Valuable gifts to charity may require an appraisal

If you donate valuable items to charity, you may be required to get an appraisal. The IRS requires donors and charitable organizations to supply certain information to prove their right to deduct charitable contributions. If you donate an item of property (or a group of similar items) worth more than $5,000, certain appraisal requirements apply. You must:

  • Get a “qualified appraisal,”
  • Receive the qualified appraisal before your tax return is due,
  • Attach an “appraisal summary” to the first tax return on which the deduction is claimed,
  • Include other information with the return, and
  • Maintain certain records.

Keep these definitions in mind. A qualified appraisal is a complex and detailed document. It must be prepared and signed by a qualified appraiser. An appraisal summary is a summary of a qualified appraisal made on Form 8283 and attached to the donor’s return.

While courts have allowed taxpayers some latitude in meeting the “qualified appraisal” rules, you should aim for exact compliance.

The qualified appraisal isn’t submitted separately to the IRS in most cases. Instead, the appraisal summary, which is a separate statement prepared on an IRS form, is attached to the donor’s tax return. However, a copy of the appraisal must be attached for gifts of art valued at $20,000 or more and for all gifts of property valued at more than $500,000, other than inventory, publicly traded stock and intellectual property. If an item has been appraised at $50,000 or more, you can ask the IRS to issue a “Statement of Value” that can be used to substantiate the value.

Failure to comply with the requirements

The penalty for failing to get a qualified appraisal and attach an appraisal summary to the return is denial of the charitable deduction. The deduction may be lost even if the property was valued correctly. There may be relief if the failure was due to reasonable cause.

Exceptions to the requirement

A qualified appraisal isn’t required for contributions of:

  • A car, boat or airplane for which the deduction is limited to the charity’s gross sales proceeds,
  • stock in trade, inventory or property held primarily for sale to customers in the ordinary course of business,
  • publicly traded securities for which market quotations are “readily available,” and
  • qualified intellectual property, such as a patent.

Also, only a partially completed appraisal summary must be attached to the tax return for contributions of:

  • Nonpublicly traded stock for which the claimed deduction is greater than $5,000 and doesn’t exceed $10,000, and
  • Publicly traded securities for which market quotations aren’t “readily available.”

More than one gift

If you make gifts of two or more items during a tax year, even to multiple charitable organizations, the claimed values of all property of the same category or type (such as stamps, paintings, books, stock that isn’t publicly traded, land, jewelry, furniture or toys) are added together in determining whether the $5,000 or $10,000 limits are exceeded.

The bottom line is you must be careful to comply with the appraisal requirements or risk disallowance of your charitable deduction. Contact us if you have any further questions or want to discuss your contribution planning.


Still have questions after you file your tax return?

Still have questions after you file your tax return?

Even after your 2020 tax return has been successfully filed with the IRS, you may still have some questions about the return. Here are brief answers to three questions that we’re frequently asked at this time of year.

Are you wondering when you will receive your refund?

The IRS has an online tool that can tell you the status of your refund. Go to irs.gov and click on “Get Your Refund Status.” You’ll need your Social Security number, filing status and the exact refund amount.

Which tax records can you throw away now? 

At a minimum, keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return. So you can generally get rid of most records related to tax returns for 2017 and earlier years. (If you filed an extension for your 2017 return, hold on to your records until at least three years from when you filed the extended return.)

However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.

You should hang on to certain tax-related records longer. For example, keep the actual tax returns indefinitely, so you can prove to the IRS that you filed legitimate returns. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)

When it comes to retirement accounts, keep records associated with them until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (You can keep these records for six years if you want to be extra safe.)

If you overlooked claiming a tax break, can you still collect a refund for it?

In general, you can file an amended tax return and claim a refund within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later.

However, there are a few opportunities when you have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. In general, you can amend your tax return to claim a bad debt for seven years from the due date of the tax return for the year that the debt became worthless.

Year-round tax help

Contact us if you have questions about retaining tax records, receiving your refund or filing an amended return. We’re not just here at tax filing time. We’re available all year long.

© 2021


New law tax break may make child care less expensive

The new American Rescue Plan Act (ARPA) provides eligible families with an enhanced child and dependent care credit for 2021. This is the credit available for expenses a taxpayer pays for the care of qualifying children under the age of 13 so that the taxpayer can be gainfully employed.

Note that a credit reduces your tax bill dollar for dollar.

Who qualifies?

For care to qualify for the credit, the expenses must be “employment-related.” In other words, they must enable you and your spouse to work. In addition, they must be for the care of your child, stepchild, foster child, brother, sister or step-sibling (or a descendant of any of these), who’s under 13, lives in your home for over half the year, and doesn’t provide over half of his or her own support for the year. The expenses can also be for the care of your spouse or dependent who’s handicapped and lives with you for over half the year.

The typical expenses that qualify for the credit are payments to a day care center, nanny or nursery school. Sleep-away camp doesn’t qualify. The cost of kindergarten or higher grades doesn’t qualify because it’s an education expense. However, the cost of before and after school programs may qualify.

To claim the credit, married couples must file a joint return. You must also provide the caregiver’s name, address and Social Security number (or tax ID number for a day care center or nursery school). You also must include on the return the Social Security number(s) of the children receiving the care.

The 2021 credit is refundable as long as either you or your spouse has a principal residence in the U.S. for more than half of the tax year.

What are the limits?

When calculating the credit, several limits apply. First, qualifying expenses are limited to the income you or your spouse earn from work, self-employment, or certain disability and retirement benefits — using the figure for whichever of you earns less. Under this limitation, if one of you has no earned income, you aren’t entitled to any credit. However, in some cases, if one spouse has no actual earned income and that spouse is a full-time student or disabled, the spouse is considered to have monthly income of $250 (for one qualifying individual) or $500 (for two or more qualifying individuals).

For 2021, the first $8,000 of care expenses generally qualifies for the credit if you have one qualifying individual, or $16,000 if you have two or more. (These amounts have increased significantly from $3,000 and $6,000, respectively.) However, if your employer has a dependent care assistance program under which you receive benefits excluded from gross income, the qualifying expense limits ($8,000 or $16,000) are reduced by the excludable amounts you receive.

How much is the credit worth?

If your AGI is $125,000 or less, the maximum credit amount is $4,000 for taxpayers with one qualifying individual and $8,000 for taxpayers with two or more qualifying individuals. The credit phases out under a complicated formula. For taxpayers with an AGI greater than $440,000, it’s phased out completely.

These are the essential elements of the enhanced child and dependent care credit in 2021 under the new law. Contact us if you have questions.


Cash payments and tax relief for individuals in new law

A new law signed by President Trump on March 27 provides a
variety of tax and financial relief measures to help Americans during the
coronavirus (COVID-19) pandemic. This article explains some of the tax relief
for individuals in the Coronavirus Aid, Relief, and Economic Security (CARES)
Act.

Individual cash payments

Under the new law, an eligible individual will receive a cash
payment equal to the sum of: $1,200 ($2,400 for eligible married couples filing
jointly) plus $500 for each qualifying child. Eligibility is based on adjusted
gross income (AGI).

Individuals who have no income, as well as those whose income
comes entirely from Social Security benefits, are also eligible for the
payment.

The AGI thresholds will be based on 2019 tax returns, or 2018
returns if you haven’t yet filed your 2019 returns. For those who don’t qualify
on their most recently filed tax returns, there may be another option to receive
some money. An individual who isn’t an eligible individual for 2019 may be
eligible for 2020. The IRS won’t send cash payments to him or her. Instead, the
individual will be able to claim the credit when filing a 2020 return.

The income thresholds

The amount of the payment is reduced by 5% of AGI in excess of:

  • $150,000 for a joint return,
  • $112,500 for a head of household, and
  • $75,000 for all other taxpayers.

But there is a ceiling that leaves some taxpayers ineligible for
a payment. Under the rules, the payment is completely phased-out for a single
filer with AGI exceeding $99,000 and for joint filers with no children with AGI
exceeding $198,000. For a head of household with one child, the payment is
completely phased out when AGI exceeds $146,500.

Most eligible individuals won’t have to take any action to
receive a cash payment from the IRS. The payment may be made into a bank
account if a taxpayer filed electronically and provided bank account
information. Otherwise, the IRS will mail the payment to the last known
address.

Other tax provisions

There are several other tax-related provisions in the CARES Act.
For example, a distribution from a qualified retirement plan won’t be subject
to the 10% additional tax if you’re under age 59 ½ — as long as the distribution
is related to COVID-19. And the new law allows charitable deductions, beginning
in 2020, for up $300 even if a taxpayer doesn’t itemize deductions.

Stay tuned

These are only a few of the tax breaks in the CARES Act. We’ll
cover additional topics in coming weeks. In the meantime, please contact us if
you have any questions about your situation.


Can you deduct charitable gifts on your tax return?

Many taxpayers make charitable gifts — because they’re generous
and they want to save money on their federal tax bills. But with the tax law
changes that went into effect a couple years ago and the many rules that apply
to charitable deductions, you may no longer get a tax break for your generosity.

Are you going to itemize?

The Tax Cuts and Jobs Act (TCJA), signed into law in 2017,
didn’t put new limits on or suspend the charitable deduction, like it did with
many other itemized deductions. Nevertheless, it reduces or eliminates the tax
benefits of charitable giving for many taxpayers.

Itemizing saves tax only if itemized deductions exceed the
standard deduction. Through 2025, the TCJA significantly increases the standard
deduction. For 2020, it is $24,800 for married couples filing jointly (up from
$24,400 for 2019), $18,650 for heads of households (up from $18,350 for 2019),
and $12,400 for singles and married couples filing separately (up from $12,200
for 2019).

Back in 2017, these amounts were $12,700, $9,350, $6,350
respectively. The much higher standard deduction combined with limits or
suspensions on some common itemized deductions means you may no longer have
enough itemized deductions to exceed the standard deduction. And if that’s the
case, your charitable donations won’t save you tax.

To find out if you get a tax break for your generosity, add up
potential itemized deductions for the year. If the total is less than your
standard deduction, your charitable donations won’t provide a tax benefit.

You might, however, be able to preserve your charitable
deduction by “bunching” donations into alternating years. This can allow you to
exceed the standard deduction and claim a charitable deduction (and other
itemized deductions) every other year.

What is the donation deadline?

To be deductible on your 2019 return, a charitable gift must
have been made by December 31, 2019. According to the IRS, a donation generally
is “made” at the time of its “unconditional delivery.” The delivery date
depends in part on what you donate and how you donate it. For example, for a
check, the delivery date is the date you mailed it. For a credit card donation,
it’s the date you make the charge.

Are there other requirements?

If you do meet the rules for itemizing, there are still other
requirements. To be deductible, a donation must be made to a “qualified
charity” — one that’s eligible to receive tax-deductible contributions.

And there are substantiation rules to prove you made a
charitable gift. For a contribution of cash, check, or other monetary gift,
regardless of amount, you must maintain a bank record or a written
communication from the organization you donated to that shows its name, plus
the date and amount of the contribution. If you make a charitable contribution
by text message, a bill from your cell provider containing the required
information is an acceptable substantiation. Any other type of written record,
such as a log of contributions, isn’t sufficient.

Do you have questions?

We can answer any questions you may have about the deductibility
of charitable gifts or changes to the standard deduction and itemized
deductions.

© 2020


Cents-per-mile rate for business miles decreases slightly for 2020

This year, the optional standard mileage rate used to calculate
the deductible costs of operating an automobile for business decreased by
one-half cent, to 57.5 cents per mile. As a result, you might claim a lower
deduction for vehicle-related expense for 2020 than you can for 2019.

Calculating your deduction

Businesses can generally deduct the actual expenses attributable
to business use of vehicles. This includes gas, oil, tires, insurance, repairs,
licenses and vehicle registration fees. In addition, you can claim a
depreciation allowance for the vehicle. However, in many cases depreciation
write-offs on vehicles are subject to certain limits that don’t apply to other
types of business assets.

The cents-per-mile rate comes into play if you don’t want to
keep track of actual
vehicle-related expenses. With this approach, you don’t have to account for all
your actual expenses, although you still must record certain information, such
as the mileage for each business trip, the date and the destination.

Using the mileage rate is also popular with businesses that
reimburse employees for business use of their personal vehicles. Such
reimbursements can help attract and retain employees who drive their personal
vehicles extensively for business purposes. Why? Under the Tax Cuts and Jobs
Act, employees can no longer deduct unreimbursed employee business expenses,
such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, be aware that you must
comply with various rules. If you don’t, the reimbursements could be considered
taxable wages to the employees.

The rate for 2020

Beginning on January 1, 2020, the standard mileage rate for the
business use of a car (van, pickup or panel truck) is 57.5 cents per mile. It
was 58 cents for 2019 and 54.5 cents for 2018.

The business cents-per-mile rate is adjusted annually. It’s
based on an annual study commissioned by the IRS about the fixed and variable
costs of operating a vehicle, such as gas, maintenance, repair and depreciation.
Occasionally, if there’s a substantial change in average gas prices, the IRS
will change the mileage rate midyear.

Factors to consider

There are some situations when you can’t use the cents-per-mile
rate. In some cases, it partly depends on how you’ve claimed deductions for the
same vehicle in the past. In other cases, it depends on if the vehicle is new
to your business this year or whether you want to take advantage of certain
first-year depreciation tax breaks on it.

As you can see, there are many factors to consider in deciding
whether to use the mileage rate to deduct vehicle expenses. We can help if you
have questions about tracking and claiming such expenses in 2020 — or claiming
them on your 2019 income tax return.

© 2019


Help protect your personal information by filing your 2019 tax return early

The IRS announced it is opening the 2019 individual income tax
return filing season on January 27. Even if you typically don’t file until much
closer to the April 15 deadline (or you file for an extension), consider filing
as soon as you can this year. The reason: You can potentially protect yourself
from tax identity theft — and you may obtain other benefits, too.

Tax identity theft explained

In a tax identity theft scam, a thief uses another individual’s
personal information to file a fraudulent tax return early in the filing season
and claim a bogus refund.

The legitimate taxpayer discovers the fraud when he or she files
a return and is informed by the IRS that the return has been rejected because
one with the same Social Security number has already been filed for the tax
year. While the taxpayer should ultimately be able to prove that his or her
return is the valid one, tax identity theft can cause major headaches to
straighten out and significantly delay a refund.

Filing early may be your best defense: If you file first, it
will be the tax return filed by a would-be thief that will be rejected, rather
than yours.

Note: You can get your individual tax return prepared by us before January
27 if you have all the required documents. It’s just that processing of the
return will begin after IRS systems open on that date.

Your W-2s and 1099s

To file your tax return, you must have received all of your W-2s
and 1099s. January 31 is the deadline for employers to issue 2019 Form W-2 to
employees and, generally, for businesses to issue Form 1099 to recipients of
any 2019 interest, dividend or reportable miscellaneous income payments
(including those made to independent contractors).

If you haven’t received a W-2 or 1099 by February 1, first
contact the entity that should have issued it. If that doesn’t work, you can
contact the IRS for help.

Other advantages of filing early

Besides protecting yourself from tax identity theft, another
benefit of early filing is that, if you’re getting a refund, you’ll get it
faster. The IRS expects most refunds to be issued within 21 days. The time is
typically shorter if you file electronically and receive a refund by direct
deposit into a bank account.

Direct deposit also avoids the possibility that a refund check
could be lost or stolen or returned to the IRS as undeliverable. And by using
direct deposit, you can split your refund into up to three financial accounts,
including a bank account or IRA. Part of the refund can also be used to buy up
to $5,000 in U.S. Series I Savings Bonds.

What if you owe tax? Filing early may still be beneficial. You
won’t need to pay your tax bill until April 15, but you’ll know sooner how much
you owe and can plan accordingly.

Be an early-bird filer

If you have questions about tax identity theft or would like
help filing your 2019 return early, please contact us. We can help you ensure
you file an accurate return that takes advantage of all of the breaks available
to you.

© 2020


New law provides a variety of tax breaks to businesses and employers

While you were celebrating the holidays, you may not have
noticed that Congress passed a law with a grab bag of provisions that provide
tax relief to businesses and employers. The “Further Consolidated
Appropriations Act, 2020” was signed into law on December 20, 2019. It makes
many changes to the tax code, including an extension (generally through 2020)
of more than 30 provisions that were set to expire or already expired.

Two other laws were passed as part of the law (The Taxpayer
Certainty and Disaster Tax Relief Act of 2019 and the Setting Every Community
Up for Retirement Enhancement Act).

Here are five highlights.

Long-term part-timers can participate in
401(k)s.

Under current law, employers generally can exclude part-time
employees (those who work less than 1,000 hours per year) when providing a
401(k) plan to their employees. A qualified retirement plan can generally delay
participation in the plan based on an employee attaining a certain age or
completing a certain number of years of service but not beyond the later of
completion of one year of service (that is, a 12-month period with at least
1,000 hours of service) or reaching age 21.

Qualified retirement plans are subject to various other
requirements involving who can participate.

For plan years beginning after December 31, 2020, the new law
requires a 401(k) plan to allow an employee to make elective deferrals if the
employee has worked with the employer for at least 500 hours per year for at
least three consecutive years and has met the age-21 requirement by the end of
the three-consecutive-year period. There are a number of other rules involved
that will determine whether a part-time employee qualifies to participate in a
401(k) plan.

The employer tax credit for paid family and
medical leave is extended.

Tax law provides an employer credit for paid family and medical
leave. It permits eligible employers to claim an elective general business
credit based on eligible wages paid to qualifying employees with respect to
family and medical leave. The credit is equal to 12.5% of eligible wages if the
rate of payment is 50% of such wages and is increased by 0.25 percentage points
(but not above 25%) for each percentage point that the rate of payment exceeds
50%. The maximum leave amount that can be taken into account for a qualifying
employee is 12 weeks per year.

The credit was set to expire on December 31, 2019. The new law
extends it through 2020.

The Work Opportunity Tax Credit (WOTC) is
extended.

Under the WOTC, an elective general business credit is provided
to employers hiring individuals who are members of one or more of 10 targeted
groups. The new law extends this credit through 2020.

The medical device excise tax is repealed.

The Affordable Care Act (ACA) contained a provision that required
that the sale of a taxable medical device by the manufacturer, producer or
importer is subject to a tax equal to 2.3% of the price for which it is sold.
This medical device excise tax originally applied to sales of taxable medical
devices after December 31, 2012.

The new law repeals the excise tax for sales occurring after
December 31, 2019.

The high-cost, employer-sponsored health
coverage tax is repealed.

The ACA also added a nondeductible excise tax on insurers when
the aggregate value of employer-sponsored health insurance coverage for an
employee, former employee, surviving spouse or other primary insured individual
exceeded a threshold amount. This tax is commonly referred to as the tax on
“Cadillac” plans.

The new law repeals the Cadillac tax for tax years beginning
after December 31, 2019.

Stay tuned

These are only some of the provisions of the new law. We will be
covering them in the coming weeks. If you have questions about your situation,
don’t hesitate to contact us.

© 2019


Adopting a child? Bring home tax savings with your bundle of joy

If you’re adopting a child, or you adopted one this year, there
may be significant tax benefits available to offset the expenses. For 2019,
adoptive parents may be able to claim a nonrefundable credit against their
federal tax for up to $14,080 of “qualified adoption expenses” for each adopted
child. (This amount is increasing to $14,300 for 2020.) That’s a
dollar-for-dollar reduction of tax — the equivalent, for someone in the 24%
marginal tax bracket, of a deduction of over $50,000.

Adoptive parents may also be able to exclude from their gross
income up to $14,080 for 2019 ($14,300 for 2020) of qualified adoption expenses
paid by an employer under an adoption assistance program. Both the credit and
the exclusion are phased out if the parents’ income exceeds certain limits, as
explained below.

Adoptive parents may claim both a credit and an exclusion for
expenses of adopting a child. But they can’t claim both a credit and an
exclusion for the same expense.

Qualified adoption expenses

To qualify for the credit or the exclusion, the expenses must be
“qualified.” These are the reasonable and necessary adoption fees, court costs,
attorney fees, travel expenses (including amounts spent for meals and lodging)
while away from home, and other expenses directly related to the legal adoption
of an “eligible child.”

Expenses in connection with an unsuccessful attempt to adopt an
eligible child can qualify. However, expenses connected with a foreign adoption
(one in which the child isn’t a U.S. citizen or resident) qualify only if the
child is actually adopted.

Taxpayers who adopt a child with special needs get a special tax
break. They will be deemed to have qualified adoption expenses in the tax year
in which the adoption becomes final in an amount sufficient to bring their
total aggregate expenses for the adoption up to $14,300 for 2020 ($14,080 for
2019). In other words, they can take the adoption credit or exclude
employer-provided adoption assistance up to that amount, whether or not they
had $14,300 for 2020 ($14,080 for 2019) of actual expenses.

Phase-out for high-income taxpayers

The credit allowable for 2019 is phased out for taxpayers with
adjusted gross income (AGI) of $211,160 ($214,520 for 2020). It is eliminated
when AGI reaches $251,160 for 2019 ($254,520 for 2020).

Taxpayer ID number required

The IRS can disallow the credit and the exclusion unless a valid
taxpayer identification number (TIN) for the child is included on the return.
Taxpayers who are in the process of adopting a child can get a temporary
number, called an adoption taxpayer identification number (ATIN), for the
child. This enables adoptive parents to claim the credit and exclusion for
qualified expenses.

When the adoption becomes final, the adoptive parents must apply
for a Social Security number for the child. Once obtained, that number, rather
than the ATIN, is used.

We can help ensure that you meet all the requirements to get the
full benefit of the tax savings available to adoptive parents. Please contact
us if you have any questions

© 2019


Holiday parties and gifts can help show your appreciation and provide tax breaks

With Thanksgiving behind us, the holiday season is in full swing. At this time of year, your business may want to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It’s a good idea to understand the tax rules associated with these expenses. Are they tax deductible by your business and is the value taxable to the recipients?

Customer and client gifts

If you make gifts to customers and clients, the gifts are deductible up to $25 per recipient per year. For purposes of the $25 limit, you don’t need to include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral — such as small items imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (for example, a gift basket for all team members of a customer to share) as long as they’re “reasonable.”

Employee gifts

In general, anything of value that you transfer to an employee is included in his or her taxable income (and, therefore, subject to income and payroll taxes) and deductible by your business. But there’s an exception for noncash gifts that constitute a “de minimis” fringe benefit.

These are items small in value and given infrequently that are administratively impracticable to account for. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.

De minimis fringe benefits aren’t included in your employee’s taxable income yet they’re still deductible by your business. Unlike gifts to customers, there’s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.

Important: Cash gifts — as well as cash equivalents, such as gift cards — are included in an employee’s income and subject to payroll tax withholding regardless of how small and infrequent.

Throwing a holiday party

Under the Tax Cuts and Jobs Act, certain deductions for business-related meals were reduced and the deduction for business entertainment was eliminated. However, there’s an exception for certain recreational activities, including holiday parties.

Holiday parties are fully deductible (and excludible from recipients’ income) so long as they’re primarily for the benefit of non-highly-compensated employees and their families. If customers, and others also attend, holiday parties may be partially deductible.

Spread good cheer

Contact us if you have questions about giving holiday gifts to employees or customers or throwing a holiday party. We can explain the tax rules.