Category Archives: Tax Services

How Will the IRS and the States Handle Virtual Currency?

by Cody Taylor

bitcoinOver the last decade the Internal Revenue Service (IRS) has been faced with a brand new subject courtesy of our interconnected world: virtual currency.  Bitcoin is the most well-known but there are over 150 virtual currencies worldwide with some of the other larger ones being Litecoin, Darkcoin and Peercoin.  As these currencies have popped up and have become more popular the IRS needed to decide how to handle transactions conducted in these new currencies.  Bitcoin for instance is accepted at mainstream retailers such as Overstock.com, Dish Network and Expedia, among others.

The IRS issued guidance in the form of answers to Frequently Asked Questions (FAQs).  This setup tries to provide an overview for how transactions in virtual currencies will be handled for federal tax purposes.  What follows is an excerpt of the FAQs from IRS Notice 2014-21:

Q-1: How is virtual currency treated for federal tax purposes?

A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?

A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?

A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, 3 measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.

Q-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3?

A-4: The basis of virtual currency that a taxpayer receives as payment for goods or services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.

Q-5: How is the fair market value of virtual currency determined?

A-5: For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.

Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?

A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.

The rest of IRS Notice 2014-21 and the remaining FAQs can be found at IRS Notice 2014-21 – Federal Taxation for Virtual Currencies.  At the state level the details of how virtual currency will be handled is still being worked out.  North Carolina currently has a bill in the state congress that addresses how the state wants to handle a number of issues associated with virtual currencies.  They even have a Virtual Currency Corner on the North Carolina Commissioner of Banks website dedicated to current virtual currency news and legislation.

If you have any dealings with virtual currency or might in the future, we would be happy to help answer any questions you may have.  Please contact our office for additional information.

Cody ([email protected]) is part of our tax staff at Langdon & Company LLP.  He focuses on high-net wealth individuals, and other various types of tax projects.

Opportunities for Tax Savings Using a Section 1031 Exchange

by Morgan Norris

What is a Section 1031 exchange? exchange-money

An exchange using Section 1031 of the Internal Revenue Code occurs when you sell an investment property and subsequently purchase another similar property within a certain amount of time.  This exchange is also known as a “like-kind” exchange, and can be used to postpone paying tax on the gain from the property sale if all the IRC requirements surrounding the exchange are met.  A Section 1031 exchange is reported on Form 8824, Like-Kind Exchanges.

Who qualifies?

Owners of investment and business property; including individuals, C corporations, S corporations, Partnerships, LLC’s and trusts can all qualify to take part in the Section 1031 exchange.

What are the requirements?

There must be an exchange of properties.  Examples of property exchanges include:  a simultaneous swap of one property for another or a deferred property exchange.  A deferred exchange allows you to dispose of a property, and then identify and purchase another property within a certain window of time.  Two time limits must be met in order to avoid a taxable event during a deferred exchange.  The first time limit requires you to identify potential replacement properties within 45 days from the date of the original property sale.  Your identification of the potential property must be in writing and must follow certain additional rules in order to be valid.  The second time limit requires that the replacement property be received and the exchange completed no later than 180 days subsequent to the sale of the original property or the extended due date of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier.  The replacement property must be substantially the same as the property identified in the original paperwork issued.  There is no limit on how many times, or how frequently you can participate in a Section 1031 exchange.

Ways in which taxable gain may result

The exchange can include like-kind property exclusively, or a combination of like-kind property and cash, liabilities and/or non-like-kind property.  Exchanges consisting of cash, debt relief or non-like-kind property may trigger some taxable gain in the year of the exchange.  Taxable gain may also be generated from taking possession of cash from the sale of the relinquished property.  A Section 1031 exchange requires that a third party, such as a qualified intermediary, hold the proceeds from the original sale until the full exchange is complete.  Your real estate agent, broker, accountant or attorney may not act as your qualified intermediary.  Additional stipulations are also placed on the qualified intermediary.

Depreciation recapture may also be the result of certain exchanges.  This is taxed as ordinary income, and is usually the result of swapping items that are not necessarily of like-kind, such as improved land with a building for unimproved land without a building.

The fine print

A properly constructed Section 1031 exchange allows one to defer; but not forgive, taxable gain.  It is pertinent that the basis in each additional property purchased be tracked until the last replacement property is eventually sold.  Once this occurs, taxable gain will be calculated using the basis schedule.

Morgan ([email protected]) is a tax senior at Langdon & Company LLP.  She has experience with individual and corporate tax preparation.  Please contact our office if we can provide additional information.

Are YOU a Victim of Tax Identity Theft?

by Susan Dean

If you have received a 5071C letter from the Internal Revenue Service (IRS), you may indeed be a victim of tax identity theft. The purpose of the 5071C letter is to inform you that the IRS has received a tax return with your name and/or social security number and need to verify your identity. In an effort to protect the taxpayer, the letter provides two options to contact the IRS and confirm whether or not you filed your return. Taxpayers may use the idverify.irs.gov site or call a toll-free number on the letter. Due to the high-volume of calls, the IRS-sponsored website is the safest, fastest option for taxpayers with web access.

Below is a Taxpayer Guide to Identity Theft posted by the IRS.

ID theftWhat is tax-related identity theft?

Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Generally, an identity thief will use your SSN to file a false return early in the year. You may be unaware you are a victim until you try to file your taxes and learn one already has been filed using your SSN.

Know the warning signs

Be alert to possible identity theft if you receive an IRS notice or letter that states that:

  • More than one tax return was filed using your SSN;
  • You owe additional tax, refund offset or have had collection actions taken against you for a year you did not file a tax return;
  • IRS records indicate you received wages from an employer unknown to you.

Steps to take if you become a victim

  • File a report with law enforcement.
  • Report identity theft at gov/complaint and learn how to respond to it at identitytheft.gov.
  • Contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records:
  • Contact your financial institutions, and close any accounts opened without your permission or tampered with.
  • Check your Social Security Administration earnings statement annually. You can create an account online at ssa.gov.

If your SSN is compromised and you know or suspect you are a victim of tax-related identity theft, take these additional steps:

  • Respond immediately to any IRS notice; call the number provided
  • Complete IRS Form 14039, Identity Theft Affidavit. Use a fillable form at IRS.gov, print, then mail or fax according to instructions.
  • Continue to pay your taxes and file your tax return, even if you must do so by paper.

If you previously contacted the IRS and did not have a resolution, contact the Identity Protection Specialized Unit at 1-800-908-4490. We have teams available to assist.

How to reduce your risk

  • Don’t routinely carry your Social Security card or any document with your SSN on it.
  • Don’t give a business your SSN just because they ask – only when absolutely necessary.
  • Protect your personal financial information at home and on your computer.
  • Check your credit report annually.
  • Check your Social Security Administration earnings statement annually.
  • Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.
  • Don’t give personal information over the phone, through the mail or the Internet unless you have either initiated the contact or are sure you know who is asking.

The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

Report suspicious online or emailed phishing scams to:[email protected]. For phishing scams by phone, fax or mail, call: 1-800-366-4484. Report IRS impersonation scams to the Treasury Inspector General for Tax Administration’s IRS Impersonation Scams Reporting.

This excerpt and additional Q&A information on Identity Theft can be found on the IRS website.

3 Ways to Protect Yourself and Organization Against Cyber Threats

by Meagan Bulloch

In light of recent data breaches at major retailers in the US, the public have been reminded just how vulnerable both their personal and organization’s data is to cyber-attacks.  This has left many companies scrambling to make sure the data they are entrusted with does not become the target of another round of headlines and lawsuits.identity_theft

While you are never 100% protected from hackers, here are five ways you can reduce your risk of falling victim to a cyber-attack:

  1. Strong Complex Passwords – It seems this advice has been given year after year and almost seems trite, however, for many; passwords are the first level of defense against a cyber-attack.  As such, it is ever more critical that passwords be lengthy, complex and changed often.  According to the SANS Institute’s sample password policy available at https://www.sans.org/security-resources/policies/general/pdf/password-protection-policy  a strong password is at least 15 characters in length.  For many, the deterrent to having a complex password or changing it often is the issue of remembering the complex password.  If this is a concern for you or your organization, you should consider implementing a password management tool such as RoboForm, Password Depot, and LastPass to assist in creating, storing and recalling passwords.
  2. Alternative Authentication Measures – If you have already tackled your passwords what else can you do?  As an additional layer of protection many are considering the use of alternative authentication measures such as fingerprint readers and key fobs.  Basic fingerprint readers can be purchased for only $35 in today’s market.  Using such devices can eliminate the need for a password to log in to a computer.  If the objective is to protect extremely sensitive data then the use of a multifactor authentication may be the best option.  This would involve an employee using both a password and something held in their possession – such as a code generated by a key fob- to log into a computer, application or website.   By requiring two forms of authentication you can greatly reduce the access a hacker could have to your system.
  3. Develop a formal policy for “BYOD.”  Often referred to today as “bring your own device” has created a new level of vulnerability for organizations.  In today’s environment it can be very beneficial for employees to be connected to an organization’s email and other network data through a mobile device.  The issue comes when this access is obtained informally by employees and not managed by the organization.  Often the organization has no way of knowing which devices are attached to their network and therefore, cannot take the necessary security measures to protect sensitive organizational data.  To protect your organization it is imperative to develop a formal BYOD policy that address security issues before an employee can connect their personal device to your network.  If devices have already been connected, you should implement a BYOD policy retroactively.  Regardless, each employee should agree to the policy and indicate so through a signature before they can access the organization’s network.  The BYOD policy should at a minimum include the following: the fact that the organization owns the data the employees will access, the procedure for erasing the organization’s data from the device in the event the employees leaves the organization, which type of websites and applications can be accessed, security measures the end user must implement as a condition of accessing the organization’s network, and the process for notifying appropriate organizational personnel in the vent a device is lost or stolen.  See sample policy template at http://www.itmanagerdaily.com/byod-policy-template/.

While each of these tools is important independently, a layered approach is truly the best defense against a cyber-attack for you or your organization.

Meagan Bulloch ([email protected]) is an audit manager at Langdon & Company LLP focused primarily on non-profit clients.

The Interaction of Pell Grants and Tax Credits

by Rebecca Lunnpell grant

Federally funded Pell Grants assist millions of students annually. However, for students with these scholarships, the process of claiming tax credits is complex and often confusing. As a result, students with the greatest financial need may be foregoing additional tax benefits available.

Based on an IRS publication (see link below), under current law a Pell Grant student can choose to allocate his or her Pell Grant funds either to qualified tuition and related expenses (QTRE) or to living expenses (up to the amount of actual living expenses), which constitutes taxable income. Most students and parents do not understand this option, so often families allocate all QTRE to the Pell Grant funds, leaving little or no QTRE to allocate to an educational tax credit.

For 2014, the American Opportunity Tax Credit (AOTC) provides a 100% credit for the first $2,000 of QTRE and a 25% credit for the next $2,000, for a total credit up to $2,500. As noted in the IRS publication, if a student’s QTRE exceeds scholarships by $4,000, the student would still qualify for the maximum AOTC credit. However, if the QTRE exceeds scholarships by less than $4,000, the student may benefit from including some of the Pell Grant in taxable income in order to claim a larger AOTC. It is important to note that any scholarship that is allocated to living expenses must be included in taxable income on the student’s (not the parent’s) tax return.

If you need additional assistance in understanding how to obtain the maximum tax benefit with a Pell Grant scholarship, the tax department at Langdon & Company LLP is pleased to assist.

Please click here for detailed examples of the interaction of Pell Grants and tax credits.

Rebecca Lunn ([email protected]) is a Senior in our Audit Department working primarily with the non profit, and health care industries.

college diploma

NC 2014 Tax Law Changes

by Leonora Bowman

Yea!  North Carolina reduced the individual income tax rate beginning in 2014.  That means that I will pay less tax to NC when I file my 2014 Form D-400, right?  Like all tax questions the answer is “It depends.” NC flag

The following was taken from the North Carolina Department of Revenue’s Instructions for Individual Returns Form D-400:

What’s New : 

For information about any additional changes to the 2014 tax law or any other developments affecting Form D-400 or its instructions, go to www.dornc.com.

Session Law 2013-316, House Bill 998, An Act to Simplify the North Carolina Tax Structure and to Reduce Individual and Business Tax Rates, was signed into law on July 23, 2013. The individual income tax rate was reduced, the N.C. standard deduction was increased, and many deductions and tax credits are no longer available for tax years beginning on or after January 1, 2014.

Change in tax rate.

The individual income tax rate is reduced to a flat 5.8 percent for tax years beginning on or after January 1, 2014 and to 5.75 percent for tax years beginning on or after January 1, 2015. N.C.

Standard Deduction or N.C. Itemized Deductions. You may continue to claim either the N.C. standard deduction or N.C. itemized deductions, however, both have changed. (See Page 8)

• N.C. standard deduction has increased for each filing status,

• No additional standard deduction is available for taxpayers age 65 or older, or blind.

• N.C. itemized deductions are no longer identical to federal itemized deductions and are subject    to certain limitations.

N.C. Itemized Deductions.

• Qualified home mortgage interest and real estate property taxes are allowed as deductions. The sum of those deductions cannot exceed $20,000,

• Charitable contributions allowed as a deduction on the federal return are allowed without limitation.

 Deduction for Other Retirement Benefits.

There are no longer deductions available to certain taxpayers for up to $4,000 for federal, state, or local government retirement benefits or up to $2,000 for private retirement benefits.

Deduction for Net Business Income that is Not Considered Passive Income.

There is no longer a deduction available to certain taxpayers for up to $50,000 of net business income included in federal adjusted gross income.

Deduction for Contributions to N.C. College Savings Program.

There is no longer a deduction for contributions made during the taxable year to an account in the Parental Savings Trust Fund of the State Education Assistance Authority (North Carolina’s National College Savings Program – N.C. 529 Plan).

N.C. Standard Deduction Amounts for Most Taxpayers:

Filing Status                                                    Standard Deduction

Single                                                                           $ 7,500

Married Filing Jointly/Qualifying Widow(er)                 $15,000

Married Filing Separately                                             $ 7,500

Head of Household                                                     $12,000

N.C. Personal Exemption Allowance.

You may no longer claim a personal exemption for yourself, your spouse, children, or any other qualifying dependents.

Credit for Children.

Amounts are increased from $100 to $125 per qualifying child for some taxpayers. If you are allowed a federal child tax credit under section 24 of the Code you are allowed a tax credit for each dependent child for whom a federal credit was allowed. The credit amount is based on your filing status and adjusted gross income, as calculated under the Code.

Child and Dependent Care Credit.

North Carolina no longer allows a tax credit for child and dependent care expenses.

Earned Income Tax Credit.

North Carolina no longer has a State earned income tax credit.

N.C. Education Endowment Fund:

Contribute to the N.C. Education Endowment Fund by making a contribution or designating some or all of your overpayment to the Fund.

nc-general-assembly-entrance-304xx2100-3150-0-3Analysis of these changes:

So who will pay higher taxes?  “It depends.”  Families who could pay more are as follows:

Retirees can no longer deduct a portion of their retirement benefits.

Small business owners who were previously allowed to deduct the first $50,000 of self-employment income from their NC taxable income.  For a married couple, who both have self-employment income that equals or exceeds $50,000, they will now be taxed on an additional $100,000 previously excluded.  The tax on that is $5,800.  Whether their NC tax will be higher or lower depends on their other taxable income and the other changes in deductions allowed.

Young families will no longer receive a child and dependent care credit or an earned income tax credit.

All wage earners in NC were required to resubmit withholding allowance forms to their employers in January, 2014 which would adjust the amount of state income tax withholdings typically taken from their pay.  The intent by the state Department of Revenue was that the new allowances would better align with the law changes, however each individual taxpayer’s circumstances is different.  NC taxpayers will have a better idea of how their state income tax withholdings match their actual income tax liability with the filing of their 2014 NC Individual Income Tax Returns.  Should adjustments be necessary to increase state income tax withholdings in 2015, revised withholding allowance requests may be filed by employees with their employers at any time or alternatively quarterly estimated tax payments may be scheduled.

 

The Tax Team at Langdon & Company LLP will be happy to discuss these NC tax law changes with you.  Please contact our office if you have additional questions.

Leonora “Lee” Bowman ([email protected]) is a Manager in our Accounting Services practice.  She has over 25 years of experience in taxation and also specializes in multi-dimensional corporate accounting across various states.

Premium Tax Credit Reporting

by Kendall Tyson

Beginning in 2014, individuals and families with low or moderate income could purchase health insurance through the Health Insurance Marketplace, also known as the Exchange.  The premium tax credit is an advanceable, refundable tax credit designed to help those individuals and families.  The credit could be paid in advance to insurance companies to lower the monthly premiums or the credit could be claimed with the individual tax return.  If the credit was paid in advance, individuals must reconcile the amount paid in advance with the actual credit computed on the individual’s tax return.

Reporting and Claiming:

Will I have to file a federal income tax return to get the premium tax credit?  

For any tax year, if you receive advance credit payments in any amount or if you plan to claim the premium tax credit, you must file a Form 8962, Premium Tax Credit (PTC) and attach it to your federal income tax return for that year. If you receive any advance credit payments, you will use your return to reconcile the difference between the advance credit payments made on your behalf and the actual amount of the credit that you may claim. This filing requirement applies whether or not you would otherwise be required to file a return. If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year.

Will I be eligible for the premium tax credit if I’m married but I file my tax return using the filing status Married Filing Separately?

If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in section 1.36B-2T(b)(2) of the Temporary Income Tax Regulations, which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status.  Taxpayers may claim this relief from the joint filing requirement for no more than three consecutive years.

Note:  Generally, a married taxpayer who lives apart from his or her spouse for the last six months of the taxable year is considered unmarried if he or she files a separate return, maintains as the taxpayer’s home a household that is also the main home of a dependent child for more than half the year, and furnishes over half the cost of the household during the taxable year.

For purposes of the relief from the joint filing requirement for certain victims of domestic abuse and spousal abandonment, how are domestic abuse and spousal abandonment defined?

 Domestic abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate, humiliate, and intimidate, or to undermine the victim’s ability to reason independently.  All the facts and circumstances are considered in determining whether an individual is abused, including the effects of alcohol or drug abuse by the victim’s spouse. Depending on the facts and circumstances, abuse of the victim’s child or other family member living in the household may constitute abuse of the victim.

A taxpayer is a victim of spousal abandonment for a taxable year if, taking into account all facts and circumstances, the taxpayer is unable to locate his or her spouse after reasonable diligence.

If I get insurance through the Marketplace, how will I know what to report on my federal tax return?

If you purchased coverage through the Health Insurance Marketplace you should receive Form 1095-A, Health Insurance Marketplace Statement from your Marketplace by early February. This form provides information you will need when completing Form 8962. If you have questions about the information on Form 1095-A for 2014, or about receiving Form 1095-A for 2014, you should contact your Marketplace directly.  The IRS will not be able to answers questions about the information on your Form 1095-A or about missing or lost forms.

Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.

How is the amount of the premium tax credit determined?

The law bases the size of your premium tax credit on a sliding scale. Those who have a lower income get a larger credit to help cover the cost of their insurance. In other words, the higher your income, the lower the amount of your credit.You will figure your credit on Form 8962. You must complete this form to claim the premium tax credit and reconcile any advance credit payments with the premium tax credit you are eligible to claim on your return. Form 1095-A from your Marketplace provides information you will need when completing Form 8962.(see question 14) Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance

Additionally, the premium tax credit is a refundable tax credit. This means that if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund. However, if you receive advance payments of the credit, you will reconcile the advance payments with the amount of the actual premium tax credit that you calculate on your tax return. If your actual allowable credit on your return is less than your advance credit payments, the difference, subject to certain caps, will be subtracted from your refund or added to your balance due. If your actual allowable credit is more than your advance credit payments, the difference will be added to your refund or subtracted from your balance due.

This excerpt and additional Q&A information on the Premium Tax Credit can be found on the IRS website: http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Premium-Tax-Credit#.VNO4_QFEocQ.gmail

Kendall Tyson ([email protected]), a Tax Manager at Langdon & Company LLP.  She specializes in physician/dentist practices, multi-state and nonprofit returns.

College Tax Credits 2014

by Cody Taylor

college-debtThere is often confusion surrounding who can claim college tax credits and for how much.  The two college tax credits are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.  You can only claim one of these credits per student on your federal tax return.  The American Opportunity Tax Credit is worth up to $2,500 per qualifying student for up to four years and is currently available through 2017.

Everyone wants to be able to claim a college tax credit but there are various rules, income limitations and exclusions that apply for each credit.  The source of the money used to pay for qualified tuition expenses matters in determining whether you can qualify for one of the college tax credits.  For example, 529 college savings plans are utilized by many taxpayers to plan for college expenses, but expenses that were used to calculate the tax-free portion of a distribution from a 529 plan may not also be used to calculate the American Opportunity Tax Credit.  There are ways to claim the AOTC in the same year as a tax-free distribution from a 529 plan is made, but it takes planning.

You should receive a Form 1098-T from your school in the mail.  This and other related costs (often textbooks) should be supplied to your tax professional along with your other tax information so that they can help adopt the best college tax credits for your particular situation.  Proper planning ahead of time can save you money in the long run.  A tax professional can help you discuss college tuition planning so that when the time comes for you or your child to go off to college, you will be able to claim the maximum credit allowable to you.

Langdon & Company LLP has a tax department full of experience to help you make the right choice for this deduction.  Please feel free to contact our office for more information.

Cody Taylor ([email protected]) is a tax staff who specializes in various issues related to individuals and their businesses.

Six IRS Tips for Year-End Gifts to Charity

by Susan Dean

Many people give to charity each year during the holiday season. Remember, if you want to claim a tax deduction for your gifts, you must itemize your deductions. donationsThere are several tax rules that you should know about before you give. Here are six tips from the IRS that you should keep in mind:

  1. Qualified charities. You can only deduct gifts you give to qualified charities. Use the IRS Select Check tool to see if the group you give to is qualified. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
  2. Monetary donations.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
  3. Household goods.  Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.
  4. Records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
  5. Year-end gifts.  You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.
  6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. For more information visit IRS.gov.

This article is an excerpt from the IRS Special Edition Tax Tip 2014-23. For more information, please visit, here, or call our office for additional details.

Susan ([email protected]is a tax manager at Langdon & Company LLP.  As an Enrolled Agent she focuses primarily on the non-profit industry, trust income tax reporting and multi-state filings.

Should you be filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)?

by: Brittany Craig

According the to the IRS’ FBAR guidance[1], theforeign currency list of U.S. persons who may be required to report their foreign bank and financial accounts annually to the United States Treasury include, but is not limited to the following who have a financial interest or signature authority in a foreign account or asset:

  • U.S. citizens
  • Resident aliens
  • Trusts
  • Estates
  • Certain domestic entities

The Department of the Treasury indicates that if the aggregate value of all foreign account(s) or asset(s) is at least $10,000 in U.S. dollars at any time during the calendar year, then the maximum value of the financial account(s) maintained by a financial institution physically located in a foreign country should be reported.

While the reporting threshold is $10,000, some U.S. persons may choose to report their foreign bank and financial account(s) even if they are below the aforementioned threshold in an effort to instill good faith with the Department of Treasury.

Form 114 must be received by the U.S. Department of Treasury no later than June 30, via FinCEN’s BSA E-Filing System.  Note, this report is not filed with a federal tax return and there are no extensions of time.  In addition, if the report is not filed on time non-willful penalties may be up to $10,000 and willful penalties may be up to the greater of $100,000 or 50% of account balances.  Criminal penalties may apply, too.

Our tax department is incredibly knowledgeable about miscellaneous forms and other tax issues.  Please feel free to contact our office for more information.

Brittany ([email protected]) is a tax senior at Langdon & Company LLP.  She has experience in tax planning for a variety of clients including corporate and pass-through to individuals.

[1] http://www.irs.gov/pub/irs-utl/IRS_FBAR_Reference_Guide.pdf