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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Tips for Planning Next Year’s Return

CIMG0074For most taxpayers, the tax deadline has passed. But planning for next year can start now. Being organized and planning ahead can save time and money in 2014. Here are a few things you can do now to make next April 15 easier.

1. Consider Federal tax withholding.  Federal law allows federal tax withholding on clergy compensation. Some small churches do not want to withhold tax and file quarterly payroll reports, but if your church able withhold tax for you, then consider taking the bite out of your end-of-year tax bill. Withholding tax on your paycheck will also lower your estimated tax payments. If you are already using withholding, now is a good time to review your amounts. Call me for a review or go on www.irs.gov to use the IRS Withholding Calculator to complete a new Form W-4, Employee’s Withholding Allowance Certificate.

2. Make estimated tax payments. Clergy compensation is subject to self-employment tax and making quarterly estimated payments is the method to pay in that tax throughout the year. Failing to make estimated payments, or underpaying estimated tax is likely to result in a penalty. Plan your budget to allow payments to be sent in on April 15, June 15, Sept 15 and Jan 15. Send in your payments with Form 1040-ES. You’ll be glad you did when it comes to the bottom line of next year’s return!

2. Store your return in a safe place.  Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year’s return.

3. Organize your records.  Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time. Remember to keep good records of your housing or parsonage expenses for a maximum deduction for 2013.

5. Consider itemizing deductions.  If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to your church or favorite charity could equal some tax savings.

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Tax Identity Theft Alert

I continue to read alerts from the IRS and professional tax preparer publications that identity theft of tax returns is a big problem and growing exponentially. What happens is that a thief will steal names and SSNs, along with other public information on individuals, prepare a fraudulent tax return with a large refund amount, and file it very early in the season. When the taxpayer later files their return, it is rejected on the basis that it has already been processed!
The IRS is attempting to fight this problem by issuing special tax ID numbers to folks whose identities they think may be compromised. The IRS is also attempting to provide relief to victims, but the process, as you will not be surprised to learn, is very slow. If you are interested to read more about the problem, and how to protect yourself, click on the link below:

 

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An Update on Filing Date Delays

The GOOD NEWS is we didn’t fall off the “fiscal cliff”. The BAD NEWS is that filing delays are in the 2012 tax season forecast!
The IRS has informed the professional tax preparer community that the earliest filing date for 2012 is January 30 (pushed back from Jan. 22). Because of the last minute legislation regarding tax law changes passed on Jan 2, the IRS needs time to update forms, and complete and test their system programs. Of course, this delay will be passed down to the tax software industry, and beyond that to the tax preparers.
Here is a quick version of the situation. Most taxpayers will be able to file after Jan 30. Those taxpayers who claim depreciation expense on business assets or rental real estate, have K-1s from partnership interests or other business, have adoption expenses, or various other more complex items, will not be able to file until about mid-March. The IRS has not yet published a date for filing these types of returns.
Good news for some of you is that the credits for educator expenses, tuition and fees deductions, and sales tax deductions which were set to expire for 2012, have been extended and will be available to you for 2012.
You may be thinking that there is no rush to get your tax information organized, but the sooner it’s done, the better. I continue to offer a $10 discount on your fee if I receive your Organizer before March 15. I can begin preparing your return and have it ready to go as soon as all the forms for your return are available to me!
Happy Gathering!
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‘Tis the Season of Giving – tax tips for year end giving and receiving

 

Symbols of Christmas

The Season of Giving

               Tax Tips for Charitable Giving

Tax Deductible Contributions

  • Contribute to Qualified Charities.  In 2011, the IRS increased their efforts to bring non-profits into compliance for reporting. Those organizations who had not filed a Form 990 in three years lost their tax-exempt status. If you plan to take an itemized charitable deduction on your 2012 tax return, your donation must go to a qualified charity by Dec. 31. If you aren’t sure, you can visit http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check to check if your favorite charity is a qualified charity. Donations charged to a credit card by Dec. 31 are deductible for 2012, even if you pay the bill in 2013. A gift by check also counts for 2012 as long as you mail it in December. Gifts given to individuals, whether to friends, family or strangers, are not deductible.
  • What You Can Deduct.  You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified charity. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
Keep Records of All Donations.  You need to keep a record of any donations you deduct, regardless of the amount. You must have a written record of all cash contributions to claim a deduction. This may include a cancelled check, bank or credit card statement or payroll deduction record. You can also ask the charity for a written statement that shows the charity’s name, contribution date and amount.
Gifts to Individuals – nondeductible, but free from gift tax!
  • Cash gifts to individuals (child or friend) can be given without tax consequences, up to $13,000 per donee, in 2012.
  • A gift of any amount can be given for the payment of tuition to a qualifying educational institution on behalf of an enrolled student. As long as the payment is made directly to the institution, it is excluded from the gift tax.
  • A gift of any amount can be given for the payment of medical expenses for an individual as well. The payment must be made directly to the medical provider, in order to be excluded from the gift tax.
  • Remember all gifts must by made by Dec. 31, 2012.
Gifts to You 
      A cash gift or gift of property to you from your church (employer) is considered taxable compensation, and must be reported to you on the appropriate W-2 or 1099.
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Designate your Housing exclusion amount for 2014

 

Now is the time to secure your maximum tax benefit in 2014! Your church board or (denominational governing body or pension board for retired ministers) should adopt a parsonage or housing allowance for you in writing, and before the end of the calendar year 2013.

 If you live in a church owned parsonage that is provided rent-free for your ministerial services, your church may designate a special parsonage allowance as a portion of your compensation that you use to pay parsonage-related expenses such as utilities, furnishings, repairs, or other expenses necessary to maintain your household.

 

If you own or rent your home your church may designate a portion of your compensation for ministerial services as a housing allowance, to the extent it is used to pay rental expenses, mortgage payments, utilities, repairs, furnishings, insurance, property taxes, and maintenance, and does not exceed the fair rental value of the home (furnished, plus utilities).

 

Retired ministers may also exclude the amount designated by the denominational conference or pension board as a housing allowance for expenses incurred to live in their home. However, the surviving spouse of a deceased minister is not eligible for the exclusion unless he or she also is a qualifying minister.

 

It is important to note that although the designated amount of parsonage or housing allowance is not reported as income – a significant tax benefit – it may not exceed the actual expenses or the fair rental value of the home (furnished, plus utilities). Of course, the amount designated in advance is only an estimate of next year’s expenses, so if your actual expenses are less than the designated amount, then only the amount of the actual expenses are allowed to be excluded from taxable income.

 

For more information on this or other tax-related topics, please don’t hesitate to contact me by phone or email. I am available to discuss your situation at any time. If your church needs additional information on designating your exclusion allowance, the current edition of the IRS Tax Guide for Churches and Religious Organizations may be helpful. 

 

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Take a LISTEN to this!

Now that the April 17 filing deadline tomorrow, we can all take a collective “whew!” and take a few moments to laugh a little. While driving yesterday, I heard this hilarious “Tax DJ” story on my Public Radio station, WFDD 88.5.  As a tax professional, I must tell you that I do not necessarily advise any of my clients to take actions suggested in these lyrics. As a musician, I couldn’t resist sharing this clip with you!  Grab a cup of coffee and sit back and enjoy . . .

http://www.marketplace.org/topics/life/last-minute-tax-tips/hey-taxman-take-listen

 

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