Personal Finance

Ensuring Your Year-End Donations Are Tax-Deductible

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Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Many people make donations at the end of the year. To be deductible on your 2017 return, a charitable donation must be made by December 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean?

Is it the date you write a check or charge an online gift to your credit card? Or is it the date the charity actually receives the funds? In practice, the delivery date depends in part on what you donate and how you donate it. Here are a few common examples:

Checks. The date you mail it.

Credit cards. The date you make the charge.

Pay-by-phone accounts. The date the financial institution pays the amount.

Stock certificates. The date you mail the properly endorsed stock certificate to the charity.

To be deductible, a donation must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions. The IRS’s online search tool, “Exempt Organizations (EO) Select Check,” can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access it at https://www.irs.gov/charities-non-profits/exempt-organizations-select-check. Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making. But act soon — you don’t have much time left to make donations that will reduce your 2017 tax bill.

Should filers be prodded to save tax refunds?

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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It’s that time of year when I — and other tax specialists — nag, I mean encourage, you to adjust your withholding so that you don’t get a big refund.

Our argument generally focuses on getting that money now as part of your regular paycheck so you can use it to pay for holiday spending instead of charging those gifts and paying the bill later with your tax refund.

One group of tax experts, however, says we should instead encourage folks to save their refunds even before they get them each filing season.

Millions of refunds, billions of dollars

That’s probably a wiser approach. After all, Americans love their tax refunds from Uncle Sam. The IRS says that through Oct. 30, it had issued almost 109 million refunds that totaled nearly $299 billion.

The average federal tax refund check was $2,746.

The Refund to Savings initiative is a research project by the Center for Social Development at Washington University in St. Louis, Duke University and Intuit, the maker of the popular tax software program TurboTax.

The Refund to Savings, also referred to as R2S, looks at the taxpaying and saving behaviors of hundreds of thousands of people using a special tax software program. The software version used, TurboTax’s Freedom Edition, is available for free to individual filers and active-duty military members who meet certain earnings limits.

Based on data from those filers, the R2S believes it can help bolster individuals’ finances by suggesting these filers save their tax refunds before they actually get the money.

Savings suggested at filing time

When people complete their tax returns, note R2S researchers, the money is there, but it’s not quite in the filers’ hands. By offering taxpayers a choice to save at that key decision point, the study believes it will get more savers because the intent is still fresh and the desired option is convenient.

“When filers are asked how they want to receive their refund, we inject motivational messages, suggesting they save for emergency, retirement or another long-term goal,” Michal Grinstein-Weiss, a professor at George Warren Brown School of Social Work at Washington University, told The Wall Street Journal. “We also suggest the amount they should save.”

The IRS already gives taxpayers the option to have their refunds sent to checking, savings or retirement accounts. All you have to do is check a box on your 1040, enter the account number and the money will be directly deposited as instructed. You can even divide your refund among various accounts.

The R2S effort simply encourages such savings actions.

Suggestions for VITA filers

The effort is detailed in a recent R2S report, of which Grinstein-Weiss is a co-author, prepared for volunteer tax preparers who help filers each year at all Volunteer Income Tax Assistance, or VITA, sites. VITA workers help lower income taxpayers prepare and file their annual returns at no cost. The 2015 filing season threshold is $54,000 or less.

“If one of your VITA clients decided to save his or her refund, or even part of it, it could prevent a potential financial hardship for them and their family,” notes the R2S report. “Or, perhaps better, it could be the start that enables them to do things they may have thought they never could: buying a house or sending a child to college. Encouraging your clients to save a portion of their refund could have a profound impact in their lives.”

Refund savings for all

I believe R2S is on to something here. And it’s an approach that should be taken by all taxpayers who get refunds, regardless of income.

Everyone needs to have some cash set aside for a special goal or for emergencies that always crop up.

As long as people are using tax over-withholding and the subsequent refund amount as a forced savings mechanism, we should do all we can to ensure that the money actually does transfer to a savings account.

Do you get a refund every year? Have you ever had that refund directly deposited to a savings or other account? Have you considered adjusting your withholding so that you’ll get the money in your regular paychecks?

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

 

Standard Mileage Rates for 2015

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

2015 Mileage Rates & Employer Health Insurance Reimbursements

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. Likewise, standard mileage rates are available for computing the deduction when a vehicle is used for charitable, medical or moving purposes.

The 2015 standard mileage rates for use of a vehicle are 57.5 cents per mile for business miles (up from 56 cents per mile in 2014), 23 cents per mile for medical or moving purposes, and 14 cents per mile for rendering gratuitous services to a charitable organization.

The business standard mileage rate is considerably higher than the charitable and medical/moving rates because it contains a depreciation component. No depreciation is allowed for the charitable or medical/moving use of a vehicle.

In addition to deductions based on the business standard mileage rate, taxpayers may deduct the parking fees and tolls attributable to the business use of an automobile, as well as interest expense relating to the purchase of the automobile and state and local personal property taxes. However, employees using a vehicle to perform services as an employee cannot deduct interest expense related to that vehicle. Also, if the vehicle is operated less than 100% for business purposes, the taxpayer must allocate the business and non-business portion of the allowable taxes and interest deduction.

Employer Reimbursements of Individual Health Insurance Policies

For plan years beginning after 2013, the Affordable Care Act (ACA) institutes so-called market reform provisions that place a whole host of new restrictions on group health plans. The penalty for violating the market reform restrictions is a punitive $100-per-day, per-employee penalty; or $36,500 per employee, per year. With a limited exception, these new market reform provisions significantly restrict an employer’s ability to reimburse employees for premiums paid on individual health insurance policies, referred to as employer payment arrangements.

Employer payment arrangements

Under employer payment arrangements, the employer reimburses employees for premiums they pay on their individual health insurance policies (or the employer sometimes pays the premium on behalf of the employee). As long as the employer (1) makes the reimbursement under a qualified medical reimbursement plan and (2) verifies that the reimbursement was spent only for insurance coverage, the premium reimbursement is excludable from the employee’s taxable income. These arrangements have long been popular with small employers who want to offer health insurance but are unwilling or unable to purchase group health coverage.

Unfortunately, according to the IRS and Department of Labor (DOL), group health plans can’t be integrated with individual market policies to meet the new market reform provisions. Furthermore, according to the DOL, an employer that reimburses employees for individual policies (on a pretax or after-tax basis) has established a group health plan because the arrangement’s purpose is to provide medical care to its employees. Therefore, reimbursing employees for premiums paid on individual policies violates the market reform provisions, potentially subjecting the employer to a $100 per-day, per-employee ($36,500 per year, per employee) penalty.

Limited exception for one-employee plans. The market reform provisions do not apply to group health plans that have only one participating employee. Therefore, it is still allowable to provide an employer payment arrangement that covers only one employee. Note, however, that nondiscrimination rules require that essentially all full-time employees must participate in the plan

Bottom line. While still technically allowed under the tax code, employer payment arrangements, other than arrangements covering only one employee, are no longer a viable alternative.

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What should you do if you still have an employer payment plan?

First of all, don’t panic. You are not alone. The impact of the market reform provisions to these plans has come as a great surprise to many small business employers, not to mention the tax practitioner community, and we believe there is reasonable cause to keep the penalty from applying for earlier payments. However, it is important to discontinue making payments under the plan and rescind any written documents. Also, any reimbursements made after 2013 should be classified as taxable wages.

Acceptable alternatives

Because of the ACA market reform requirements, employers are basically precluded from subsidizing or reimbursing employees for individual health insurance policies if there is more than one employee participating in the plan. Employers can, however, continue to do any of the following:

· Provide a tax-free fringe benefit by purchasing an ACA-approved employer-sponsored group health plan. Small employers with 50 or fewer employees can provide a group health plan through the Small Business Health Options Plan (SHOP) Marketplace. A cafeteria plan can be set up for pretax funding of the employee portion of the premium.

· Increase the employee’s taxable wages to provide funds that the employee may use to pay for individual insurance policies. However, the employer cannot require that the funds be used to pay for insurance — it must be the employee’s decision to do so (or not). The employer can claim a deduction for the wages paid. The wages are taxable to the employee, but the employee can claim the premiums as an itemized deduction subject to the 10%-of-AGI limit (7.5% if age 65 or older).

If you have any questions, please give us a call.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.