Practical IRS Tax Insights – February 2019 Newsletter
BIG Warning This month:
Many of you have gotten your w2’s and 1099’s. I never got my broker statement from Ameritrade. Last year the correction came after April, 15th! Some of you are so set on trying to get a refund that you go to tax preparers who are a dime a dozen and try for the biggest refund you can quickly get. You are the people who contact me later looking for audit representation. You may be scared that you will be sent to the IRS criminal division for putting down $12,000 for contributions when you only gave $400. Or you made donations of goods but they were overvalued.
Here’s the plan. Taxes are due during the year. If not enough withholding tax, the fourth quarter’s estimate was due Jan 15th, 2019. See if you owe now and pay it now. If you have issues with w2’s or 1099’s or k-1’s etc. start resolving them now. File an extension, and around the beginning of Sept. get the info the IRS has on you so you can match it properly on the return. File the return a few days before the extension deadline. I have a four-part checklist as well as valuable info on avoiding an audit that you can find on my product page. To this day, I don’t know anyone who was audited when we followed the checklist. It’s that powerful. I urge everyone to follow my advice, or to save my contact info for when they are audited. We are pretty successful in audit representation.
Some Kiplinger Newsletter Items:
I own a small Schedule C consulting business. Can I deduct 50% of the cost of client meals? Yes, generally. Tax reform ended the write-off for business-related entertainment such as golfing, tickets to sporting events and the like. However, client business meals remain generally 50% deductible. The expense can’t be lavish or extravagant. The taxpayer or an employee needs to be present, with the meal furnished to current or potential customers, clients or similar contacts. For meals provided during an entertainment activity, the food and beverages must be bought separately from the entertainment or stated separately on the receipt.
When will Congress revive expired tax extenders? It’s currently unclear. Finding a legislative path to bring back to life the batch of tax breaks that expired at the end of 2017 is turning out to be difficult. Some tax writers want extenders to be included in the legislation that would keep the government open past Feb. 15, but we don’t think that’s in the cards. Affected taxpayers can either file returns now and amend later if and when the breaks are revived or take a wait-and-see approach.
I purchased a home in 2008 and claimed the first-time-home-buyer credit. Do the credit recapture rules still apply? Yes. The $7,500 credit you got is repaid by adding $500 to your income taxes each year over a 15-year period. If you sell the home, you must generally repay the balance of the unrecaptured credit with your return for the year of the sale. Use Form 5405 to figure the credit repayment for 2018, and then report the amount on Schedule 4, line 60b, of your 1040.
How do I report charitable donations made directly from my traditional IRA? Pay attention, because this is a tad tricky. Individuals age 70½ and older can transfer up to $100,000 annually from their traditional IRAs directly to charity. The charitable gifts count as all or part of your required minimum distribution (RMD). But you’re not taxed on them, and they’re not added to your adjusted gross income. When filling out your 1040, you should include the total amount of distributions shown on Form 1099-R on line 4a of the 1040. Then you subtract the amount that was transferred directly to charity and report the remainder…even if it’s $0… on line 4b. Write “QCD” next to line 4b so IRS knows why the numbers don’t match.
Did you donate a car to a charity in 2018, or do you plan to do so this year? The income tax rules on vehicle donations can be tricky. As a general rule, the donor’s charitable deduction can’t exceed the proceeds that the charity receives from selling the auto. Donors may use a fair-market-value estimate in limited cases. Organizations that receive a donated car valued at over $500 must send Form 1098-C to the donor, who is required to attach it to the tax return. Also, attach Form 8283 for property donations in excess of $500. Check out Publication 4303 for the details.
Keep these tax tips in mind if you volunteer for charity. If you itemize on Schedule A, you can deduct 14¢ per mile for charitable driving, plus what you pay for parking and tolls. Keep track of the mileage, dates driven and purpose of the trip. You can also take a write-off for other expenses you incur while doing good deeds, such as the cost of stamps for a fund-raising mailing or items bought for a bake sale.
The new tax law helps individuals who give lots of their money to charity. The adjusted-gross-income limitation on cash donations to qualified charities is higher. Before 2018, these charitable contributions were deductible to the extent the write-off didn’t exceed 50% of the donor’s AGI. The legislation raised the AGI limit to 60%.
Joe Mastriano, CPA’s Comments:
Joe says not to assume the IRS will agree with you because you read in the Turbo Tax instructions that all you need to do is keep the receipts and invoices. Appeals tends to rule based on whether or not they can win in tax court. They don’t try to understand your situation, and if it is legitimate, help you. What they do is try to fit it into court cases that rule against you. Especially in the area of Real Estate Professionals. Anytime a lot of money is involved, you should seek knowledge on what exactly the IRS will accept, before you decide how you will treat an item concerning your personal and business tax situation. I can help you expand your understanding of how things are treated so you can avoid an audit, and if you elect not to follow my 4-part checklist, deal successfully with your tax audit.
Robin who does most of the tax returns also has very extensive experience in financial statements, budgeting, and accounting in general. If your company is not performing as you wish, it pays to have us take a look. Over the years I have helped many companies, big or small, gain a handle on their financial data and related decision making. Our advice has resulted in most of them meeting their budgets and being profitable. A few decided that they need to take jobs instead of trying to run the company. Never hide from the truth about your company. You will pay dearly for it. Just set up a consultation, and I will make it as fun as I can.
Joe’s Challenge: No matter who your accounting firm is, and how many of your companies they are doing the accounting for, I know that there is a greater than 90% chance that I know how to lower your chances of being audited, and if there are mistakes being made, I can find them. I have done this before. Take me up on the challenge. Call Stephanie at 713-774-4467 and let’s get serious about your money.