November, 2006
Special
Tax Savings Opportunities For Those Persons
Who
Are or Will Be 70 1/2 By December 31, 2007
- The gift is not subject to the phase-out rules for itemized deductions
- Large gifts will not cause adverse tax consequences to the taxpayer such as alternative minimum tax or loss of personal exemptions.
- The gift will not be limited to 50% of the Taxpayer’s AGI
- The gift will not cause further taxation on Social Security benefits.
- The gift can be used to satisfy required minimum distributions.
Items to Consider before taking advantage of this opportunity:
- The gift cannot exceed $100,000.
- The IRA distribution must go directly to the charity from the IRA custodian (brokerage house, mutual fund company, etc.).
- Consult your CPA or tax preparer to confirm that the tax benefits apply to you.
- Work with a Certified Financial Planner™ to review your personal financial picture during your retirement years.
Please take time to consider this opportunity to support your favorite charities and their missions before time runs out!
The information in this communication may contain tax advice covered by Treasury Department Circular No. 230. Any advice contained herein was not intended to be used, and may not be used for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service.
October, 2006
Do you currently use EFTPS?
What is EFTPS you ask? EFTPS or, Electronic Federal Tax Payment Services, is a method for taxpayers to make employment, excise, and income tax payments via a telephone or the internet. The Internal Revenue Service strongly encourages use of this system. It saves time on both the taxpayer and government sides, in addition to providing immediate confirmation of your payment. In addition, you don't have to make sure you get the paper coupon to the bank in time. You can schedule your payment to coincide with your schedule.
The process works something like this. Your company enrolls in EFTPS online by providing the IRS your bank routing number and account number. The IRS gives you a PIN number. You make your payment(s) online or by telephone using your PIN. Some of the information you will have to give the IRS when making a payment is:
- Your PIN
- The type of tax being paid
- The amount of tax being paid
- Which tax period the payment is applicable to
- What date the funds should come out of your account
When I have assisted clients in this process, we made a transmittal sheet on which we put the items listed above. We followed these items with:
- The date and time the IRS was contacted
- The initials or name of the person contacting the IRS and most importantly
- The confirmation # given by the IRS as proof of payment.
While I can understand a taxpayer not wanting to give the IRS their banking information, I have not had a single error in this process since I started using it about 10 years ago. I have encountered various problems when using tax deposit coupons at the banks because the coupon could not be deciphered, the coupon was not completed properly, or someone mistyped a number.
Currently the use of this system is not mandatory. However the IRS has taken steps to strongly encourage businesses to use EFTPS. Brand new businesses are being given one Federal Tax Deposit (FTD) coupon and a PIN to get them started on EFTPS immediately. If they do not want to use EFTPS the new business has to contact the IRS as soon as possible to get a book of coupons. Existing businesses will not automatically receive new coupon books when they run low on coupons. They will instead receive one coupon and a PIN. To get a coupon book they too will have to call into the IRS to get one. Therefore if you are not ready to use EFTPS, you need to keep track of your FTD coupons and call in for a new book when you get low. Otherwise you will get stuck without a coupon and you will have to go to the local IRS office to get one in time to take your tax deposit to the bank. The IRS will no longer give accountants a supply of blank coupons to use in an emergency.
Also please note:
- If you do not have access to the internet, you can make payments over the telephone. That's the system I started out with. I never have had a problem getting through to the IRS.
- You can enroll in EFTPS to make your individual tax estimates. You can schedule all 4 of your Individual estimates as soon as you know how much they are. This ability can being extremely helpful for taxpayers who travel extensively, or do not always have access to their paper estimate forms, or may just forget the due date is just around the corner.
To enroll in EFTPS go to www.eftps.gov or call 800 555-8778 or 800 555-4477. The instructions are easy to follow. However if you are apprehensive about signing up and would like assistance, please contact one of the CPAs at Strategic Financial Group, LLC at 1-888-363-7147.
The information in this communication may contain tax advice covered by Treasury Department Circular No. 230. Any advice contained herein was not intended to be used, and may not be used for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service.
September, 2006
School
Days, School Days . . .
Are
you a teacher, principal, counselor, or classroom aide?
Do not forget to save your receipts for the educator expense deduction.
These taxpayers
may be able to deduct up to $250 of expenses paid for books and classroom
supplies. These expenses are deducted on the front page of your tax
return, so you will not need to itemize these expenses on Schedule A to obtain a
tax deduction.
To
be eligible you must be an educator in a public or private elementary or
secondary school. The taxpayer must
work at least 900 hours during the school year as a teacher, principal,
counselor, or aide.
Qualifying
expenses are unreimbursed expenses the taxpayer paid for books, supplies,
computer equipment or software, and other supplementary materials used in the
classroom. For health and physical
education classes, qualified expenses must be related to athletics.
For additional
questions, please contact one of the CPAs at Strategic Financial Group, LLC at
1-888-363-7147.
The information in this communication may contain tax advice covered by Treasury Department Circular No. 230. Any advice contained herein was not intended to be used, and may not be used for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service.
August, 2006
Are
your Social Security Benefits Taxable?
How
much, and whether or not your social security benefits are taxable depends on
your marital status and your total income.
If social security benefits are your only income, your benefits are
probably not taxable.
If
you have income from other sources, your benefits will not be taxed unless your
"modified adjusted gross income" is greater than the "base
amount" for your filing status.
The
"modified adjusted gross income" is comprised of:
- All your other income reported on your tax return, plus
- Tax exempt interest/dividends, plus
- One-half of your social security benefits.
If
this total exceeds:
-
$44,000 for married couples filing jointly or
-
$0 for married persons filing separately who lived together at any time during the year or
-
$34,000 for all other filing statuses
Up to 85% of your social security benefits are taxable.
If the "modified adjusted gross income" total exceeds:
-
$32,000 for married couples filing jointly or
-
$0 for married persons filing separately who lived together at any time during the year, or
-
$25,000 for all other filing statuses except married filing separately
Up
to 50% of your social security benefits may be taxable.
It
is important to keep this in mind when recognizing additional income in a
particular year. In addition to the
assessment of tax on the extra income, some of your social security benefits may
be subject to tax. You may also
lose some deductions (such as medical). By
planning when, what type of, and how much income to recognize, you can minimize
the tax affects.
This
planning can range from choosing to take a distribution from a Roth IRA instead
of a traditional IRA to selling the stock with a lower capital gain (or a
capital loss) verses taking extra money out of your pension.
In some cases where there is a steady taxable income stream every year
(such as regular IRA distributions), it might make sense to double up on the
income stream every other year and only be taxed on your social security
benefits every other year. You
could double up on your deductible expenses in those years to offset the extra
income. If you have earned income,
such as from a W-2, you may be able to make a deductible IRA contribution.
A $4,500 IRA contribution can turn into almost $7000 in deduction because
of the interaction between all the items on your return.
No
simple rule of thumb rule exists. Every situation is different and all of your
circumstances need to be taken into consideration to arrive at the best end
result for you. Because of the
interplay between the brackets, filing status, the different types of income and
deductions, it is wise to confer with a tax specialist in determining the best
strategy. See if this makes sense
when taken into consideration with your long-term financial goals.
In other words, don't let the tax consequences determine your course of
action. Consider everything.
There
is one other point to be made with respect to social security benefits.
Do not confuse the potential taxability of social security benefits with
the other more costly issue of the actual reduction of social security
benefits for people that have earned income (for example, W-2 wages), and are
receiving Social Security benefits, and have not reached full retirement age.
If your earned income exceeds $12,480 (for 2006) and you are under full
retirement age, (65 or older depending on the year you were born), your social
security benefits will be reduced $1 for each $2 you earn above the annual
limit. Special limitations exist
for the year in which you reach full retirement age.
This is a greater penalty by far than having part of your social security
taxed. Again do not confuse these
two items.
Proper
planning in advance of receiving Social Security benefits can alleviate or at
least make you aware of the potential loss of benefits.
It could be worse. You could be taxed on the social security benefits you
receive in one year and then you have to repay those social security benefits
the next year. Again the answer is
to seek out professional help and plan ahead.
If you need further guidance for your personal situation, please contact
us at 219-736-8902 and ask to speak to a CPA.
The
information in this communication may contain tax advice covered by Treasury
Department Circular No. 230. Any
advice contained herein was not intended to be used, and may not be used for the
purpose of avoiding penalties that may be imposed by the Internal Revenue
Service.
July, 2006
Do You Use Long Distance Telephone Services???
Taxpayers may be eligible for refunds of $13 billion in 2007.
On May 25th, the IRS concedes and adheres to five circuit courts decisions that ruled that current long distance telephone services are not subject to the 3% excise tax. The federal government will stop collecting 3% excise tax beginning July 31st.
Refunds including interest will be provided to taxpayers for excise taxes paid on long-distance services billed after February 28, 2003, and before August 1, 2006. Taxpayers will need to claim their refunds on their 2006 tax returns.
The IRS is still working on a "safe harbor" amount that will be "simple and fair." Otherwise, taxpayers will need to substantiate their requested refund amount with documentation from old telephone bills. More details will be released later in the year.
June, 2006
Are You Donating Property to Charity?
Tips To Maximize Your Charitable Deduction
Often when preparing a client’s tax return, we receive a receipt for property donated to Goodwill or Am Vets that simply states that the client donated 2 boxes & 3 bags. When asked, the client can’t remember exactly what was donated. In this situation, some insubstantial value is assigned to each bag and/or box. The client loses out on a larger deduction because they did not keeping adequate records. Last year one client was convinced to keep track of her donations. She donated 6 bags of clothing, and her itemized list looks like the following:
132 T-shirts/Shirts (Used Value = $3 per shirt) $ 396.00
29 pairs of pants/jeans (Used Value = $5 per pair) $ 145.00
8 Swim Suits (Used Value = $8 per suit) $ 64.00
Without the itemized list, a value of $35 per bag would have been assumed resulting in an itemized deduction of $210. However, because the client kept a list of the items donated, the client was able to deduct $605.00 on Schedule A - more than twice as much. In the 25% tax bracket, that would mean a $99 reduction in the client’s tax bill. The only extra work the client did was to count how many of each item she donated before she deposited them into the bags.
When should you keep a detailed list? Keep a list if you already itemize, are close to being able to itemize, if you are moving, or are just getting rid of a lot of items after spring-cleaning. The additional deduction may allow you to itemize.
How much can you deduct? Goodwill gives you a list of estimated values on the receipt when you make a donation. The Salvation Army also has a list of estimated values available. If you have access to the Internet, there is a Non Cash Charitable Contributions / Donations Worksheet on our website at www.sfgweb.com. It has every thing on it from handbags to ties to snowsuits to soup bowls to mowers to coffee tables. The worksheet provides values for the property based on the condition of the property: fair, good or excellent.
How do you justify your deduction? Don’t over estimate values, but don’t be afraid to take a deduction for what you have donated. The more proof you have of what was donated the better. Take a picture of what you are donating, especially if it is a large donation. Be descriptive in your list of items. If something has never been used or worn I write that down in my list. Also, I make my list as I am gathering the items I am donating. I put all the T-shirts in one pile; Jeans go in another pile, sweaters another pile and so on. Then I count each pile. If I’m donating suits I describe it as 2 or 3 piece & reference the color. I itemize household goods. If I am purchasing something specifically to be donated (Groceries to the Food Pantry), I keep the receipt.
How do I get big items or a lot of items to the charitable organization? Many of the organizations (Salvation Army or Am Vets) will come to your house to pick the donation up.
Make sure you are donating to a charitable organization. Donating clothing to a family hard on their luck may be moral, but it isn’t deductible.
Additional Information needed to take the deduction. You need the name & address of the Charitable Organization, the date you donated the items, an estimate of how much you originally paid for the items, and how you acquired the items. Also if the value of any single donation exceeds $250 you need to get a receipt. A form 8283 may have to be attached to your return if total property donations exceed $500.
With a little extra effort you can legitimately increase your charitable deductions while continuing to help those less fortunate than yourself. For more information, or for a copy of the Non Cash Charitable Contributions / Donations Worksheet, contact one of the Strategic Financial Group Certified Public Accountants at 219-736-8902.
May, 2006
Tax
Season is Over, Right?!?!
Now that most taxpayers
have filed their 2005 tax return, they don't have to think about their
taxes until the end of the year, right?
Not so fast. A little
tax planning throughout the year can go a long way toward helping relieve
the stress of filing a 2006 tax return.
Did you pay a large tax
bill for 2005 and would like to avoid that next year?
Go to your HR department and complete a new W-4 to increase the tax
withholding from your salary. Conversely,
did you receive a large refund this year?
Would you prefer to have that money through out the year instead of
loaning it to the US government? You
also need to complete a new W-4 to have less tax withheld from your pay.
Retirees in the
same situation should work with their tax advisor and/or financial planner
to make sure that tax estimates and withholding from pensions and IRA
distributions are correct.
Did you struggle
to remember the non-cash contributions you made throughout 2005 to
Goodwill, the Salvation Army and other organizations?
Most people know to get a receipt for your donations, but many
organizations will not provide a value of the items donated.
How do you value those items?
The Salvation Army's website provides a range of values for those
items (click on the link below). It
is a good idea to make a list of each item donated, and assign a value to
that item to keep with the receipt.
As you are planning for your 2006 tax return, keep in mind that mileage rates for 2006 have changed:
- Business
Standard Mileage Rate is 44.5 cents per mile
- Charitable
Mileage Rate is 14 cents per mile
- Medical and Moving Mileage Rate is 18 cents per mile
In a future tax tip we will share others common items that clients often overlook when pulling together their tax information. If you have any questions, or would like assistance with other tax planning issues, please contact one of the accountants at Strategic Financial Group, LLC.
April, 2006
Are
your heating bills causing you to sing the blues?
(The encore)
The Residential Energy Efficient Property Credit
As part of the Energy Tax Incentives Act of 2005, the Residential Energy
Efficient Property Credit is a credit for 30% of the purchase price of
solar water heating property, property that is used to generate solar
electricity, and property that produces electricity using an efficient
electrochemical process.
To be eligible for the Residential Energy Efficient Property Credit, you must meet the following requirements:
1. You must have made expenditures for qualified photovoltaic (solar energy) property, qualified solar water heating property, or qualified fuel cell power plants and placed them in service in 2005 or 2006;
2. The property cannot be used for heating swimming pools or hot tubs; and
3. The property must be used to generate energy for a dwelling unit in the United States that you use as your residence. Expenditures made for onsite preparation, assembly, and original installation of qualified property are considered as expenditures for qualified property and, therefore, are eligible for the credit. Expenditures made from subsidized energy financing, on the other hand, are not eligible for the credit.
The amount of the credit that you may claim is 30% of your total payments during the taxable year for qualified photovoltaic property, qualified solar water heating property, and qualified fuel cell power plants, subject to yearly dollar limits. You may claim no more than $2,000 for qualified photovoltaic property, $2,000 for qualified solar water heating property, and $500 for each one-half kilowatt of capacity of qualified fuel cell property for any tax year.
There are two additional limits on the amount of the credit. First, if more than 20% of the qualified property is used for business purposes, you may claim the credit only for expenditures for the portion of the property that is used for nonbusiness purposes. Second, the credit is nonrefundable, which means that the amount of the credit that you are allowed to claim is limited to the amount of your tax liability. However, any credit amount that you are not allowed to claim because of this limitation may be carried forward to the next taxable year.
If two or more persons used your home as a residence during the year and made expenditures that qualify for the credit, then each resident is entitled to a share of the credit amount for each type of qualified property based on his or her proportionate share of the expenditures for that type of qualified property. If you own and live in a condominium or cooperative, you may be eligible for a credit for your proportionate share of the condominium association’s or cooperative housing corporation’s qualifying expenditures.
If any of these items are on your home improvement list, contact on of the CPA’s at Strategic Financial Group, LLC for a complete list of details to ensure your eligibility for this tax credit.
March, 2006
Are
your heating bills causing you to sing the blues?
The Non-business Energy Property
Credit could change your tune!
In
July 2005 as part of the Energy Bill, Congress created new tax credits for
improvements that increase the energy efficiency of existing residential
property. The home where
improvements are made must be your personal residence that you own and use
in the United States. Also,
the improvements must be installed in 2006 and 2007, and the original use
of the improvement begins with you and is expected to remain in use for at
least five years.
The
following items are eligible for the Non-business Energy Credit:
·
The credit is available for 10% of
"qualified energy efficiency improvements."
These include insulation materials, exterior windows (including
skylights) and doors, and certain metal roofs.
·
Subject to dollar-amount limits, 100% of
"residential energy property expenditures" also qualify for the
credit. These include
expenditures for energy-efficient building property such as heat pumps
($300 limit), qualified natural gas, propane, or oil furnaces or hot water
boilers ($150 limit), and advanced main air circulating fans ($50 limit).
There is a lifetime limit on the amount of non-business (personal) energy property credit that you can claim. The maximum amount of credit that you may claim with respect to the same dwelling for all taxable years is $500 (no more than $200 of which can be for windows).
There are two additional limits on the amount of the credit. First, if more than 20% of a credit-eligible property is used for business purposes, then you may claim the credit only for expenditures for the portion of the property that is used for non-business purposes. Second, the credit is nonrefundable, which means that the amount of the credit cannot exceed your tax liability for that year.
If two or more persons used a dwelling unit as their residence during the year and made expenditures that qualify for the credit, each resident is entitled to a proportionate share of the credit amount for each energy item based on his/her share of the expenditures for that energy item. If you live in a condominium or cooperative, you are eligible for a credit for your proportionate share of the cooperative corporation’s or condominium association’s qualifying expenditures.
If
you are planning to make some home improvements in 2006 and 2007 contact
one of the accountants at Strategic Financial Group to assist you in
maximizing the credits available to you.
Next
month we will look at some additional residential energy efficiency
property credits.
January, 2006
Is It Time To Buy Energy Efficient Vehicles? (Part One)
The Alternative Motor Vehicle Credit will influence 2006 Purchases!
On July 29, 2005, the Senate passed the Energy Policy Act of 2005 which enacted the new alternative motor vehicle credit. The credit, which is the sum of four distinct credits based on the type of vehicle purchased, is effective for property placed in service after December 31, 2005. Because this provision overlaps with the deduction for qualified hybrid vehicles, that provision terminates as of December 31, 2005, an acceleration of one year.
The alternative motor vehicle credit is the sum of four amounts. Each amount is determined based on the type of motor vehicle purchased or leased. The four types are:
- New qualified fuel cell motor vehicle
- New advanced lean burn technology motor vehicle
- New qualified hybrid motor vehicle
- New qualified alternative fuel motor vehicle
This month we will look at the new qualified fuel cell motor vehicle credit and the new advanced lean burn technology motor credit.
New Qualified Fuel Cell Motor Vehicle means a motor vehicle which is propelled by power derived from one or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel which is stored on board the vehicle in any form and may or may not require reformation prior to use.
The Credit is based on vehicle weight and ranges from $8,000 to $40,000 for purchases placed in service before 2009. Credits may be increased by a formula based on the percentage increase of fuel efficiency from the 2002 model fuel economy ratings.
New Advanced Lean Burn Technology Motor Vehicle is limited to a passenger automobile and light truck which has an internal combustion engine that is designed to operate primarily using more air than is necessary for complete combustion of the fuel and incorporates direct injection.
The credit is based on the fuel economy of the vehicle and ranges from $400 to $2,400. The credit amount can be increased another $250 to $1,000 if the vehicle achieves lifetime fuel savings amounts as established by the mathematical equation specifically defined in the statute.
Although cost savings could be significant for purchasing these types of vehicles, one must weigh other factors such as their initial purchase price that is driven by supply and demand of these vehicles. Given the complexity of determining the proper vehicle qualifying for the credit and the proper amount of the credit, please contact Strategic Financial Group, LLC for any additional assistance.
Next month, the new qualified hybrid motor vehicle and qualified alternative fuel motor vehicle credits.