Contribution documentation will be tightened down in 2007 under the new tax bill passed by congress. To claim a deduction, a donor will be required to have a canceled check, bank record or receipt listing the name of the charity, the date and the amount of the contribution.
Current rules require a receipt from the donor only for contributions exceeding $250. Contributions for less than that amount have been documented in some instances by taxpayers keeping logs of their contributions. That's not going to cut it under the new rules.
Wednesday, August 16, 2006
Thursday, June 15, 2006
Low Capital Gains Rates Extended
Taxes on capital gains and dividends have been locked in at their current low rates in the recent tax bill, at least for another two years.
Capital gains on assets held more than one year and dividends received from qualified corporations have been taxed at a maximum rate of 15% since the 2003 tax bill was passed. However, these rates always had an expiration date of 2008. With the recent changes, the rates are good through 2010.
One other interesting provision of the 2003 capital gains rate changes that will soon take effect: a 0% rate on low-income individuals. Between 2008 and 2010, these individuals will be allowed a certain amount of capital gain with no tax whatsoever! A planning opportunity may exist here...giving appreciated assets to your children (18 or over), who may have low enough income to take advantage of the 0% rate.
Capital gains on assets held more than one year and dividends received from qualified corporations have been taxed at a maximum rate of 15% since the 2003 tax bill was passed. However, these rates always had an expiration date of 2008. With the recent changes, the rates are good through 2010.
One other interesting provision of the 2003 capital gains rate changes that will soon take effect: a 0% rate on low-income individuals. Between 2008 and 2010, these individuals will be allowed a certain amount of capital gain with no tax whatsoever! A planning opportunity may exist here...giving appreciated assets to your children (18 or over), who may have low enough income to take advantage of the 0% rate.
Tuesday, June 13, 2006
Kiddie Taxes Increased in New Tax Bill
The 'Kiddie Tax', which taxes children's unearned income over $1,700 at the parents' rate, has been extended to apply to children up to the age of 18. Until 2006, the additional tax only applied through the age of 14.
One consideration of this new law will be educational savings accounts. Custodial accounts (such as UTMA accounts) typically have the child named as the owner, and may result in income being subject to the Kiddie Tax. However, other college savings vehicles such as Section 529 plans are sheltered from current taxation, and may be a better option.
This is one of the provisions of the new tax bill signed in May. We'll provide more details on other facets of the bill over the next few weeks.
One consideration of this new law will be educational savings accounts. Custodial accounts (such as UTMA accounts) typically have the child named as the owner, and may result in income being subject to the Kiddie Tax. However, other college savings vehicles such as Section 529 plans are sheltered from current taxation, and may be a better option.
This is one of the provisions of the new tax bill signed in May. We'll provide more details on other facets of the bill over the next few weeks.
Friday, May 05, 2006
Social Security benefits reduced for upper-income retirees.
2007 will bring with it what is essentially a new tax on seniors with high income. Retirees with income over $160,000 in 2005 ($80,000 if single) will face a soaring Medicare Part B premium beginning in 2007, and increasing in 2008 and 2009.
Will this affect you? First, find your 2005 adjusted gross income - the last line on the front page of your 1040. Then, add tax exempt interest to see if you exceed the income threshhold. If you do, you will face a surcharge ranging from 13% to 73% of the Medicare Part B premium, depending on income levels.
The surcharges will double in 2008, and triple in 2009. By 2009, couples with income over $400,000 will be paying a surcharge equal to 220% of the Part B premium. And you thought all those Medicare taxes you paid were enough to give you coverage in your golden years!
Will this affect you? First, find your 2005 adjusted gross income - the last line on the front page of your 1040. Then, add tax exempt interest to see if you exceed the income threshhold. If you do, you will face a surcharge ranging from 13% to 73% of the Medicare Part B premium, depending on income levels.
The surcharges will double in 2008, and triple in 2009. By 2009, couples with income over $400,000 will be paying a surcharge equal to 220% of the Part B premium. And you thought all those Medicare taxes you paid were enough to give you coverage in your golden years!
Friday, March 17, 2006
Audits on the Rise
The Internal Revenue Service announced today that the 2005 IRS Data Book is available at IRS.gov. The publication contains tables detailing, among other subjects, the amount of revenue collected, the number of audits (examinations) conducted, and the number of refunds issued between October 1, 2004, and September 30, 2005 – Fiscal Year 2005.
Wednesday, February 15, 2006
IRS Releases Latest "Dirty Dozen"
The IRS released their 2006 version of the top 12 tax scams they run across in their enforcement duties. Basically, if you hear someone promoting a tax strategy that sounds too good to be true, it's probably on this list.
A couple areas that we've had clients ask us about are on this list: offshore bank accounts and misused trusts. As you can see, these are clearly on the radar screen of the IRS. If you participate in any of these types of schemes, just be ready to pay the penalties when the Service comes knocking!
A couple areas that we've had clients ask us about are on this list: offshore bank accounts and misused trusts. As you can see, these are clearly on the radar screen of the IRS. If you participate in any of these types of schemes, just be ready to pay the penalties when the Service comes knocking!
Monday, February 13, 2006
How Tax Brackets Work
One of the most misunderstood areas of the tax system are the tax brackets. People often assume that being $1 into the next highest bracket results in all of your income being taxed at the higher rate. In reality, only that $1 would be taxed at the new rate. I ran across a helpful article discussing the details.
Friday, February 10, 2006
Self-directed IRA Can't Be Self-Serving
A business owner thought he had a pretty good idea about using his IRA. He wanted to purchase real estate in his IRA and lease it to his company. The Labor Department says that kind of plan won't work, and would be subject to penalty.
Some clients have asked us about moving IRA funds into self-directed accounts that can be used to purchase real estate and other investments. While these accounts are allowed under the law, we don't advise their use for a number of reasons. One of these is that most taxpayers aren't savvy enough to negotiate the myriad rules related to appropriate uses of these funds. Besides, we want your IRA to be there for you at retirement - use other funds for land speculation!
Some clients have asked us about moving IRA funds into self-directed accounts that can be used to purchase real estate and other investments. While these accounts are allowed under the law, we don't advise their use for a number of reasons. One of these is that most taxpayers aren't savvy enough to negotiate the myriad rules related to appropriate uses of these funds. Besides, we want your IRA to be there for you at retirement - use other funds for land speculation!
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