Tax Partners Northwest LLC
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Recent News Updates

Is it taxable?
2/24/14, 2:24AM

Recently I saw a discussion board for a group of local residents. The question was asked, someone paid me $500 in cash. Do I need to put it on my tax return? Lots of very knowledgeable sounding people jumped in, and the answers were all over the board. No, not if you didn't get a 1099 form. No, you don't have to report any income under $600. No, you never have to report cash payments. And then my head exploded.

 

What's the right answer? You need to report all your income, even if it's just cash, even if no one gave you a form. That $100 you won at the casino? Taxable. The $250 your neighbor paid you to mow his lawn while he was on vacation? Taxable. The $1000 you made selling home cleaning products? Even though you spent more than you earned, so you will show a loss? It still needs to go on your tax return.

 

Is there anything you can get that's not taxable? Here's a list of a few. Usually, gifts and inheritances are not taxable. Welfare payments and child support will never hit your tax return. Damage awards for physical injury or sickness (please note, mental injury no longer qualifies to be non-taxable. So a settlement for mental suffering will be taxable). Scholarship money that is used to pay for tuition is not taxable. Neither is your rebate from REI or any other manufacturer, even though they may call it a dividend.

 

What's the lesson here? Don't listen to well-meaning people telling you that something isn't taxable. Check with your tax professional. We want to help you do the right thing, properly report all your income, and pay the lowest amount of tax that is legally allowed.


Protecting yourself from scammers
2/5/14, 5:48PM

It's that time of year again. Everybody's thinking about taxes, the scammers know this, and increase their activity. You already know the IRS will never contact you by text or email. You know not to click on links in emails you didn't expect to receive. Here are several more steps you can take to help protect yourself against scams and identity theft:

 

  • Don’t carry your Social Security card or any documents that include your Social Security number or Individual Taxpayer Identification Number.
     
  • Don’t give a business your SSN or ITIN just because they ask. Give it only when required. (I actually threw a small tantrum last year when I was buying a used car, and they insisted they had to have my SSN even though I was paying cash. I will not be returning to that dealership.)
     
  • Protect your financial information. Shred, shred, shred.
     
  • Check your credit report every 12 months.
     
  • Secure personal information in your home.
     
  • Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts. Is your password "password" or "password1"? Go change them right now.
     
  • Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact and are sure of the recipient. And even then, think to yourself, do they really need to know this?
     
  • Be careful when you choose a tax preparer. Most preparers provide excellent service, but there are a few who are unscrupulous. Refer to Tips to Help you Choose a Tax Preparer for more details. http://www.irs.gov/uac/How-to-Choose-a-Tax-Return-Preparer-and-Avoid-Preparer-Fraud-2010

Part 2
1/18/14, 8:14PM

So what do you do when someone near and dear to you dies suddenly, and leaves no financial information behind? This can create a real nightmare for the person(s) in charge of settling everything up. Here are some ideas I've found helpful over the years.

 

If you can find last year's tax return, it can be a gold mine of information. If the person had significant investments, they will be listed on the return, along with the amount of income earned from them. Many tax preparers will staple the financial documents they used to prepare the return into the folder with the tax return. If the deceased had a relationship with a broker to manage investments, that person's name will likely be on the statements.

 

If you know the name of the tax preparer, that person can also be of help. That person may have had conversations and answered questions for the deceased. If they kept notes, those may be useful to you in tracking down information. That tax preparer can also be useful to you as you prepare to file a final tax return for the deceased.

 

Go through the deceased's desk, or wherever they kept their records. Look for a checkbook. If you go to their bank with proof that you are administering the estate, the bank can give you information on automatic payments that go out of the account, and direct deposit payments that come in. This can also be a good source of information to track down credit cards, loans and other situations that need to be resolved.

 

As you clean out the house, keep an eye out for relevant financial documents, and also a key that might be to a safe deposit box.

 

Many questions can be resolved online. A quick visit to the county assessor's website, for example, can tell you whether property taxes have been paid and are up to date. Here is a list of state websites that you can check to see whether the state is holding money (run your own name through there while you're at it). http://www.parade.com/53866/leahingram/do-you-have-unclaimed-money-how-to-find-out/ A bonus to money found there, it's usually not taxable! The Washington state site is www.claimyourcash.org.

 

We would welcome other ideas that our clients have found to track down elusive information. Drop us a note, and we will include your thoughts in a future post!


Things we don't want to think about
1/3/14, 5:56AM

Today, I was asked that question everyone dreads having to ask. "My dad passed away suddenly last night. He took care of all the investments and taxes. My mom doesn't know anything. What should she do?"

 

How can you and your spouse avoid being in this position? Today I will talk about the bare minimum of information you should share.

 

Even spouses who don't know, and don't want to know, anything about money should make sure there is a list of all investments, it is updated yearly, and you know where to find it. At minimum, the list should include all account numbers, the name of any personal banker or financial advisor and the location of any safe deposit boxes and their keys. If you have a tax professional that you trust who knows your situation, put that person's name on the list too.

 

Do you have a will? Have you looked at it lately to make sure it still reflects your wishes? What about a medical directive? I recently had to take my mother to the emergency room, and that was the first question they asked. Do you have a power of attorney? Do your relatives know what your wishes are? Do they know where to find these documents? Add this to your list.

 

What bills do you pay every month? What are they for?
Do you have insurance? A pension? A death benefit? What is the contact information?
Are there automatic deposits being made into your account? Automatic payments coming out? When, why, how much?
Do you owe anyone any money? Who? How much? Contact information?

 

I advise my clients to sit down once a year, for an hour, and make sure their information is up to date. The New Year is an excellent time to do this.

 

So here's a resolution for you. Make it a goal to print out this list, fill it out, share it with your spouse, and file it this week. Spend one hour, and then enjoy that peace of mind!

 

Next up: how do you find all this information if no one made a list?


The basics of gift giving
12/17/13, 5:53AM

Thinking about giving some cash for the holidays? One of the questions we get asked most frequently is, "How much can I give? Do I have to pay tax on gifts I give? Does the person I give a gift to have to report it as income?"

 

In addition to making both the giver and the recipient happy, gift-giving can be a great year-end tax planning strategy. For 2013, individuals can make tax-free gifts, with no tax consequences for the giver or the recipient, of up to $14,000 to any individual. Married couples may split their gifts to each recipient, which effectively raises the tax-free gift to $28,000. Gifts between spouses are always tax-free unless one spouse is not a U.S. citizen, in which case the first $143,000 in gifts made in 2013 are tax-free.

 

Special rules for gifts made for medical care and education can be a valuable component of a year-end tax strategy, especially for individuals who want to help a family member or friend. Monetary gifts directly to a college to pay tuition or to a medical service provider are tax-free to the person making the gift and the person benefitting from education or medical care.

 

Gifts to charity also are frequently made at year’s end. Through the end of 2013, taxpayers age 70½ and older can make a tax-free distribution of up to $100,000 from individual retirement accounts to a charity, though Individuals taking this option cannot claim a deduction for the charitable gift.


Donations for disaster victims
11/20/13, 6:09PM

We all see the pictures on TV of the disaster in the Philippines, and of course we all want to help. Just remember that disasters bring out the worst in some people, and they're out there trying to scam you now. Here are some helpful tips to make sure that your money goes where you mean it to.

 

Donate to recognized charities. It is common for scam artists to create charity names or websites that sound similar to the ones you know. They also may send you an email to try to direct you to a website that looks like a real charity. I always look up the website for a charity I want to donate to and type the address in myself, rather than clicking on links in emails. An excellent and reputable site to find legitimate charities is www.charitynavigator.org.

 

Don't give out your personal information to anyone. A real charity will not call you up and then request bank account information. My personal rule of thumb, even if it's a charity I know and like, is to tell them I don't ever give money over the phone. A legitimate charity will be willing to send you a request in the mail.

 

Don't give or send cash. Checks or credit cards are more secure and provide a record for you.

 

If you plan to claim a charitable contribution for your donation, remember to get and keep a receipt for your donation. It's not too early to get a big envelope and start collecting all your tax paperwork in one place!


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