March 2010

What documentation do I need to substantiate charitable contributions?

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 donee organization showing its name, plus the date and amount of the contribution. It's not sufficient to maintain other written records, such as a log of contributions. 

For a contribution of property other than money, you generally must maintain a receipt from the donee organization showing its name, the date and location of the contribution, and a detailed description (but not the value) of the property. You need not obtain a receipt for a property donation, however, if circumstances make obtaining a receipt impracticable. In that case, you must maintain a reliable written record of the contribution. 

Stricter substantiation requirements apply in the case of charitable contributions with a value of $250 or more. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization.  The acknowledgement must include the amount of cash and a description (but not value) of any property other than cash contributed, whether the donee provided any goods or services in consideration for the contribution, and a good faith estimate of the value of any such goods or services 

In general, you are required to obtain a qualified appraisal for donated property with a value of more than $5,000, and to attach an appraisal summary to the tax return. If an item has been appraised at $50,000 or more, you can ask IRS to issue a “Statement of Value” which can be used to substantiate the value.

February 2010

Can I deduct all home mortgage interest paid?

If you own a home, the interest you pay on your home mortgage provides one of the best tax breaks available. However, many taxpayers believe that any interest paid on their home mortgage loan is deductible. Sadly, they're wrong.

Qualified residence interest is interest incurred from buying, building, or improving your qualified residence, or from home-equity loans on that residence and is deductible. You can deduct interest from up to two qualified residences: your primary home and one other vacation home or similar property. You cannot deduct mortgage interest with respect to a third residence.

However, you can't deduct the interest for acquisition debt greater than $1 million ($500,000 for married individuals filing separately). Note also that the $1 million ceiling on deductible home mortgage debt includes both your primary residence and your second home combined.

The rules are different for home-equity loans. Home-equity debt is debt (other than acquisition debt) secured by your principal or second residence. Home-equity debt is limited to the lesser of $100,000 ($50,000 if your filing status is married filing separately) or your equity in the home.


January 2010

Can I deduct commuting expenses to temporary job locations?

Daily transportation costs between your home and a regular work location are nondeductible commuting expenses. However, you may be able to deduct costs of going to and from your home and a temporary (not regular) job location. This deduction is allowed if your work fits one of the following descriptions:

  1. •You have one or more regular places of business outside your home, but sometimes travel to temporary work locations in the same trade or business.

  2. •You sometimes travel to a temporary work location outside the metropolitan area in which you live and normally work.

Generally speaking, employment at a work location is temporary if it is realistically expected to last (and does in fact last) for no more than a year. Sometimes a temporary location can turn into a regular one. This happens when your realistic expectation changes, so that work at a location that had been expected to last for a year or less is now expected to last for more than a year. You must be able to substantiate the auto expenses that you claim through adequate records, such as a log or diary. You can either use the standard mileage rate or deduct your actual expenses.

If your employer reimburses your commuting expenses you needn’t report the reimbursements as income if they are made under an accountable plan, but you also cannot deduct them.


December 2009

What is the “Making Work Pay” tax credit in the American Recovery and Reinvestment Act of 2009?

The “Making Work Pay” is a tax credit of up to $400 per year for individuals or $800 per year for couples. Here are the details of this new credit:

Eligible individuals will receive an income tax credit for two years (tax years beginning in 2009 and 2010). The new credit, like other tax credits, will reduce a person's tax liability on a dollar-for-dollar basis. Wage earners who don't earn enough to pay income taxes will be able to claim the difference as a tax refund.

The new credit is the lesser of (1) 6.2% of an individual's earned income or (2) $400 ($800 in the case of a joint return).

The credit is available in full only if adjusted gross income doesn't exceed $75,000 for an individual ($150,000 if you file a joint return). The credit is phased out at a rate of 2% of the eligible individual's AGI above $75,000 ($150,000 in the case of a joint return).

Unlike the $600 per worker lump-sum rebates issued last year, the credit can be received as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return.

Since the credit is based on taxable wages and thus unavailable to many retired people and others whose income does not come from wages, the new law includes a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans' Affairs.


November 2009

Is there a required minimum distribution from my retirement account for 2009?

Late last year, Congress passed a law that helps individuals who are taking or about to take required payouts from employer-sponsored tax-qualified retirement plans or IRAs. In essence, the law waives these required payouts (called “required minimum distributions” or RMDs) for calendar year 2009.

The new law change has an impact on three distinct groups of people—here's how you or a family member may be affected. 1) The new law allows older individuals (those who have attained age 70) to skip the RMD that would otherwise be required for calendar year 2009. 2) The new law allows designated beneficiaries of retirement plans or IRAs to skip the annual payout that would otherwise be required for calendar year 2009. 3) The new law doesn't affect owners of Roth IRA accounts for the simple reason that they do not have to make lifetime RMDs from these accounts. However, it does affect beneficiaries of Roth IRAs, who must make minimum annual withdrawals after the account owner dies. Thanks to the new law change, designated beneficiaries of Roth IRAs don't have to make a minimum withdrawal for 2009 from their inherited Roth IRAs.

ABOUT   |   PARTNERS   |   STAFF   |   CAREERS   |    RESOURCES   |   CONTACT

July 2010

What are the 2010 Roth IRA conversion opportunities?

In 2010, for the first time, you may roll over amounts in qualified employer-sponsored retirement plan accounts, such as 401(k)s and profit sharing plans, and regular IRAs, into Roth IRAs—regardless of your adjusted gross income (AGI).


Such a conversion may be desirable because distributions from Roth IRAs may be tax-free if several conditions are met, and a Roth IRA owner does not have to commence lifetime required minimum distributions (RMDs) from Roth IRAs after he or she reaches age 70 1/2 .


However, even if Roth distributions are tax-free, a 10% penalty may apply. Plus, the conversion itself will be fully taxed, assuming the rollover is being made with pre-tax dollars (money that was deductible when contributed to an IRA, or money that wasn't taxed to an employee when contributed to the qualified employer sponsored retirement plan) and the earnings on those pre-tax dollars.


Roth rollovers made in 2010 represent a novel tax-deferral opportunity and a novel choice. If you make a rollover to a Roth IRA in 2010, the tax that you'll owe as a result of the rollover will be payable half in 2011 and half in 2012, unless you elect to pay the entire tax bill in 2010.



June 2010

What are the new benefits to employers as a result of the recently passed HIRE Act?

Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law.

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

In addition, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive.


May 2010

Is your worker an independent contractor or employee?

If a worker is an employee the company must withhold federal income and payroll taxes, pay the employer's share of FICA taxes on the wages plus FUTA tax, and often provide the worker with fringe benefits it makes available to other employees. There may be state tax obligations as well.

These obligations don't apply for a worker who is an independent contractor. The business sends the independent contractor a Form 1099-MISC for the year showing what he or she was paid (if it amounts to $600 or more), and that's it.

Under the common-law rules, an individual generally is an employee if the enterprise he works for has the right to control and direct him regarding the job he is to do and how he is to do it. Otherwise, he is an independent contractor.

Individuals who are “statutory employees,” (that is, specifically identified by the tax code as being employees) are treated as employees for social security tax purposes even if they aren't subject to an employer's direction and control (that is, even if the individuals wouldn't be treated as employees under the common-law rules). These individuals are agent drivers and commission drivers, life insurance salespeople, home workers, and full-time traveling or city salespeople who meet a number of tests. Statutory employees may or may not be employees for non-FICA purposes. Corporate officers are statutory employees for all purposes.

Individuals who are statutory independent contractors (that is, specifically identified by the tax code as being non-employees) aren't employees for purposes of wage withholding, FICA or FUTA, and the income tax rules in general. These individuals are qualified real estate agents and certain direct sellers.

Some categories of individuals are subject to special rules because of their occupations or identities. For example, corporate directors aren't employees of a corporation in their capacity as directors, and partners of an enterprise organized as a partnership are treated as self-employed persons.



April 2010

Can you deduct your club dues?

Like many other enterprises, your business may pay club dues to one or several types of organizations. These dues may or may not be deductible, depending on the type of organization and its purpose.

Your business generally cannot deduct dues paid to a club organized for business, pleasure, recreation or other social purposes. This disallowance rule takes in country clubs, golf clubs, business luncheon clubs, athletic clubs, and even airline and hotel clubs. However, you can deduct 50% of the cost of otherwise allowable business entertainment at a club, even if the dues you pay to the club are nondeductible.

The club-dues disallowance rule generally doesn't affect dues paid to professional organizations including bar associations and medical associations, or civic or public-service-type organizations, such as the Lions, Kiwanis or Rotary clubs. The dues paid to local business leagues, chambers of commerce and boards of trade also aren't affected.

However, an organization isn't exempt from the disallowance rule if its principal purpose is to provide entertainment facilities to its members, or to conduct entertainment activities for them.

Finally, keep in mind that even if the general club-dues disallowance rule doesn't apply, there's no deduction for dues unless you can show that the amount you pay is an ordinary and necessary business expense.