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Taxpayers Don’t Comply With Reporting Requirements for Noncash Charitable Contributions | Tax Tip of the Week | No. 191 March 27, 2013

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Are You in Compliance?

About 60% of taxpayers who claim large-dollar noncash charitable contributions on their returns may not be complying with Federal reporting requirements, according to a new report by the Treasury Inspector General for Tax Administration (TIGTA). 

TIGTA’s report found that the IRS is not ensuring that taxpayers are complying with reporting requirements for claiming noncash charitable contributions. An estimated 273,000 taxpayers claimed about $3.8 billion in potentially erroneous noncash charitable contributions in Tax Year 2010, which resulted in an estimated $1.1 billion reduction in tax. 

“Taxpayers can generally deduct noncash charitable contributions made to qualifying organizations during the tax year on their Federal tax returns,” said J. Russell George, Treasury Inspector General for Tax Administration. “However, taxpayers who do not comply with the reporting requirements for noncash contributions could be incorrectly reducing their tax liabilities and receiving tax refunds to which they are not entitled,” he added. 

Taxpayers who donate motor vehicles must attach a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to their tax returns. However, the IRS is still not effectively identifying taxpayers who are not complying with reporting requirements for donations of motor vehicles. 

This is an easy target for the IRS to take aim—make sure you have your records!

As always, give us a call with any questions or concerns you may have. 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

You Need to be Proactive… | Tax Tip of the Week | No. 190 March 20, 2013

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In Debt and Unemployed?

A job loss is an unfortunate event that can throw household finances and debt repayment for a loop. When it happens to you or your family, it’s essential to make a list of your monthly payments and any expected household income, and to begin prioritizing them.

As soon as it’s obvious your income isn’t going to cover your household budget and monthly debt payments, you should proactively contact creditors and your attorney to find out what kind of modified payment plan and other options are possible.

Be sure to write down the full name of the person you spoke with, along with the date and time. Ask the representative to mail you a letter to confirm the new terms discussed.

For a mortgage, contact the lender currently holding the loan and explain your family situation. Ask them about any temporary or permanent loan-modification arrangements they might have.

You may also qualify for assistance under the Making Homes Affordable Program. Depending on your needs and the terms of your loan, you may qualify for different types of assistance. Don’t count on your bank to bring the options to your attention.

If a loan modification is not sufficient, you may want to consider a short sale of your home, in which a buyer is willing to pay less than the underlying mortgage balance, and the bank agrees to forgive the balance of the loan. Be aware that this loan forgiveness will have a negative impact on your credit rating and score for a long time, and could create reportable taxable income.

Bankruptcy is a serious decision that should, in most circumstances, be taken only as a last resort when no other options are available.

Bankruptcy proceedings stay on your credit reports for 10 years and could hamper your ability to obtain credit for at least that long. A bankruptcy can hurt your chances of landing a job or may trigger an increase in your auto and homeowner insurance premiums.

Sometimes, bankruptcy is unavoidable when the amount of your debt payments greatly overwhelms your ability to repay them, usually when the amount of debt exceeds the value of your assets by a large amount.

Despite disadvantages, Chapter 7 bankruptcy can wipe out most unsecured debts, such as credit card and medical bills; it can also stop bill collectors and give you a fresh start.

If you feel that bankruptcy is your only option, call or visit the folks at the National Foundation for Credit Counseling, a non-profit organization that can help you make sense of your options. 

As always, give us a call with any questions or concerns you may have. 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Another Way to Look at the Investment Interest Deduction…Tax Tip of the Week | No. 189 March 13, 2013

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How to Maximize Your Investment Interest Deduction

Typically, investment interest is only deductible to the extent of investment income.  Any investment interest not allowed in the current year due to the investment income limitation is carried forward indefinitely. 

Generally, qualified dividends and net capital gain from the disposition of investment property are not considered to be investment income.  However, you can make an election to treat net capital gains and qualified dividends as investment income to maximize the investment interest deduction. 

The down-side of this election is that such income will now be taxed as ordinary income as opposed to the favorable qualified dividend and long-term capital gain rates. 

If you have been accumulating non-deductible investment interest for several years with no foreseeable opportunity to realize this deduction, you should consider making this election.  This is a particularly strong tax planning tool if your ordinary tax rate in the year of the election is in the lower marginal tax rate brackets.  You can also make this election on an amended return, but it must be made within six months of the unextended due date of the original return. 

This tax tip can get confusing.  We suggest you let us look at your situation to see if it makes sense for you.

As always, give us a call with any questions or concerns you may have. 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

This is Going to be a Tough Tax Season! | Tax Tip of the Week | No. 188 March 6, 2013

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Don’t Wait on Your 1099 or K-1!

In our CPA practice, we find that many clients want to hold all of their tax information until they have received that final Form 1099 or K-1. Yikes! Don’t do that! Some brokerage firms don’t deliver 1099s until as late as March 8th, or amend the original 1099s frequently until March 31st. 

We want you to provide us, or your CPA, with all available tax return information as soon as you have it pulled together. Don’t wait until you receive that last form! 

This year it is especially important to get your tax information to us, or your CPA, as soon as possible. With the passing of the tax bill occurring so late, the IRS is still working to get many forms finalized. By getting your information to your CPA in early March, you will have your return in the front of the queue and through the tax season hourglass well before the stress of April 15th! 

As always, give us a call with any questions or concerns you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.