Are you ready for the gift-giving season? The time may already have arrived, at least from a tax perspective. Between now and December 31, you can take advantage of this year’s gift tax rules as part of your year-end planning.
Here are two ways to transfer assets.
The annual exclusion. The annual exclusion is the amount you can give to anyone, free of gift tax, each year. For 2016, the annual exclusion is $14,000. You and your spouse can combine your individual annual exclusions and make gifts of up to $28,000 to a single recipient.
Some gifts have special rules. For instance, education and medical expenses that you pay directly to the respective providers do not reduce your annual exclusion.
As the name suggests, the annual exclusion is a use-or-lose tax break that expires on December 31 of each year. For 2017, the annual exclusion remains $14,000.
The lifetime exemption. The lifetime exemption is the total amount you can give away during your lifetime without paying gift tax. For 2016, the lifetime exemption is $5,450,000. When you’re married, you can double the exemption, to a maximum of $10,900,000. Note that the lifetime exemption is “unified” with the estate tax exemption. That means the amount you use for gifting will reduce your estate tax exemption.
Gift-giving is a valuable estate planning tool. Please call to schedule an appointment for discussing these or other types of giving, including charitable gifts and gifts made in
Are you planning to make donations to charitable organizations as part of your holiday celebrations? Be aware of fake charities set up by scam artists. This type of fraud routinely lands on the “Dirty Dozen” list of tax scams prepared each year by the IRS.
Here are two simple tips to protect yourself.
Don’t be fooled by names that sound like established charities but really aren’t. The IRS maintains a searchable list of qualified charities on the official irs.gov website.
Make donations by check and spell out the full name of the payee instead of using initials. In addition to providing documentation for deducting your contribution, writing a check avoids the need to supply your credit card data, favored information for thieves who want steal your identity.
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As 2016 winds down, a lame-duck Congress is unlikely to take action on tax legislation. The pace of activity may change next year, with a new Administration and ongoing talk of tax reform, and 2017 could bring welcome and needed improvements. Whatever happens, we’re here to keep you updated as events unfold in the tax world.
Until political clarity emerges, however, you’re smart to make the most of established rules in your year-end tax planning. Evaluate your financial situation, select what moves will provide the most savings, and execute your plan in a timely manner. Currently available deductions, credits, and other tax benefits will reduce your 2016 tax burden and put you on track to accommodate new planning opportunities as they arise in the future.
This Letter offers suggestions and strategies to help you achieve your tax-saving plans. Contact us for answers to questions you may have, and to arrange a year-end tax review. As always, feel free to share this Letter with friends or associates who are interested in minimizing taxes.
A mention of taxes results in a groan from most adults, but few groan louder than small business owners. Often working without the benefit of an in-house accounting department, many small business owners are left to sort out the complexities of tax prep alone. Of course, smart business owners at least outsource the preparation of their actual tax returns, but there’s much work that goes into preparing for tax season long before the looming April 15th deadline.
Professional accounting help costs money, but you’ll save hours of time and possibly hundreds to thousands of dollars in taxes. An accountant or tax prep professional can help you maximize your tax deductions and take advantage of all the credits you qualify for.
Stop letting receipts accumulate in piles, folders, and shoeboxes. It may seem easier to simply save your receipts throughout the year, but using an accounting software solution such as FreshBooks or QuickBooks will make it easy to monitor your cash flow over time and quickly generate profit and loss statements and other reports when you need them. Plus, you don’t have to worry about losing receipts and missing out on deductions when you store everything digitally. Consider tools that streamline the filing process such as W-2 and 1099 software.
Once you’ve decided on a software solution for tracking your income and expenses, get into the habit of entering all expenses, payments, and other transactions immediately as they occur. Again, this habit will save you many hours – and many headaches – next tax season when you don’t have to look up your transactions, sort through piles of receipts, and enter everything at one time.
Reducing your taxable income is one of the best ways to reduce your tax bill and start building a nest egg for your future at the same time. In most cases, you can contribute thousands of dollars to a retirement savings account such as a 401(k) or an IRA, deferring the payment of taxes on this income until you remove those funds. The contribution limits are subject to change each year and begin to be phased out at higher income levels, so check the IRS website to find out where you stand.
Other options for reducing taxable income include contributions to a qualified college tuition savings plan (such as a state-sponsored 529 college savings plan) or a health savings account (HSA). Finally, keep track of all the contributions you make to charitable causes, including the expenses you incur while doing these good deeds. If you bake cookies for a bake sale raising funds for a qualified charity, for instance, you can deduct the cost of the ingredients as a charitable contribution.
Looking over your past years’ tax returns will help you remember questions from previous years that you didn’t have time to ask prior to filing those returns, which can help you make better decisions when it’s time to file again. If you’re questioning whether you missed out on deductions or paid too much in taxes, you can always have an accounting professional review prior returns for a second opinion, as well. You can file amendments to tax returns for up to three years.
Tax season isn’t something most people look forward to – even accountants, who often find themselves pulling all-nighters to help clients file last-minute returns – but it’s a necessary evil. By starting to plan today (and all year long) for next tax season, you can take the stress out of filing.
No one likes to hear “audit” and “IRS” in the same sentence. But when the rules change, you need to be prepared — and change is definitely what has happened to IRS partnership audit rules. Here’s an overview.
Under the old rules, the IRS audited partnerships using three sets of procedures based primarily on the number of partners. Those procedures have been replaced with a single set of rules that apply to all partnerships. The major change: Under this new approach, adjustments made by the IRS during an audit of a partnership will be applied to the partnership instead of the individual partners. That means your partnership will have to pay any amount due related to the adjustment. Since the tax will be payable in the year the audit is completed, the current partners will bear the burden.
If your partnership is made up of 100 or fewer partners, you can elect out of the new rules when you meet certain requirements. Once you opt out, your partnership and partners will be audited under the rules that apply to individual taxpayers.
The new rules take effect for returns you file for your partnership beginning after 2017, though you can choose to apply many of them for tax years beginning after November 2, 2015.
What do you need to do now? One smart move is to update your partnership agreement to reflect the changes.
Contact us for information. We’ll work with your attorney to make sure you’re in compliance with the new rules.
Do you have the receipt for your fall semester tuition? Keeping track of your tuition and other qualified education costs may be more important than ever. That’s because several laws enacted over the past few years, including the PATH Act from last December, made changes to the requirements for claiming education benefits such as the American Opportunity Credit. One change to note: In order to claim an education tax credit or deduction when you file your 2016 federal income tax return, you’ll generally need a copy of the information statement sent by your school.
You may be familiar with Form 1098-T, Tuition Statement. If you’re a student, you’ve probably received this information form from a college or other school. In the past, schools could choose to report amounts you actually paid or amounts that were billed to you. Beginning with your 2016 return, schools are generally required to report only the tuition and qualified expenses that you actually paid.
While the new reporting requirement may make claiming the credit easier, you’ll still want to track your actual expenses. Why? In some cases, you may buy books and credit-eligible materials from a supplier other than your school. Those costs would not be on the Form 1098-T that you receive. To include the expenses in the calculation of your tax benefit, you need to have proof of your payments.
If you have questions about what costs are considered qualified educational expenses and how the rule changes will affect you, please contact us.
The Internal Revenue Service has your number – your employer identification number, or EIN, that is. Your EIN is a nine-digit number that you use to identify your business when filing tax returns or making tax payments.
Who needs an EIN? You could need an EIN even if you don’t have employees, and entities you might not think of as businesses, such as employee benefit plans, estates, or trusts, may need one. For instance, say you’re appointed as trustee of an irrevocable trust that receives or distributes income. If the trust is required to file a tax return, you’ll need an EIN.
When does your EIN change? Generally, your EIN lasts for the life of your business, and you can keep the same number when you change the name of your business. But a change from one form of business to another – incorporating your partnership or sole proprietorship, for example – means you’ll have to request a new identification number.
Can you have more than one EIN? When you own more than one corporation, each needs an EIN, even if you’re the sole owner. Partnerships also need separate EINs. However, when you conduct your sole proprietorship as a limited liability company and you have no employees, you can use your social security number instead.
You have our number, so give us a call. We’ll be happy to determine whether you need an EIN, and to help you complete the forms to request one if you do.
Are you a first-time freelancer? Have you taken on temporary project- or contract-based work? Congratulations on becoming self-employed! If you didn’t know this type of work is considered self-employment, you have lots of company. The Small Business Committee of the U.S. House of Representatives recently held hearings that indicated many new entrepreneurs are unaware of some or all tax filing responsibilities. Here are issues to know about.
From whatever source you earn income, keeping up with filing requirements can save you money. Contact us for help.
Call our office for more information or for assistance with any required tax filings.
September 15, 2016
You can use this free IRS service to get your tax information
Do you need a transcript of your federal income tax return, tax account, wages and income, or record of account? These transcripts, as well as a verification of non-filing, are once again available for no charge online at the IRS website. The online service, known as “Get Transcript,” was shut down for more than a year due to fraudsters using it to gain access to taxpayer information.
The IRS has reopened Get Transcript with increased security and authentication procedures, including verification with a credit reporting agency of your mobile phone number as well as a financial account number that you provide from a credit card, auto loan, mortgage, home equity loan or home equity line of credit.
Once you’re signed up, you can view, print, or download your transcript, or request that a transcript be mailed to you.
Transcripts only provide line-by-line information. If you need a copy of your original return, use Form 4506, Request for Copy of Tax Return, instead. Contact us if you have questions.