With the coming and going of October 15th, as we wave goodbye to extension season and the 2014 tax year as a whole, we can all anticipate and look forward to starting the whole process over again in a few months. As 2015 comes to a close, it is important to remember that there is still time to take advantage of simple Arizona tax credits. The following credits, under the right circumstances, can be taken as a nonrefundable credit (a reduction of tax) on a personal AZ return, as well as a charitable contribution itemized deduction (reduction of income) on a personal federal return. It’s worth noting that by taking the itemized deduction on federal, it will be counted against Arizona itemized deductions; but all things considered, it’s a great opportunity for tax payers and charitable organizations all the same. The credits are as follows:
Form 321: Credit for Contributions to Qualifying Charitable Organizations
Some may remember AZ Form 321 as a credit for donations to the working poor, but in 2013 the credit was expanded to include charities related to foster care. The maximum credit available for donations to charities that provide aid to the working poor is $200 for single or head of household taxpayers or $400 for married filing jointly taxpayers. This credit can double to $400 and $800, respectively, by additionally donating to a qualifying foster care charitable organization.
Form 322: Credit for Contributions Made or Fees Paid to Public Schools
Whether it is a niece or nephew, a family friend, a neighbor, or your own children or grandchildren, most taxpayers can find a student enrolled in a K-12 public school to donate to. To qualify for this credit, taxpayers can either contribute directly to the school or pay fees related to qualified activities and programs such as extracurricular activities, testing fees, and prep courses, among others.
Forms 323 & 348: Credit for Contributions to School Tuition Organizations
There are two credits with separate forms related to donations to private school tuition payments. Form 323 is the primary credit form with a maximum credit amount of $535 for single or head of household taxpayers and $1,070 for married filing jointly taxpayers. If taxpayers exceed this amount on Form 323, they may claim an additional $532 or $1,064 credit on Form 348, respectively. This credit is available to taxpayers who donate to organizations providing scholarships or grants to qualifying schools. However, neither credit can be taken if the taxpayer’s donation is designated for his or her own dependent, or if two taxpayers donate toward each other’s dependents.
Form 340: Credit for Donations to Military Family Relief Fund
This credit, only available to individuals, provides aid to families facing unplanned expenses when loved ones become casualties of war. This credit is only offered until the total amount donated throughout the current year reaches one million dollars and is based on a first come first serve basis. The maximum credit offered is $200 for single/head of household taxpayers or $400 for married filing jointly taxpayers.
These credits provide a great opportunity for those looking to reduce their tax liability and require very little effort to take advantage of! More information (and more credits!) can be found at the Arizona Department of Revenue.
By Mark McInnisPosted on by admin
The Internal Revenue Service simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500 the safe harbor threshold for deducting certain capital items.
The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.
The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.
“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.”
Responding to a February comment request, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce the administrative burden on small businesses. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smart phones, and machinery and equipment parts typically surpass the $500 threshold.
As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold.
The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging the use of the new $2,500 threshold in tax years prior to 2016.
For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.
Further details on this change can be found in Notice 2015-82 on IRS.gov.
By Scott W. Clouse, CPAPosted on November 24 2015 by admin
The IRS released the 2016 estate and gift tax amounts and due to the very low inflation rate, the 2016 numbers were very similar to the 2015 amounts.
In Revenue Procedure 2015-53, the IRS calculates the unified estate tax exclusion for decedents dying in 2016 and the gift tax lifetime exclusion will rise to $5,450,000. This is a very small increase of $20,000 from the 2015 amount of $5,430,000.
The gift tax annual exclusion remains at $14,000 for 2016. As in prior years, any person can gift up to $14,000 to another person in 2016 without using any of their lifetime exclusion. Married couples can gift up to $28,000 to any person in 2016. Payments for the benefit of an individual made directly to qualified educational organizations for tuition or for medical care expenses paid directly to providers are excluded from the gift computation.
Also coming in 2016 is a similar increase of the Generation-skipping Tax (GST) exclusion to $5,450,000 from the 2015 GST exemption amount of $5,430,000.
The ability to use a Deceased Spouse’s Unused Exclusion (often called DSUE or “portability”) continues to be available in 2016. The personal representative must timely file a Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return to claim this benefit. Form 706 is due within nine months of the decedent’s date of death. A six month extension is available.
Other changes in 2015:
- The IRS announced that estate tax closing letters would no longer be automatically issued. Instead, the personal representative or executor must request it.
- New tax basis reporting for assets received by beneficiaries of estates will begin in 2016.
Your Henry & Horne, LLP professional is available to answer any questions you have regarding your gift or estate planning.
By Melinda Nelson, CPAPosted on November 19 2015 by admin
So you had a good year and you’re looking around for tax deductions to help ease the pain come April 15th. Then you remember that your church has their annual charity auction coming up and they are always looking for items to be donated for a good cause, right? So you start to think…hey, I’ve got that old football that I was fortunate enough to get Kurt Warner to sign some years ago collecting dust in my man cave. I’ll bet it could fetch big bucks at auction and give me a hefty tax deduction, right? Well, in short…probably not.
Donors who provide goods for charities to sell at an auction often ask the charity if the donor is entitled to claim a fair market value charitable deduction for a contribution of appreciated property to the charity that will later be sold. While well intentioned, sometimes they give an incorrect response that would be better left to a qualified tax preparer to answer.
Under these circumstances, the law limits a donor’s charitable deduction to the donor’s tax basis in the contributed property and does not permit the donor to claim a fair market value charitable deduction for the contribution. Specifically, the Treasury Regulations provide that if a donor contributes tangible personal property to a charity that is put to an “unrelated use”, the donor’s contribution is limited to the donor’s tax basis in the contributed property. The sale of the item is considered unrelated, even if the sale raises money for the charity to use in its programs. So, in this case, only the cost of the football itself is deductible even if it brought well above that at charity auction. So, it looks like my collection of autographed baseballs will continue to collect dust in my man cave.
By Dale F. Jensen, CPAPosted on November 18 2015 by admin
The rules for making charitable donations from your business are similar to those governing personal donations. For example, you can donate cash or property, your total deduction may be limited, you may need to get an appraisal to establish value, and you have to keep good records.
The reporting of the charitable deduction depends on how your business is structured.
- Sole proprietorship. If you’re a sole proprietor, charitable contributions are not reported on your “Schedule C, Profit or Loss from Business.” Instead, you’ll report the contribution on “Schedule A, Itemized Deductions.”
Tip: Be sure to classify expenses properly to get the maximum deduction. As an illustration, say you take out an ad for your business product in a church bulletin. The cost is an advertising expense, not a charitable donation and you can deduct it directly from your business income.
- Pass-through entity. Charitable contributions you make from your partnership or S corporation flow to you as the partner or shareholder in the same way as other income and expense items. Your deduction, which you claim on your personal return, may be limited by your basis in the business. In addition, since you have to itemize to benefit, other limitations may reduce the total amount you can deduct.
- Corporation. C corporations can deduct charitable contributions on the corporate federal income tax return. Generally, the deduction is limited to 10% of taxable income. Special rules apply to donations of certain inventory, such as food.
Please call if you’re considering making a charitable donation from your business. We can assist in determining the tax benefit.
By Danette Jespersen, EAPosted on November 17 2015 by admin
Beginning January 1, 2016 the Arizona Job Training Tax statute has been repealed. Employers will no longer be required to pay the Job Training Tax.
Also effective January 1, 2016, employers WILL be required to submit payment for Unemployment Tax owed even if under $10.00. The exemption to not pay under $10.00 was part of A.R.S. § 23-769, and 41-1544 and has been repealed.
For more information on Unemployment Taxes you can visit the Arizona Department of Economic Security at https://www.azdes.gov/uitax/.
By Lisa Smith, EAPosted on November 12 2015 by admin
Are you an employer with 50 full-time employees (or 50 full-time equivalents)? Do you self-insure medical insurance coverage for employees? If you answered yes, you are likely subject to the new Affordable Care Act reporting requirements for 2015.
The complex ACA reporting on Forms 1095-B, 1095-C, 1094-B and 1094-C requires employers to pull together information from multiple resources. Payroll, insurance and benefits departments may need to coordinate the process and it’s critical that employers start the process now.
Important 2016 Deadlines to add to your calendar
- Forms 1095-B and 1095-C are due to individuals by Feb. 1, 2016.
- Forms 1094-B, 1095-B, 1094-C and 1095-C are required to be filed with the IRS by Feb. 29, 2016 if filing on paper, or March 31, 2016, if filing electronically.
Reporting by self-insured employers
Every person who provides medical insurance coverage to an individual during a calendar year must file an information return and a transmittal. Most insurance companies will use transmittal Form 1094-B and information return Form 1095-B. However, employers – including government employers – sponsoring self-insured group health plans will report information about the coverage in Part III of Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, instead of on Form 1095-B.
Employers with fewer than 50 employees that are not subject to the employer shared responsibility provisions, but who sponsor self-insured group health plans, will use Forms 1094-B and 1095-B to report information about covered individuals.
Reporting by ALEs (applicable large employers)
Employers with 50 or more full-time employees, including full-time equivalent employees, use transmittal Form 1094-C and information return Form 1095-C to report the information required under the Affordable Care Act about offers to insure and enrollment in health coverage for their employees. In addition to reporting the coverage that they offer, applicable large employers who sponsor self-insured group health plans will use Forms 1094-C and 1095-C to report information about the coverage they provide to the covered individuals. ALEs must report even if you offered no insurance coverage.
Check the IRS website for additional information at IRS.gov/aca. Get ready now for the newest reporting requirements. The time to report is coming quickly and the information needed to file is extensive.
Be sure to contact your tax professional to see if you have a filing requirement or require assistance with the filings.
By Melinda Nelson, CPAPosted on November 11 2015 by admin
It’s hard to guess where the tax law is headed, and nearly impossible to predict the direction of Social Security. Social Security is a topic that is widely debated in politics, as well as in the homes of millions of Americans. One of the only arguments that both parties from left to right can agree on is the fact that our current Social Security system needs to change in order to sustain it. Those changes are happening.
Back in 2000, President Clinton signed into law the Senior Citizens Freedom to Work Act which was intended to increase the flexibility for seniors to continue working even while receiving Social Security benefits. The Senior Citizens Freedom to Work Act introduced a new concept called “voluntary suspension” of benefits, allowing those who had already started Social Security benefits to stop their payments and earn delayed retirement credits.
Congress saw this caused a loophole in the Social Security rules so they decided that it will no longer be possible to file and suspend and then claim just spousal or dependent benefits on the same account. With an extension of the suspension, suspending an individual’s benefits will also suspend any benefits paid to other people based on the same earnings report.
So, Congress has completely stopped the various “File and Suspend” Social Security strategies that have allowed for spouses and dependents to be paid benefits based on the higher wage earner’s account while the individual is still earning delayed retirement credits.
Congress’ crackdown on these voluntary-suspension-related tactics doesn’t actually kill the rules for voluntary suspension itself, but now it will be relegated to those unique scenarios where someone truly started benefits early, has a change of mind and wants to stop benefits to earn delayed retirement credits, with the plans of starting benefits again at age 70.
By Dan BlackwellPosted on November 10 2015 by admin
A recent government report from the Treasury Inspector General for Tax Administration detailed the failings of the IRS’s project to upgrade all of its computers from Windows XP and all servers away from Windows Server 2003. Microsoft decided to end its mainstream support for Windows XP in April of 2009. Two years later, in April of 2011, the IRS announced a project to upgrade its operating systems to Windows 7, but they did not actually begin the process of upgrading workstations until September 2012. Nearly two years later, when Microsoft announced they would discontinue extended support for Windows XP in April of 2014, the IRS had to contract with Microsoft to provide continued support for an additional year past this deadline.
The project cost taxpayers $128 million so far and, TIGTA reported, the IRS was unable to account for the location of approximately 1,300 workstations and had only upgraded about half of its Windows servers from the 2003 software to the 2008 release. The IRS expects to spend an additional $11 million through the end of fiscal year 2015 on the project.
What went wrong? The TIGTA report claims the IRS did not follow established policies over project management and provided inadequate oversight and monitoring of the Windows XP upgrade early on in the project.
Project managers responsible for the upgrade could not confirm the number of missing workstations or outdated computers, citing an inaccurate inventory system.
Whether or not the missing workstations are still somewhere within the IRS’s possession, any workstations running outdated operating systems pose a significant security threat to the IRS and taxpayers. Per TIGTA, “External hackers or malicious insiders need to locate only the one computer with security weaknesses . . . to exploit in order to steal data or further compromise other computers.”
The $139 million projected costs will only bring the agency to an operating system that is already seven years old. Further costs, under a new budget, will be necessary to bring the agency’s workstations and servers into this decade.
By Janet Berry-Johnson, CPAPosted on November 5 2015 by admin
With the IRS and large retailers getting hacked, the California Franchise Tax Board is hoping to do better with security and is doing an identity verification upgrade to the MyFTB system .
Taxpayers and tax practitioners who have existing accounts on MyFTB can continue to use those accounts during the upgrade but no new accounts may be registered until the process is complete. The expected completion date is January 4, 2016.
After the new upgrade is installed in January 2016, taxpayers and practitioners with an account will be required to reregister their MyFTB accounts using a two-step process
- First, the taxpayer will go online to begin the new process.
- Second, the FTB will mail a PIN to the mailing address attached to the account and the taxpayer must go online to complete the process.
Tax practitioners or their clients who are not registered MyFTB users will need to contact FTB centers for assistance with any of the following services:
- Verify estimated tax payments.
- View recent payments.
- View account summary and tax year detail.
- View California wage and withholding information for up to four years.
- View FTB-issued 1099 information.
The following services do not require registration and are still available to practitioners or their clients:
- Check refund status.
- Web Pay for Individuals (non-registered version).
- Pay by credit card.
- Apply for an installment agreement.
- Use Live Chat.
- Calculate their tax.
- Take Head of Household self-test.
- Ask a tax question by e-mail.
- Get an e-mail reminder to file/make estimate payments.
- Use subscription services.
- Access MYCOD account.
- Report tax fraud.
- Get an entity status letter.
- File 199N e-post card.
By Melinda Nelson, CPA-- Older Entries »
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Simple Arizona Tax Credit Opportunities
- IRS Raises Tangible Property Expensing Threshold to $2,500
- Exemption for Estate and Gift Tax Rises to $5,450,000 in 2016
- Charity Auction Tax Deductions
- The Proper Way to Report Business Charitable Deductions
- Arizona Unemployment Tax Changes
- Are You Ready to File 1095-B & 1095-C?
- Bipartisan Budget Bill 2015: Major Change to Social Security
- IRS Lost Computers & Bungled Windows Update
- Stopping the Bleeding…California MyFTB being Upgraded