Client Tax News and Information

2015 Auto Standard Bsns Mileage rate is 57.5 cents. You must provide a mileage log or calendar during an IRS examination. Contact the staff for a free log or reproduce your own via calendar worksheets online. No mileage expense will be allowed in an audit without documentation as the IRS offers no exceptions!

Form 8332 Non-Custodial parents -

Again, non-custodial parents must make nice if you want the child dependency exemption. The IRS has "had it" with trying to muster thru court documents regarding who should be entitled to the exemption. This inculdes "shared-parenting" agreements. Someone has the child in their home at least one more day than the other because there are 365 days a year. Form 8332 must be signed by the parent releasing the exemption and provided to the non-custodial parent for inclusion with his/her income tax return. Please contact staff for this Form or obtain online @ www.irs.gov and bring with you to the income tax return appointment.

BEWARE: Tax professionals have different views on the sufficiency of attaching the divorce decree to your income tax return in place of Form 8332. The IRS states that no longer will the divorce decree be sufficient to attach. Some tax preparers are allowing this but there are 3 rules to comply with. Most of the time, 2 of the 3 rules can be met for sure. The third is the kicker that no onewill be able to prove which is ..... "the custodial parent agrees not to claim the child". No one can guarantee 100% that the custodial parent will not assert his/her rights to claim the child, under the new ruling.

Therein the reason why this office will beusing the Form 8332 attachment to protect our office as well as protect our client.

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Value of Donation … If you donate property rather than cash, you must assess the property's fair market value on the day of contribution to determine the correct deduction. Donated clothes and household items such as furniture and appliances must be in good used condition to take the deduction. If the amount of an item donated exceeds $5,000, you must obtain a written appraisal and attach it to the tax return. We will calculate the market value of all client donations as long as “you have the donation receipt completely itemized by count, brand, and description of your items”. I will not complete the itemization of any donation receipts, only calculate the market value.

Deduction Limits … The IRS limits the deductible amount to 50% of adjusted gross income. If in a single tax year you donate $60,000 worth of property to a church and have an adjusted gross income of $100,000, the total deduction for charitable contributions is limited to $50,000. The remaining $10,000 can be carried forward and deducted on future tax returns within five years.

The lesson on the IRS looking at noncash charitable contributions is ...... documentation, documentation, documentation!

Taxpayers Reported Billions in Potentially Erroneous Noncash Charitable Contributions

WASHINGTON, D.C. January 15, 2013

Approximately 60 percent of taxpayers who claim large-dollar noncash charitable contributions on their returns may not be complying with federal reporting requirements, according to a new report, with potentially erroneous contributions estimated at $3.8 billion in 2010.

The report, from the Treasury Inspector General for Tax Administration, found that the Internal Revenue Service is not ensuring that taxpayers are complying with reporting requirements for claiming noncash charitable contributions. An estimated 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contribu-tions in tax year 2010, which resulted in an estimated $1.1 billion reduction in tax.

Taxpayers can generally deduct noncash charitable contri-butions made to qualifying organizations during the tax year on their Federal tax returns. However, taxpayers who do not comply with the reporting requirements for noncash contributions could be incorrectly reducing their tax liabilities and receiving tax refunds to which they are not entitled.

Taxpayers who donate motor vehicles must attach a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to their tax returns. However, the IRS is still not effectively identifying taxpayers who are not complying with reporting requirements for donations of motor vehicles.

TIGTA made six recommendations for improvement to the IRS. IRS management agreed with three of the six recommendations, and partially agreed with one.

The IRS is working to clarify reporting instructions provided to taxpayers who are required to complete and submit Form 8283, Noncash Charitable Contributions. Additionally, the IRS will expand the procedures used to process tax returns claiming noncash contributions to ensure that they initiate correspondence to obtain missing Forms 8283 and/or qualified appraisals before the applicable charitable contribution is allowed.

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Affordable Care Act aka Obamacare

In order to be compliant with the due diligence requirements the IRS has placed on tax return preparers in securing knowledge if all taxpayers have health insurance, we are requesting copies of your health care card which MUST state the insured name, including children and/or documentation from the insurance company with names listed if the cards are only in the insured name. If neither of those are available, we will work with you for a copy of an EOB or even Dr statement showing patient name and where insurance had been billed.

If you do not have health care insurance, we will need to "penalize" you by an additional tax on your return in order to be in compliance with the Affordable Health Care Act. This penalty will vary according to multiple income issues on your return.

Please be understanding of the requirements we must adhere to for IRS due diligence compliance. While we understand this could be a challenge, we would appreciate everyone's cooperation in making sure your file is in compliance and understand this is not our policy but rather the Govt.

Rates on Long-Term Gains/Dividends

The tax rates on long-term capital gains and dividends will also remain the same as last year for most individuals. However, the maximum rate for higher-income folks increases to 20% (up from 15%). This change only affects singles with taxable income above $400,000,married joint-filing couples with income above $450,000,head of households with income above $425,000, and married individuals who file separate returns with income above $225,000.

Remember: these higher-income folks can also get socked with the new 3.8% Medicare surtax on investment income, which can result in a maximum 23.8% federal tax rate on long-term gains and dividends.

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EIC Earned Income Tax Credit Extended:

Legislation enacted in previous years increased the earned income credit for families with three or more qualifying children and allowed married joint-filing couples to earn more without having their credit reduced. This credit has been extended through 2017.

$1,000 Child Tax Credit Extended - for qualifying child under age 17 at the close of the year - permanently.

Child and Dependent Care Credit Extended - permanently along with the $3,000 cap on expenses for one qualifying individual and the $6,000 cap on expenses for two or more qualifying individuals. 

Alternative Minimum Tax Patch Made Permanent: It had become an annual ritual for Congress to “patch” the AMT rules to prevent millions more households from getting socked with this add-on tax.

The patch job consisted of allowing bigger AMT exemptions and allowing various personal tax credits to offset the AMT. Amazingly, the new law makes the patch permanent, starting with 2012. The change will keep about 30 million households out of the dreaded AMT zone.

The American Opportunity credit, which can be worth up to $2,500 and can be claimed for up to four years of undergraduate education, was extended through 2017.

The Higher Education Tuition deduction, which can amount to as much as $4,000 or $2,000 for higher-income folks, expired at the end of 2011. The new law retroactively restores it for 2012 and extends it through 2013.

Forgiven Principal Residence Mortgage Debt For federal income tax purposes, a forgiven debt generally counts as taxable cancellation of debt (COD) income. However a temporary exception applied to COD income from cancelled mortgage debt that was used to acquire a principal residence. Under the temporary rule, up to $2 million of COD income from principal residence acquisition debt that was cancelled in 2007-2012 was treated as a tax-free item. This generous break was extended through 2013.

$250 Deduction for K-12 Educators’ Expense

The $250 deduction for teachers and other K-12 educators for school-related expenses paid out of their own pockets was retroactively restored for 2012 and extended through 2013.

Energy Credits for Individuals - Code Sec 25C is available to individuals who make energy efficiency improvements to their existing residence. However, the lifetime credit limit is $500 ($200 for windows and skylights) and has been extended thru December 31, 2013.

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Please remember there is no credit granted for completed returns as all return packages must be paid for at the time of pick up or before mailing; for out-of-state clients. 

Tax Return Mock-Up: Annually, we urge everyone to take a few moments at least around September, to review your pay stub for withholding accuracy. We consider this a mock-up and we calculate your year-to-date income at that point in time to determine an estimated balance due or refund. While there is a fee for this service, the service proves quite valuable to the client in preparing for a balance due and/or rendering an estimated payment or even making a withholding adjustment, to avoid P&I imposed by the IRS later. Please contact the office and we can assist you.

Additional Medicare Tax on High Income Earners

On January 1, 2013; individuals earning over $200,000 and couples making over $250,000 will see more deducted from their paychecks. Medicare tax on wages will increase from 1.45% to 2.35%. Here is the potential pitfall. A couple making $150,000 each won't have the correct medicare tax withheld from their checks since alone they are under the threshold of $200,000. However, since they make more than $250,000 together, they'll be liable for the medicare tax as an additional tax on their return.

The same individuals and couples will see a new 3.8% tax in 2013 on net investment income. This includes interest, dividends, capital gains, royalties, rents and income from a business involving passive activities. But this tax doesn't apply to investment income inside a 401(k), individual retirement account or other tax-deferred retirement vehicle.

This tax applies only to income above the $200,000 individual and $250,000 couple thresholds. Example: A couple earning $200,000 in wages and $100,000 in investment income will have $50,000 subject to the 3.8% tax which would be an additional $1,900 tax on their 2013 income tax return. 

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 Disclaimer

This publication is written in general terms for widest possible use and may not contain all the specific requirements or provisions of authority. It is intended as a guide only, and the application of its contents to specific situations will depend

on the particular circumstances involved. This publication does not constitute tax, legal, or other advice and may not be relied on as a substitute for obtaining professional advice or for researching up to date original sources of authority.

Updated September, 2015