taxable income and must be reported on your federal tax return. If you receive unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld.

Types of unemployment benefits include:

• Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
• Railroad unemployment compensation benefits
• Disability payments from a government program paid as a substitute for unemployment compensation
• Trade readjustment allowances under the Trade Act of 1974
• Unemployment assistance under the Disaster Relief and Emergency Assistance Act

You must also include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.

You can choose to have federal income tax withheld from your unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.

The loss of a job may create new tax issues.  Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time are also taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable.

If your employer went out of business or into bankruptcy, they must provide you with a 2014 W-2 Form showing your wages and withholdings by February 2, 2015. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fail to provide you with a Form W-2, contact the IRS. They can help by providing you with a substitute Form W-2. If your employer liquidated your 401(k) plan, you have 60 days to roll it over into another qualified retirement plan or IRA.

You may be able to deduct certain expenses you incurred while looking for a new job, even if you did not get a new job. Expenses include travel, resume preparation, and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home may also be deductible.

If you have experienced a job loss and have questions, please call. You need to be prepared for the tax consequences.

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.

Carol McAtee & Associates, CPAS

What Income is Taxable?

Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.

Taxable income includes any money you receive, such as wages and tips, but it can also include non-cash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Nontaxable Income

Here are some types of income that are usually not taxable:

• Gifts and inheritances
• Child support payments
• Welfare benefits
• Damage awards for physical injury or sickness
• Cash rebates from a dealer or manufacturer for an item you buy
• Reimbursements for qualified adoption expenses

In addition, some types of income are not taxable except under certain conditions, including:

• Life insurance proceeds paid to you because of the death of the insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
• Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts you use for room and board are taxable.
• If you received a state or local income tax refund, the amount may be taxable. You should have received a 2014 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.

Important Reminders about Tip Income

If you get tips on the job from customers, that income is subject to taxes. Here’s what you should keep in mind when it comes to receiving tips on the job:

• Tips are taxable. You must pay federal income tax on any tips you receive. The value of non-cash tips, such as tickets, passes or other items of value are also subject to income tax.
• Include all tips on your income tax return. You must include the total of all tips you received during the year on your income tax return. This includes tips directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees.
• Report tips to your employer. If you receive $20 or more in tips in any one month, from any one job, you must report your tips for that month to your employer. The report should only include cash, check, debit and credit card tips you receive. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips. Do not report the value of any noncash tips to your employer.
• Keep a daily log of tips. Use the Employee’s Daily Record of Tips and Report to Employer (IRS Publication 1244), to record your tips.

Bartering Income is Taxable

Bartering is the trading of one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no exchange of cash.

If you barter, the value of products or services from bartering is taxable income. Here are four facts about bartering that you should be aware of:

1. Barter exchanges. A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income. Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get.

3. Tax implications. Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules. How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.

If you have any questions about taxable and nontaxable income, don’t hesitate to contact the office.

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.

Carol McAtee & Associates, CPAS

Using a Car for Business? Grab These Deductions

Whether you’re self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.

There are two choices for claiming deductions:

1. Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
2. Use the standard mileage deduction in 2015 and simply multiply 56 cents by the number of business miles traveled during the year. Your actual parking fees and tolls are deducted separately under this method.

Which Method Is Better?

For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.

Tip: The actual cost method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here.

The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to bypass certain limits and restrictions and is simpler– but it’s often less advantageous in dollar terms.

Caution: The standard rate may understate your costs, especially if you use the car 100 percent for business, or close to that percentage.

Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.

How to Make Tax Time Easier

Keep careful records of your travel expenses and record your mileage in a logbook. If you don’t know the number of miles driven and the total amount you spent on the car, we won’t be able to determine which of the two options is more advantageous for you.

Furthermore, the tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. If you use the actual cost method for your auto deductions, you must keep receipts.

Tip: Consider using a separate credit card for business, to simplify your recordkeeping.

Tip: You can also deduct the interest you pay to finance a business-use car if you’re self-employed.

Note: Self-employed individuals and employees who use their cars for business can deduct auto expenses if they either (1) don’t get reimbursed, or (2) are reimbursed under an employer’s “non-accountable” reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other “miscellaneous itemized deductions”) exceed 2 percent of adjusted gross income.

Call us today and find out which deduction method is best for your business-use car. You’ll be glad you did.

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.

Carol McAtee & Associates, CPAS

How to Maximize Your Social Security Benefit

Social Security is likely to be one of your most important sources of retirement income.

Tom Sightings, a popular baby boomer blogger and free-lance writer on topics covering health, finance and retirement, wrote in the March 3^rd edition of News Week on-line, that “The rules for collecting Social Security are incredibly complicated. They depend on how long you worked, where you worked, when you retire and whether you’re married, widowed, divorced or remarried.  And, who knows when Social Security might undergo some kind of “reform” which may cut benefits, tax benefits or delay benefits.  But nothing significant is likely to change in the short term. So, in the meantime, here are six solid strategies to boost your benefits.

1. Work a long time. Social Security calculates your benefit by figuring “your average indexed monthly earnings during the 35 years in which you earned the most.” So, obviously, one way to maximize your benefit is to work for at least 35 years. Maybe that seems like a long time, but look at it this way: If you retire at full retirement age (66 for most baby boomers), you can still get the maximum benefit even if you didn’t start your career until you were 31. Or, if you began working at age 21, and then took off 10 years to raise children, you can still qualify for the maximum if you retire at 66.

2. Have a good job. Social Security sets a maximum amount of salary that is subject to the payroll tax, currently $118,500 per year, which is the same amount of earnings it will credit toward your benefit. The way to maximize your benefit is to earn the maximum income set by Social Security throughout your career. Of course, that’s easier said than done. But don’t forget, this amount has been adjusted for inflation. If you were earning at least $51,300, the maximum amount in 1990, and $76,200, the maximum amount in 2000, you may still qualify for the maximum benefit from Social Security.

3. Don’t retire early. Workers are eligible to start taking Social Security benefits at age 62, but the amount you receive is discounted by about 25 percent. Conversely, if you work beyond full retirement age, you receive a bonus of approximately 8 percent a year, up to age 70. There’s no extra benefit to working past age 70. Also consider this: If you start collecting Social Security before full retirement age, and you’re still working and earning more than $15,720 per year, the government starts slicing your benefits. For every $2 you earn over the $15,720 limit, $1 is temporarily withheld from your benefits.

4. Don’t have too much income in retirement. If you’re married and file a joint tax return, your Social Security benefits are not taxed if your combined income falls below $32,000. If your income falls between $32,000 and $44,000, as much as half is taxed, and if your income is over $44,000, then 85 percent of your Social Security is subject to federal income tax. So if you had a good career and didn’t retire early, you’ll likely be subject to the 85 percent rule. But there is one way around it: don’t get married. Two singles can earn up to $25,000 each, or a combined $50,000, before their benefits are subject to federal tax.

5. Live in a tax-friendly state. There’s not much you can do to avoid federal taxes unless you take a vow of poverty. But you can do something about state tax. Most states do not  levy income tax on Social Security benefits, including retirement havens like Florida, Arizona and the Carolinas. But about a dozen states do exact income tax on your Social Security benefits, including red states like Kansas and Utah as well as blue states like Connecticut and Vermont.

6. Stay in good health. By far the most important factor in how much you collect from Social Security is not how much you earned, but how long you stay alive to collect benefits. You can work all your life, but if you die the day after you retire, all is lost. So it literally does “pay” to eat right, get some exercise, sign up for an annual checkup and in every other way take care of yourself so you can continue to collect that monthly benefit throughout a long and prosperous retirement.

Tom Sightings blogs at Sightings at 60.

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.