Tax Partners Northwest LLC
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Recent News Updates

Deducting charitable donations
2/4/17, 3:33AM

When you give a gift to charity, it helps others in need. It may also help you at tax time. You may be able to claim the gift as a deduction that may lower your tax. Here are eight tax tips you should know about deducting your gifts to charity:

 

1. Qualified Charities.  You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates.

 

2. Itemized Deduction.  To deduct your contributions, you must file Form 1040 and itemize deductions on Schedule A.

 

3. Benefit in Return.  If you get something in return for your donation, your deduction is limited. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.

 

4. Donated Property.  If you gave property instead of cash, the deduction is usually that item’s fair market value at the time of donation. Fair market value is generally the price you would get if you sold the property on the open market.

 

5. Clothing and Household Items.  Used clothing and household items must be in at least good condition to be deductible in most cases. Special rules apply to cars, boats and other types of property donations.

 

6. Form 8283.  You must file form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

 

7. Records to Keep.  You must keep records to prove the amount of the contributions you made during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction.

 

8. Donations of $250 or More.  To claim a deduction for donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

 

Still have questions?  Call us!


Happy New Year!
1/2/17, 4:02AM

The deadline to e-file forms 1099 with the IRS is January 31. Penalties of $50 per late 1099 begin on February 1! 

 

If, related to your business or rental property, you paid anyone $600 or more during 2016, you might need to issue IRS Forms 1099-MISC to those people and businesses. 

 

When you must issue a 1099-MISC

 

The Internal Revenue Service requires you to report certain payments you make as part of your business.

 

If the following four conditions are met, you must generally report a payment as non-employee compensation.

 

* You made the payment to someone who is not your employee;

 

* You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);

 

* You made the payment to an individual, partnership, LLC, estate, or, in some cases, a corporation; and

 

* You made payments to the payee of at least $600 during the year."

 

What should you include on Form 1099?

 

Generally, you do not issue a Form 1099-MISC for non-employee compensation paid to a corporation.  Payments to corporations are reported only if they are for medical, health care, veterinary, legal or fishing activities.

 

EXAMPLE: If a business paid a self-employed photographer, Smith Photography, an unincorporated sole proprietor who files a Schedule C, $750.00 for taking publicity photos or photos used in a catalog, the business would have to issue a Form 1099-MISC.  If the photographer was Wilson Photography, Inc. no Form 1099 would be required.

 

Payments for rent, made by your business, are also subject to 1099 reporting.

 

You must include the payee's Social Security Number or Employer Identification Number and legal address on the Form 1099.  If you do not have this information, have the payee complete Form W-9 and return it to you.  You don't need the original form; a copy is acceptable. Our firm recommends that you obtain a completed Form W-9 from any new contractor BEFORE you issue any payments to them.

 

Having Tax Partners Northwest prepare the forms

 

We are able to prepare forms 1099-MISC and e-file them for you.  There is an additional charge separate from your income tax preparation for this service.  In order to complete these forms:

 

Please provide us with a list of those contractors you need to issue a form to.  We will need:

Name as it appears on the payments you made.

Address of the person you paid.

Social security number or employer identification number of the person you paid.

Total amount you paid them during 2016.

 

We are available after January 2 to start filing 1099 forms, and would prefer to do them as soon as possible.  After January 21, please call our office before submitting your 1099 documents to us.

 

Any questions?  Call us at 425-582-8269.


Why Hire a Tax Professional?
4/7/16, 7:53PM

Pop star Iggy Azalea has not been getting a lot of good news in the audit area lately. Not only did her Twitter Audit score land at 93 percent – meaning that only 7 percent of her followers are actually real people – but the IRS determined that she owes nearly $400,000 in taxes from 2014. Like most of us, Iggy would probably prefer bad news from Twitter than from the IRS.

 

The Twitter situation is unknowable, but someone was asleep at the wheel on the tax issue – Iggy was clearly not employing a tax professional to handle her taxes! Although the IRS Data Book indicates that fewer than one in 100 households with what would commonly be considered middle class incomes were audited in 2014, those who earned more than $10 million in adjusted gross income had an approximate one in six chance of an audit. Azalea wound up with a Federal Tax Lien, which attaches to all the taxpayer’s assets, and can limit the average person’s ability to get credit.

 

As a high earner, Azalea has better-than-average odds of being audited, but even people who report no income can wind up being scrutinized by the IRS. As life progresses, returns often become increasingly complicated: homes are purchased and there are contributions to charity. Taxpayers start to qualify for deductions and credits that were previously unavailable to them, such as the Child and Dependent Care Credit to help defray child care costs or the Savers Credit for retirement. Credits and deductions should never be missed, but the more deductions and credits, the more likely a mistake will be made that raises a red flag with the IRS.

 

While simple math errors can trigger an audit, tax software should make that less likely. However, your tax software won’t make sure you have well documented your charitable donations or push you for the facts on that home office deduction (a big red flag for the IRS!). Even if you choose to hire a tax professional, you still aren’t in the clear. Although IRS now requires every paid preparer to register and have a Preparer Tax Identification Number (look for the PTIN), it generally doesn’t take any skill at all to hang out a shingle. Be sure to ask a prospective paid preparer if she or he has a license. Anyone you trust with your financial information should have been tested on taxation and be required to take continuing education to keep their credential.

 

Enrolled agents and CPAs are considered the top-level paid return preparers. Enrolled agents receive their licenses from the US Department of the Treasury and CPAs are licensed by their individual states. All the Enrolled Agents and CPAs at Tax Partners Northwest specialize in tax, and are required to take and report annual continuing education.


Ten Tax Facts for When You Sell Your Home
2/11/16, 6:14AM

 

Are you thinking that if you sell your house and buy a more expensive one within two years you won’t have to pay tax on the gain?  Or that there’s a one-time exclusion so senior citizens don’t have to buy another house?  Those are actually parts of an old law that was changed in 1997, but people still ask us about it all the time.  Here are ten facts from the tax code to keep in mind if you sell your home this year.

 

How do you know if you have a gain on the sale of your house?  First, take the price you sold it for.  Then subtract the amount you paid for it, the amount you paid the Realtor and other closing costs, and any other money you spent to make improvements on the house (like a new room).  The amount that’s left is your gain.  If you come up with a negative number, you have a loss.

 

1. If you have a capital gain on the sale of your home, you may be able to exclude your gain from tax. This rule may apply if you owned and used it as your main home for at least two out of the five years before the date of sale.

 

2. There are exceptions to the ownership and use rules. Some exceptions apply to persons with a disability. Some apply to certain members of the military and certain government and Peace Corps workers. A medical condition that requires you to move may be an exception. 

 

3. The most gain you can exclude is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.

 

4. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.

 

5. You must report the sale on your tax return if you can’t exclude all or part of the gain. And you must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions.

 

6. Generally, you can exclude the gain from the sale of your main home only once every two years.

 

7. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.

 

8. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale.

 

9. If you sell your main home at a loss, you can’t deduct it.

 

10. After you sell your home and move, be sure to give your new address to the IRS. You can send the IRS a completed Form 8822, Change of Address, to do this.

 

Questions?  Call us!  We would rather talk to you about the tax consequences before you make any decisions, so you can have all the facts available.  

 


Do I have to put this on my tax return?
1/26/16, 12:32AM

All income is taxable unless the law excludes it. Here are some basic rules you should know to help you file an accurate tax return:

 

  • Taxed income.  Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is taxable.

 

 

Some types of income are not taxable except under certain conditions, including:

 

  • Life insurance.  Proceeds paid to you because of the death of the insured person are usually not taxable. If you redeem a life insurance policy for cash, any amount that you get that is more than the cost of the policy is taxable.  Sometimes the policy won’t pay out right away, and you receive interest on the payment.  The interest is taxable.
  • Qualified scholarship.  In most cases, income from this type of scholarship is not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable.  However, any amount of tuition that is more than the cost of tuition, fees and books, is taxable.
  • State income tax refund.  Did you file a return in another state last year?  If you got a state income tax refund, the amount may be taxable. You will receive a Form 1099-G from the agency that made the payment to you. If you don’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

 

Here are some types of income that are usually not taxable:

 

  • Gifts and inheritances (unless you inherit a retirement account)
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

 

Remember, if in doubt, you can call your tax professional and ask.  We always want to make sure you’re reporting your income accurately, without paying more tax than you need to.

 


Can you deduct your volunteer expenses?
12/16/15, 4:08AM

Many people perform many hours of volunteer work in our community, especially at this time of year. Volunteering can be a fun way to help your local community.  It can also reduce your taxes. 

 

In order to take tax deductions for your volunteer work, you will want to ensure the organization you are volunteering for is tax-exempt.  You can check online to be sure, or ask them if they are a 501(c)3 organization.

 

If you have expenses associated with your volunteer work, you may be able to take a tax deduction. For instance, one of our clients traveled to New Orleans after Hurricane Katrina to build houses for Habitat for Humanity.  Another is a scoutmaster for a local Boy Scout troop.  Several of our clients work with local food banks.

 

You may deduct the expenses you have which are necessary for you to do your work for the charitable organization. The Habitat volunteer paid for his own plane fare to do his work in New Orleans.  The scoutmaster purchases his own uniform.  The food bank volunteers drive hundreds of miles delivering donated food.  In order to deduct such expenses, you must have records and receipts.  To deduct mileage, keep a log of the date, place and purpose of your trip.

 

Other travel expenses you may deduct with proof include:

 

- Air, rail, and bus transportation

- Car expenses (such as parking fees and mileage)

- Lodging and meal costs while volunteering

- Transportation costs between airport or station and your hotel or work assignment location

 

You cannot deduct travel expenses if a significant part of your travel involves recreation or a vacation.  However the fact that you enjoy what you’re doing doesn’t mean you can’t deduct it.  Our scoutmaster loves hiking and camping, but the purpose for his trips is fulfilling his duties as scoutmaster.  He still can take a deduction for his expenses.

 

It’s important to note that you cannot deduct the value of your time to the organization.  So for instance, a financial planner who charges $100 an hour, and donates four hours of time to his school auction, does not get to take a deduction for that time.  A fundraising specialist who provides free advice to a non-profit cannot deduct that time either.

 

Do you still have questions about whether you can deduct some of your volunteer expenses, or what proof is required?  Give us a call, we’ll be happy to talk with you about it.

 

 


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