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Tax Tip of the Week | No. 400 | IRS Offers New Cash Payment Option March 29, 2017

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

Tax Tip of the Week | March 29, 2017 | No. 400 | IRS Offers New Cash Payment Option

The Internal Revenue Service has announced a new payment option for individual taxpayers who need to pay their taxes with cash. In partnership with ACI Worldwide’s OfficialPayments.com and the PayNearMe Company, individuals can now make a payment without the need of a bank account or credit card at over 7,000 7-Eleven stores nationwide.

“We continue to look for new ways to provide services for our taxpayers. Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center,” said IRS Commissioner John Koskinen.

Individuals wishing to take advantage of this payment option should visit www.irs.gov payments page, select the cash option in the other ways you can pay section and follow the instructions:

– Taxpayers will receive an email from OfficialPayments.com confirming their information.
– Once the IRS has verified the information, PayNearMe sends the taxpayer an email with a link to the payment code and instructions.
– Individuals may print the payment code provided or send it to their smart phone, along with a list of the closest 7-Eleven stores.
– The retail store provides a receipt after accepting the cash and the payment usually posts to the taxpayer’s account within two business days.
– There is a $1,000 payment limit per day and a $3.99 fee per payment.

Because PayNearMe involves a three-step process, the IRS urges taxpayers choosing this option to start the process well ahead of the tax deadline to avoid interest and penalty charges.

The IRS has been partnering with Official Payments since 1999 for taxpayers wanting to use a credit card to pay taxes.

In this new option, PayNearMe is currently available at participating 7-Eleven stores in 34 states. Most stores are open 24 hours a day, seven days a week. For details about PayNearMe, the IRS offers a list of frequently asked questions on www.irs.gov.

The IRS reminds individuals without the need to pay in cash that IRS Direct Pay offers the fastest and easiest way to pay the taxes they owe. Available at www.irs.gov/Payments/Direct-Pay, this free, secure online tool allows taxpayers to pay their income tax directly from a checking or savings account without any fees or pre-registration.

“Taxpayers should look into the payment option that works best for them,” Koskinen said. Check www.irs.gov/Payments for the most current information about making a tax payment.

The IRS continues to remind taxpayers to watch out for email schemes. Taxpayers will only receive an email from OfficialPayments.com or PayNearMe if they have initiated the payment process. The IRS reminds taxpayers who haven’t taken this step to be watchful of any emails they receive saying there are tax issues involving the IRS or from others in the tax industry.

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. 399 | Five Things to Know About Substantiating Donations March 22, 2017

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

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.

Tax Tip of the Week | No. 398 | A Review of IRS Penalties March 15, 2017

Posted by bradstreetblogger in : General, tax changes, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

Tax Tip of the Week | March 15, 2017 | No. 398 | A Review of IRS Penalties

Many people assume that the IRS will not impose penalties if you weren’t actually trying to cheat on your taxes. Taxes are complex, and mistakes happen.  But the burden is on you to show that you acted reasonably (such as relying on professional tax advice).  If you can’t, you will probably end up with penalties.

The size of penalties varies, but often they are 25% of the outstanding tax liability.  Higher penalties or even criminal prosecution is possible.  The burden can be placed on you to prove you are right or that your mistakes were innocent.  If the IRS believes you were trying to cheat, you could face a 75% penalty or even criminal prosecution.  Most criminal tax cases start with routine audits.  Innocent mistakes can often be forgiven if you can show that you tried to comply and got some advice.

Everyone has heard that “ignorance of the law is no excuse”.  On many key tax subjects, the IRS says that with hardly any effort, you could easily learn the IRS requirements.  The tax laws draw the line between non-willful and willful.  Willfulness can be shown by your knowledge of reporting requirements and your conscious choice not to comply.  Willfulness means you acted with knowledge that your conduct was unlawful—a voluntary, intentional, violation of a known legal duty.  Watch out for conduct meant to conceal, such as:

–    Setting up trusts or corporations to hide your ownership.
–    Filing some tax forms and not others.
–    Keeping two sets of books.
–    Telling your bank not to send statements.
–    Using code words over the phone or in written instructions.
–    Cash deposits and cash withdraws.

Before conducting any actions, ask yourself if your explanations pass the “straight face test”.

Questions, call us BEFORE you do something—not AFTER!

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. 367 | How Are LLC Members Taxed? March 8, 2017

Posted by bradstreetblogger in : Deductions, General, Tax Preparation, Tax Tip, Taxes , add a comment

Tax Tip of the Week | March 8, 2017 | No. 397 | How Are LLC Members Taxed?

There are many issues surrounding the issue of Self-Employment (SE) tax liability for LLC members.  As you will read, we have been waiting on final regulations for 20 years!

Question: Is a limited partner (or LLC member who is not a managing member) subject to self-employment taxes on the trade or business income from the partnership?

Answer: It depends. The tax code [Section 1402(a)(13)] excludes the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments described in the code [§707(c)] to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services.

In 1997, proposed regulations define a limited partner, which includes similarly situated LLC members. Prop. Reg. §1.1402-2(h)(2) states that an individual is treated as a limited partner, and therefore won’t be subject to SE tax, unless he or she does any one of the following:

1.    Has personal liability as defined in Reg. §301.7701-3(b)(2)(ii) for the debts of or claims against the partnership by reason of being a partner.
2.    Has authority under the law of the jurisdiction in which the partnership is formed to contract on behalf of the partnership.
3.    Participates in the partnership’s trade or business for more than 500 hours during the partnership’s taxable year.

Furthermore, a service partner in a service partnership may not be a limited partner. A partner is not considered to be a service partner if that partner only provides a de minimis amount of services to or on behalf of the partnership. A service partnership is a partnership that substantially all the activities of which involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science or consulting [Prop. Reg. §1.1402-2(h)(5) and (6)].

There was opposition to these proposed regulations in the Taxpayer Relief Act of 1997. Congress provided that the IRS cannot issue any final or temporary regulations in this area until July 1, 1998. The IRS and Congress still have not issued any further guidance. However, taxpayers following these proposed regulations can use them as substantial authority in the case they are questioned by the IRS.

Confused?  Give us a call and we’ll figure it out! 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. 396 | Internet Sales Tax March 1, 2017

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

Tax Tip of the Week | March 1, 2017 | No. 396 | Internet Sales Tax

Internet Sales Tax Clash Turned Away by U.S. Supreme Court

The U.S. Supreme Court let stand a Colorado law that imposes reporting requirements on internet retailers in an effort to get customers to pay the sales taxes they owe.

The justices recently turned away an appeal by a retail-industry trade group that challenged the measure as violating the U.S. Constitution.

The case raised questions about a 1992 Supreme Court ruling that bars states from requiring merchants to collect taxes unless they have a physical presence in the state. States lose $23 billion every year in uncollected sales taxes from web and catalog purchases, according to a 2012 estimate by the National Conference of State Legislatures, the most recent figures available.

Although consumers are supposed to pay the taxes themselves, few do unless the seller collects the money.

The Colorado law requires internet retailers to turn over customers’ names, addresses and purchase amounts to tax authorities. Merchants also must notify consumers of their obligation to pay taxes and provide a purchase summary to people who spend more than $500 in a year.

The Direct Marketing Association contended unsuccessfully that the law violates the Constitution’s commerce clause because it applies solely to out-of-state companies.

Colorado officials urged the Supreme Court not to hear the case. The state told the justices that, if they wanted to intervene, they should also consider overruling the 1992 ruling, which Colorado says no longer makes sense given the growth of internet retailing.

The case is a familiar one to the justices, who ruled on a preliminary question in 2015. In that decision, Justice Anthony Kennedy wrote a separate opinion to say that the court should at some point revisit the 1992 case.

As always, give us a call if you have any questions.  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.