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Tax Tip of the Week | No. 470 | The Offer In Compromise – IRS Debt Relief For Those Who Are Eligible July 25, 2018

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Tax Tip of the Week | July 25, 2018 | No. 470 | The Offer In Compromise – IRS Debt Relief For Those Who Are Eligible

Do you owe a huge tax bill to the IRS? If you meet certain conditions, you might be eligible to file for an Offer in Compromise (OIC), and if successful, to eliminate thousands of dollars in tax, penalties and interest – permanently! An OIC is not a payment plan, although there will undoubtedly be some payments involved. Some OIC’s will require payments for 24 months, others for 5 or 6 months, and some will require only one or two payments, depending on the “offered” terms, and / or the “accepted” terms.

There is a multitude of paperwork involved in applying for an OIC. Forms that will have to be submitted will include Collection Information Statements and the Offer in Compromise packet itself. These are not easy forms to fill out. They require information on all of your assets, liabilities, and income and expenses. You will also have to provide at least three months of bank statements, any mortgage statements, pay stubs and other personal information. If you want to see if you qualify for an OIC before filling out all of the paperwork, you can go to IRS.gov and use the Offer in Compromise Pre-Qualifier tool.

An OIC is an agreement between the taxpayer and the IRS that settles a tax debt for less than the full amount owed. It can provide the taxpayer with a fresh start for tax purposes. In order to get an offer accepted, the offer must be appropriate based on what the IRS considers your true ability to pay, but there are conditions. For example, you must have filed all tax returns legally required to be filed. You must also be receiving notices from the IRS for your tax debts. And you cannot be in an open bankruptcy proceeding. Generally, the IRS will not accept an offer if they believe you can pay your tax debt in full, either currently with cash or equity in assets, or through an installment agreement.

The IRS will look at your situation extensively before accepting your OIC. They will only agree to proceed if they believe one of the following situations exists: there is Doubt as to Collectibility, Doubt as to Liability, or it will help with Effective Tax Administration. Doubt as to Collectibility is the reason used most often.

In the application for an Offer in Compromise, you have to name the terms of the offer you are submitting, and 24 months is the default time span for payments. For example, you might offer to pay $100 per month for 24 months on a $50,000 debt, thereby saving over $47,000. And there is generally an application fee of $186. So there will be a payment due with the submission of the OIC of the application fee plus the first payment as offered in your application. Both of these payments can be waived if you meet the Low-Income Certification.

As you might suspect, submitting an Offer in Compromise can be a very long and drawn out process. After submission of the application and any payments due, it might take a few months for the IRS to get back with you. And undoubtedly, they will want more information. However, the end result can be very rewarding if the offer is accepted. Rules continue to apply though, even after acceptance. You must stay current on your tax returns and any taxes due after acceptance, and any refunds on returns filed while the offer is being considered or while it runs its course are applied toward your tax debt, and are not considered payments toward your offer. Other rules might also apply and remember, this is a negotiation, so you should probably have a professional on your side.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | No. 469 | Medicare Costs Set to Rise for the Wealthy (ANOTHER Sneak Attack) July 18, 2018

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Tax Tip of the Week | July 18, 2018 | No. 469 | Medicare Costs Set to Rise for the Wealthy (ANOTHER Sneak Attack)

The federal government is becoming sneakier and sneakier about getting the wealthy to pay an even greater share of Medicare costs. Many of these “sneaky” taxes already exist on your income tax return. These include phase-outs of this and that, various floors and ceilings, tax bracket triggers, the alternative minimum tax, the net investment income tax, the additional Medicare tax, and so forth and so on.

Beginning in 2019, individuals with incomes of $500,000 or more and couples with earnings of more than $750,000 will be required to pay 85% of the costs of Medicare Parts B and D – up from 80% now. This increase in premium is called the income-related monthly adjustment amount. In contrast, Medicare beneficiaries with incomes of less than $85,000 and less than $170,000 for couples – pay only 25% of the costs.

Some of our clients (and their accountants) have been surprised by this extra Medicare tax which may be triggered by increased income levels from events such as selling their business and/or farm, etc. This extra tax is not on your income tax return but appears as additional Medicare withholding from your social security benefits. If your social security benefits are less than the Medicare tax deductions, you have the luxury of sending a check to the Social Security Administration each month and helping to reduce their current deficit.

Certain appeal rights are available if a spike in your income has resulted from a “once in a lifetime” event. If such an event has occurred in your life, there is an actual form titled “Medicare Income-Related Monthly Adjustment Amount – Life Changing Event” that can be filed to help reduce your premium costs.This form may also be filed to report a decrease in your income.

In addition, because the Social Security Administration bases their computations on your modified adjusted gross income, if you file an amended return that lowers your income, you should provide a copy to the SSA along with your acknowledgment receipt from the IRS, as this may help to reduce your premiums.

One final option, if you disagree with the income-related monthly adjustment amount, is to file an appeal. You may file online, or in writing by completing a Request for Reconsideration, or contact your local Social Security office.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA & Norman S. Hicks, CPA

–until next week.

Tax Tip of the Week | No. 462 | The 10 Worst Corporate Accounting Scandals of all Time May 30, 2018

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Tax Tip of the Week | May 30, 2018 | No. 462 | The 10 Worst Corporate Accounting Scandals of all Time

Let’s take a break from the new tax law this week. Instead, let’s go back into the past and revisit some of the HUGE accounting scandals. For those who fail to learn from history are doomed to repeat it.

I have focused for the most part on only three facets of these scandals – 1) How they did it, (2) How they got caught, and 3) Fun facts. Not sure what the author defines as “Fun” fits my definition. The word ”Interesting” at least in my humble opinion may have been a better choice. I will let you be the final judge. The top 10 accounting scandals of the last twenty or so years follow:

Waste Management Scandal (1998)

•    How they did it:  The company allegedly falsely increased the depreciation time length for their property, plant and equipment on the balance sheets.
•    How they got caught: A new CEO and management team went through the books.
•    Fun fact:  After the scandal, new CEO A. Maurice Meyers set up an anonymous company hot-line where employees could report dishonest or improper behavior.

Enron Scandal (2001)

•    How they did it:  Kept huge debts off balance sheets.
•    How they got caught:  Turned in by internal whistle-blower Sherron Watkins; high stock prices fueled external suspicions.
•    Fun fact:  Fortune Magazine named Enron “America’s Most Innovative Company” 6 years in a row prior to the scandal.  (That is funny!)

WorldCom Scandal (2002)

•    How he did it:  Under-reported line costs by capitalizing rather than expensing and inflated revenues with fake accounting entries.
•    How he got caught:  WorldCom’s internal auditing department uncovered $3.8 billion of fraud.
•    Fun Fact:  Within weeks of the scandal, Congress passed the Sarbanes-Oxley Act, introducing the most sweeping set of new business regulations since the 1930s.

Tyco Scandal (2002)

•    How they did it:  Siphoned money through unapproved loans and fraudulent stock sales.  Money was smuggled out of company disguised as executive bonuses or benefits.
•    How they got caught:  SEC and Manhattan D.A. investigations uncovered questionable accounting practices, including large loans made to Kozlowski that were then forgiven.
•    Fun fact:  At the height of the scandal Kozlowski threw a $2 million birthday party for his wife on a Mediterranean island, complete with a Jimmy Buffet performance.

HealthSouth Scandal (2003)

•    How he did it:  Allegedly told underlings to make up numbers and transactions from 1996-2003.
•    How he got caught:  Sold $75 million in stock a day before the company posted a huge loss, triggering SEC suspicions.
•    Fun fact:  Scrushy now works as a motivational speaker and maintains his innocence.

Freddie Mac (2003)

•    How they did it:  Intentionally misstated and understated earnings on the books.
•    How they got caught:  An SEC investigation
•    Fun fact:  1 year later, the other federally backed mortgage financing company, Fannie Mae, was caught in an equally stunning accounting scandal.

American International Group (AIG) Scandal (2005)

•    How he did it:  Allegedly booked loans as revenue, steered clients to insurers with whom AIG had payoff agreements and told traders to inflate AIG stock price.
•    How he got caught:  SEC regulator investigations, possibly tipped off by a whistle-blower.
•    Fun fact:  After posting the largest quarterly corporate loss in history in 2008 ($61.7 billion) and getting bailed out with taxpayer dollars, AIG execs rewarded themselves with over $165 million in bonuses.

Lehman Brothers Scandal (2008)

•    How they did it:  Allegedly sold toxic assets to Cayman Island banks with the understanding that they would be bought back eventually. Created the impression Lehman had $50 billion more cash and $50 billion less in toxic assets than it really did.
•    How they got caught:  Went bankrupt.
•    Fun fact:  In 2007, Lehman Brothers was ranked the #1 “Most Admired Securities Firm” by Fortune Magazine.

Bernie Madoff Scandal (2008)

•    How they did it:  Investors were paid returns out of their own money or that of other investors rather than from profits.
•    How they got caught:  Madoff told his sons about his scheme and they reported him to the SEC.  He was arrested the next day. Penalties:  150 years in prison for Madoff + $170 billion restitution. Prison time for Friehling and DiPascalli.
•    Fun fact:  Madoff’s fraud was revealed just months after the 2008 U.S. financial collapse.

Satyam (2009)

•    How he did it:  Falsified revenues, margins and cash balances to the tune of 50 billion rupees.
•    How he got caught:  Admitted the fraud in a letter to the company’s board of directors.
•    Fun fact:  In 2011, Ramalinga Raju’s wife published a book of his existentialist, free-verse poetry. Raju and his brother charged with breach of trust, conspiracy, cheating and falsification of records. Released after the Central Bureau of Investigation failed to file charges on time.

Credit to CPAGold Newsletter/Blog by Richard Jorgesen May, 2018

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

Tax Tip of the Week | No. 431 | Miscellaneous Tax Facts November 1, 2017

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Tax Tip of the Week | Nov 1, 2017 | No. 431 | Miscellaneous Tax Facts

1.    The easiest IRS tax form, Form 1040 needs more than 100 pages of explanation. When the IRS first introduced Form 1040, it had only 4 pages including the instructions.

2.    Close to one-half of American homes pay zero federal income tax.

3.    The top 1% of Americans pay 43% of all federal tax collected.

4.    Today’s richest Americans pay 39.6% on each $1.00 earned. That may seem high. However, in 1945 the top rate peaked at 94%. Amazingly, in 1913, the tax rate was 1%.

5.    The Internal Revenue Code is more than 10 million words long. It has grown an average of 144,500 words per year since 1955.

6.    The typical American receives about $3,000 for their IRS refund.

7.    The average effective income tax rate is 13.5%. That is most likely much lower than your top tax bracket.

8.    The sale of your home may be the most generous and unused tax exemption. Generally, if you have lived in your home for two out of the last five years and you are married, you may exclude up to $500,000 of your gain, $250,000 if single.

9.    The IRS is the world’s largest financial institution.

10.   In 2014, 35% of calls made to the IRS went unanswered.

11.   The original deadline for paying income taxes was March 1st.

12.   In 2014, for every $100 collected by the IRS, it spent $0.38.

13.   The IRS is active on social media using their accounts to educate the public.

14.   Around 15% of U.S. taxpayers are delinquent on their taxes.

Credit to The Motley Fool and FactRetriever.com

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

…until next week.

Tax Tip of the Week | No. 426 | Birth Dates You Need to Know September 27, 2017

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Tax Tip of the Week | Sept 27, 2017 | No. 426 | Birth Dates You Need to Know

Many of the tax rules for individual taxpayers depend on age.  Attaining a birthday may entitle an individual to a special tax break or end entitlement to another. It should be noted that some apply on the date of the birthday, some rules apply when the birthday is achieved at the end of the year, and some apply with respect to a half-year birthday. Following are some of the major birthdays you need to know:

1 day:  If a child is born on December 31, the child is considered a dependent of his or her parents for the entire year.

If you are legally married on December 31, you are considered married for the entire year.  Likewise, if you are divorced on December 31, you are considered single for the entire year.

Age 13:  The dependent care credit (Daycare credit) can be claimed until the child reaches his or her 13th birthday.

Age 17:  A tax credit up to $1,000 can be claimed for a child under age 17.  You lose the credit the year the child turns 17—the credit is not prorated.

Ages 19 and 24:   A child is considered a “qualified child” and can be claimed as a dependent on the parent’s return until the child turns 19, or turns 24 if he or she is a full-time college student.

However, a parent can still claim a dependency exemption for a child as a “qualified relative” after age 19 or 24 if certain conditions are met.  For example, if a parent supports a child who is 32 years old and lives in the parent’s home and earns less than $4,050 (in 2017), then the parent can claim the dependency exemption.  Certain other factors must also be considered.

If a child has unearned income (investment income) the “Kiddie Tax” rules also apply under ages 19 or 24.

Age 26:  Under the Affordable Care Act, a child can remain on his or her parent’s health insurance policy until the age of 26.  This is true even if the child cannot be claimed as a dependent or even lives with the parent.

Age 50:  When you turn 50 you can make “catch-up” contributions to qualified retirement plans such as 401(k)s, SIMPLE IRAs and Traditional and Roth IRAs.  For 2017, the additional contributions are $6,000 for 401(k)s, $3,000 for SIMPLE IRAs and $1,000 for IRAs.

Age 55:  The 10% early distribution penalty on distributions from qualified retirement plans and IRAs prior to age 59.5 do not apply if the distributions are made because of a separation of service from the employer.

You can also make a $1,000 additional “catch-up” contribution to an HSA account once you reach age 55.

Age 59.5:  The 10% early distribution penalty on withdrawals from qualified retirement plans and IRAs do not apply after attaining age 59.5.

Age 65:  Taxpayers who use the standard deduction vs. itemized deductions can claim additional deductions the year they turn 65.  For 2017, the additional standard deduction is $1,550 for single filers and $1,250 for each spouse at age 65 on joint returns.

Age 65 is also the age when distributions from HSAs can be taken without penalty for non-medical expenses.  However, such non-medical distributions are still subject to income tax.

Age 70.5:  The year you turn age 70.5 is when you must start taking Required Minimum Distributions (RMDs) from qualified retirement plans and IRAs.  (A full discussion of RMD rules goes beyond the scope of this Tax Tip)

Please Note:  This is a very simplified discussion of age-based tax rules and should not be relied upon without consulting with our office.

Happy Birthday!

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.

Tax Tip of the Week | No. 420 | Where Ohio Ranks for Taxes August 16, 2017

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Tax Tip of the Week | Aug 16, 2017 | No. 420 | Where Ohio Ranks for Taxes

The following is a summary of a report recently issued by the Buckeye Institute:

About a dime out of every dollar Ohioans earn, on average, is taken by local and state taxes.

How does that compare to other states? 

The Buckeye Institute in Columbus and the Tax Foundation in Washington, D.C., partnered to produce a report that attempts to answer that question and provides other interesting facts and tidbits.

The Tax Foundation is a think tank that does research and analysis of tax policies. The foundation describes itself as independent, but often advocates conservative policies.

The Buckeye Institute is a conservative-leaning think tank that advocates for “free-market public policy in the states.”

But what’s good from one political viewpoint might be bad from another.

For example, the Buckeye Institute said in releasing the report that “Ohio’s growing tax burden has resulted in slower economic growth for the state over the past several decades.”

Combined taxes; Ohio ranks 19th highest

Adding up state and local taxes, Ohio ranks 19th highest in the country. Ohioans pay nearly a dime in taxes out of every $1 earned.

Ohio’s rate of 9.8 percent for state and local taxes on average is close to the rates in the neighboring states – Michigan (9.4 percent), Indiana (9.5 percent), Kentucky (9.5 percent), West Virginia (9.8 percent) and Pennsylvania (10.2 percent).

Credit given for city income taxes paid where people work

Most Ohio cities and villages don’t impose their income taxes on residents who pay equal or more income taxes to the city where they work, instead granting the residents a 100 percent “credit.”

For example, the city of Centerville has a 2.25 percent income tax, but collects nothing from residents who work in Oakwood and pay Oakwood’s 2.5 percent income tax.

But some cities in the area such as Xenia and Springboro, give only partial credit. So, workers end up paying income taxes to the communities where they work and taxes to the communities where they live.

Ohio’s sales tax is nearly double original rate

Ohio’s sales tax was established in 1935 and went unchanged at 3 percent for 32 years, then increased to 4 percent in 1967. The rate most recently increased in 2013, to 5.75 percent.

Each county also tacks on additional sales taxes. Once the county and state taxes are combined, rates range from 6.75 percent from Greene and Warren counties, to 7.25 percent from Montgomery County, to a high of 8 percent in Cuyahoga County.

Ohio and U.S. local and state revenue sources

The sources of Ohio and local tax revenue is similar to the national trends. The biggest chunk is from sales taxes. In Ohio, 36 percent of the money is raised through sales taxes. That compares to a national average of 35 percent.

Ohio collects a little more through income taxes than most places – 27 percent versus the U.S. average of 23 percent. And Ohio collects a little less from property taxes – 29 percent versus 31 percent nationally.

Average property tax rates by county

The study rated Ohio ninth highest in the country with property taxes amounting to 1.57 percent of the home values on average. The highest property tax rates are in the state’s two largest counties – 2.13 percent in Cuyahoga County and 2.04 percent in Franklin County.

Sales taxes by state

Combining state and county sales taxes, the average rate in Ohio is 7.14 percent.

The 7.14 percent average rate ranks Ohio near the middle nationally, 19th among the 50 states and the District of Columbia.

Two of the states that impose no state income taxes have some of the highest sales tax rates – Washington at 8.92 percent and Texas at 8.19 percent.

A handful of states have no sales tax – Alaska, Delaware, New Hampshire, Montana and Oregon.

State, local tax collections in Ohio above national average

State and local tax collections per capita in Ohio have been above the national average since the mid-1980s, though the gap has closed in recent years.

Ohio and local governments collected $1,138 per capita in 2014, up from an inflation-adjusted total of $210 in 1974.

Ranking Ohio’s business taxes

The Tax Foundation and the Buckeye Institute created a ranking for various types of taxes on businesses and concluded that Ohio ranks low for unemployment insurance taxes (fourth lowest) and property taxes (11th), but high for individual income taxes (47th) and corporate taxes (45th).

Note: included for corporate taxes was Ohio’s commercial activities tax.

Other findings

The Tax Foundation and the Buckeye Institute included in its report a profile of Ohio on a variety of other topics. Some highlights are below.

Ohio is a cheap place to live, according to the report. In comparison to other states, $100 in Ohio is really worth $112. Just six states were identified as better bargains – Alabama, Arkansas, Kentucky, Mississippi, South Dakota and West Virginia.

On the flip side, $100 is only worth $86.43 of spending power in New York State.

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.

Tax Tip of the Week | No. 413 | Learning From Prince’s $250 Million Mistake June 28, 2017

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Tax Tip of the Week | June 28, 2017 | No. 413 | Learning From Prince’s $250 Million Mistake

Finally, over a year after the date of his death, a judge confirmed Prince’s six siblings to be his rightful heirs – after more than 45 people had come forward claiming to be his wife, children, siblings or other relatives.

Last year, the legendary musician passed away, leaving behind not only a legacy of unparalleled music, but also a $250 million fortune – with no will or estate plan to be found. With the long-anticipated announcement that his siblings will inherit his fortune, we’re reminded again of the importance of planning ahead and hiring trusted experts to carry out your wishes.

Whether you have people clamoring after your money or not, it’s important to consider hiring an expert to sort through the, at times, very complicated process of estate planning. There are DIY websites and software packages that may seem attractive (and cheap!), but more often than not, you get what you pay for. More complicated life situations, such as children from a prior marriage, children with special needs, or capital gains from property appreciation, require the hands-on insight of an expert.

It is important to have an unbiased third party look over your documents. Even U.S. Supreme Court Chief Justice Warren E. Burger, who died in 1995, should have relied on estate planning experts to prepare his estate plan – but instead he took it upon himself, and his family paid over $450,000 in taxes because of his errors.

To be better prepared than Prince and Chief Justice Burger, seek out the assistance of an attorney or a CPA to draft a will and do estate planning, respectively. An attorney will help you navigate a will, and a CPA is best positioned to help with more complicated estate planning.

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.

Tax Tip of the Week | No. 409 | President Trump’s Tax Plan Summary May 31, 2017

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Tax Tip of the Week | May 31, 2017 | No. 409 | President Trump’s Tax Plan Summary

We now have some information about the proposals included in President Trump’s tax plan. Remember that this plan is not a law and has not yet even been introduced to Congress as a bill, and that a bill must be passed by both the House and the Senate and then signed by the President, so there is no way to know what will be passed (if anything). This is just a summary of the proposals, without comment. The plan released by the President is a one page plan, so most other details are not available beyond this summary.

Business Changes

C corporation tax rates would be reduced from the current highest rate of 35% to a new flat rate of 15%. Pass-through S corporation and LLC income would also be taxed at 15% rate for small and medium sized businesses (which were not defined).

Corporations would no longer be taxed on a worldwide system, but would be taxed on a territorial system, and a one-time repatriation tax would apply on the foreign earnings of US companies.

The proposal does not include a provision allowing expensing of all business assets, as originally proposed.

Individual Changes

The President wants to reduce the current seven different individual tax brackets to three brackets, with rates set at 10 percent, 25 percent, and 35 percent. The President also wants to double the standard deduction to $24,000 for Joint retruns, repeal alternative minimum tax and the estate tax and expand the credit for child and dependent care expenses, while also repealing the dreaded net investment income 3.8% surtax.

With the new standard deduction and changed brackets, individual taxpayers with taxable income less than $25,000 and married taxpayers with taxable income less than $50,000 would owe no Federal income tax.

Most individual itemized deductions would be repealed, but the deduction for mortgage interest and charitable donations would be retained.

Stay tuned….should be an interesting summer and fall!

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.

Tax Tip of the Week | No. 405 | Items to Note on 529 Plans May 3, 2017

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Tax Tip of the Week | May 3, 2017 | No. 405 | Items to Note on 529 Plans

State Limitations

Often people question which state limits to follow when contributing to a 529 plan. Residence of the contributor? Residence of the beneficiary? The answer is…neither. The limits imposed are dependent on which state sponsors the plan. For most, this will be the state in which the contributor resides. Here in Ohio, the state limit is $414,000 to $426,000 contingent on the type of plan selected. Further, Ohio allows up to $2,000 in tax deductions for contributions to a 529 Plan. So, how much should be contributed annually? Contributors generally try to stay within the annual gift-tax reporting exclusion, which is $14,000, or $28,000 for a couple, per beneficiary. 529 Plans do have a special tax advantage that allow front-load contributions. In short, contributors can contribute $70,000, or $140,000 per couple all at once. However, this bars them from contributing to the same beneficiary for the subsequent four years.


Beneficiaries can be changed with no tax consequences, but a change in beneficiary designation may not always be necessary. A strategy formulated by some is to transfer funds between beneficiaries in the earlier years of college to prevent reduction of potential FAFSA benefits. It should be noted that 529 Plan funds are not included in the calculation of FAFSA benefits. It is not until the funds are withdrawn for education purposes that they are included in the FAFSA benefit calculation.


Penalties…a word no one likes to hear. Fortunately, this segment of the article focuses on when a penalty for withdrawal of unused 529 funds is waived. If these funds are withdrawn because college expenses were paid via scholarships, GI Bills, etc., then the penalty is waived. Earnings in the account are still subject to tax, but the contributions can be withdrawn tax and penalty free.

To further discuss the benefits of a 529 Plan, contact us today 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.

Tax Tip of the Week | No. 399 | Five Things to Know About Substantiating Donations March 22, 2017

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Tax Tip of the Week | March 22, 2017 | No. 399 | Five Things to Know About Substantiating Donations

There are virtually countless charitable organizations to which you might donate. You may choose to give cash or to contribute noncash items such as books, sporting goods, or computers or other tech gear. In either case, once you do the good deed, you owe it to yourself to properly claim a tax deduction.

No matter what you donate, you’ll need documentation. And precisely what you’ll need depends on the type and value of your donation. Here are five things to know:

1. Cash contributions of less than $250 are the easiest to substantiate. A canceled check or credit card statement is sufficient. Alternatively, you can obtain a receipt from the recipient organization showing its name, as well as the date, place and amount of the contribution. Bear in mind that unsubstantiated contributions aren’t deductible anymore. So you must have a receipt or bank record.

2. Noncash donations of less than $250 require a bit more. You’ll need a receipt from the charity. Plus, you typically must estimate a reasonable value for the donated item(s). Organizations that regularly accept noncash donations typically will provide you a form for doing so. Keep in mind that, for donations of clothing and household items to be deductible, the items generally must be in at least good condition.

3. Bigger cash donations mean more paperwork. If you donate $250 or more in cash, a cancelled check or credit card statement won’t be sufficient. You’ll need a contemporaneous written acknowledgment from the recipient organization that meets IRS guidelines.

Special Note About Cash Donations to Churches, Synagogues, etc.:  We continue to see some religious groups simply issue a statement to parishioners showing the annual amount of contributions given.  There have been many court cases showing some very specific language must be included on the receipt for the donation to be classified as a deductible donation if audited.  The statement must include some language like the following: “You did not receive any goods or services in connection with these contributions other than intangible religious benefits.”

Among other things, a contemporaneous written acknowledgment must be received on or before the earlier of the date you file your return for the year in which you made the donation or the due date (including an extension) for filing the return. In addition, it must include a disclosure of whether the charity provided anything in exchange. If it did, the organization must provide a description and good-faith estimate of the exchanged items or service. You can deduct only the difference between the amount donated and the value of the item or service.

4. Noncash donations valued at $250 or more and up to $5,000 require still more. You must get a contemporaneous written acknowledgment plus written evidence that supports the item’s acquisition date, cost and fair market value. The written acknowledgement also must include a description of the item.

5. Noncash donations valued at more than $5,000 are the most complicated. Generally, both a contemporaneous written acknowledgement and a qualified appraisal are required—unless the donation is publicly traded securities. In some cases additional requirements might apply, so be sure to contact us if you’ve made or are planning to make a substantial noncash donation. We can verify the documentation of any type of donation, but contributions of this size are particularly important to document properly.

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.