4th Quarter Estimates

4th Quarter Estimates are not due until January 15, 2017, but it may be beneficial for you to make your payments to the states before December 31, 2016.  If you make these payments before the end of the year, you receive a tax deduction in 2016 rather than waiting until 2017.  There are other factors that come into play to determine whether or not it is beneficial to make these payments early so if you have any questions, please do not hesitate to give our office a call (314-993-4285) or email.

If we compute estimates for you each quarter, we will be sure to get you the amounts to pay prior to the last week of the year (around December 22nd at the latest) as we are closed from the 23rd through the end of the year.  If you are traveling and need the estimated payments sooner, let us know.  Otherwise, look for an email from us with the amounts to pay that week!

Nine Tips on Deducting Charitable Contributions

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Giving to charity may make you feel good and help you lower your tax bill. The IRS offers these nine tips to help ensure your contributions pay off on your tax return.

  1. If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization, or a political candidate.
  2. You must file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all non-cash contributions for the year is more than $500, you must also file Form 8283, Non-cash Charitable Contributions, with your tax return.
  3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event, or other goods and services.
  4. Donations of stock or other non-cash property are usually valued at fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.
  5. Fair market value is generally the price at which someone can sell the property.
  6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record, or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.
  7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.
  8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.
  9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

If you have any questions you can call us at our office, 314-993-4285.

Moving Expenses Can Be Deductible

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Did you move due to a change in your job or business location? If so, you may be able to deduct your moving expenses, except for meals. Here are the top tax tips for moving expenses.

In order to deduct moving expenses, your move must meet three requirements:

  1. The move must closely relate to the start of work.  Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
  2. Your move must meet the distance test.  Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.
  3. You must meet the time test.  After the move, you must work full-time at your new job for at least 39 weeks in the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at your new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

See Publication 521, Moving Expenses, for more information about these rules. It’s available on IRS.gov/forms anytime.

If you can claim this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home. You cannot deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.
  • Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.
  • Address Change.  When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Premium Tax Credit – Changes in Circumstances. 

If you or anyone in your family purchased health coverage through the Marketplace and had advance payments of the premium tax credit paid in advance to your insurance company to lower your monthly premiums, it is important to report life changes to the Marketplace when they happen. Moving to a new address is one change you should report. Other things to report include changes in your income, employment, family size, and gaining or losing eligibility for other coverage. Reporting life changes as they happen allows the Marketplace to adjust your advance credit payments. This will help you avoid a smaller refund or unexpectedly owing taxes when you file your tax return.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-20”

Five Tax Tips about Hobbies that Earn Income

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Hobby or business?  We’ve been disclosing the significant difference between a hobby or a business for many years.  If your “business” is running a consistent loss, please complete a self-assessment using the nine factors the IRS uses to determine if it is truly a business.  Keep us posted.

Millions of people enjoy hobbies. Hobbies can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income from hobbies is different from how you report income from a business. There are special rules and limits for deductions you can claim for a hobby. Here are five basic tax tips you should know if you get income from your hobby:

  1. Business versus Hobby. There are nine factors to consider to determine if you are conducting business or participating in a hobby. Make sure to base your decision on all the facts and circumstances of your situation. Refer to Publication 535, Business Expenses, to learn more. You can also visit IRS.gov and type “not-for-profit” in the search box.
  2. Allowable Hobby Deductions. You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate. See Publication 535 for more on these rules.
  3. Limits on Expenses. As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.
  4. How to Deduct Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. See Publication 535 for how you should report them on Schedule A, Itemized Deductions.
  5. Use IRS Free File. Hobby rules can be complex. IRS Free File can make filing your tax return easier. IRS Free File is available until Oct. 17. If you make $62,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. You can only access Free File through IRS.gov.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-15”

Find Easy-to-Use Online Tools on IRS.gov

Don’t be afraid to visit IRS.gov, they won’t bite and they have some terrific tools to help you find your refund and the status of your return. Here’s a list of popular online, self-help tools offered for free use on IRS.gov:

  • IRS Free File.  Use IRS Free File to prepare and e-file your federal tax return at no cost. Free File will do much of the work for you with brand-name tax software or Fillable Forms. If you still need to file your 2015 tax return, Free File is available through Oct. 17. The only way to use IRS Free File is through IRS.gov.
  • Where’s My Refund?  Checking the status of your tax refund is easy with Where’s My Refund? You can also use this tool with the IRS2Go mobile app.
  • Direct Pay.  Use IRS Direct Pay to pay your taxes or pay your estimated tax directly from your checking or savings account. Direct Pay is safe, easy and free. This tool walks you through five simple steps to pay your tax in a single online session. You can also use Direct Pay with the IRS2Go mobile app.
  • Online Payment Agreement.  If you can’t pay your taxes in full, apply for an Online Payment Agreement. The Direct Debit payment plan option is a lower-cost, hassle-free way to make monthly payments.
  • Withholding Calculator.  Did you get a larger refund or owe more tax than you expected the last time you filed taxes? If so, you may want to change the amount of tax withheld from your paycheck. The Withholding Calculator tool can help you determine if you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate and provide information that will help you fill out the form too. Give the new Form W-4 to your employer to make the change.
  • Interactive Tax Assistant.  The ITA tool is a tax-law resource that takes you through a series of questions and provides you with responses to tax law questions. For instance, you can find out if you may need to make an individual shared responsibility payment or if you are eligible for an exemption, when you file your taxes. You can also use the tool to find out if you may be eligible for the premium tax credit.
  • IRS Select Check.  If you want to deduct your gift to charity, donate to a qualified organization. Use the IRS Select Check tool to see if a charity is qualified.
  • Tax Map.  The IRS Tax Map offers tax law information by subject. It integrates web links, tax forms, instructions and publications related to your topic into one search result.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-17”

How Identity Theft Can Affect Your Taxes

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Identity theft is still rampant. Tax-related ID theft normally occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Many people first find out about it when they do their taxes. Here are a few things to note from the IRS:

  1. Taxes. Security. Together. The IRS, the states and the tax industry need your help. We can’t fight identity theft alone. The IRS Taxes. Security. Together. awareness campaign is an effort to better inform you about the need to protect your personal, tax and financial data online and at home.
  2. Protect your Records. Keep your Social Security card at home and not in your wallet or purse. Only provide your Social Security number if it’s absolutely necessary. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for internet accounts.
  3. Don’t Fall for Scams.  Criminals often try to impersonate your bank, your credit card company, even the IRS in order to steal your personal data. Learn to recognize and avoid those fake emails and texts. Also, the IRS will not call you threatening a lawsuit, arrest or to demand an immediate tax payment. Normal correspondence is a letter in the mail. Beware of threatening phone calls from someone claiming to be from the IRS.
  4. Report Tax-Related ID Theft to the IRS. If you cannot e-file your return because a tax return already was filed using your SSN, consider the following steps:
    • File your taxes by paper and pay any taxes owed.
    • File an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. You may include it with your paper return.
    • File a report with the Federal Trade Commission using the FTC Complaint Assistant.
    • Contact one of the three credit bureaus so they can place a fraud alert or credit freeze on your account.
  5. IRS Letters. If the IRS identifies a suspicious tax return with your SSN, it may send you a letter asking you to verify your identity by calling a special number or visiting a Taxpayer Assistance Center. This is to protect you from tax-related identity theft.
  6. IP PIN. If you are a confirmed ID theft victim, the IRS may issue an IP PIN. The IP PIN is a unique six-digit number that you will use to e-file your tax return. Each year, you will receive an IRS letter with a new IP PIN.
  7. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
  8. Combating ID Theft.  In 2015, the IRS stopped 1.4 million confirmed ID theft returns and protected $8.7 billion. In the past couple of years, more than 2,000 people have been convicted of filing fraudulent ID theft returns.
  9. Service Options. Information about tax-related identity theft is available online. There is a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-16”

Back to School? Learn about Tax Credits for Education

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If you pay for college in 2016, you may receive some tax savings on your federal tax return, even if you’re studying outside of the U.S. Both the American Opportunity Tax Credit and the Lifetime Learning Credit may reduce the amount of tax you owe, but only the AOTC is partially refundable. Here are a few things you should know about education credits:

  • American Opportunity Tax Credit ‒ The AOTC is worth up to $2,500 per year for an eligible student. This credit is available for the first four years of higher education. Forty percent of the AOTC is refundable. That means, if you’re eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any tax.
  • Lifetime Learning Credit ‒ The LLC is worth up to $2,000 per tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
  • Qualified expenses ‒ You may use only qualified expenses paid to figure your credit. These expenses include the costs you pay for tuition, fees and other related expenses for an eligible student to enroll at, or attend, an eligible educational institution.
  • Eligible educational institutions ‒ Eligible educational schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible:
    • Ask your school if it is an eligible educational institution, or
    • See if your school is on the U.S. Department of Education’s Accreditation database.
  • Form 1098-T ‒ In most cases, you should receive Form 1098-T, Tuition Statement, from your school by February 1. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be either:  (1) the amount you paid for qualified tuition and related expenses, or (2) the amount that your school billed for qualified tuition and related expenses; therefore, the amounts shown on the form may be different than the amounts you actually paid. Don’t forget that you can only claim an education credit for the qualified tuition and related expenses that you paid in the tax year and not just the amount that your school billed.
  • Income limits ‒ The education credits are subject to income limitations and may be reduced, or eliminated, based on your income.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-14”

Funding a Roth IRA With Disposable Income

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You have funded your 401(k) enough to receive a full company match (either traditional or Roth.)  You are paying all of your bills when they are due each month.  You have enough cash set aside for emergencies.  There is some cash left over.  Now you want to continue to save for retirement.  Continuing to fund your traditional or Roth 401(k) is a good idea. Even better is to fully fund a Roth IRA before moving back to your 401(k).  With a Roth IRA, you are able to take out your contributions at any time-one day…one year…ten years.  Any dollar you take out first comes out of your contributions so there is no chance that a portion of earnings will become taxable with possible penalties.  This is not the case for either a traditional or Roth 401(k).

If you are over the income levels to contribute directly to a Roth, no worries.  Contribute to a traditional IRA and then convert this to a Roth IRA the next day.  Since the first contribution was nondeductible on your tax return, the conversion is tax free.  Subsequently, any withdrawals at any time first come out of this converted amount, which will be tax free since you had basis in the full amount of the original conversion.

The only downside of doing this versus opening a taxable, non-retirement investment account, is that any growth is unable to be taken out without penalty.  This is the same downside to any retirement account.  The growth must be used for “retirement” (after you are 59 1/2 years old with a few other exceptions) to avoid penalty.

There are other nuances to Roth IRAs, such as what happens if you have a traditional IRA that has grown in value and you convert that to a Roth? Are those dollars able to be taken out of your Roth after the conversion without penalty? If you have these or any other questions, please do not hesitate to give us a call at 314-993-4285.

IRS Offers Tips on Charity Travel

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Do you plan to donate your time to charity this summer? If you travel for it, you may be able to lower your taxes. Here are some tax tips from the IRS that you should know about deducting charity-related travel expenses:

  • Qualified Charities.  To deduct your costs, you must volunteer for a qualified charity. Most groups must apply to the IRS to become qualified. Churches and governments are generally qualified, and do not need to apply to the IRS. Ask the group about its status before you donate.
  • Out-of-Pocket Expenses.  You may be able to deduct some of your costs including travel. They must be necessary while you are away from home. All  costs must be:
    • Unreimbursed,
    • Directly connected with the services,
    • Expenses you had only because of the services you gave, and
    • Not personal, living or family expenses.
  • Genuine and Substantial Duty.  Your charity work has to be real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
  • Value of Time or Service.  You can’t deduct the value of your time or services that you give to charity. This includes income lost while you serve as an unpaid volunteer for a qualified charity.
  • Travel You Can Deduct.  The types of expenses that you may be able to deduct include: air, rail, and bus transportation; car expenses; lodging costs; cost of meals, and; taxi or other transportation costs between the airport or station and your hotel.
  • Travel You Can’t Deduct.  Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or vacation.

If you have any questions please do not hesitate to give us a call at our office, 314-993-4285.

This information was received from IRS Tax Tips Issue “IRS Summertime Tax Tip 2016-12”

The Real Value of a 401(k) Plan

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We all know putting money aside in a tax deferred account is a good idea. Businesses should offer these to employees for many reasons, not the least of which is that an employee that saves is a good employee. However, the cost of administering retirement plans can be daunting. SIMPLE’s are the cheapest and Defined Contribution plans tend to be the most expensive. The traditional 401(k) plan isn’t always the best bang for the buck-however, these plans pack a punch that often go overlooked by the small business owner. A great reason to consider a traditional 401(k) is the extra $10,000:

  • In 2016, an employee may contribute up to $18,000 toward their retirement. But, if your plan is so designed, they may then be able to contribute an additional $10,000 as an after tax in-plan IRA contribution. This additional contribution is without regard to discrimination testing so the business owner can also make this contribution! So, a business owner who is also an employee participating in the Company 401(k) plan can contribute up to $40,500 to a retirement plan without having to set up pension and profit sharing plans and be subject to discrimination testing. Here’s the math for an owner/employee older than 50:
    • Traditional 401(k) contribution: $18,000
    • Catch-up 401(k): $6,000
    • After tax in-plan contribution: $10,000
    • Total 401(k) plan contributions: $34,000
    • Traditional self-directed IRA contribution: $5,500
    • Catch-up IRA: $1,000
    • Total IRA contribution: $6,500
    • Total retirement account contributions: $40,500

PLANNING NOTE: Roll the $10,000 and the $6,500 contributions to a Roth immediately for a $16,500 Roth contribution in spite of earnings limits.

If you have any questions please call our office, 314-993-4285.