Year’s ago I went to great lengths to report and document the tax donation of a client’s Picasso. The tax return was completed and signed by the qualified appraiser, who supplied by the client. Little did I know that this appraiser was the same person who sold the art to the client. When challenged by the IRS, the IRS appraiser carried more weight due to his “independence” over our appraiser.
At this time of year, clients ask what kind of tax documentation is needed for their year end tax donations. Here is a partial list of tax documentation requirements that may help:
Cash donations: Written communication from the charity and proof of payment for each donation.
Non cash donation of less than $250: Donee receipt. I always also recommend pictures and a detailed description.
Non cash donation of $250- $500: Contemporaneous written acknowledgement, pictures and a detailed description.
Non cash donations between $500 and $5,000: Written acknowledgement with all the aforementioned items along with a detailed history of how purchased, date, cost, and form 8283.
Non cash donations over $5,000: Signed Qualified appraisals, form 8283, detailed photos
There are other requirements like for stock, boats, etc. However, this should provide a good starting point over the next two weeks. It is recommended that you contact your tax advisor before taking any of these steps. As CPAs we see that tax situations vary among taxpayers. Be careful when claiming tax deductions for any charitble donation.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
My wife dragged me to Beverly Hills estate sales. At first I was very disinterested because I hate to shop. You can tell that by my clothes. I still wear khakis and corduroys from five years ago. I guess that is a dead give away that I am a CPA.
Well, I still went to the sales, so to pass the time I learned about the antique and vintage items, and what they were selling for on the Internet. The prices of these items at some estate sales were from $1.00 to $15.00. Their E-bay values ranged from $30.00 to $99.00.
So, not being one to accumulated old things, my wife and I created Manhattan Beach, California Antiques. Now, before you start googling our name, let me tell you, its not there. I haven’t even opened a web site, but do sell many pieces we picked up. This puts me at ground zero of sales tax wars.
Internet businesses have a distinct advantage over brick and mortar businesses by not being required to collect sales tax unless they have a presence in the same state as the buyer.
Well, the fight has moved from the state to the national level. The Main Street Fairness Act, sponsored by Dick Durbin last August, helps the states in their enforcement. The Act would allow states to require Internet and mail-order retailers to collect state and local sales taxes. To exercise this authority, a state must sign on to the Streamlined Sales and Use Tax Agreement (SSUTA) and adopt legislation implementing its provisions.
So far, almost half the states have implemented SSUTA. Small businesses (less than $5 million) are exempt from this enforcement. The act places a policy of basic fairness among the states so that large retailers can’t run from state to state to avoid sales taxes.
But what does this mean for the small business person? For those under $5 million, nothing. You still report all sales and collect applicable taxes. For larger Internet companies, you must really get your sales tax infrastructure in place. So many companies of all sizes do not report sales in the correct state, if they report it at all.
As a CPA, I advise any client to impliment whatever software they need to track sales tax correctly. Don’t wait for your state to exercise its this agreement, or law if it passes. And if you are an Internet business, do the right thing before the government does it for you.
Sales taxes must be taken as serious as income taxes. Discusss this and any tax decisions with your tax advisor before acting.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
As Los Angeles Certified Public Accountants, we have the opportunity to work in different industries. Each industry has its own special personality, yet there are some tax breaks that many are not taking:
Healthcare credit: This credit is not only new to Certified Public Accountants, but to small business owners. If your company pays health insurance for your employees, you may be able to claim this credit. Don’t be discouraged because you, as the owner, pay for your own health insurance. That payment is not included in the computation.
Section 199 domestic production manufacturing deduction: Companies seem to ignore this gem of a deduction if their core process is not manufacturing. However, that is not the proper way to look at things. If there is ANY part of your business that you “manufacture,” then we certified public accountants are interested. Music production, magazine publishing, and metal duct fabrication are some areas that one would not think are manufacturing, but they are.
Tax withholdings: Recompute your tax withholdings for 2012. If you are overwithholding, then the IRS is using your tax dollars interest free. Any certified public accountant or bookkeeper can help you.
Moving Expenses: Times are tough and many are moving to engage new employment. Check with your certified public accountant as to whether you qualify for this deduction. Job seeking expenses also could be deducted if they qualify.
Energy Tax Credits: There still may be a chance that you can take energy credits for things like exterior doors, windows, etc. Also, you may be able to better if you acquire alternative energy equipment. Make sure you speak with your certified public accountant before making these decisions.
Section 179 Accelerated Depreciation: Many businesses know about this, but make sure there are good business decisions for making your purchase. Don’t have tax considerations guide your business decisions.
Retirement Plan: If you don’t have one, get one. With the decrease in the stock market, so many people are ill prepared for retirement. The current tax savings can take a giant chunk out of your tax bill.
As certified public accountants, we try to be proactive in advising our clients. However, you, the business or individual must not procrastinate. Listen to the certified public accountant tax specialists and retain some money in your pockets on tax day. Discuss your situation with your tax advisor before acting.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
It happened again this week. A nervous client, who owns an entertainment partnership, received an E-mail from the IRS (with the IRS logo and such) claiming that his tax payment was rejected. My gut reaction was “scam,” he didn’t make any tax payments for either his partnership, or individual tax return.
The IRS does not send unsolicited e-mail to taxpayers either about their tax accounts or requesting sensitive personal and financial information.
Nevertheless, taxpayers do receive e-mails claiming to come from the IRS, sometimes containing a real or made-up employee name, address and similar information to make an e-mail seem credible.
These e-mails usually are scams whose purpose is to obtain personal and financial information — such as name, Social Security number, bank account and credit card or even PIN numbers — from taxpayers which can be used by the scammers to commit identity theft. Identity thieves use the data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns and more.
Typically, IRS-impersonation scam e-mails state that the IRS needs certain personal and financial information to process a tax return, tax payment or refund. They may claim the e-mail recipient is being audited. They may mention specific monetary amounts or genuine programs, such as the Electronic Federal Tax Payment System (EFTPS), to add credible detail to the scam. The e-mails often contain links or attachments to what appears to be the IRS web site or an IRS form. However genuine in appearance, these phonies are designed to elicit the information the scammers are looking for.
Alternatively, a link in a scam e-mail may download malicious software onto the taxpayer’s computer when clicked. The software is often designed to search out and send back to the scammer personal and financial information contained on the taxpayer’s computer or obtained through keystrokes that the scammer can use to commit identity theft.
Unsolicited e-mails claiming to be from the IRS or an IRS-related component, such as EFTPS, should be reported to phishing@irs.gov.
Anytime you are asked for sensitive information in an email, e.g., PayPal, IRS, or your bank, assume first that it is a scam. You can call these organizations, or e-mail them directly to inquire about the issue. Never, never e-mail them using a link they have provided you.
Taxes seems to be the topic that prompts people to lose objectivity. Taxes cause anxiety because most people don’t understand the tax law and procedures. Don’t let the pseudo-IRS inflict such emotions. Call your tax professional before making any decisions.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
It’s always good to practice the basics, like a major league baseball player who may work on his swing by hitting a ball off a tee. So here I am going back to the IRS tax site to remind small business owners of the Tax Relief Act of 2010. There may be benefits that you may be missing.
Sect. 2011: Temporary exclusion of 100% of gain on certain small business stock
Expanding on the provisions of Internal Revenue Code Section 1202 and the American Recovery and Reinvestment Act, the Small Business Jobs Act provides an additional incentive for investment in qualified small businesses. Under this Act, investors in qualified small business stock can exclude up to 100% of the capital gain upon sale of the stock.
Under the SBJA, in order to claim the capital gain exclusion, the qualified small business stock must be:
Acquired after September 27, 2010, and before Jan 1, 2011, and
Held for at least five years before the stock is sold.
However, Section 760, Temporary Exclusion of 100% of Gain on Certain Small Business Stock, of the Tax Relief Act of 2010, extended the exclusion for qualified small business stock acquired before January 1, 2012.
Under current law, the earliest tax year for which this 100% capital gain exclusion can be claimed is 2015. Additional limitations, qualifications and requirements may apply. Capital Gains and Losses has information on reporting capital gains.
Sect. 2012: General business credits of eligible small businesses for 2010 carried back 5 years
The new law allows an eligible small business to carry back general business credits five years. Previously, the credits could only be carried back one year. The carryback is for credits determined in the first taxable year beginning after December 31, 2009.
An “eligible small business” in general is defined as follows:
A corporation whose stock is not publicly traded, a partnership, or a sole proprietorship, and
The taxpayer must have $50,000,000 or less in average annual gross receipts over the three preceding tax years.
This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009). The five-year carryback period is available only for credits carried forward to the tax year 2010 and/or earned in the tax year 2010.
Sect. 2013: General business credits of eligible small businesses in 2010 not subject to alternative minimum tax
The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act (see above). The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of such credits.
This is a one year initiative applicable only to the tax year 2010 (For fiscal year filers, the effective tax year is the first tax year beginning after December 31, 2009).
Sect. 2014: Temporary reduction in S-Corporation built-in gain recognition period
Under the Small Business Jobs Act, if the fifth year of an S Corporation’s recognition period ends before their 2011 taxable year begins, then no entity-level tax is imposed on the net recognized built-in gain for the 2011 tax year. Sect. 2021: Increased expensing limitations for 2010 and 2011; certain real property treated as Code section 179 property.
An expense deduction is allowed for businesses which choose to treat the cost of certain qualified property, called section 179 property, as an expense rather than a capital expenditure. For qualifying property placed in service during the taxable years 2010 and 2011, the new law increases both the maximum amount of the deductible expense under IRC Section 179, as well as the statutory phase-out amount. The provision also expands the definition of IRC Section 179 property to include the following types of real property: qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.
Sect. 2022: Additional first-year depreciation for 50% of the basis of certain qualified property
Generally, businesses are allowed to recover the cost of capital expenditures over time through depreciation expense. IRC Section 168(k) allows for additional first-year depreciation, for 50% of the basis, of certain qualified property placed in service after December 31, 2009. The new law extends the additional first-year depreciation deduction to qualified property acquired and placed in service during 2010.
Section 401, Extension of Bonus Depreciation, of the Tax Relief Act of 2010, expands the additional first-year depreciation deduction (bonus depreciation) to equal 100 percent of the cost of qualified property placed in service after September 8, 2010, and before January 1, 2012. It also provides for a 50 percent first-year bonus depreciation deduction for qualified property placed in service after December 31, 2011 and before January 1, 2013.
Sect. 2031: Increase in amount allowed as deduction for start-up expenditures in 2010
For taxpayers starting an active trade or business, the new law increases the amount the taxpayer is allowed to elect as a deduction for start-up expenditures under section 195(b) for taxable years beginning after December 31, 2009. Section 2031 allows up to $10,000 as a deduction for start-up expenditures, but requires a dollar-for-dollar reduction of the $10,000 deduction if startup expenditures exceed $60,000. This expense should be claimed as an “Other Deduction” on business returns, such as the Form 1120, 1120S or 1065, or as an “Other Expense” on the Schedules C or F of the Form 1040. The remainder of any start-up expenditures, not deducted under section 195(b), can be amortized ratably over 180 months on Form 4562, Depreciation and Amortization.
Sect. 2042: Deduction for health insurance costs in computing self-employment taxes in 2010
Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory restrictions (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the employer of the taxpayer’s spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.
Always consult your tax professional before making any of these decisions.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
My grandfather was Alfano the Great. In the 1920’s he walked between 2 eight story buildings with no net. In addition, he walked on his hands, rode a bicycle and did wheelies. All for a few bucks. Obviously, he never fell, or I wouldn’t be here.
The IRS, US Labor Department, and several state labor departments are about to cut the tight rope of some employers who classify employees as independent contractors.
Michael Cohen report, IRS to Team with Labor Dept. on Employee Classification, discusses the IRS and the Labor Dept. combine efforts with seven states to tackle the problem of employee tax classification. This could be a game-changer because one of the problems in employee tax classification has been defining what an “employee” is.
This move among all of these agencies (and I can only guess that the number of states signing on will grow), will allow a sharing of information about employee tax classifications. Now, this may seem harmless, but remember when you can operate a business in Los Angeles without a business license? Ten or fifteen years ago, one of the main ways L A City found you was to look at the business marques in buildings and cross-check them to the business license lists. Now, they get their information from Sacramento and individual tax return schedule C. All they do now is match the addresses to the individual tax return and send out penalty notices.
Employee tax classification databases may change the odds for those employers who are skirting the issue. The penalties could be stiff. Discuss your tax situation with your advisor before making any decisions.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
There is a fine line between guts and stupidity. Stupidity is much more entertaining.
Thanh Viet Jeremy Cao of Rancho Santa Margarita, Calif. pleaded guilty of filing 22 false claims against a number of harmless people. Among these harmless victims were: SEC attorneys, U.S. District Court Judges, U.S. District Court Magistrate Judges, the U.S. Attorney for the Southern District of California, Assistant U.S. Attorneys, U.S. Secret Service special agents and special agents of the IRS. Each lien alleged that the lien victims were “debtors” of Cao for hundreds of millions of dollars.
Why didn’t he just file some against professional assassins? He would have gotten more attention.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
At the time you are reading this article, the IRS is still shaking the kitty litter from their feet. Earlier this month, Jan Van Dusen made them cough up a fur ball. The IRS painted her as a wacky cat lady trying to cheat the government out of its hard-earned taxes. As a Fix Our Feral’s volunteer, whose mission was to trap stray cats, Ms. Van Dusen would trap feral cats, neuter them, and care for them until they can be adopted by owners or released…70 cats to be exact. Ms. Dusen then deducted all expenses relating to the cats as a charitable tax deduction under section 170.
A few months ago, I wrote about this type of charitable tax deduction in Serving as a Vounteer? You Don’t Have To Wait for Heaven to Collect Your Reward. In order to take the deduction, you must have support for some unreimbured expense that you used to support a charitable organization. In addition, you need a letter from the organization acknowledging your expenditure as a gift.
This doesn’t mean that you can go out and plant 200 trees and get a charitable tax deduction unless some organization acknowledges that this is a gift to the organization and in furtherance of their charitable purpose.
In the previous article, I spoke of how my wife and me use our horses for such a purpose. We use them over 90% of the time to patrol for the National and State Park Services. Not only do the Services provide a letter to us, but they train us in CPR, first aid, and we log in with a radio when we patrol. We are in effect, the eyes and ears of the rangers. The program is very precise and requires 12 hours of horse training per year. We deduct 90% of our horse expenses as a charitable tax deduction because we use our horses almost exclusively as the mounted volunteer patrol.
The time to think about your charitable tax deduction is today. Don’t wait until April 14th. If you volunteer for an organization, determine what they need to further their charitable purpose and deduct whatever expenses you require to further it. Your burden is to substantiate it with receipts and a letter acknowledging it as a gift. Alway use a tax professional when making these kinds of decisions.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Every weekend, my wife and I drive to Malibu and saddle up our horses. If you are passing by, you may do a double-take. Looking closer, you would realize that we are dressed in park ranger uniforms equipped with a first aid kit, GPS, and police radio. Our mission: to patrol the National and State Parks assisting hikers, equestrians, and mountain bikers. In other words, we are the eyes and ears of the licensed rangers and are allowed to write off the costs of doing these patrols as an unreimbursed volunteer charitable deduction. Our tax proof is not only the receipts and expenditures, but a report by the National Park Service that logs every minute of our volunteering. So, if the federal government (IRS) wants to pester us about the deduction, they can argue with the federal government (NPS).
Are you volunteering for schools? Houses of worship? Boy Scouts? Your good deeds will not go unrewarded. Here are some tips:
You can deduct 14 cents a mile for the endless driving you do for an organization
Did you donate baked cookies? Save the receipt, you can deduct the cost of the cookies.
What about the washing of your scout uniform? Deduct it.
Manditory conventions for the organization (my grandfather went to them for the Masons).
To deduct any of these, you must have proof that you paid for them and a letter from the organization authenticating them as performed for the organization.
Charitable and governmental organizations are in a financial crunch, and need your services to help meet the needs of the public. In our case, the volunteers of the Santa Monica Mountains federal and state parks, saved the parks over $1.3 million in 2009. However, when serving the organization, don’t forget to claim your just reward by deducting it on your tax return.
Discuss you personal situation with a tax professional before making any decisions.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Congress is sending a tax bill to the President that will ease up the 1099 reporting requirements created by the Health Bill. The 1099 provision required businesses, charities and state and local governments to file a 1099 form with the Internal Revenue Service to report annual purchases from contractors above $600. The bill also would repeal the following:
Business payments of $600 or more made to a corporation;
Amounts paid in consideration for property and other gross proceeds for both property and services; and
Payments of $600 or more made to a service provider by recipients of income from rental real estate.
For more information see the Senate bill under Accounting today. The President is expected to sign it into law.
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
Year’s ago I went to great lengths to report and document the tax donation of a client’s Picasso. The tax return was completed and signed by the qualified appraiser, who supplied by the client. Little did I know that this appraiser was the same person who sold the art to the client. When challenged by the IRS, the IRS appraiser carried more weight due to his “independence” over our appraiser.
My wife dragged me to Beverly Hills estate sales. At first I was very disinterested because I hate to shop. You can tell that by my clothes. I still wear khakis and corduroys from five years ago. I guess that is a dead give away that I am a CPA.
As Los Angeles Certified Public Accountants, we have the opportunity to work in different industries. Each industry has its own special personality, yet there are some tax breaks that many are not taking:
It’s always good to practice the basics, like a major league baseball player who may work on his swing by hitting a ball off a tee. So here I am going back to the IRS tax site to remind small business owners of the Tax Relief Act of 2010. There may be benefits that you may be missing.
My grandfather was Alfano the Great. In the 1920’s he walked between 2 eight story buildings with no net. In addition, he walked on his hands, rode a bicycle and did wheelies. All for a few bucks. Obviously, he never fell, or I wouldn’t be here.
There is a fine line between guts and stupidity. Stupidity is much more entertaining.
