Pay attention to the IRS rules for charitable deductions

Pay attention to the IRS rules for charitable deductions

As the year draws to a close, you may decide to donate cash or property to one or more worthy causes. Besides the satisfaction of helping others, there's another reward for your benevolence: a tax deduction on your 2014 return. But the IRS recommends that you keep the following points in mind:

1.                  You may only deduct contributions made to a legitimate tax-exempt charitable organization.

2.                  Charitable contributions reduce your taxes only if you itemize your deductions.

3.                  To claim an itemized deduction, you're required to have support for all cash contributions, no matter the amount. A bank statement, a copy of the cancelled check, or a credit card record will usually suffice for donations under $250.

4.                  In the case of payroll donations, your pay stub or W-2 can back up your deduction.

5.                  For donations of $250 or more, a statement from the charity is required, giving the charity's name, the date, the amount of your donation, and the value of goods and services received for the donation, if any.

6.                  The substantiation rules for non-cash donations differ depending on the type of property and its value.

7.                  You'll need a "contemporaneous" written acknowledgment from the charity for donations of $250 or more. As a general rule, "contemporaneous" means you must receive the acknowledgment before you file your return or before the due date of your return, whichever is earlier.

8.                  Typically, you may deduct the fair market value of gifts of property owned longer than one year. Any appreciation in value remains untaxed.

9.           You can secure deductions late in the year by donating to charity by credit card. As long as the charge is posted in December, you can deduct it on your 2014 return, even if you don't pay the credit card bill until 2015.

If you have questions about documentation for your charitable donations, contact our office.

Four tips for organizing your finances

Four tips for organizing your finances

In our busy lives, it's sometimes tough to corral our financial records. Bills, paycheck stubs, tax returns, and bank statements can disappear into dusty attic corners and bulging desk drawers. Important insurance policies can hide out beneath bins of holiday ornaments and electrical supplies. Mortgage documents can sneak into old books or ensconce themselves in nooks and crannies throughout the house.

Take the time now to coax those papers out of hiding. Here are four suggestions for getting organized.

1.                  Find a system that works for you. Many people use a computer program such as Intuit's Quicken or Microsoft's Money to track everyday spending and bank accounts. Others use pencil, paper, and a shoebox. Some people use hanging file folders, labeled for various expenses and accounts; others scan documents into a computer; others use storage bins. The key is to use whatever system makes sense to you and helps you maintain your finances with a reasonable amount of effort.

2.                  Dedicate a space and a time. To ensure that bills are paid on time, bank statements are reconciled, and important documents are properly filed, set aside a specific location in your home for financial tasks. It may be a place where you keep a computer or filing cabinets or shoeboxes. Once that area's set aside, pick a time each week (or each day, if you're really zealous) to pay bills, enter financial information into check registers, and organize documents.

3.                  Keep the important stuff in a safe. Don't leave your only copies of wills, tax returns, stock certificates, or emergency contacts in a pile on the desk. Such documents should be tucked away in a safe deposit box or home safe. Ask your attorney or financial advisor to store the signed copy of your will in a secure location.

4.                  Don't keep documents forever. Many papers (such as regular household bills) can be shredded soon after receipt. Other documents, such as those supporting the cost of investments and real estate, should be retained longer for tax purposes. A good general rule for tax returns (and documents that support the returns) is seven years. When it's time to discard those old pieces of paper, fire up the shredder.

If you'd like additional guidance in organizing your finances, give us a call.

Don't lose out on the 2014 gift tax exclusion

Don't lose out on the 2014 gift tax exclusion

Time is running out for making 2014 tax-free gifts. You have only a few more months to use your annual gift tax exclusion for this year, or it's gone forever.

Each year you can make gifts up to a certain dollar limit to an unlimited number of people, free of any gift tax. For 2014, the dollar limit per recipient is $14,000. These gifts do not reduce your lifetime exemption from gift and estate taxes.

Why would you want to make annual tax-free gifts? There are a number of possible reasons. Tax-free gifts are often used in estate planning as a way of steadily reducing the value of a taxable estate during the owner's lifetime. Another strategy is to transfer income-producing assets to children or other family members who are in a lower tax bracket. If done carefully to avoid the "kiddie tax," the result can be a lower overall tax bill for the family unit.

If you fail to use this year's exclusion, it is not carried over to future years. To qualify as a 2014 gift, the transaction must be completed by December 31, 2014. If you are writing a check as a 2014 gift, do so in time for the recipient to deposit it before year-end.

Check with us if you would like more information about making tax-free gifts in your situation.

Avoid these six mistakes in selling your business

Avoid these six mistakes in selling your business

Most entrepreneurs eventually think about selling their businesses, whether as a prelude to retirement or to pursue other activities. In doing so, they often underestimate the effort required for a satisfactory outcome and overestimate the value and salability of their enterprises. If you're contemplating selling, here are some common mistakes to avoid

1. Overestimating the value of your business.

Your price should be based on the fair market value of the business in its current form. Buyers won't care about the work you've put into building your business or your unique vision for its future.

2. Failing to account for the nature and make-up of your business.

The values of most businesses proceed from a mixture of variables. If your business includes significant equipment, real estate, intellectual property, or other such assets, their values should be separately established before being factored into the overall price. If you're selling a service or professional firm, much of its value may depend on the experience and skills of your managers and employees. In such a case, the price may vary according to the expected retention of key individuals.

3. Failing to base your sale price upon independent appraisals.

Even if you think you know the value of your business, you should obtain two or more outside appraisals from professionals familiar with your industry. If the appraisals conflict with your opinion, they'll provide a much-needed reality check. If they confirm your opinion, they'll become a useful sales tool.

4. Not hiring a professional business broker to handle the sale.

Owners are often too personally invested (and/or eager to sell) to effectively negotiate sales of their businesses. A broker familiar with your type of business will know what issues are important to buyers and what characteristics to emphasize or de-emphasize, without becoming emotionally involved.

5. Neglecting to work with the buyer to ensure a smooth transition.

Nobody likes being thrust into unfamiliar circumstances without preparation. Notifying your managers, employees, and customers in advance and doing all you can to allay their concerns will serve your own best interests, as well as being the honorable thing to do. Discontent on the part of any of the affected parties could result in conflicts, reduced revenue for the buyer, withheld sale payments, and litigation

6. Being unwilling to help finance the sale.

If you're unwilling to take back a note, your sale price is limited to the buyer's cash and ability to obtain outside financing. At best this could limit the number of potential buyers, and at worst it could limit your sale proceeds. (Conversely, if you finance too much of the sale price, you'll increase the risk of default.)

Selling your business is too important to attempt without professional help. If you're considering selling, call us for an appointment to help formulate your plan.

Advance projections released for 2015 tax numbers

Advance projections released for 2015 tax numbers

Each year the IRS is required to make inflation adjustments to hundreds of tax numbers in the tax law. Advance projections of what some of the 2015 numbers will be have recently been published.

The top tax rate of 39.6% is projected to start at income exceeding $413,200 for single taxpayers and $464,850 for married taxpayers. The projected standard deduction is $6,300 for singles and $12,600 for married couples filing jointly. The alternative minimum tax exemption for singles will increase to $53,600 and it will increase to $83,400 for married couples filing jointly. The personal exemption amount for 2015 is projected to increase to $4,000.

Don't make this tax mistake

Don't make this tax mistake

You're probably well aware that interest from municipal bonds is generally not subject to income tax or the 3.8% Medicare surtax. So don't make the mistake of turning tax-free income into taxable income by holding municipal bonds in the wrong kind of account. Municipal bond income in a retirement account will be taxed as ordinary income when you eventually take distributions from the account. Keep bonds in your non-retirement accounts to maintain the nontaxable treatment of the income they generate.

Can you claim an exemption for your college-age student?

Can you claim an exemption for your college-age student?

If your child is a full-time student under age 24, claiming an exemption for him or her on your tax return may depend on your passing the support test. Support includes food, clothing, and educational expenses such as tuition and fees. Your child cannot have provided over one-half the cost of those expenses. If you fail this support test, you can't take a dependency exemption and certain education tax breaks.

Make time for a year-end tax review

Make time for a year-end tax review

Take some time to review your tax situation for 2014 while there are still a few months to make tax-cutting adjustments. With more of the Affordable Care Act going into effect for 2014, both individuals and businesses will find that an investment in a year-end review could make a significant difference in their final tax bill.

Important reminder for employers

Important reminder for employers

A reminder to employers: Effective January 1 of this year, you may no longer reimburse employees for their individual health insurance policies or pay the premiums directly to the insurance company on a pre-tax basis. Employers that continue to pay employee's premiums or reimburse their payment must include these amounts in the employee's taxable wages or be subject to substantial penalties. Only if the employer offers a group plan can pre-tax dollars be used for health insurance premiums.

IRS reminds taxpayers about education credits

With schools back in session, the IRS has issued a reminder to taxpayers not to overlook available tax credits for education expenses. Tax credits are applied directly against the income tax you owe. Two available credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC can be up to $2,500 annually for an eligible student and is 40% refundable. That means you could get money back when the credit exceeds your tax bill. The maximum LLC is $2,000 and is not refundable. You can claim only one type of education credit per student each year.

October 15 is final tax deadline

October 15 is final tax deadline

If you requested a six-month extension to file your 2013 income tax return, you face a major deadline on October 15. That's the final date for filing your 2013 return; the IRS generally does not give filing extensions beyond that date.

October 15 is also the deadline for undoing a 2013 conversion of a regular IRA to a Roth IRA. If you did a conversion to a Roth last year, you can switch it back to a regular IRA without penalty if you do so by October 15.

Need details or filing assistance? Contact our office.