Your friends here at Northeast Financial Strategies want you to know how much your loyalty and friendship are appreciated this year and in all years past. At the holiday season, our thoughts turn gratefully to those who have made our success possible. It is in this spirit we say…thank you and best wishes for the holidays and a happy new year.
From all of us here at NFS, THANKS!!
WASHINGTON, D.C. – IRS Acting Commissioner Steven T. Miller warned Congress on Wednesday that if lawmakers fail to extend the traditional alternative minimum tax patch, up to 100 million American taxpayers could be affected, and most taxpayers might not be able to file their tax returns until late March 2013 or later.
Miller sent a letter to leaders of the House Ways and Means Committee warning of the trouble ahead. He has warned Congress in the past about not patching the AMT, but he has increased his estimates for how many taxpayers could be affected.
“In my previous letter, I estimated that more than 60 million taxpayers might be prevented from filing their tax returns while we are reprogramming our computers,” he wrote. “As we consider the impact of the current policy uncertainty on the upcoming tax filing season, it is becoming apparent that an even larger number of taxpayers —80 to 100 million of the 150 million total returns expected to be filed—may be unable to file.”
Without enactment of a new patch in the near future, he warned, “nearly 30 million additional taxpayers will become subject to the AMT on their 2012 income tax returns.”
House Ways and Means Committee ranking member Sander Levin, D-Mich., concurred with the warning. “There could be no clearer warning that failure to act on the fiscal cliff will throw the 2013 tax filing season into chaos,” he said in a statement. “The consequences of inaction would be enormous. Extending the AMT patch will prevent needless delays and tax increases on millions of middle-class Americans.”
Miller warned about a delayed start to tax season unless Congress fixes the AMT and resolves other pressing tax matters.
“If an AMT patch is not enacted by the end of this year, the IRS would need to make significant programming changes to conform our systems to reflect the expiration of the patch,” he wrote. “In that event, given the magnitude and complexity of the changes needed, I want to reiterate that most taxpayers may not be able to file their 2012 tax returns until late in March of 2013, or even later.”
Miller noted that the most recent AMT patch, and the exemption amounts of $74,450 for joint filers and $48,450 for single taxpayers, expired at the end of 2011. For 2012, the current-law AMT exemption amounts are much lower: $45,000 for joint filers and $33,750 for single taxpayers.
Miller also warned that the unpatched AMT could lead to delays in tax refunds and higher taxes for many taxpayers. “This situation would create two significant problems: lengthy delays of tax refunds and unexpectedly higher taxes for many taxpayers, who will be unaware that they are newly subject to AMT liability,” he wrote. “Moreover, if Congress were to act at some point next year to enact a new AMT patch, the time and substantial expense necessary for the IRS to reprogram its systems to reflect expiration of the patch would ultimately be wasted.”
Miller noted that the IRS might need to limit filing by those who might be potentially affected. “The IRS cannot process the returns of any taxpayers whose return characteristics do not allow us to differentiate them from those whose tax liability would be altered by the AMT expiration,” he pointed out. “This means that there are certain forms and schedules we could not accept from any taxpayer—even those who ultimately may not have additional AMT liability. Similarly, returns of any taxpayers whose income levels may subject them to the AMT could not be processed.”
He added that it might not be possible even to process some returns that are clearly not subject to or affected by the AMT. “Allowing only some taxpayers to file as we reprogram could substantially increase the risk of fraud and error in initial filings as well as create the potential for a large number of amended returns,” he noted. “We continue to work diligently to review scenarios and to assess the impact of these factors on the 2013 filing season.”
-Michael Cohn, Accounting Today
WASHINGTON — Individuals and businesses making contributions to charity should keep in mind some key tax provisions that have taken effect in recent years, especially those affecting donations of clothing and household items and monetary donations.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
- Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2012 count for 2012. This is true even if the credit card bill isn’t paid until 2013. Also, checks count for 2012 as long as they are mailed in 2012.
- Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database. Podcast – Exempt Organizations Select Check
- For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2012 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
- For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
- The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
- If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
- And, as always it’s important to keep good records and receipts.
IRS.gov has Additional information on charitable giving including:
- Charities & Non-Profits
- Publication 526, Charitable Contributions
- Online mini-course, Can I Deduct My Charitable Contributions?
|Estate Settlement||Life insurance proceeds can be used to pay estate taxes and other estate settlement costs, allowing the liquidation to proceed on an orderly basis.|
|Family Income||Using life insurance proceeds to provide the surviving family with a continuing income can avoid a forced liquidation of business assets for this purpose.|
|Working Capital||If the executor needs additional cash to temporarily operate the business, life insurance can serve as the source of that cash.|
|Offset Shrinkage||Even a planned liquidation will usually result in some shrinkage in value, as compared to what the business was worth as a going concern. Life insurance can be used to replace the value lost in the liquidation.|