Six IRS Tips for Year-End Gifts to Charity

Many people give to charity each year during the holiday season. Remember, if you want to claim a tax deduction for your gifts, you must itemize your deductions. There are several tax rules that you should know about before you give. Here are six tips from the IRS that you should keep in mind:

  1. Qualified charities. You can only deduct gifts you give to qualified charities. Use the IRS Select Check tool to see if the group you give to is qualified. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
  2. Monetary donations. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
  3. Household goods. Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.
  4. Records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
  5. Year-end gifts.  You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.
  6. Special rules. Special rules apply if you give a car, boat or airplane to charity.

    **This message was distributed automatically from the IRS Tax Tips mailing list. For more information on federal taxes please visit IRS.gov.

Social Security Wage Base Increases to $118,500 in 2015

The Social Security Administration (SSA) announced on Wednesday, October 22, 2014, that the 2015 social security wage base will be $118,500, an increase of $1,500 from the 2014 wage base of $117,000 (the SSA Fact Sheet is available at www.americanpayroll.org/members/Forms-Pubs/#annual). As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax. As in 2014, wages paid in excess of $200,000 in 2015 will be subject to an extra 0.9% Medicare tax that will only be withheld from employees’ wages. Employers will not pay the extra tax.

The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2015 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2015 is $7,347. This will be an increase of $93 for employees and employers.

The social security wage base for self-employed individuals in 2015 will also be $118,500. There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the social security wage base. In 2015, the maximum social security tax for a self-employed individual will be $14,694.

FICA coverage threshold for domestic, election workers
The threshold for coverage under social security and Medicare for domestic employees will be $1,900 in 2015, unchanged from 2014; the coverage threshold for election workers will be $1,600 in 2015, also unchanged from 2014.

*This post is a Compliance Update taken from the American Payroll Association.

Still Time to Act to Avoid Surprises at Tax-Time

Even though only a couple months remain in 2014, you still have time to act so you aren’t surprised at tax-time next year. You should take steps now to avoid owing more taxes or getting a larger refund than you expect.  Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return:

  • Adjust your withholding. If you’re an employee and you think that your tax withholding will fall short of your total 2014 tax liability, you may be able to avoid an unexpected tax bill by increasing your withholding. If you are having too much tax withheld, you may get a larger refund than you expect. In either case, you can complete a new Form W-4, Employee’s Withholding Allowance Certificate and give it to your employer. Enter the added amount you want withheld from each paycheck until the end of the year on Line 6 of the W-4 form. You usually can have less tax withheld by increasing your withholding allowances on line 5. Use the IRS Withholding Calculator tool on IRS.gov to help you fill out the form.
  • Report changes in circumstances. If you purchase health insurance coverage through the Health Insurance Marketplace, you may receive advance payments of the premium tax credit in 2014. It is important that you report changes in circumstances to your Marketplace so you get the proper type and amount of premium assistance. Some of the changes that you should report include changes in your income, employment, or family size. Advance credit payments help you pay for the insurance you buy through the Marketplace. Reporting changes will help you avoid getting too much or too little premium assistance in advance.
  • Change taxes with life events.  You may need to change the taxes you pay when certain life events take place. A change in your marital status or the birth of a child can change the amount of taxes you owe. When they happen you can submit a new Form W–4 at work or change your estimated tax payment.
  • Be accurate on your W-4.  When you start a new job you fill out a Form W-4. It’s important for you to accurately complete the form. For example, special rules apply if you work two jobs or you claim tax credits on your tax return. Your employer will use the form to figure the amount of federal income tax to withhold from your pay.

Pay estimated tax if required.  If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay the tax four times a year. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax.

Amended Returns: Why, When, and How

If you’ve filed a federal income tax return that you know does not accurately reflect your income and deductions, what should you do now? It depends on the year of the return as well as what you erroneously reported or failed to report.

Time limits

There is only a limited period in which you can amend a tax return. Usually, you must file within 3 years of the time you filed your return. If you filed before the due date of the return (e.g., February 23), the 3-year period runs from the due date (April 15), not the date of filing. If you received a filing extension to October 15 and filed before that extended due date (e.g., August 16), that earlier filing date (August 16) is the date used for the 3-year period.

There is added time in special situations. In the case of worthless securities or a bad debt, you have 7 years (instead of 3 years) to file an amended return in order to make a refund claim for overpaid taxes resulting from not reporting these write-offs on your original return.

Once the period for filing an amended return expires, you’re out of luck. This is so regardless of the amount of tax involved. The only exception: if you are unable to manage your financial affairs due to a physical or mental impairment that has lasted a year or is expected to last this long or result in death and you do not have a spouse or someone else authorized to handle your financial affairs. If you have this financial disability, the refund period is suspended for the period of disability.

Note: If you are filing an amended return to claim an additional refund, the IRS advises that you wait until you receive the initial refund (you can cash the check); then file the amended return for the additional refund claim.

Whether to file an amended return

File an amended return if:

  • You want to change your filing status. If you changed for your filing status but didn’t take it into account correctly, you can amend. For example, if you were legally divorced by December 31, you cannot file a joint return for the year and should amend your return to claim the correct filing status (e.g., single, head of household). However, if you are married and filed jointly, you cannot decide to file separately after April 15 has passed (if you filed separately, you can file jointly within the period for amending returns).
  • You omitted income. For example, if you receive a 1099 or a Schedule K-1 reporting additional income after you filed, amend your return to include this omitted income.
  • You failed to claim deductions or tax credits to which you were entitled (or claimed them when you weren’t entitled to). For example, if you claimed the standard deduction but now see that itemizing would result in a lower tax, amend your return.

Don’t file an amended return if:

  • You made a math error. The IRS will correct it and send you notification.
  • You forgot to attach a W-2 form or other required documentation. If needed, the IRS will ask for it. While you’re supposed to attach a W-2 form to a paper return, the IRS probably doesn’t need it because it can view the employer copy to verify your wages.

Your discretion. If you didn’t take a write-off you were entitled to, it’s really up to you to decide whether to file an amended return. Weigh the refund you can recoup against the cost of filing an amended return if you use a tax professional to do it. Also consider the audit risk; while the chances of being audited are very low, amended returns are generally considered to have a higher audit risk than original returns (this is based on the opinion of some tax professionals and not on IRS audit statistics).

How to file an amended return

Whether you filed Form 1040, 1040A, or 1040EZ, you must use Form 1040X as your amended return. Obtain the right Form 1040X, which is the one that relates to the year you are amending (e.g., 2012 Form 1040X if you are amending your 2012 return). If are you are amending returns for more than 1 year, use separate 1040Xs and submit them separately (not in the same envelope).

Indicate on the form what change(s) you want to make. Attach any additional forms and schedules as well as any supporting documentation if necessary or helpful.

File the return by mail because amended returns cannot be filed electronically. This is so even if you filed your original return electronically.

If you owe additional taxes as a result of an amended return, send the added taxes (or make an electronic payment for the tax year of the amended return) to limit interest and penalties that may result.

You may also need to contact your state if changes to your federal income tax return impact your state income taxes. If you don’t do this, you may later hear from your state. The IRS shares tax information, including amended returns, with the states.

*This post taken from J.K. Lasser archives:  http://www.jklasser.com/articles

7 Deadly Tax Sins

Taxes are complicated, so it’s no wonder that everyone makes mistakes from time to time. But some actions go beyond incorrect arithmetic or thinking something is deductible when it’s not. Some actions can cost you tax breaks you might otherwise have been entitled to. And some actions can land you in serious trouble with the IRS, triggering steep civil penalties and, in some case, criminal penalties. Here are actions to always avoid:

1.    Not filing returns
If you meet the annual tax filing threshold for your filing status, you must file an income tax return, even if you don’t owe any money. If you don’t file, the IRS can complete a tax return for you, and may say you owe taxes. If no return is filed, the IRS has an unlimited amount of time to take action with the blank tax year (the year for which you didn’t file a return).

2.    Faking documentation
Once you’re called for an audit, it won’t help you to retroactively create the records you should have been maintaining all along. For example, the IRS has been known to use experts for detecting fake car mileage logs (those prepared in one sitting using different color ink to make it look as if it were done contemporaneously with the dates of the trips). Faking documents can amount to a crime (see Tonya Womack and Donald Ray Womack, CA-5, 2012, who were convicted for creating fictitious mileage logs as well as other actions on behalf of their clients).

Even if there’s no fraud involved, sloppy documents can be costly, too (see Sin #7 below). In one case, mileage logs that had questionable and missing entries resulted in the complete disallowance of a couple’s deduction for car use (Moore, TC Summary Opinion 2012-16).

3.    Claiming breaks you’re not entitled to
A March 2014 report from Treasury Inspector General for Tax Administration found that 22% to 26% of earned income tax credit (EITC) payments were issued improperly in the government’s 2013 fiscal year, totaling $13.3 to $15.6 billion. This red flag has put the IRS on the alert (if it weren’t already on the alert) to bogus tax credit claims. Because the EITC is refundable, it is even more susceptible to fraud than many other tax breaks.

The EITC isn’t the only tax write-off that’s abused. There are frequent examples of false charitable contributions and dependency exemptions, as well as “creative” deductions (e.g., treating a veterinarian’s bill for a family pet as a personal medical expense).

4.    Failing to report income
Intentional omissions of income can result in stiff penalties when discovered. And the IRS has more time than usual—six years instead of three years—to audit a return that omits more than 25% of gross income.

5.    Concealing foreign accounts
If you have foreign bank or investment accounts, you are required to report them annually if the aggregate value of all such accounts exceeds $10,000 at any time during the year (find more information about FBAR reporting at www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR). Some individuals have concealed these accounts to avoid reporting the income they earn from them (or for personal reasons, such as keeping them out of the hands of creditors or former spouses). Whatever the reason for failing to report these accounts, the penalties can be severe, and the IRS now has the help of many foreign banks and financial institutions to help them track down U.S. depositors and investors.

6.    Misreporting information
Being careful can avoid attracting IRS scrutiny to your return; make sure that any tax information reported to you on a 1099, W-2, K-1, or other information return is reported properly on your income tax return. Mismatching will be detected by IRS computers and a letter will be generated if additional taxes are owed. When omissions are significant, the IRS may choose to do a bigger—and more painful—audit.

7.    Ignoring substantiation rules
To paraphrase a famous slogan: Tax deductions are a terrible thing to waste. But if you don’t have required records—receipts, diaries and logs, acknowledgments, etc.—you can lose deductions and credits to which you would otherwise be entitled.

Conclusion
If you’ve committed any of these tax sins, contact a tax attorney immediately (an attorney is bound by privilege, which protects your disclosures to him or her in case of any criminal activities). If you come forward and correct your actions before the IRS catches you, things will go a whole lot better and be a lot less costly in terms of penalties and other sanctions.

Source: http://www.jklasser.com/articles/7-deadly-tax-sins/?elq_mid=1999&elq_cid=225187
Original Source: http://www.treasury.gov/tigta/auditreports/2014reports/201440027fr.pdf

Make A Mistake? Amend Your Tax Return

Don’t worry if you made a mistake on your tax return or forgot to claim a tax credit or deduction. You can fix it by filing an amended return. Here are 10 tips that you should know about amending your federal tax return:

  1. When to amend. You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.
  2. When NOT to amend. In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a request for the missing item.
  3. Form to use. Use Form 1040X to amend a federal income tax return that you previously filed. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.
  4. More than one year. If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See “Where to File” in the instructions for Form 1040X for the correct address to use.
  5. Form 1040X. Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.
  6. Other forms or schedules. If your changes involve other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. Failure to do this will cause a delay in processing.
  7. Amending to claim an additional refund. If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 12 weeks to process. You will receive any additional refund you are owed.
  8. Amending to pay additional tax. If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit any interest and penalty charges.
  9. When to file. To claim a refund, you generally must file Form 1040X within three years from the date you filed your original tax return. You can also file it within two years from the date you paid the tax, if that date is later than the three-year rule.
  10. Track your return. You can track the status of your amended tax return three weeks after you file with ‘Where’s My Amended Return?’ This tool is available on IRS.gov or by phone at 866-464-2050.
**This message was distributed automatically from the IRS Tax Tips mailing list. For more information on federal taxes please visit IRS.gov.

If we prepared your return & you found a mistake, we will prepare & file an amended return at no additional charge. We will also amend returns prepared outside our office for a minimal fee. To keep up with the changing tax laws
visit the Tax Resources page of our website, or email us your questions.

Email: info@mccpas.com     Phone: (913)239-9130     Fax: (913)239-0520

Five Easy Ways to Spot a Scam Phone Call

The IRS continues to warn the public to be alert for telephone scams and offers five tell-tale warning signs to tip you off if you get such a call. These callers claim to be with the IRS. The scammers often demand money to pay taxes. Some may try to con you by saying that you’re due a refund. The refund is a fake lure so you’ll give them your banking or other private financial information.

These con artists can sound convincing when they call. They may even know a lot about you. They may alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. If you don’t answer, they often leave an “urgent” callback request.

The IRS respects taxpayer rights when working out payment of your taxes. So, it’s pretty easy to tell when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a sign of a scam. The IRS will never:

  1. Call you about taxes you owe without first mailing you an official notice.
    2. Demand that you pay taxes without giving you the chance to question or appeal the amount they say you owe.
    3. Require you to use a certain payment method for your taxes, such as a prepaid debit card.
    4. Ask for credit or debit card numbers over the phone.
    5. Threaten to bring in local police or other law-enforcement to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what to do:

  • If you know you owe taxes or think you might owe, call the IRS at 800-829-1040 to talk about payment options. You also may be able to set up a payment plan online at IRS.gov.
  • If you know you don’t owe taxes or have no reason to believe that you do, report the incident to TIGTA at 1.800.366.4484 or at www.tigta.gov.
  • If phone scammers target you, also contact the Federal Trade Commission at FTC.gov. Use their “FTC Complaint Assistant” to report the scam. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, the IRS currently does not use unsolicited email, text messages or any social media to discuss your personal tax issues. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.

**This message was distributed automatically from the IRS Tax Tips mailing list. For more information on federal taxes please visit IRS.gov.


 

If you do get IRS correspondence that you’re not sure what to do with, let us take a look at it. We’re happy to research the issue and even respond on our clients’ behalf if appropriate. Let us know if we can help you!

Email: info@mccpas.com     Phone: (913)239-9130     Fax: (913)239-0520

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