Every year all around America almost every tax preparer asks the question, “Do you have charitable deductions like donations?” The answer is often, “yes 500.00 at Goodwill, Salvation Army and others.” That answer although widely excepted is not defensible at audit so why not use the pre-holiday season to send your clients a few tips on how to easily and properly document those gifts in order to prove your value as a planner that cares about them. It`s a great excuse to dove tail that call into a request for an appointment between Thanksgiving and the end of year to talk about other more valuable tax saving opportunity that expire atmidnight when the new year’s eve ball drops!
Cash is Cash that’s easy, never use cash! Write a check or use your credit card.
Used Clothing is the biggest offender so below is a link to IRS publication 561;
The long and the short of it is that the value of the items you bag and drop off are the prices they will put on the items when sold next week. Not a percentage of what you paid!
They usually have a guide at any location as to their pricing on items, and you can pick that up and put it with your tax records along with the receipt that says, “One Bag of Clothes.”
BUT WAIT, I’m dropping off the clothes so it’s too late to price these drop offs..this isn’t easy!?!? ANSWER, before you take your items spread them out on a table, floor, bed and TAKE A PHOTO, with your phone!
It take 30 seconds to spread those clothes you just took out of the closet on the bed and snap a photo seconds before you shove them all in the bag to go. After you’ve dropped them off and picked up the sheet you print the photo (emailed from you to you at work and hit print) then at tax time it’s a few seconds. There are 1,2,3,4,5,6 sweaters. 1,2,3,4,5 slacks and 1,2 belts. Sweaters are 24$ and Slacks are 12$ belts are 7$ on this sheet from Goodwill, that’s 218.00 deducted. It takes moments to do and that photo and the list in with your tax documents is 100% defendable!
What the short version of all this? The IRS is cracking down on the non-descript “Automatic 500.00” people have taken for years without thought. You should take a quick photo of donated items before you drop them off and then pick up the stores pricing list and put it with the photo.
This might be the last year you can take a deduction on schedule A as the House passed a bill that would likely have people not itemizing most of the time. Get that stuff in the basement, garage, storage shed out and get it done!
Any deductible expense is useful because it reduces the amount of income subject to tax. But for individual taxpayers, deductions that can be claimed in arriving at adjusted gross income (AGI) — referred to as “above-the-line” deductions — are especially significant. By lowering AGI, above-the-line deductions increase your chances of qualifying for various other deductions and credits.
Alimony. Generally, payments are deductible if they were made in cash pursuant to a divorce or separation instrument. Other requirements may apply.
Traditional IRA contributions. Contributions of up to $5,500 ($6,500 for individuals age 50 or older) to a traditional individual retirement account (IRA) are potentially deductible on your 2015 return. AGI-based limitations apply if you (or your spouse) are an active participant in an employer-sponsored retirement plan.
Rental property/trade or business expenses. Expenses associated with property held for the production of rents are deductible above the line on Schedule E, whereas sole proprietors deduct their trade or business expenses above the line on Schedule C.
Student loan interest. Taxpayers may deduct up to $2,500 of interest expense on qualified higher education loans, though phaseouts apply to those at higher levels of modified AGI.
Moving expenses. Subject to certain requirements, a taxpayer who moves as a result of a change in his or her principal place of work may deduct certain costs of moving and traveling to the new residence.
Health savings account contributions. The 2015 deduction limits are $3,350 for those with self-only coverage under an eligible high-deductible health plan and $6,650 for those with family coverage. An additional $1,000 deduction is available to those 55 and older who are not enrolled in Medicare.
Self-employed taxpayers. The self-employed also may be able to deduct retirement plan contributions, qualified health insurance premiums, and a portion of their self-employment taxes.
For more help with individual or business taxes, connect with us today. Our team can help you with all your tax issues, large and small.
Well, there are so many nuances to the new tax rules that we thought we would break them down over the next few weeks and cover a rule change a week, and then practical examples. The news has covered the doubleing of the standard deduction to death, but knowing it happened doesn’t really help much. What do you do about it? Anything at all or just enjoy? One practical matter would be thinking about what got listed on Schedule A of the return, and can you shift any of those expenses to other places on the return so that you not only get the new higher deduction but some additional benefit? Probably. Take, for instance, your charitable contributions, which are on line 16 on a Schedule A. If you are over 70 and have any kind of pretax accounts that are requiring you to take a certian amount out now each year so that the IRS can apply a tax [RMD], there has been a seldomly used rule for a decade or so that allows you to transfer the RMD, or even more, up to $100,000, from your IRA to a charity directly. Even though that takes the number off the taxable income calculation on the 1040, it still satisfies the RMD requirement! Most people didn’t want to bother with the extra paperwork of a direct transfer in the past, as it was easier to just list it on Schedule A and get most, if not all, of the same tax offset. Now, using the direct transfer approach is likely worth the extra effort, as it saves taxation on the first page of the 1040, and the larger standard deduction that would have swallowed that Schedule A deduction is instead giving you a large additional tax savings! All you have to do is learn the other way to take your RMD. If your current advisor doesn’t know how, or likely has never heard of this strategy, go see a tax planner instead. If you have large IRAs, you’ll find them more useful in many ways!