More Than Accounting

Posts Tagged ‘Tax’

Links to Make You Think

Posted by Rhonda Spaulding on January 18, 2008

Here are some interesting tidbits from around the web today.

  1. Do you remember the $300 or $600 tax rebate check that you got a few years ago? President Bush is proposing similar rebates once again as fears of an economic slow down dominate the news. It also looks like there are plans for some tax incentives for small businesses as well. Will Congress approve another Bush tax cut after bashing them all of these years?
  2. Keeping with the tax relief theme, the Indiana Congress is right in the thick of determining what can be done to provide property tax relief. The Governor’s plan as detailed in today’s Indianpolis Star focuses on property tax caps for homeowners and shifting some local spending to the state (but don’t forget that 1% increase in the state sales tax). Governor Daniels’ plan seems to be on a fast track in the house.
  3. Many taxpayers often wonder if they should itemize deductions or not. The standard deduction has increased significantly in the past few years but it is always worth it to add up those deductions to see which will get you the smallest tax bill. Here is a handy summary of the differences between the two methods.
  4. As a “crazy right wing conservative”, I am more and more offended that Mike Huckabee is holding himself out to be a conservative. Please tell me that my party will not nominate someone who thinks the Constitution is a “living, breathing document.” Don’t we have enough of that on the Supreme Court already?
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1099, 1098… Blast off into 2008!

Posted by Rhonda Spaulding on December 30, 2007

Here we are ready to ring in the new year. The year 2008 should bring lots of excitement including a crazy presidential election. However, before we get to all of that we must file and deal with what the IRS calls “Information Returns”. Let’s just review some of the more common forms and what you might need to know as we enter the tax season.

Form 1098 – You will receive one of these if you paid mortgage interest during 2007. When filing your tax return, remember to deduct any mortgage insurance premiums (PMI) for any home you bought or refinanced in 2007. These premiums are only required on the 1098 if more than $600, but are still deductible in 2007.

Form 1098-E – You will receive one of these for any student loan interest you paid in excess of $600.

Form 1099-B – Brokers use this form to report sales of stocks, bonds, etc.

Form 1099-DIV – Corporations primarily issue these forms for each person to whom they paid $10 or more in distributions including dividends, capital gains, or nontaxable distributions on stock. S-Corporation shareholders will receive this form for any distributions made during the year out of accumulated earnings and profits.

Form 1099-G – You should get one of these if you received $10 or more from a government entity. Some common examples include tax refunds and unemployment benefits.

Form 1099-R – This form is used to report distributions of $10 or more from retirement or profit-sharing plans, IRAs, SEPs, annuities or insurance contracts.

Form 1099-MISC – If you own or run a business, you will need to file this form for each person you paid at least $10 in gross royalty payments, or $600 for rents or services in the course of a trade or business.

Form W-2 – Your employer will file this form for each employee. Employers use this form to report wages, tips and other compensation as well as withholdings for income taxes.

You should expect to receive your forms before or around January 31. The forms are due to the IRS by the end of February. W-2 forms are also due to the Social Security Administration by February 29, 2008 (Happy Leap Year)!

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IRS Crackdown on Charitable Contributions

Posted by Rhonda Spaulding on October 26, 2007

The IRS has decided to find all of those people who lie about how much they give to the Salvation Army in front of Walmart each Christmas season by requiring receipts for every donation. In the past, you were able to deduct cash contributions that were less than $250 without a receipt. However, this year you need to have a receipt, bank statement, credit card statement or canceled check for every penny you drop in the bucket if you want to deduct it on your tax return. Bank statements and credit card receipts must have the name of the charity, amount and the date posted. For contributions in excess of $250 you must have a receipt from the charity just as in prior years.

If you give by way of payroll deduction, keep your W-2 and a pledge card with the name of the charity. For payroll deductions of $250 or more, the pledge card or other document prepared by the donee organization must also include a statement that the organization does not provide goods or services in whole or partial consideration for any contributions made to the organization via payroll deduction.

In addition, they have also cracked down on the non-cash contributions of clothing and household items. As of August 17, 2006, any clothing or household items donated must be in “good or better condition”. How are we supposed to prove that our old sweaters were in “good or better condition”? One man’s junk is another man’s treasure, right? This standard allows the IRS to deny ALL clothing and household goods deductions. It has made it almost impossible for a taxpayer to sustain this deduction in an audit, even if it is legitimate. If you plan to deduct donations for these types of goods, you might want to take pictures of what you donate or get an appraisal, but who would do an appraisal on someone’s old jeans? It is quickly becoming apparent that these types of donations are just not going to be deductible. According to the IRS, American’s deducted $9 billion for these items on their 2003 tax returns. While some of that might be overstated, I assume that most of it is legitimate and much more is given that isn’t deducted. There are many people like myself who don’t even bother to keep track of these items. I would venture to say that these unreported donations would offset any fraudulent claims anyway.

I am pretty sure the deduction for contributions was put in place to encourage donations to charitable organizations. Will this new law discourage people from giving that $5 to the Salvation Army or prevent someone from giving a $10 bill to the American Red Cross? Perhaps, but I don’t think America is the most generous nation on earth because it is deductible on our tax returns. Keep giving but maybe you just need to write more checks!

UPDATE: For those who might doubt my last comment about the generosity of the American people, read this story about the donations for the people in California displaced by the wildfires… “Donations Pour in for Calif. Fire Victims”

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Back to School Notes

Posted by Rhonda Spaulding on October 3, 2007

Can you believe it is already October and the first six weeks of this school year is already finished? My oldest daughter started Kindergarten this year so I have been adjusting to the school routine for the first time in a long time!

Education can be expensive, but there are many tax savings available for parents, students and teachers. Here are a few that deserve some attention:

College Choice 529 Plans (Indiana) – Beginning in 2007, Indiana taxpayers may claim a credit of up to $1000 (20% of contributions up to $5000) on their Indiana tax return to the qualified state plans. The 529 plan is administered by JP Morgan Fund Management. You don’t get to pick the fund but all of the withdrawals are tax FREE as long as they are for qualified education expenses.

Coverdell Education Savings Accounts (ESA) – These are savings accounts that also grow tax free for higher education; however, you get to pick the fund where you invest your money. This is what we use to save for our children’s education. The easiest way is to find an investment adviser who can help you select a good mutual fund. You can set the fund up as an ESA and it works much like a Roth IRA. You make after-tax contributions but all of the withdrawals are tax FREE as long as they are for education. Private secondary education may also qualify.

Deductible Education Expenses – There are many tax deductions and/or credits available for parents or students who are currently paying for college. You can check out all of the details in the IRS Publication 970.

Teachers -save those receipts – The Educator expense deduction is available to all eligible educators whether you itemize deductions on Schedule A or not. Eligible educators include those who work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school. This deduction is set to expire after this year, so be sure to save those receipts for books, software and supplies that you buy for use in your classroom!

On a final note, the IRS has issued some clarification on the changes to the deferred compensation rules that may affect teachers who elect to have their pay spread over 12 months rather than only being paid during the school year. The new rules do not apply to school years beginning before January 1, 2008 so your school district should have time to make the necessary changes. You can refer to the IRS guidance for more details.

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