May 20, 2012

Posts Comments

You are here: Home / Blog

Charitable Contributions – How much do they allow?

March 17, 2011 By 3 Comments

I am asked this question more times each year than I care to admit. The short answer is exactly what you gave. That is, up to 50% of your adjusted gross income. Any excess over the 50% limit can be carried forward to next year. So it really may not be lost.

Now let me better address the original question. Many taxpayers have been ill advised that the government “allows” some certain amount. An amount everyone can claim on their Schedule A whether or not they have receipts or even contributed at all. The “Standard Deduction” (claimed in lieu of the total of itemize deductions) is the only deduction designed to be given to you whether you really spent the money or not.

Small contributions can add up.

It is wise to keep track of all the small contributions you make during the year. $5 here $10 there, they all add up. You may be surprised just how much you have given one small amount at a time. The only support you need for these small contributions is a written receipt or your cancelled checks. Even Boy Scout popcorn, Girl Scout cookies and similar products can count. But the only portion of these costs that is deductible as a contribution is the excess of the amount paid, over and above the fair value of the product you received.

Large Contributions require a letter.

For any single contribution exceeding $250, you must have a written statement from the charity outlining the contribution, the amount of any goods or services you received and the net amount of the charitable contribution. Your cancelled checks will not work for these contributions. Please note that if you have cancelled checks for a weekly contribution to your Church of $50 totaling $2,600 for the year. The cancelled checks are sufficient support for the deduction. In that example, none of the actual contributions exceed the $125 threshold. Most churches, however, do send out a letter of support each year. In fact, most charities now provide contribution statements to their donors to help with their annual tax filings.

Clean out the closet.

Non cash contributions can also be very helpful. Although they carry separate guidelines of their own, this is another viable source of often overlooked deductions. Simply put, keep receipts and lists of items given. Then attach fair values to them. But remember, you’re CPA or tax preparer cannot make the value judgment for you. You have to make that call.

Make the most of the non-cash contributions.

If you invest the time, it can pay off in increased deductions. Sure most people go with a standard goodwill receipt and attach something like $50 per bag for clothes given. That’s ok. If challenged, it will most likely hold up. If you are willing to put some thought and time into it, however, you may greatly increase the amount of your non-cash charitable deduction claim. Keep a detailed written listing of each of the clothing items and other household items you are donating. Where possible, have the charity not only provide their standard receipt, but also acknowledge the contribution on your list. Then use a reference like the Salvation Army, Goodwill, “It’s Deductible.com” or other free sources to obtain fair values for each item given. Total it all up and in most cases you will arrive at a much higher value than simply counting the number of bags of clothing given.

In closing, please remember that:
  1. There is no automatically “allowed” amount for charitable contributions.
  2. You, or an independent appraiser, must determine the values for your non-cash contributions. Your CPA usually will not do that for you.
  3. If your itemized deductions do not exceed the standard deduction, your detail contribution records will not improve the outcome of your tax returns.
Filed Under: Blog, Contributions, Donations, Featured, Tithe, Tithing

Social Security – Can we really enjoy it before we retire?

March 1, 2011 By Leave a Comment

Yes we can.  Well, during 2011 anyway.  As of January 1, 2011, all wage earners, including the self-employed, have seen their paychecks go up.  This is because part of the recent tax bill reduced the FICA portion of social security withholdings by 2%.  This is the first change in that rate since 1990 when it went from 6.06 to 6.4%.

Of course I am not really talking about enjoying the ability to “receive” social security.  In fact some may argue that they cannot enjoy the thought of keeping something that was theirs to begin with.  I guess the way I am looking at it; social security is something I will be paying until I retire.  That said, if I get to keep something in 2011 that I have not been able to keep, and spend as I see fit, for more than 20 years, I am going to “enjoy” it.

It is not going to be a big payday.

But it could be a nice little nugget to use for some special purpose.  If your wages in 2011 reach $50,000, the pennies from heaven will only be $1,000.  It amounts to 2% of the first $106,800.00 of Social Security taxable wages in your pay.  And for now, this will only be in effect for the calendar year 2011.
If you have noticed that your paycheck went up the first of the year, but did not think you had received a raise from your employer, this is likely the source of your new found prosperity.

Spend it wisely.

Remember, you will most likely never see this little bonus again after this year.  It would be wise not to let it creep into your standard monthly operating funds.  That could cause you to suffer a “cut” in pay when 2012 begins.  Effectively, that may have the effect of turning this little positive into a big negative.
Instead, find a way to set these funds aside.  Maybe it is just more savings.  Maybe you could start a Christmas gift fund.  You might even be able to apply this money as additional payments on one of your debts.  Where ever you decide to direct the money, make it a noticeable benefit to your personal financial position.

In Closing.

By making one of these specific financial decisions, you should be able to avoid the feeling of loss when this little benefit expires at the end of 2011.  It may not be much, but try to enjoy it.

Filed Under: Blog, Featured, Social Security

Tax Free RMD – Done correctly, a charity will thank you

February 3, 2011 By 2 Comments

If you are age 70 or over, you are probably well aware of what we mean by an RMD. That is a “Required Minimum Distribution” from retirement accounts. Calculated from an age based table, RMD is the annually increasing percentage of your retirement funds that must be withdrawn, and therefore taxed, each year. This only affects taxpayers after they have reached the age of 70½. The year that occurs is the first year an RMD comes into play. Fortunately, you have until April 15 of the following year to actually withdraw that first RMD. After that first year, you must execute an RMD for each calendar year before the end of the year.
As a rule RMD’s are fully or partially taxable. In most cases, there is no way around that. To add insult to injury, many of the taxpayers that live in the RMD world have no home mortgage interest deduction as they have paid off their home mortgage. This often causes their charitable contributions and other deductions to fall near or below the annual standard deduction. Since most taxpayers are entitled to use the standard deduction, it can be said that the charitable contributions in this situation are “lost” or do not create any true tax savings.

Minimize Tax.

If your deductions total less than the standard deduction after excluding your charitable contributions from the total, some amount of the contribution is not creating a tax benefit. If you could just subtract the contributions from your income before applying the deductions and calculating your tax, you could reduce your tax bill, therefore maximizing the savings derived from your benevolence. Sound too simple? Think it could never be true? Well as farfetched as it may sound, the current tax regulations do allow such an action. But hurry because currently, this action can only be used during 2011.

How it Works.

If you make the election to have your RMD distributed on your behalf directly to the qualified charity of your choice, you can avoid having that amount show up as taxable income at the year’s end. You also loose the coinciding contribution. But you will have matched the contribution with income, dollar for dollar and eliminated both from your tax returns. At the time of filing, your contributions may be lower, but you will still have the standard deduction. This action could make a big difference in your tax bill.

Does this make sense for you?

If you answer yes to all or most of the following, this may be a good fit for you.

  1. Are you required to take a 2011 RMD?
  2. Do you still need to withdraw your 2010 “1st year” RMD?
  3. Do you routinely make generous charitable contributions?
  4. Do you desire to minimize your 2011 taxes?

Remember a critical key factor in this potential tax break. The funds must be paid directly to the charity. Although you can have the check mailed to you, it must be payable to the charity, not you.

Please Note: This Blog is not intended, and cannot be relied upon, as tax advice. Each Taxpayer’s situation and ultimate results of exercising the potential tax break described above may vary. Consult with your professional tax advisor and retirement plan consultant prior to taking any action with your financial resources. Plan today and protect your wealth tomorrow.

Filed Under: Blog, Featured, RMD, Savings

Where’s My Refund – Sometimes 8 days can seem like a Lifetime

January 25, 2011 By 1 Comment

Your returns are done, signed and have been filed. Now what? You know they said 8 to 14 days and your refund would be direct deposited, but what if something went wrong? How can I be sure things are on track? Is everything ok? Although problems with tax refunds rarely occur, it is very common to get a little anxious about where your refund is in the process. After all, it is your money and you need it now.

www.irs.gov

There are enough concerns in this area that the IRS offers a solution (actually two). This year, for the first time, one solution even includes a free phone application that was just released on January 24, 2011. It is initially available for the I-phone and the Android users. This is a first step in the IRS’ attempt to use smartphones and other media (including Social Media) to reach out and meet the needs of Taxpayers. More significant, it is an attempt to use the same tools and technologies that we are using in our daily lives.

How it works.

The App is simple, but does what it is intended to do. As soon as 72 hours after your return has been e-filed, you can use this app to access status updates about your refund. Simply provide your social security number (it will be masked and encrypted for security), your filing status and the amount of your expected refund. The app will then provide the status of your refund including the date deposited if it is already in your account. If you still have questions about the status provided, simply press “Call>>” and you will be connected with someone at the IRS to help.

Other Features.

The app also has the ability to sign up for regular IRS “Tax Tips” to be emailed daily during tax season. If you use Twitter, you can choose to follow the IRS @IRSnews. Finally, the app provides you with contact information allowing you to reach various IRS departments by simply pressing the appropriate “Call>>” button on the screen of the phone.

Can’t Use the App?

There is another option for those without one of the hot new smart phones. The IRS also supports a web site where you can obtain the same type of refund status information. The secure web address is: https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp. It will ask for the same 3 bits of information and will provide the same status information as the phone app. You can also find the refund status page by going to the www.IRS.gov web site and clicking the ”Where’s my Refund” icon currently in the right hand column of the home page.
These two methods of contact are the best for obtaining a status update on your federal income tax refund. Even your professional tax preparer/advisor cannot get better information than this. Well, unless they are using the phone application or web page themselves.

Filed Under: App, Blog, Featured, Refund

Fast Tax Refund – Make it the Fastest

January 17, 2011 By Leave a Comment

Fast Refund

More than Just Pennies

So another year has passed and it is “Tax Time” again. If you are one of the lucky ones, or one that has planned well, you can be looking forward to a big fat refund. Now comes the challenge of getting that refund. Can your choice of tax preparation professional, whether an individual, a CPA firm or a National chain, make a difference in how fast you will get your refund? Actually, no. The key is not in the preparer, but rather in the method. No preparer can get you a refund any faster than any other. Anyone who says different is misleading you, or worse, just out right lying.
How rapidly you will receive your tax refund depends on the method of refund and filing that you choose. If you prepare your own returns and mail them to the government, then wait for that interesting looking official government check to also come in the mail. You may have to wait six to eight weeks, or even longer as the calendar approaches April 15th.

Not good enough I am sure

If you have your return prepared by someone who can e-file both your Federal and State returns together, and you take advantage of electronic direct deposit of your refund, you can have your money in your account before you know it. The IRS processes electronically filed returns more rapidly and accurately than paper filed returns. This coupled with their weekly electronic funds release schedule, can ensure the absolute fastest refund possible.
Each Thursday at or around noon, the IRS releases for payment, the direct deposit refunds for all returns processed and accepted by their computer systems. These funds (pending direct deposit refunds) are sent through the federal banking system and are deposited in taxpayer accounts the following Friday (not the next day, but a week later). Consequently, an electronically filed tax return with direct deposit refund will be in your account in as little as 8 days and usually in no more than 14 days.

Is there any faster way?

For your refund, no. But to get your money before the refund arrives, yes. Many National chains and some companies as well, promote that you can get your refund before you leave their office. This is not what it seems. It is generally not in your best financial interest. In every one of these cases, known by many different names, the company is making you a “Refund Anticipation Loan”.
A Refund Anticipation Loan is a very high rate loan to provide you with most of your refund immediately instead of making you wait no more than 2 weeks. Although these may advertise that there is no money out of pocket to you, they do not point out that there is a substantial percentage taken from the refund being funded. When comparing the amount borrowed for 2 weeks to what the effective cost would be if done for a full year (effective annual percentage rate), you may find that you are paying 2 or 3 times the rate charged by most credit card companies. Since it is structured as a fee, they do not have to point out this APR cost.

If you have absolutely no choice

You cannot wait a mere 14 days. Then they are your answer. If you want to make the most of your refund, wait the two weeks and keep the extra fees in your refund. Either way, please remember, the fastest way to get your annual tax refund is to file electronically and take advantage of the Free direct deposit of your refund. This will provide the Federal tax refund to your account in as little as 8 days and usually in no more than 14 days.

Filed Under: Blog, Fast Refund, Featured

Funding your Children’s College – It does not have to break you

January 5, 2011 By Leave a Comment

Start early. Start small.  The common element here is just be sure you Start.  It is all too easy to put off starting a college fund for our children.  We all want to provide our children with a college education.  The intention is usually to start a college fund “when we can afford to”.  After all, when your child is born, there is plenty of time.  But all too often, clients find themselves a couple years away from sending their child to college with little or no funds set aside.

Time passes without you noticing it.  It is true that your children will grow up in the blink of an eye.  I speak from experience because it happened to me.  When it comes to savings and the time value of money (compounding), I think it is easy to realize that the sooner we start, the better off we will be when it is time for college.

So basically, the “plenty of time” excuse is really used to mask the fact that we do not feel we can afford to carve out money from our current daily life for college.  With the monumental nature of the cost of college, you will likely never feel you can afford to start a college fund that will be of any significant value.  Or will you?

Let’s break it down.

Can you set aside $10 a week?  It is not much.  You would most likely not even notice it missing after 6 to 8 weeks have passed.  But that really won’t help with college will it?

Actually, if you start a college fund the month your child is born, and put as little as $10 per week into the fund, assuming an annual interest rate earned of 2%, you would have in excess of $11,000 available for that first freshman semester.  Even at today’s cost of a college education, that should be enough for the tuition portion of the first full year at most State colleges.

Now consider how you could get that fund to the level needed for a full four year college program.  If you managed to set aside the $10 above for the past year, then couldn’t you afford to do the same thing again?  Set aside $10 from your weekly budget?  On your child’s first birthday, make the commitment to again pull out $10 from your weekly budget for that little college fund you have.  Now you will be putting in $20 per week.  If you never increase it again, and based on the 2% rate of return above, you should have nearly $21,800 available when your child turns 18 and heads off to college.

Still not enough for four years of college?  Keep making the same $10 annual increase and the fund will exceed $100,000 by the time your child reaches age 18.

There are other aspects, tips and methods to plan for your children’s college years.  Be careful.  Not everyone is an expert.  You should seek assistance from a qualified financial advisor or CPA to be sure you are provided all the options and any related perks or pitfalls that may be involved.

Filed Under: Blog, College Fund, Featured, Savings

Secure email – Critical to your safety

January 5, 2011 By Leave a Comment

Now, more than ever before, identity theft is a concern in our daily life.  With the internet provided “ease of access” to our personal and financial information also comes the need for rock solid security measures to keep that information from falling into the hands of the wrong people.  In response to that need for security, and acting on behalf of those most vulnerable, 45 States have enacted “Breach of Privacy Laws” that require the protection of an individual’s confidential personal information (1).  This includes information sent through email.

Information you receive from a financial institution, CPA firm, Attorney or any other service provider with access to or possession of your confidential financial and identification information should be protected.  Sure, it is fine to send simple messages or general information in an unsecure manner.  But any electronic correspondence with information such as your date of birth, social security number, banking information or the like, should be protected through some level of encryption.

Whether buying a new home, opening a new bank account, or having your annual Income Tax Returns prepared, thanks to the ever-increasing paperless nature of business, sensitive data must be shared.  Minimize the risk of identity theft.  Be sure you are always conscious of what you share on the internet.  This does not just apply to Facebook, Twitter or other social networking sites.  It also applies to typical private email.  Most private email travels over the Net in a minimally secure format.

J.R. Helms & Associates, P.C. shares this concern and strives to maintain the highest levels of security when it comes to our client’s personal and financial information.  We comply with Breach of Privacy Laws by sending all email attachments that are of a sensitive nature as secure encrypted files.  These are password protected using 128bit encryption.  The process is seamlessly integrated into our regular email system and requires very little action on the part of our clients.  Each client is asked to register a password into the system.  That password is not accessible to our staff, but will be used by our encryption system as the password required when opening and viewing attachments to our outgoing emails.

Security goes both ways.  That is why we also have a link on our corporate web site that will allow clients to submit files (Qbooks data, Tax documents, etc.) to our staff through a secure encrypted avenue as well.  This will not only allow clients to send us information with piece of mind, but also send that information regardless of the file size involved (No more email file size limits).

(1)    According to information obtained from AICPA.com, as of August 2010, only Alabama, Kentucky, South Dakota and New Mexico had not yet enacted such regulations).

Filed Under: Blog, Identity Theft