Know the Deduction Rules for Donating Vehicles to Charity

If you donate a used vehicle to charity, you are allowed to take a tax deduction for your generosity, but only if you itemize deductions on your tax return. Here’s the current rule governing donated vehicles.

Tax law: The charity must inform the taxpayer of the price the donated vehicle sold for at auction. This is the amount the taxpayer can claim as a tax deduction. If the charity keeps the vehicle for its use, it must give the taxpayer an estimate of the value. This requirement applies when the claimed value of the vehicle exceeds $500.

Application: If a taxpayer gives a car with a blue book value of $3,000 to a charity, that value cannot be used -even as a starting point -for determining the value of the vehicle and the amount of the deduction. If the charity sells the car for $575, that’s the amount that can be taken as an itemized deduction. However, if the charity uses the vehicle for its own use or is in the business of training others then the full market value can be used as a deduction.

Since the value of the deduction for you can vary widely, it is important to donate your vehicle to the right charitable organization to receive the best valuation at the time of donation. So prior to making this valuable donation, try to identify how the charitable group will be using the vehicle.

If you have questions or need help with your tax deductions, our team can help. Schedule a meeting with our team of tax professionals here: https://www.bas-pc.com/appointment-center/

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Keep an eye on your company’s cash !! | Bookkeeping services NJ

Do you regularly monitor your company’s cash accounts? Being aware of where your cash is going can help prevent theft or improper expenditures, which are among the chief sources of loss for small companies.

Do you regularly monitor your company’s cash accounts? Being aware of where your cash is going can help prevent theft or improper expenditures, which are among the chief sources of loss for small companies.

What can you do to reduce the risk of losses? The textbook answer is to implement “internal controls.” Internal controls are standard procedures for assuring the integrity of your financial processes. For example, segregation of duties, such as having more than one person involved in preparing, signing, and reconciling checks, is an internal control.

Here are suggestions for safeguarding your company’s cash.

• Make sure all invoices have an approval signature before being paid.
• Personally verify that new vendors exist.
• Require sign-off of employee expense reports by a higher-level employee.
• Don’t permit the person who prepares a company check to sign that check.
• Consider requiring two signatures on checks.
• Maintain a list of void checks and compare them to your bank statement.
• Use a bank stamp to endorse checks immediately upon receipt.
• Personally open bank statements and other mailings from the bank.
• Review and reconcile your bank statement regularly.
• Monitor online access to your business account.

Please contact our office for details or for assistance in improving controls over your company’s cash.

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The Alternative Minimum Tax: Will it affect you?

In your tax planning, don’t overlook how your tax-saving strategies might be impacted by the alternative minimum tax.

What is the alternative minimum tax?

Enacted back in 1969, the alternative minimum tax (AMT) is a separate income tax calculation that was designed to make sure that high-income taxpayers pay a minimum amount of taxes, even if they have sufficient deductions and credits to reduce their federal income tax liability to zero.

To calculate the AMT, start with regular taxable income, which includes all your familiar deductions and exemptions. Then make adjustments and add back certain “preferences” to arrive at your AMT income. Preferences include personal exemptions, state and local taxes, certain interest on home-equity loans, and miscellaneous itemized deductions.

After adding back the preferences, you’re entitled to an exemption amount, though the exemption phases out at higher-income levels.

You then calculate your AMT by applying tax rates of either 26 percent or 28% depending on your AMT taxable income. The income thresholds for these rates change each year. Finally, you compare your AMT to your regular tax and pay whichever is greater.

Who is impacted by the AMT?Congress created the AMT to ensure that wealthier taxpayers, who often have the kinds of income and deductions that qualify for preferential tax treatment, would pay at least a minimum amount of tax. Congress also wrote exemptions into the law, so that middle-income taxpayers wouldn’t be subject to the AMT. Today the AMT impacts a much broader cross-section of taxpayers.

Will the AMT impact you?

You need to consider the AMT if you have a lot of dependents or if you claim substantial itemized deductions. You may also be subject to the AMT if you realize hefty capital gains during the year or exercise incentive stock options. Claiming certain tax credits might trigger the AMT as well. And if you are an owner of rental real estate or a capital intensive business, you need to be aware that the amount of depreciation allowed under the AMT is limited.

Don’t let the AMT cause your tax planning strategies to backfire. To find out whether you might be affected by the AMT, contact our team today: https://www.bas-pc.com/appointment-center/

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Children, Parents and Taxes

Being a parent brings tremendous rewards, but also the challenge and responsibility of supporting and educating your child. Fortunately, the tax code has many ways to help ease a parent’s financial burden. Here’s an overview of the many ways that taxes can affect your decisions as a parent.

Exemptions and credits

• Most parents can claim a child tax credit for each child under age 17. This is a direct credit against taxes you owe, and it can be partially refundable.
• Other child related credits include the adoption credit to offset expenses of adoption and the childcare credit. This credit allows you to offset some of the costs of paying for child care so that both spouses can work or attend school full-time. Many of these tax breaks phase out for those at higher income levels.

Education expenses

• One of the biggest challenges for a parent is funding a child’s college education. A variety of tax breaks can help with this major expense, including savings plans, tax
  credits, and tax deductions. These measures all have different rules and eligibility requirements.
• There are two main types of savings plans for education expenses: Coverdell education savings accounts and Section 529 plans. Coverdell accounts work rather like an IRA.Contributions grow tax-free, and withdrawals are free of tax if used for qualified education expenses. Coverdell accounts can also be used to pay for K-12 expenses as well as college costs. Section 529 plans provide tax-free earnings and distributions for higher education expenses, and they generally have fewer restrictions than Coverdell accounts.
• The American Opportunity credit and the Lifetime Learning Credit are two tax credits available for education expenses. Each has its own rules and income limits,and you cannot use both credits for the same child in the same year.
• A limited tax deduction is available for student loan interest expense. In addition, interest on U.S. savings bonds can be tax-free if the bonds are used for education expenses.

Child tax issues

• The “kiddie tax” is a rule that affects the investment income of children. A child’s unearned income above a threshold amount will be taxed using trust and estate tax rates. The intent is to stop a high-income parent from shifting large amounts of earnings to a child in a lower tax bracket.
• A strategy of “income shifting” can make sense for a family once the child is old enough to escape the kiddie tax. Parents can gift income-earning assets to older children (subject to the annual and lifetime gift limits), and the children will pay tax on the income earned at their own (presumably lower) rates.
• Another tax-cutting strategy is to employ your child in the family business. The business can take a deduction for wages paid, while the child often pays little or no taxes on his or her earnings. It must be a real job, though, and the wages must be reasonable for the work.
• If your children have earnings from summer or after-school jobs, encourage them to open IRA accounts. The additional years of tax-free compounding can produce huge additional savings by the time your children reach retirement age.
• Don’t overlook the role of grandparents. They can help pay college expenses, for example, either by contributing to education savings plans or by paying tuition bills directly. Also, by giving appreciated stock to their grandchildren, they may be able to boost the children’s savings while reducing overall taxes for the family unit.

Estate planning

• For a parent, estate planning is especially important. The first priority is to make sure your children are protected in the event that something happens to you. Your estate
  plan should appoint guardians for your minor children, as well as provide for their financial well-being.
• Early estate planning can also help to ensure that your assets pass to your children as you consider prudent. A variety of planning techniques can allow you to transfer assets to your children over the years, often while still leaving you with some control over the assets.

If you’re confused about tax credits and exemptions, we’re here to help. Schedule a meeting with our team here: https://www.bas-pc.com/appointment-center/

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Amended Returns: What You Should Know

Out of sight, out of mind. When it comes to old tax returns,that’s an approach many people like to follow. But before you completely forget about your old tax forms, you may wish to consider filing an amended return.

Why file an amended return?

If you made a mistake on a prior-year tax return, an amended return is the way to set things right. Arithmetic errors, missing information, and oversights are all fairly common, and generally there’s no reason to fear filing an amended return -whether you owe money to the IRS or vice versa.Certain special situations can also trigger amended returns. For example, if you suffer a casualty loss in a presidentially declared disaster, you may deduct the loss on your tax return for the year of the disaster, or you may amend the prior-year return and deduct the loss in that year. The best strategy depends on your tax bracket for both years, plus other factors such as the amount of your loss and whether it occurred early or late in the year.An amended return can help ease the sting of certain business and worthless security losses. You also may benefit from an amended return if there’s a retroactive change in the tax law as a result of new legislation or a favorable court ruling.

Use Form 1040X

Form 1040X (“Amended U.S. Individual Income Tax Return”) is the IRS form designed for amended filings.

Generally, you have three years from the time your return was filed or two years from the time the tax was paid, whichever is later, to file an amended return.

Be sure the changes you want to make are valid. The tax laws have changed frequently over the past several years. What was deductible one year might not be deductible the very next year, and the list of items includable in taxable income has also changed from year to year.

Also, although filing an amended return is not necessarily a red flag for an audit, some changes are looked at more closely than others. For example, claiming additional travel and entertainment expenses on an amended return may be risky.

If you have omitted income from your return, you should file a 1040X as soon as you become aware of the omission. You may owe additional taxes, interest, and perhaps penalties. The proper presentation of previously omitted items is crucial and is best left to a professional.

Regardless of the reason for the amended return, be sure to keep good records to substantiate the reasons for the change.

If, as a result of the changes, the IRS owes you, you will receive a refund with interest. If you owe the IRS, payment should be made with the 1040X. The IRS will bill you for any additional interest.

For further assistance with amended returns, contact our team of tax professionals: https://www.bas-pc.com/appointment-center/

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Tax Filing Responsibilities of Estate Executors

Your role as an executor or personal administrator of an estate involves a number of responsibilities. Did you know that part of your responsibility involves making sure the necessary tax returns are filed? And there might be more of those than you expect.

Here’s an overview:

• Personal income tax. You may need to file a federal income tax return for the decedent for the prior year as well as the year of death. Both are due by April 15 of the following year, even if the amount of time covered is less than a full year. You can request a six-month extension if you need additional time to gather information.
• Gift tax. If the individual whose estate you’re administering made gifts in excess of the annual exclusion ($14,000 per person for 2017), a gift tax payment may be required. Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, is due April 15 of the year following the gift. The filing date can be extended six months.
• Estate income tax. Income earned after death, such as interest on estate assets, is reported on Form 1041, Income Tax Return for Estates and Trusts. You’ll generally need to file if the estate’s gross income is $600 or more, or if any beneficiary is a nonresident alien. For estates with a December 31 year-end, Form 1041 is due April 15 of the following year.
• Estate tax. An estate tax return, Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is required when the fair market value of all estate assets exceeds $5,490,000 (in 2017). One thing to watch for: Spouses can transfer unused portions of the $5,490,000 exemption to each other. This is called the “portability” election. To benefit, you will need to file Form 706 when the total value of the estate is lower than the exemption.
• Form 706 is due nine months after the date of death. You can request a six-month extension of time to file.

Give us a call if you need more information about administering an estate. We’re here to help make your task less stressful.

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