Summer 2016 – What to do if you receive an IRS notice

Calming WindAlong about now, the IRS is mailing notices to taxpayers who still owe their 2015 tax, or whose returns the IRS is adjusting. As an Enrolled Agent, I can help you respond to IRS notices and letters. Here are a few tips on how to respond to an IRS notice.

Understand that you are not alone. Every year the IRS mails millions of letters and notices. An Enrolled Agent tax professional, like myself, can help you interpret and respond. To speak to, or represent a taxpayer before the IRS, a signed Power of Attorney must be on file with the IRS. It is as easy as signing a Form 2848 that an EA can prepare for you.

 

Don’t Panic! Calmly open the envelope and read it carefully. Not every IRS letter is bad news, and many can be dealt with simply and painlessly. Some letters are informational and require no response.

 

Read carefully. If the IRS is making an adjustment to your tax return, then be sure to provide a copy of the notice to your tax preparer, even if you agree with the change. It is important that the correct information be carried from one year to the next, and if changes have been made, then your tax preparer will need to make a note of those corrections.

 

Follow instructions and keep copies. Each letter states instructions and time frame for making a response. If you believe a response is required, and you need assistance from an EA, then get a copy of the notice to the EA as soon as possible so there is adequate time to prepare for a response. If payment is required, the safest way to make a payment is by check accompanied by the payment voucher. Online payments are acceptable, but be sure you are clear what you are making payment for, 1040-ES Qtr 2, for example.

 

If you need more time, then ask. In most cases, the IRS will grant an extension of time to respond, if needed. An EA can help you get an extension, or you can request an extension yourself by calling the telephone number on the notice. However, if you ignored previous notices and receive a Notice of Deficiency (90 day notice), no extension can be granted, and if you want to dispute the tax, you must do so in Tax Court. Don’t go there.

 

Check the IRS numbers against your return or document. If your notice is adjusting your return, check their numbers against yours. Sometimes, the IRS gets it wrong, especially with clergy taxes. A common adjustment made is to the estimated tax payment amounts on the return. Be sure to keep good records and give your tax preparer exact dates and amounts of estimates you sent in during the tax year, so that preparation is right from the beginning.

 

Be aware of scams. The IRS will never call, text, or email you. Never. All communication is through official written correspondence. If you receive a threatening phone call, hang up immediately. Report the call to TIGTA (www.treasury.gov/tigta) and the Federal Trade Commision (www.FTC.gov).

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WINTER 2016 – What’s new in 2016

CIMG0074Congress passed a $680 billion tax extenders bill in mid December which includes six permanent extenders for individual taxpayers. With a nod to George Frederic Handel, we sing “Hallelujah!” They are:

  • Enhanced Child Tax Credit
  • Enhanced American Opportunity Tax Credit
  • Enhanced Earned Income Tax Credit
  • Above-the-line deduction for eligible school teacher expenses, $250, and indexed for inflation
  • Parity for exclusion from income for employer provided mass transit and parking benefits
  • Deduction of state and local general sales taxes (Sch A deduction)

Business mileage rate for 2016 decreases to $.54/mile. Charitable mileage remains the same in 2016 at $.14/mile. Medical mileage for 2016 decreases to $/19/mile.

For the estate of any decedent dying during calendar year 2015, the basic exclusion for estate tax is $5,430,000. Estate tax exclusion for decedents who die in 2016 is $5,450,000.

IMPORTANT DUE DATES:

April 18, 2016

  • Deadline for filing individual tax returns for 2015
  • Deadline for filing a request for extension of an individual tax return for 2015
  • 1st quarter estimated tax payment due
  • Last day to make a 2015 contribution to a Traditional IRA or Roth IRA

June 15, 2016 – 2nd Quarter Estimated Tax payment due

September 15, 2016 – 3rd Quarter Estimated Tax payment due

October 17, 2016 – Deadline for filing an extended 2015 individual tax return

January 15, 2017 – 4th Quarter Estimated Tax payment due

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FALL 2015 – Travel Tips for Volunteers

Ripon Mission Group 2005

Many of you have teams from your church traveling on mission trips or other church sponsored projects this time of year. Clergy, church staff, and/or laity may have travel expenses that will help lower their taxes next year. Here are a few tips on travel while giving your services to your church:

  • Qualified Charity – In order to deduct your costs, volunteer work must be for a qualified charity. Churches are automatically a qualified charity.
  • Out of Pocket expenses – Some costs you pay to give your services may be deductible, including the cost of travel. The costs must be necessary while you are away from home giving your services, and must be unreimbursed, directly connected with the services, expenses you had only because of the services you gave, and not personal, family, or living expenses.
  • Genuine and Substantial Duty – Volunteer services must be real and substantial throughout the trip. You cannot deduct expenses if you only have nominal duties or no duties for significant parts of the trip.
  • Value of Time or Service – You can’t deduct the value of your services that you give, including income lost while you work as an unpaid volunteer.
  • Deductible Travel Expenses – These include air, rail or bus transportation, car expenses, lodging costs, cost of meals, taxi or other transportation to/from airport or station.
  • Nondeductible Travel – You can’t deduct your costs if a significant part of the trip involves recreation or a vocation.
Clergy and Church Staff may be able to deduct unreimbursed, eligible travel expenses as an employee job expense, whereas the cost of meals must be kept separate from the cost of other travel expense.

Maintain good records. Encourage your volunteers to keep copies of bills and receipts, mileage logs, or other pertinent information.

Reminder! Third quarter estimated tax payments are due on Tuesday, September 15. If you prefer to make payment by check, be sure to include the pre-printed payment voucher #3 with your check. Alternatively, you can make your payment online at www.irs.gov using the IRS Direct Pay tool, or the EFTPS tax payment system.

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Tax News – Summer 2015

Horizons

Horizons

2nd Quarter estimated tax payments are due on Monday, June 15.

Identity theft and fraudulent tax return filings continue to be in the news, at least the news that comes my way as a tax professional. The most recent incident affected 104,000 tax filers who had tax information stolen. The hackers were able to obtain enough information from social media, like Facebook, and social security numbers obtained from elsewhere, to request and receive tax return transcripts from the IRS. The transcripts provided the rest of the information needed to file fraudulent returns for refunds. The IRS has shuttered the online transcript tool, and taken other security measures. Some steps you can take to protect yourself:

  • File your tax return as early as possible
  • Guard your Social Security number. Never use it in email, give it over the phone, or provide it through a linked URL unless you are certain the link is safe. The IRS will never contact you through email, only through snail mail.
  • Be cautious of putting too much personal information on social media
  • Monitor your credit through one or all of the three national credit reporting bureaus (Equifax, Experian and TransUnion)

If you ever become a victim of tax identity theft, you can apply for a special identity protection ID number, to thwart the filing of any more phony returns under your SSN.

 

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YEAR END TAX TIPS – DECEMBER 2014

Symbols of Christmas

Symbols of Christmas

4TH Quarter Estimated Tax Payments are due January 15, 2015

 
2014 Gifts to Charity must be postmarked or made online by 12/31/14. Gifts charged to a bank or financial institution credit card are counted on the date they are charged. Gifts charged on a retail store credit card are counted when they are paid. If you own stock, consider making a gift by transfer of stock instead of cash. You can avoid capital gains tax, and get a charitable giving deduction on Sch A.
Contribute to a Traditional or Roth IRA – up to a maximum of $5,500 ($6,500 if you are age 50 or older) for 2014. If you are already covered by a church or work retirement plan, your contribution may be limited once AGI reaches a certain amount. If you think you may be in this category, you may wish to make your 2014 contribution after I finish your return and your AGI is determined . You have until April 15, 2015 to make your 2014 contribution.
Contribute first to your Church Sponsored Retirement Plan through salary deferral (pre-tax contributions), since up to 100% of retirement distributions from this type of plan can be tax sheltered by clergy housing costs in retirement. Now is the time to get your salary reduction agreement in place for 2015.
Take required minimum distributions from your retirement plan or traditional IRA if you are at least 70 1/2. You normally must take the RMD by Dec. 31, 2014, or by April 1, 2015 if you turned 70 1/2 in 2014. You are not required to take RMD from a Roth IRA. Failure to take the RMD can result in a 50% excise tax – OUCH!
Contribute your RMD – On the evening of Dec. 16, 2014, Congress passed legislation renewing the charitable IRA rollover, also called a qualified charitable distribution (QCD), for tax year 2014 only. The charitable IRA rollover allows donors age 70 1/2 or older to transfer, subject to certain restrictions, up to $100,000 directly from their IRA account to qualifying charities, excluding their gift from taxable income and counting it toward their required minimum distribution not already withdrawn.

HAVE A BLESSED CHRISTMAS AND A HAPPY, HEALTHY NEW YEAR!

 

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COURT DECISION ON HOUSING ALLOWANCE

Christian familyOn November 13, 2014, the U.S. Court of Appeals for the Seventh Circuit reversed the decision of the U.S. District Court for the Western District of Wisconsin in the case Freedom from Religion Foundation (FFRF) v. Lew. The Court of Appeals remanded the case to the District Court with instructions to dismiss the case for lack of standing.

The District Court had ruled that the tax exclusion of cash housing allowance for clergy under Section 107(2) of the Internal Revenue Code (Code) is unconstitutional under the Establishment Clause, although the District Court also held that the FFRF did not have standing to challenge the exclusion of in-kind housing (parsonage) under Section 107(1) of the Code.

In today’s ruling, the Court of Appeals stated that the FFRF had not asked the Internal Revenue Service (IRS) to exclude the housing allowance that its directors received from taxation. Importantly, because the challenge was resolved on standing grounds, the Court of Appeals noted in its opinion: “We therefore do not reach the issue of the constitutionality of the parsonage exemption.”

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Tax News You Can Use – Fall 2014

October Be reminded that 3rd Quarter Estimated Tax payments are due Friday, September 15.

If you have had a significant change in income due to retirement or a move, it may be necessary to make adjustments in your estimated payments for the remainder of 2014.

The IRS has ramped up its efforts to fight tax identity theft and tax fraud. Here are some tips to help you avoid problems:

  • Several of my clients had their returns rejected for efile in 2013 because the EIN on their W-2 did not match the name of the employer in the IRS database. This typically happened with the smaller churches. My suspicion is that, as a fraud prevention measure, the IRS no longer accepts any EIN which is a duplicate. Encourage your treasurer to use only an ORIGINAL EIN on your W-2.
  • File early. If your Social Security number happens to get stolen, an identity thief could file a fraudulent return for an early refund, using your name and SSN. Your return will be rejected as a duplicate when you later file.
  • Scam phone calls continue. The caller pretends to be with the IRS and either demands money, or may say you have a refund due and ask you for personal information. Remember, the IRS will NEVER call you about taxes without first mailing you an official notice. The IRS will never ask for card numbers over the phone or threaten to have you arrested for not paying. Report any incidents to www.tigta.gov .

If you, your spouse, or your dependents are headed back to school for higher education, you may be eligible for an education tax credit:

  • The American Opportunity Tax Credit applies for the first four years of higher education.
  • The Lifetime Learning Tax Credit is for those seeking education beyond the college years.

Specific rules apply. If you think you might be eligible, check out the IRS website at www.irs.gov.

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COURT CHALLENGE TO THE CLERGY HOUSING ALLOWANCE EXCLUSION

snow_christmas_022On Nov. 22, 2013, a federal district court judge in Wisconson struck down the ministerial housing allowance as an unconstitutional preference for religion. The exemption for the fair rental value of a parsonage provided by the church was not challenged in this particular case, and therefore the parsonage exclusion remains intact.

The take-away here is the ruling will not take effect until the conclusion of any appeals to the Seventh Circuit Court of Appeals. An appeal by the IRS and Department of the Treasury could take up to a year to resolve.

A ruling by a federal district court judge in Wisconsin is not binding on other courts, and does not apply to ministers in other states. If the ruling is appealed and affirmed by the Seventh Circuit Court of Appeals, it will apply to ministers in that circuit (Illinois, Indiana, and Wisconsin). It would become a national precedent binding on ministers in all states only if affirmed by the United States Supreme Court (an unlikely outcome). As a result, churches should continue to designate housing allowances for ministerial employees for 2014, and church pension plans should continue to designate housing allowances for retired ministers.

Clergy Tax Professionals will continue to keep you updated as this case proceeds through appeals and the ramifications of the outcome to clergy and churches.

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‘Tis the season for giving!

Symbols of Christmas

Symbols of Christmas

Many clergy are very generous givers, and the IRS often target clergy for audit because of the high level of donations. The IRS requires that you be able to substantiate your donations. Be sure you can stand up to audit by following these guidelines:

Cash donation (< $250) For each single donation, keep one of the following: cancelled check, receipt from the charity, or some other written record

Non-Cash property (< $250)  Keep a receipt from the charity showing the name of the charity, address/location, and description of the property donated

Cash or Non-Cash Property (> $250)  Keep a written acknowledgement from the charity showing the amount of the cash donation, or a description of the non-cash property, and a confirmation that you did not provide goods or services in consideration of the contributed property. If goods or services were provided, include a description and good faith estimate of the value of the goods or service provided.

Non-Cash Property ($500 to $5,000) Same rules as above apply, AND you must keep the following records: date and manner of your acquisition of the property (or completion of property if you created it); adjusted basis of the property; copy of Form 8283, Non-Cash Charitable Contributions, that you filed with your tax return.

Non-Cash Property (> $5000)  Add up all your non-cash contributions to all charities and see if the total exceeds $5,000. The same rules for non-cash property above apply AND you must get a qualified appraisal of all non-cash property donated. Complete the appraisal summary (Section B of IRS Form 8283) within 60 days of the contribution and before your filing deadline. The form must be signed by a qualified appraiser. Keep a copy of the appraisal and your tax return for your records.

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Tax News you can use – Fall 2013

San Francisco AGO & Northern CA 133

 

September 16, 2013 is the deadline for third quarter estimated tax payments.

2012 Individual Returns on Extension must be filed by October 15, 2013.

According to a recent Tax Court ruling (Rogers, TC Memo. 2013-177), pastors must formalize their housing allowance agreement with the church before any reimbursement payments are made by the church. The pastor was denied tax-free treatment of reimbursements for his mortgage payments and utility bills because there was no official agreement in place with his church.

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