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December 2011


Six Year-End Tips to Reduce 2011 Taxes

1. Make Charitable Contributions. If you itemize your deductions, your donations must be made to qualified charities no later than December 31 to be deductible for 2011.  You must have a cancelled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations.  If you donate clothing or household items, they must be in good used condition or better to be deductible.

2. Install Energy-Efficient Home Improvements. You still have time this year to make energy-saving and green-energy improvements and qualify for either of two home energy credits.  Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings.  Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.  The credit equals 30% of the cost of qualifying solar, wind, geothermal, or heat pump property.

3.  Consider a Portfolio Adjustment. Check your investments for gains and losses and consider sales by December 31.  You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income.  If your capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts. Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by December 31.  However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still count for 2011.  You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over.  The Saver's Credit is also available to low and moderate income workers.  The maximum Saver's Credit is $1,000, and $2,000 for married couples filing jointly.

5. Make a Qualified Charitable Distribution. If you are over 70 1/2 the qualified charitable distribution allows you to make a distribution paid directly from your IRA to a qualified charity and exclude the amount from gross income.  The maximum is $100,000 and counts toward your required minimum distribution. This benefit is available even if you do not itemize. 

6. Don't Overlook the Small Business Health Care Tax Credit. If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35% of the premiums paid.  

Finally, you should always save receipts and records related to your taxes.  Good record keeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

Source:  IRS


Nine Tips for Charitable Taxpayers 

If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are the top nine things the IRS wants every taxpayer to know before deducting charitable donations.

  1. Make sure the organization qualifies Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations. It is available at www.IRS.gov.
  2. You must itemize Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
  3. What you can deduct You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
  4. When you receive something in return If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
  5. Recordkeeping Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
  6. Pledges and payments Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.
  7. Donations made near the end of the year Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
  8. Large donations For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
  9. Tax Exemption Revoked Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

For the list of organizations whose tax-exempt status was revoked, visit www.IRS.gov. For general information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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Ten Tips for Taxpayers Who Owe Money to the IRS 

While the majority of Americans get a tax refund from the Internal Revenue Service each year, there are many taxpayers who owe and some who can’t pay the tax all at once.   The IRS has a number of ways for people to pay their tax bill.

The IRS has announced an effort to help struggling taxpayers get a fresh start with their tax liabilities. The goal of this effort is to help individuals and small business meet their tax obligations, without adding unnecessary burden.  Specifically, the IRS has announced new policies and programs to help taxpayers pay back taxes and avoid tax liens.

Here are ten tips for taxpayers who owe money to the IRS.

  1. Tax bill payments If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any penalties and interest.  If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.
  2. Additional time to pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at www.irs.gov or by calling 800-829-1040.
  3. Credit card payments You can pay your bill with a credit card. The interest rate on a credit card may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. To pay by credit card contact one of the following processing companies: Link2Gov at 888-PAY-1040 (or www.pay1040.com), RBS WorldPay, Inc. at 888-9PAY-TAX (or www.payUSAtax.com), or Official Payments Corporation at 888-UPAY-TAX (or www.officialpayments.com/fed). 
  4. Electronic Funds Transfer You can pay the balance by electronic funds transfer, check, money order, cashier’s check or cash.  To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.
  5. Installment Agreement You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.
  6. Online Payment Agreement If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at www.irs.gov.
  7. Form 9465 You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope you received from the IRS.  The IRS will inform you (usually within 30 days) whether your request is approved, denied, or if additional information is needed.
  8. Collection Information Statement You may still qualify for an installment agreement if you owe more than $25,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement.
  9. User fees If an installment agreement is approved, a one-time user fee will be charged.  The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account.  For eligible individuals with lower incomes, the fee can be reduced to $43.
  10. Check withholding Taxpayers who have a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. A withholding calculator at www.irs.gov can help taxpayers determine the amount that should be withheld.



August 2010
Keeping Good Records Reduces Stress at Tax Time

You may not be thinking about your tax return right now, but summer is a great time to start planning for next year and to make sure your records are organized.  Maintaining good records now can make filing your return a lot easier and it will help you remember transactions you made during the year.

Here are a few things the IRS wants you to know about recordkeeping.

Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you receive an IRS notice. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.

Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

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

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

  • A home purchase or improvement
  • Stocks and other investments
  • Individual Retirement Arrangement transactions
  • Rental property records

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

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

Paperless Recordkeeping: Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.

 

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