Resources

Individuals

• Tax Tips for Charitable Contributions

  Here’s a summary of Tips for Charitable Taxpayers from the IRS:
  

  • Charitable contributions are deductible if they’re made to qualified organizations – double check on that!
  • You can deduct charitable contributions only if you file Schedule A on your 1040 form (that is to say you prefer to itemize your deductions rather than use standard deduction allowed)
  • You can deduct: cash contributions and property at its fair market value donated to qualified organizations (there are some additional requirements for any contribution of $250 or more)
  • If you get something in return to your contribution, you can deduct only the amount that exceeds that return (its fair market value)
  • Recordkeeping of charitable contributions is crucial. The record should be written and contain the amount, date and name of the qualified organization received the contribution ((there are some additional requirements for any contribution of $250 or more)
  • You can deduct contributions you actually made during the tax year (but you can deduct your credit card charges and checks issued in the end of the year even if you do not have your bill paid or have you account debited that amount)

  Links:
  

  • Publication 526, Charitable Contributions
  • Charitable Contributions (YouTube Video)

• Medical Expenses

  What to Include?
  
  You may claim expenses you paid for yourself, your spouse (oddly even if you are filing separate), and your dependents:
  

  • expenses incurred for diagnosis, cure, treatment, and prevention of disease
  • payments for long term care services, health insurance, drugs, and transportation and, in certain cases, lodging.

  All medical expenses must be reduced by any payments made by an insurance policy.
  
  When to Deduct?
  
  

  • costs must be deducted in the tax year paid as opposed to the year of medical services.
  • if paying for the medical services by credit card: the IRS deems the medical bills “paid” at the time of the recording of the transaction on the credit card.

  Medical Costs—a Closer Look

  	Deductible Medical Costs Non-Deductible Medical Expenses Prescription Drugs Over the Counter Drugs Doctor visits and Hospital Stays Health club dues Qualified Long-term Care Funeral costs Devices such as crutches, wheel chairs, glasses, dentures, etc. Illegal medical procedures Bandages Over-the-counter medicines Braille books and magazines Nutritional supplements (unless recommended by a medical practitioner as a treatment for a specific condition) Fertility enhancement Health Savings Accounts (HSA) and Medical Savings Accounts (MSA). Pregnancy test kits Flexible Savings Accounts (FSA). Permanent capital improvements to a home to aid you or your dependents (if such improvements actually increase the value of your home you must first subtract any increase in home value from the costs incurred. Only the amount left, if any, is deductible Health Insurance Premiums funded with pre-tax premiums under IRC 125 (i.e., “cafeteria plans”). Generally speaking, most health insurance policies you buy through your employer fall in this category and are not deductible at tax filing time since you already received a benefit of funding such policies. Health insurance premiums including Medicare Parts B & D and certain type of Long Term Care Insurance policies Health Insurance Premiums for the self-employed. These fall under a similar scenario as HSA and MSA. These are generally reported as an Adjustment to Income on page 1 of the 1040. Birth control pills Guide dogs Lactation Expenses Stop smoking programs (except over-the-counter medicines) Weight loss programs if prescribed by a doctor to treat a specific disease such as obesity, hypertension, etc. Transportation expenses to receive medical care

  
  
  Calculate the Deduction!
  
  

  • Complete page 1 of the 1040 and compute your Adjusted Gross Income (AGI)
  • Multiply that amount by 7.5%
  • Subtract this amount from your medical expenses and only what is left is what is deductible.

  You must have enough other itemizations (i.e., home mortgage interest, real estate taxes, charitable contributions, etc.) to beat the standard deduction. Therefore, you may technically have enough medical expenses, but if you don’t have enough “itemizations” to complete Schedule A to beat the standard deduction you are still out of luck!
  

  Medical Expenses: What is Deductible and Why They Are So Difficult to Claim
  By Steve Eubanks, EA, MBA.

Sole Proprietorships & Profit organizations

• Common deductions for various businesses.

  Please note that this list is just to point you in the right direction. This is not all-inclusive – your business might have other deductions necessary for the production of income. Nor all deductions listed here are automatically deductible all the time. Ordinary and necessary rules, as well as supporting documentation rules still apply. Many deductions are subject to various limitations and other rules. Please review IRS publications (Publication 535 (2010), Business Expenses) or discuss with your tax professional for final determination on deductibility of various expenses.
  

  • Day Care Provider Worksheet
  • Realtor Deductions Worksheet
  • Common Business Deductions
  • Vehicle,Travel & Entertainment Expense Worksheet
  • Long Haul Trucker, Overnight Driver Deductions Worksheet

• Do you need to pay estimated taxes? Find out here!

  You may need to pay estimated taxes if you are self-employed, have income other than your salary or you receive income that is not subject to withholding, such as:
  

  • Self-employed income
  • Rent
  • Interest
  • Dividends
  • Alimony
  • Gains from sales of assets
  • Prizes and awards

  You also may have to pay estimated tax if not enough income tax is being withheld from your salary, pension or other income.
  
  Who must pay estimated taxes depends on one’s situation. In most cases, you must pay estimated tax for 2011 if both of the following apply:
  

  • You expect to owe at least $1,000 in tax for 2011 after subtracting your withholding and credits, and
  • You expect your withholding and credits to be less than the smaller of:
  • 90% of the tax to be shown on your 2011 tax return, or
  • 100% of the taxes shown on your 2010 tax return. Your 2010 tax return must cover all 12 months

  Estimated tax is not required for 2011 if all three of the following conditions apply:
  

  • You have no tax liability for 2010.
  • You were a U.S. citizen or resident for the whole year.
  • Your 2010 tax year covered a 12-month period.

  To determine your estimated tax, complete the worksheet accompanying Form 1040-ES. To determine what your estimated tax payments should be, obtain copies of the following:

  • Your 2010 return. Use your 2010 federal tax return as a check to ensure you included all the income and deductions you expect to take on your 2011 tax return. You should also look at the total tax you paid if you are going to base your estimated tax payments on 100 or 110 percent of your 2010 taxes.
  • Records of estimated tax payments you have already made for 2010. You need to take those payments into account in determining how much tax you still owe.

  Estimated tax payments are generally paid in four equal installments. However, you may have unequal payments in some circumstances:

  • If your 2009 overpayment was credited to your 2010 estimated tax payments.
  • If you didn't compute your estimated payments until after April after the first one was due.
  • If you unexpectedly received a higher than normal amount of money during one quarter.

  You could be charged a penalty if you fail to pay or do not pay enough tax each payment period, even if you are due a refund.
  
  

• Family child care providers

        Family child care providers are self-employed taxpayers who must report their business income and expenses to the IRS. It is important to become familiar with all of the IRS requirements for filing your taxes. To help you prepare for this, here are ten record keeping and tax tips to help you as you start your new profession.
  1. Receipts. Keep receipts for every business expense. Your goal should be to have receipts for every penny of your expenses. Because most of the costs to clean, maintain, and repair your home can be partially deducted as a business expense (light bulbs, toilet paper, garbage bags, snow shovel, etc.). Record on your calendar when you go on field trips or travel because of business.
  2. When can expenses be deducted? You must report all income from caring for children. You should begin deducting business expenses as soon as you begin caring for your first child, even if you do not meet local regulations. The only expenses you cannot deduct if you do not meet local regulations are expenses connected with your house (utilities, insurance, taxes, interest, depreciation and repairs).
  3. Food Expenses. Because food costs will probably be your single biggest expense, you should begin keeping careful records of business and personal expenses, including: store receipts, canceled checks, menus, and attendance records.
  4. Monthly Review. Do not wait until the end of the year to collect your receipts and other records. Conduct a monthly review to make sure you have everything in order. Keep your records in one place. Use envelopes to store receipts by category of expense. Make sure receipts are labeled and can be read.
  5. Estimated Tax. You may have to pay some federal income tax before the end of the year. To find out if you must pay estimated tax, estimate your income and expenses through the end of the year. If you will owe $1,000 or more in taxes, you may have to pay in quarterly installments due April 15, June 15, September 15, and January 15.
  6. Employees. If you hire someone as a substitute or helper in your business, you should treat this person as an employee. That means you must withhold social security and income taxes for the employee and pay employers’ social security taxes throughout the year.
  7. Household Inventory. Your house and items in your house that are used at all in your business are being worn out at a faster rate than if you were not doing family child care. As a result, you can deduct or depreciate a portion of the cost of these items as business expenses. Conduct a thorough room-by-room inventory and list every item (furniture, appliances, lawn mower, etc.) in your house.
  8. Year End Expenses. Be aware that if you purchase 40% or more of items that last longer than one year during the last three months of the year, you may not get all the deductions for all of your capital expenses for that year. To avoid this "mid-quarter convention" rule, plan your purchases before October or after December.
  9. Time-Space Percentage. The number that will probably make the greatest difference on your tax return is your Time-Space Percentage. You will use this percent to calculate how much of your expenses that are for business and personal use can be deducted as a business expense.
  

  Number of square feet used for business Total # of square feet

  X

  Number of Hours home is used for business Total # hours in year

  =

  Time/Space %

  Track all the hours children are present, from the moment the first child arrives until the last child leaves. Add all the hours you use your home for business when children are not present doing cleaning, cooking, preparing activities, record keeping, interviewing parents, etc.
  10. House Improvements. You should begin depreciating a portion of your house as a business expense. The amount of house expenses you can depreciate is the purchase price of your home (minus the value of the land) plus all home improvements made before you went into business. Go back and record all of your house improvements (new roof, furnace, remodeling, etc.). Save receipts. Get replacement receipts from contractors, if necessary. As a last resort, photograph the improvements and write down your best recollection of the cost and date it was completed. Keep records of any house improvements you make after you start your business. When you sell your home, you will owe more in taxes.
  

• Car and Truck Expenses

        The IRS has issued a fact sheet that provides an overview of the rules for deducting car and truck expenses. The fact sheet covers the types of deductible transportation expenses, the methods for calculating the deduction (i.e., standard mileage rate or actual cost method), and recordkeeping requirements.
        You may deduct transportation expenses for:
        1. traveling from one work location to another work location within your tax home area;
        2. visiting customers;
        3. attending a business meeting away from the regular workplace; and
        4. traveling from home to a temporary workplace if you have one or more regular places of work.
        The costs of travel between home and a regular place of work are nondeductible commuting expenses.
        The standard mileage rate method may be used to compute vehicle expenses. If the method is used for a leased vehicle, it must be used for the entire term of the lease.
        The standard mileage rate is used in place of the actual cost method. Certain taxpayers may not use the standard mileage rate, including: taxpayers who offer the car for hire (e.g., taxis), use five or more business cars at the same time, claim depreciation or the section 179 allowance on the car, or are rural mail carriers who receive a qualified reimbursement.
        If your vehicle is used for personal as well as business purposes, only expenses attributable to the percentage of business use are deductible under the actual cost method. Depreciation, lease payments, registration fees, licenses, gas, insurance, oil, repairs, garage rent, tolls, tires and parking fees may be deducted under the actual cost method.
        Recordkeeping requirements depend upon whether the standard mileage rate or actual expense method is used. If the standard mileage rate is used, you should keep a daily log showing the miles traveled, destination and business purpose. A mileage log should be maintained by persons using the actual cost method in order to establish business use percentage. Receipts, invoices and other documentation are needed to verify expenses. You must be able to prove the original cost of the vehicle and the date it was placed in service for business use in order to claim depreciation.
  Reproduced with permission from CCH’s Client Letter, published and copyrighted by CCH Incorporated, 2700 Lake Cook Road, Riverwoods, IL 60015.
  

• S-Corporations: wages or distributions?

        There seem to be a lot of confusion regarding S corporations and compensation taken by S corporation owners. Payroll? Distributions? Internal Revenue Code establishes that any officer of a corporation, including S corporations, is an employee of the corporation for federal employment tax purposes.
        Corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code. When corporate officers perform services for the corporation, and receive or are entitled to receive payments, their compensation is generally considered wages. The Treasury Regulations provide an exception for an officer of a corporation who does not perform any services or performs only minor services and who neither receives nor is entitled to receive, directly or indirectly, any remuneration. Such an officer would not be considered an employee.
        What does it mean? If you are an S-corporation owner who “works” for the corporation (provides services, manages corporate activities, has no other employees who could perform these duties) then you probably need to be on payroll – receive salary, file all payroll reports. S-corporation owner who provides services to his corporation can not receive a 1099 for the services. Salary level is another controversial issue. How much should be paid in wages versus receiving a distribution? Your salary should not be too high or too low. It is important to find this optimum level that will minimize taxes and won’t expose your business to an audit.
        Please contact us if you would like to discuss your specific situation and make sure that your corporation is in compliance with the existing regulations.
  

Nonprofit Organizations

International Taxation