Helpful Tips to Know About Gambling Winnings & Losses

Taxpayers must report all gambling winnings as income. They must be able to itemize deductions to claim any gambling losses on their tax return.

Taxpayers who gamble may find these tax tips helpful:

1. Gambling income. Income from gambling includes winnings from the lottery, horseracing and casinos. It also includes cash and non-cash prizes. Taxpayers must report the fair market value of non-cash prizes like cars and trips to the IRS.
2. Payer tax form. The payer may issue a Form W-2G, Certain Gambling Winnings, to winning taxpayers based on the type of gambling, the amount they win and other factors. The payer also sends a copy of the form to the IRS. Taxpayers should also get a Form W-2G if the payer withholds income tax from their winnings.
3. How to report winnings. Taxpayers must report all gambling winnings as income. They normally should report all gambling winnings for the year on their tax return as “Other Income.” This is true even if the taxpayer doesn’t get a Form W-2G.
4. How to deduct losses. Taxpayers are able to deduct gambling losses on Schedule A, Itemized Deductions, but keep in mind, they can’t deduct gambling losses that are more than their winnings.
5. Keep gambling receipts. Keep records of gambling wins and losses. This means gambling receipts, statements and tickets or by using a gambling log or diary.

How Does the IRS Contact Tax Payers

When the IRS needs to contact a taxpayer, the first contact is normally by letter delivered by the U.S. Postal Service. The IRS doesn’t normally initiate contact with taxpayers by email, nor does it send text messages or contact through social media channels.

Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, advance notice is provided in writing via a letter or notice, but not always.

IRS Phone Calls

• IRS revenue officers work directly with taxpayers to educate them about their options to resolve delinquencies and to collect delinquent taxes and tax returns, while protecting taxpayers’ rights.
• IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit.
• Private debt collectors can call taxpayers for the collection of certain outstanding inactive tax liabilities but only after the taxpayer and their representative has received written notice. Private debt collectors for the IRS must respect taxpayers’ rights and abide by the consumer protection provisions of the Fair Debt Collection Practices Act.

IRS Visits

• IRS revenue officers routinely make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer; however, payment will never be requested to a source other than the US Treasury.
• IRS revenue agents usually visit taxpayers or tax professionals to conduct the audit after either mailing a notice and/or agreeing on the day and time. IRS revenue agents will sometimes make unannounced visits to a taxpayer’s home or place of business to discuss a tax matter.
• IRS criminal investigators are federal law enforcement agents who may visit a taxpayer’s home or place of business unannounced while conducting an investigation. They will not demand any sort of payment.

Ask For Credentials

IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential (PIV). Pocket commissions describe the specific authority and responsibilities of the authorized holder. The PIV is a government-wide standard for secure and reliable forms of identification for federal employees and contractors. Criminal investigators also have a badge and law enforcement credentials.

Paying Taxes

All tax payments are to the U.S. Treasury. Taxpayers should never use a preloaded debit card or wire transfer to make a payment. The IRS provides specific guidelines on how to make a tax payment at irs.gov/payments.

IRS employees and contractors will never:

• Be hostile or insulting
• Demand payment without giving taxpayers the opportunity to question or appeal the amount
• Require a specific payment method, such as a prepaid debit card
• Threaten lawsuits, arrest, deportation or other action for not paying
• Ask for credit or debit card numbers over the phone.

Avoid scams. The IRS never initiates contact using social media or text messages. First contact generally comes in the mail.  A special page on IRS.gov, “How to know it’s really the IRS calling or knocking on your door,”  helps taxpayers determine if a person claiming to be from the IRS is legitimate or an imposter.

Tips for Taxpayers Who Owe Taxes

The IRS offers a variety of payment options where taxpayers can pay immediately or arrange to pay in installments. Those who receive a bill from the IRS should not ignore it. A delay may cost more in the end. As more time passes, the more interest and penalties accumulate.

Here are some ways to make payments using IRS electronic payment options:

• Direct Pay. Pay tax bills directly from a checking or savings account free with IRS Direct Pay. Taxpayers receive instant confirmation once they’ve made a payment. With Direct Pay, taxpayers can schedule payments up to 30 days in advance. Change or cancel a payment two business days before the scheduled payment date.
• Credit or Debit Cards. Taxpayers can also pay their taxes by debit or credit card online, by phone or with a mobile device. A payment processor will process payments.  The IRS does not charge a fee but convenience fees apply and vary by processor.

Those wishing to use a mobile devise can access the IRS2Go app to pay with either Direct Pay or debit or credit card. IRS2Go is the official mobile app of the IRS. Download IRS2Go from Google Play, the Apple App Store or the Amazon App Store.

• Installment Agreement. Taxpayers, who are unable to pay their tax debt immediately, may be able to make monthly payments. Before applying for any payment agreement, taxpayers must file all required tax returns. Apply for an installment agreement with the Online Payment Agreement tool.

Who’s eligible to apply for a monthly installment agreement online?

• • Individuals who owe $50,000 or less in combinedtax, penalties and interest and have filed all required returns
  • Businesses that owe $25,000 or less in combined tax, penalties and interest for the current year or last year’s liabilities and have filed all required returns

Those who owe taxes are reminded to pay as much as they can as soon as possible to minimize interest and penalties. Visit IRS.gov/payments for all payment options.

Home Office Deduction Often Overlooked by Small Business Owners

The Internal Revenue Service reminded small business owners who work from a home office that there are two options for claiming the Home Office Deduction. The Home Office Deduction is often overlooked by small business owners.

Regular Method

The first option for calculating the Home Office Deduction is the Regular Method. This method requires computing the business use of the home by dividing the expenses of operating the home between personal and business use. Direct business expenses are fully deductible and the percentage of the home floor space used for business is assignable to indirect total expenses. Self-employed taxpayers file Form 1040, Schedule C , Profit or Loss From Business (Sole Proprietorship), and compute this deduction on Form 8829, Expenses for Business Use of Your Home.

Simplified Method

The second option, the Simplified Method, reduces the paperwork and recordkeeping burden for small businesses. The simplified method has a prescribed rate of $5 a square foot for business use of the home. There is a maximum allowable deduction available based on up to 300 square feet. Choosing this option requires taxpayers to complete a short worksheet in the tax instructions and entering the result on the tax return. There is a special calculation for daycare providers. Self-employed individuals claim the home office deduction on Form 1040, Schedule C , Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.

Regardless of the method used to compute the deduction, business expenses in excess of the gross income limitation are not deductible. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, expenses for the parts of the home not used for business are not deductible.

Deductions for business storage are deductible when the dwelling unit is the sole fixed location of the business or for regular use of a residence for the provision of daycare services; exclusive use isn’t required in these cases.

Employee or Independent Contractor? Know the Rules

The IRS encourages all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor.

An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.

Here are two key points for small business owners to keep in mind when it comes to classifying workers:

1. Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:

• The extent of the worker’s investment in the facilities or tools used in performing services
• The extent to which the worker makes his or her services available to the relevant market
• How the business pays the worker, and
• The extent to which the worker can realize a profit or incur a loss

1. Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:

• Written contracts describing the relationship the parties intended to create
• Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
• The permanency of the relationship, and
• The extent to which services performed by the worker are a key aspect of the regular business of the company
• The extent to which the worker has unreimbursed business expenses

Tax Tips to Help You Determine What Makes a Gift Taxable

Taxpayers who give money or property to others may wonder about the federal gift tax and if it applies. Most gifts are not subject to the gift tax.

Here are seven tax tips about the gift tax and giving:

1. Nontaxable Gifts. The general rule is that any gift is potentially taxable. However, there are exceptions to this rule. The following are nontaxable gifts:

• Gifts that do not exceed the annual exclusion amount for the calendar year,
• Tuition or medical expenses a taxpayer pays directly to a medical or educational institution for another person,
• A taxpayer’s gifts to their spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

1. Annual Exclusion. For 2016, the annual exclusion amount is $14,000. Most gifts are not subject to the gift tax. For example, there is usually no tax if the taxpayer makes a gift to their spouse or to a charity. If a taxpayer makes a gift to another person, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion amount for the year.
2. No Tax on Recipient. Generally, the person who receives the gift will not have to pay tax on it.
3. Gifts Not Deductible. Making a gift does not ordinarily affect the taxpayer’s situation. A taxpayer cannot deduct the value of gifts they make (other than deductible charitable contributions as subject to the tax code).
4. Forgiven Debt and Certain Loans. Taxpayers who forgive debt or make a loan interest-free or below the applicable market interest rate may be subject to the gift tax.
5. Gift-Splitting. A taxpayer and their spouse can give up to $28,000 to a third party without making that gift taxable. Taxpayers need to consider one-half of the gift as from them and one-half given by their spouse.
6. Filing Requirement. Taxpayers need to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:

• The taxpayer gave gifts to at least one person (other than their spouse) that amounts to more than the annual exclusion for the year.
• The taxpayer and their spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
• If the taxpayer gave a person (other than their spouse) a gift of a future interest that the recipient can’t actually possess, enjoy, or from which that person will receive income later.
• A taxpayer gifting their spouse an interest in property that will terminate due to a future event.

Know these Facts Before Deducting a Charitable Donation

If taxpayers gave money or goods to a charity in 2016, they may be able to claim a deduction on their federal tax return. Taxpayers can use the Interactive Tax Assistant tool, Can I Deduct my Charitable Contributions?, to help determine if their charitable contributions are deductible.

Here are some important facts about charitable donations:

1. Qualified Charities. Taxpayers must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. To check the status of a charity, use the IRS Select Check tool.
2. Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with a federal tax return.
3. Benefit in Return. If taxpayers get something in return for their donation, they may have to reduce their deduction. Taxpayers can only deduct the amount that exceeds the fair market value of the benefit received. Examples of benefits include merchandise, meals, tickets to events or other goods and services.
4. Type of Donation. If taxpayers give property instead of cash, their deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price they would get if the property sold on the open market. If they donate used clothing and household items, those items generally must be in good condition or better. Special rules apply to cars, boats and other types of property donations.
5. Noncash Charitable Contributions. File Form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year. Complete section-A for noncash property contributions worth $5,000 or less. Complete section-B for noncash property contributions more than $5,000 and include a qualified appraisal to the return. Taxpayers may be able to prepare and e-file their tax return for free using IRS Free File. The type of records they must keep depends on the amount and type of their donation. To learn more about what records to keep, see Publication 526, Charitable Contributions.
6. Donations of $250 or More. If taxpayers donated cash or goods of $250 or more, they must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether they received any goods or services in exchange for the gift.

Debt Cancellation May be Taxable

If a lender cancels part or all of a debt, a taxpayer must generally consider this as income. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt canceled in 2016.

Here are some tips about debt cancellation:

1. Main Home. If the canceled debt was a loan on a taxpayer’s main home, they may be able to exclude the canceled amount from their income. They must have used the loan to buy, build or substantially improve their main home to qualify. Their main home must also secure the mortgage.
2. Loan Modification. If a taxpayer’s lender canceled or reduced part of their mortgage balance through a loan modification or ‘workout,’ the taxpayer may be able to exclude that amount from their income. They may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt canceled in a foreclosure.
3. Refinanced Mortgage. The exclusion may apply to amounts canceled on a refinanced mortgage. This applies only if the taxpayer used proceeds from the refinancing to buy, build or substantially improve their main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
4. Other Canceled Debt. Other types of canceled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion.
5. Form 1099-C. If a lender reduced or canceled at least $600 of a taxpayer’s debt, the taxpayer should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of canceled debt and other information.

IRS Has Refunds Totaling $1 Billion for People Who Have Not Filed a 2013 Federal Income Tax Return

The Internal Revenue Service announced today that unclaimed federal income tax refunds totaling more than $1 billion may be waiting for an estimated 1 million taxpayers who did not file a 2013 federal income tax return.

To collect the money, taxpayers must file a 2013 tax return with the IRS no later than this year’s tax deadline, Tuesday, April 18.

In cases where a tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If they do not file a return within three years, the money becomes the property of the U.S. Treasury. For 2013 tax returns, the window closes April 18, 2017. The law requires taxpayers to properly address mail and postmark the tax return by that date.

The IRS reminds taxpayers seeking a 2013 refund that their checks may be held if they have not filed tax returns for 2014 and 2015. In addition, the refund will be applied to any amounts still owed to the IRS, or a state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2013. Many low-and-moderate income workers may have been eligible for the Earned Income Tax Credit (EITC). For 2013, the credit was worth as much as $6,044.

State-by-state estimates of individuals who may be due 2013 tax refunds:

Name Change? How It Impacts Taxes

A name change can have an impact on taxes. All the names on a taxpayer’s tax return must match Social Security Administration records. A name mismatch can delay a tax refund. Here’s what taxpayers should know if they changed their name:

• Reporting Name Changes. Got married and now using a new spouse’s last name or hyphenate a name? Divorced and now back to using a former last name? In either case, taxpayers should notify the SSA of a name change. That way the new name on IRS records will match the SSA records.
• Making Dependent’s Name Change. Notify the SSA if a dependent had a name change. For example, if a taxpayer adopted a child and the child’s last name changed. If the child does not have a Social Security number, the taxpayer may use an Adoption Taxpayer Identification Number on their tax return. An ATIN is a temporary number. Apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. Visit IRS.gov to get the form.
• Getting a New SS Card. File Form SS-5, Application for a Social Security Card. The form is on SSA.gov or by calling 800-772-1213. The taxpayer’s new card will reflect the name change.

IRS YouTube Videos: 

• Changed Your Name after Marriage or Divorce? – English| Spanish | ASL

Six Tax Tips for the Self-Employed

Self-employed taxpayers normally earn income by carrying on a trade or business. Here are six important tips from the IRS for the self-employed:

• Self-Employed Taxpayers. Sole proprietors and independent contractors are two types of self-employment. Taxes can be complex for the self-employed. Check out the IRS Self Employed Individuals Tax Center.
• Estimated Tax. Self-employed taxpayers generally need to make quarterly estimated tax payments. IRS Publication 505, Tax Withholding and Estimated Tax, has details on making those payments.
• Schedule C or C-EZ. Self-employed taxpayers must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040. For expenses less than $5,000, use Schedule C-EZ. Each form’s instructions provide the rules for which form to use.
• SE Tax. For those making a profit, self-employment and income tax may need to be paid. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax.
• Allowable Deductions. Taxpayers can deduct expenses paid to run a business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and proper for a trade or business.
• When to Deduct. In most cases, taxpayers can deduct expenses in the year paid or incurred. Some costs must be ‘capitalized,’ however. This means deducting the cost over a number of years.

Where’s My Refund?

Here is a video tax tip from the IRS:

How to Use the “Where’s My Refund?” Tool   English | Spanish |ASL

This IRS YouTube video walks taxpayers through the steps of how to use the IRS “Where’s my refund?” tool.  The online tool gives personalized up to date tracking information on a refunds’ status. Nine out of 10 refunds are issued within 21 days when sent electronically and using direct deposit.

Deducting Medical and Dental Expenses

If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:

1. AGI threshold increase.  Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10% of your adjusted gross income. The threshold was 7.5% of AGI in prior years.

2. Temporary exception for age 65.  The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016. Starting in 2017, anyone of any age must clear the 10% of AGI threshold to claim itemized medical deductions.

3. You must itemize.  You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction.

4. Paid in 2016. You can include only the expenses you paid in 2016. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.

5. Costs to include.  You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

6. Expenses that qualify.  You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. Furthermore, they also include payments for medically necessary home improvements or the installation of special equipment or facilities in your home. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.

7. Travel costs count.  You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 19 cents per mile for 2016.

8. No double benefit.  You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.

Do you have to file a 1099?

Do you have your own business? Are you the trustee of a trust? If so, you might be subject to U.S. Form 1099 filing requirements. Here is a link to the instructions to Form 1099:

http://www.irs.gov/pub/irs-pdf/i1099gi.pdf

See pages 24-26 for a neat summary of all the different 1099s and filing requirements. Also, keep in mind that the deadline to mail the forms to the IRS has been moved up to January 31. Please don’t hesitate to contact me with any questions!

Updated IRS Smartphone App Now Available

Are you on the go but need the latest tax information at your fingertips? There’s an app for that. The latest version of the innovative IRS2Go app is now available.

Here’s what you can do with the redesigned IRS Smartphone app IRS2Go, version 5.3.1:

• Check the status of your refund.  The new version of IRS2Go includes an easy-to-use refund status tracker so taxpayers can follow their tax return step-by-step throughout the IRS process. Just enter your Social Security number, filing status and your expected refund amount. You can start checking on the status of your refund 24 hours after the IRS confirms receipt of an e-filed return or four weeks after you mail a paper return. Since the IRS posts refund updates on a daily basis, there’s no need to check the status more than once each day.
• Make payments. Pay directly from your bank account, debit card or credit card.
• Find free tax preparation.  You may qualify for free tax help through the IRS Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs. A new tool on IRS2Go will help you find a VITA location. Just enter your ZIP code and select a mileage range to see a listing of VITA/TCE sites near you. Select one of the sites and your Smartphone will show an address and map to help you navigate.
• Stay connected.  You can interact with the IRS by following the IRS on Twitter @IRSnews, @IRStaxpros and @IRSenEspanol. You can also watch IRS videos on YouTube, register for email updates or contact the IRS using the “Contact Us” feature.

Get Credit for Child and Dependent Care This Summer

Many parents pay for childcare or day camps in the summer while they work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are 10 facts that you should know about the Child and Dependent Care Credit:

1. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.

2. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.

3. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.

4. As a rule, if you’re married you must file a joint return to take the credit. But this rule doesn’t apply if you’re legally separated or if you and your spouse live apart.

5. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.

6. The credit is a percentage of the qualified expenses you pay. It can be as much as 35 percent of your expenses, depending on your income.

7. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.

8. Overnight camp or summer school tutoring costs do not qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.

9. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.

10. Remember that this credit is not just a summer tax benefit. You may be able to claim it for care you pay for throughout the year.

Taxable and Nontaxable Income

Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable:

• Child support payments;
• Gifts, bequests and inheritances;
• Welfare benefits;
• Damage awards for physical injury or sickness;
• Cash rebates from a dealer or manufacturer for an item you buy; and
• Reimbursements for qualified adoption expenses.

Some income is not taxable except under certain conditions. Examples include:

• Life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
• Income you get from a qualified scholarship is normally not taxable. Amounts you use for certain costs, such as tuition and required course books, are not taxable. However, amounts used for room and board are taxable.

All income, such as wages and tips, is taxable unless the law specifically excludes it. This includes non-cash income from bartering – the exchange of property or services. Both parties must include the fair market value of goods or services received as income on their tax return.

8 Tips for Deducting Charitable Contributions

Charitable contributions made to qualified organizations may help lower your tax bill. The IRS has put together the following eight tips to help ensure your contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
7. To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

Simplified Option for Claiming Home Office Deduction

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014.

IRS Offers Tips for Year-End Giving

Individuals and businesses making contributions to charity should keep in mind some key tax provisions that have taken effect in recent years, especially those affecting donations of clothing and household items and monetary donations.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2012 count for 2012. This is true even if the credit card bill isn’t paid until 2013. Also, checks count for 2012 as long as they are mailed in 2012.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible.
• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• And, as always it’s important to keep good records and receipts.