Mar 24

Tips on Deducting Charitable Contributions

From the IRS (with commentary from your local estate planning/probate attorney in Altus in red):

If you are looking for a tax deduction, giving to charity can be a ‘win-win’ situation. It’s good for them and good for you. Here are eight things you should know about deducting your gifts to charity:

1. You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates. (Good advice. In addition, you need to remember that not all tax-exempt organizations are “qualified charities.” An example of such an organization is one involved in lobbying.)

2. In order for you to deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return. (The standard deduction this year for a single individual is $6,100 and $12,200 for married couples. In addition, if you are older than 65 or blind, there can be an additional $1,200 or $1,500 on top of that. So, you may not get a benefit from such a donation.)

3. If you get a benefit in return for your contribution, your deduction is limited. You can only deduct the amount of your gift that’s more than the value of what you got in return. Examples of such benefits include merchandise, meals, tickets to an event or other goods and services.

4. If you give property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market. (There is also a limit of your cost basis in many situations. If you are looking at giving appreciated property, or property that was business property that has been depreciated, then you should consult your tax attorney or CPA.) 

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

6. You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. It can be a cancelled check, a letter from the organization, or a bank or payroll statement. It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

Mar 20

Update from the IRS on the Individual Mandate for Health Insurance

This was recently sent to my by the IRS relating to the Obamacare individual mandate. Since I wrote about the topic earlier this week, I thought I would post this to show more recent updates.

Starting January 2014, you and your family must either have health insurance coverage throughout the year, qualify for an exemption from coverage, or make a payment when you file your 2014 federal income tax return in 2015. Many people already have qualifying health insurance coverage and do not need to do anything more than maintain that coverage in 2014.

Qualifying coverage includes coverage provided by your employer, health insurance you purchase in the Health Insurance Marketplace, most government-sponsored coverage, and coverage you purchase directly from an insurance company. However, qualifying coverage does not include coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or coverage that only covers a specific disease or condition.

You may be exempt from the requirement to maintain qualified coverage if you:

  • Have no affordable coverage options because the minimum amount you must pay for the annual premiums is more than eight percent of your household income,
  • Have a gap in coverage for less than three consecutive months, or
  • Qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group explicitly exempt from the requirement.

A special hardship exemption applies to individuals who purchase their insurance through the Marketplace during the initial enrollment period for 2014 but due to the enrollment process have a coverage gap at the beginning of 2014.

For any month in 2014 that you or any of your dependents don’t maintain coverage and don’t qualify for an exemption, you will need to make an individual shared responsibility payment with your 2014 tax return filed in 2015.

However, if you went without coverage for less than three consecutive months during the year you may qualify for the short coverage gap exemption and will not have to make a payment for those months. If you have more than one short coverage gap during a year, the short coverage gap exemption only applies to the first.

If you (or any of your dependents) do not maintain coverage and do not qualify for an exemption, you will need to make an individual shared responsibility payment with your return. In general, the payment amount is either a percentage of your income or a flat dollar amount, whichever is greater. You will owe 1/12th of the annual payment for each month you (or your dependents) do not have coverage and are not exempt. The annual payment amount for 2014 is the greater of:

  • 1 percent of your household income that is above the tax return threshold for your filing status, such as Married Filing Jointly or single, or
  • Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.

The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. You will make the payment when you file your 2014 federal income tax return in 2015.

For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate.  However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the 1 percent rate.

More Information

Find out more about the individual shared responsibility provision, as well as other tax-related provisions of the health care law at www.irs.gov/aca.

Mar 19

Short rundown on Obamacare

While the Affordable Care Act (aka Obamacare) is all over the news currently, there is still little known about its actual enforcement and how it will affect most people personally. I wanted to take this post to give a brief rundown of what is required right now, as the personal insurance mandate looms (closes on March 31).

First, there will not be any effect on your taxes due on April 15. Although the law, as enacted, required all individuals to purchase insurance by January 1, 2013, that was extended by one year by Presidental dictate in mid-2012 (election year politics). Since this extension is beyond the tax year 2013, there are no effects on this year’s return.

The extension was again extended for those suffering a “hardship” on finding affordable insurance. The “hardship” language of the regulations are nearly all-encompassing, so it could be argued that the fine/tax/penalty for not having insurance could be avoided with next year’s taxes as well. If you do not suffer a “hardship” on finding affordable coverage, then you will be looking at a fine of the greater of $95 or 1% of your adjusted gross income.

(To be continued. Stay tuned for future updates.)

Mar 18

Early Retirement Withdrawals

From the IRS website:

Taking money out early from your retirement plan may trigger an additional tax. Here are seven things from the IRS that you should know about early withdrawals from retirement plans:

1. An early withdrawal normally means taking money from your plan before you reach age 59½.

2. If you made a withdrawal from a plan last year, you must report the amount you withdrew to the IRS. You may have to pay income tax as well as an additional 10 percent tax on the amount you withdrew.

3. The additional 10 percent tax does not apply to nontaxable withdrawals. Nontaxable withdrawals include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

4. A rollover is a type of nontaxable withdrawal. Generally, a rollover is a distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan. You usually have 60 days to complete a rollover to make it tax-free.

5. There are many exceptions to the additional 10 percent tax. Some of the exceptions for retirement plans are different from the rules for IRAs.

6. If you make an early withdrawal, you may need to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with your federal tax return.

7. The rules for retirement plans can be complex.

The last thing is the most important as if you are unaware of the penalties and taxes, a person could face up to a 49.6% federal tax on an early withdrawal. The best option before taking a withdrawal is to talk to a qualified tax advisor to see your potential tax impact.