Skip to content
December 14, 2017 / Jessica Connell

Business Tax Provisions: the Year in Review

Whether you file as a corporation or sole proprietor here’s what business owners need to know about tax changes for 2017.

Standard Mileage Rates 
The standard mileage rates in 2017 are as follows: 53.5 cents per business mile driven, 17 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

Health Care Tax Credit for Small Businesses 
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $52,000 (adjusted annually for inflation). In 2017 this amount is $52,400.

In 2017 (as in 2016, 2015, and 2014), the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers). For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

Section 179 Expensing and Depreciation

The Section 179 expense deduction was made permanent at $510,000 by the Protecting Americans from Tax Hikes Act of 2015 (PATH). For equipment purchases, the maximum deduction is $500,000 of the first $2.03 million of qualifying equipment placed in service during the current tax year. The deduction is phased out dollar for dollar on amounts exceeding the $2 million threshold amount (indexed for inflation) and eliminated above amounts exceeding $2.5 million. In addition, Section 179 is now indexed to inflation in increments of $10,000 for future tax years.

The 50 percent bonus depreciation has been extended through 2019. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019. The standard business depreciation amount is 25 cents per mile.

Please call if you have any questions about Section 179 expensing and the bonus depreciation.

Work Opportunity Tax Credit (WOTC)

Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.

SIMPLE IRA Plan Contributions
Contribution limits for SIMPLE IRA plans increased to $12,500 for persons under age 50 and $15,500 for persons age 50 or older in 2017. The maximum compensation used to determine contributions increases to $270,000.

Please contact the office if you need help understanding which deductions and tax credits you are entitled to.

For more tips visit www.PlumCPAs.com

Copyright © 2017 CPA Site Solutions

This information is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

Advertisements
December 12, 2017 / Jessica Connell

2017 Recap of Tax Provisions for Individuals

Many of the tax changes affecting individuals and businesses for 2017 were related to the Protecting Americans from Tax Hikes Act of 2015 (PATH) that modified or made permanent numerous tax breaks (the so-called “tax extenders”). To further complicate matters, some provisions were only extended through 2016 and are set to expire at the end of this year while others were extended through 2019. With that in mind, here’s what individuals and families need to know about tax provisions for 2017.

Personal Exemptions 
The personal and dependent exemption for tax year 2017 is $4,050.

Standard Deductions
The standard deduction for married couples filing a joint return in 2017 is $12,700. For singles and married individuals filing separately, it is $6,350, and for heads of household the deduction is $9,350.

The additional standard deduction for blind people and senior citizens in 2017 is $1,250 for married individuals and $1,550 for singles and heads of household.

Income Tax Rates 
In 2017 the top tax rate of 39.6 percent affects individuals whose income exceeds $418,400 ($470,700 for married taxpayers filing a joint return). Marginal tax rates for 2017–10, 15, 25, 28, 33 and 35 percent–remain the same as in prior years.

Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket is $75,900 for a married couple filing a joint return.

Estate and Gift Taxes 
In 2017 there is an exemption of $5.49 million per individual for estate, gift and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $14,000.

Alternative Minimum Tax (AMT) 
AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, non-refundable personal credits can now be used against the AMT.

For 2017, exemption amounts are $54,300 for single and head of household filers, $84,500 for married people filing jointly and for qualifying widows or widowers, and $42,250 for married people filing separately.

Marriage Penalty Relief 
The basic standard deduction for a married couple filing jointly in 2017 is $12,700.

Pease and PEP (Personal Exemption Phaseout) 
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA (indexed for inflation) and affect taxpayers with income at or above $261,500 for single filers and $313,800 for married filing jointly in tax year 2017.

Flexible Spending Accounts (FSA) 
Flexible Spending Accounts (FSAs) are limited to $2,600 per year in 2017 (up from $2,550 in 2016) and apply only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,600 limit for the subsequent plan year.

Further, employers may allow people to carry over into the next calendar year up to $500 in their accounts, but aren’t required to do so.

Long Term Capital Gains 
In 2017 taxpayers in the lower tax brackets (10 and 15 percent) pay zero percent on long-term capital gains. For taxpayers in the middle four tax brackets the rate is 15 percent and for taxpayers whose income is at or above $418,400 ($470,700 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Individuals – Tax Credits

Adoption Credit 
In 2017 a nonrefundable (i.e. only those with a lax liability will benefit) credit of up to $13,570 is available for qualified adoption expenses for each eligible child.

Child and Dependent Care Credit 
The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Child Tax Credit 
For tax year 2017, the child tax credit is $1,000. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.

Earned Income Tax Credit (EITC)
For tax year 2017, the maximum earned income tax credit (EITC) for low and moderate income workers and working families increased to $6,318 (up from $6,269 in 2016). The maximum income limit for the EITC increased to $53,930 (up from $53,505 in 2016) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Individuals – Education Expenses

Coverdell Education Savings Account 
You can contribute up to $2,000 a year to Coverdell savings accounts in 2017. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.

American Opportunity Tax Credit
For 2017, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.

Employer-Provided Educational Assistance 
In 2017, as an employee, you can exclude up to $5,250 of qualifying post-secondary and graduate education expenses that are reimbursed by your employer.

Lifetime Learning Credit 
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2017, the modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $112,000 for joint filers and $56,000 for singles and heads of household.

Student Loan Interest 
In 2017 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $135,000 (married filing jointly). The deduction is phased out at higher income levels. In addition, the deduction is claimed as an adjustment to income, so you do not need to itemize your deductions.

Individuals – Retirement

Contribution Limits
For 2017, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,000 (same as 2016). For persons age 50 or older in 2017, the limit is $24,000 ($6,000 catch-up contribution). Contribution limits for SIMPLE plans remain at $12,500 (same as 2016) for persons under age 50 and $15,500 for anyone age 50 or older in 2017. The maximum compensation used to determine contributions increased to $265,000.

Saver’s Credit 
In 2017, the adjusted gross income limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and-moderate-income workers is $62,000 for married couples filing jointly, $46,500 for heads of household, and $31,000 for married individuals filing separately and for singles.

Please call if you need help understanding which deductions and tax credits you are entitled to.

For more tips visit www.PlumCPAs.com

Copyright © 2017 CPA Site Solutions

This information is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

December 7, 2017 / Jessica Connell

Tax Advantages of Health Savings Accounts

While similar to FSAs (Flexible Savings Plans) in that both allow pre-tax contributions, Health Savings Accounts or HSAs offer taxpayers several additional tax benefits such as contributions that roll over from year to year (i.e., no “use it or lose it”), tax-free interest on earnings, and when used for qualified medical expenses, tax-free distributions.

What is a Health Savings Account?

A Health Savings Account is a type of savings account that allows you to set aside money pre-tax to pay for qualified medical expenses. Contributions that you make to a Health Savings Account (HSA) are used to pay current or future medical expenses (including after you’ve retired) of the account owner, his or her spouse, and any qualified dependent.

Caution: Medical expenses that are reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return are not eligible.

Caution: Insurance premiums for taxpayers younger than age 65 are generally not considered qualified medical expenses unless the premiums are for health care continuation coverage (such as coverage under COBRA), health care coverage while receiving unemployment compensation under federal or state law.

You cannot be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care and you cannot be claimed as a dependent on someone else’s tax return. Spouses cannot open joint HSAs. Each spouse who is an eligible individual who wants an HSA must open a separate HSA.

An HSA can be opened through your bank or another financial institution. Contributions to an HSA must be made in cash. Contributions of stock or property are not allowed. As an employee may be able to elect to have money set aside and deposited directly into an HSA account; however, if this option is not offered by your employer, then you must wait until filing a tax return to claim the HSA contributions as a deduction.

High Deductible Health Plans.

A Health Savings Account can only be used if you have a High Deductible Health Plan (HDHP). Typically, high-deductible health plans have lower monthly premiums than plans with lower deductibles, but you pay more health care costs yourself before the insurance company starts to pay its share (your deductible).

A high-deductible plan can be combined with a health savings account, allowing you to pay for certain medical expenses with tax-free money that you have set aside. By using the pre-tax funds in your HSA to pay for qualified medical expenses before you reach your deductible and other out-of-pocket costs such as copayments, you reduce your overall health care costs.

Calendar year 2018. For calendar year 2018, a qualifying HDHP must have a deductible of at least $1,350 for self-only coverage or $2,700 for family coverage. Annual out-of-pocket expenses (e.g., deductibles, copayments, and coinsurance) of the beneficiary are limited to $6,650 for self-only coverage and $13,300 for family coverage. This limit doesn’t apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies.

Last month rule. Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers).

You can make contributions to your HSA for 2017 until April 17, 2018. Your employer can make contributions to your HSA between January 1, 2018, and April 17, 2018, that are allocated to 2017. The contribution will be reported on your 2018 Form W-2.

Summary of HSA Tax Advantages

  • Tax deductible. You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don’t itemize your deductions on Schedule A (Form 1040).
  • Pre-tax dollars. Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
  • Tax-free interest on earnings. Contributions remain in your account until you use them and are rolled over year after year. Any interest or other earnings on the assets in the account are tax-free. Furthermore, an HSA is “portable” and stays with you if you change employers or leave the workforce.
  • Tax-free distributions. Distributions may be tax-free if you pay qualified medical expenses.
  • Additional contributions for older workers. Employees, aged 55 years and older are able to save an additional $1,000 per year.
  • Tax-free after retirement. Distributions are tax-free at age 65 when used for qualified medical expenses including amounts used to pay Medicare Part B and Part D premiums, and long-term care insurance policy premiums. However, you cannot use money in an HSA to pay for supplemental insurance (e.g., Medigap) premiums.

Questions about HSAs? Don’t hesitate to call.

For more tips visit www.PlumCPAs.com

Copyright © 2017 CPA Site Solutions

This information is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

December 5, 2017 / Jessica Connell

Tax Due Dates for December 2017

December 11

Employees who work for tips – If you received $20 or more in tips during November, report them to your employer. You can use Form 4070.

December 15

Corporations – Deposit the fourth installment of estimated income tax for 2017. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

Employers Social Security, Medicare, and withheld income tax – If the monthly deposit rule applies, deposit the tax for payments in November.

Employers Nonpayroll withholding – If the monthly deposit rule applies, deposit the tax for payments in November.

For more tips visit www.PlumCPAs.com

Copyright © 2017 CPA Site Solutions

This information is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

November 29, 2017 / Jessica Connell

Creating Customer Statements in QuickBooks

Let’s say you have a regular customer who used to pay on time, but he’s been hit-and-miss lately. How do you get him caught up? Or, one of your customers thinks she’s paid you more than she owes. How do you straighten out this account?

Both of these situations have a similar solution: QuickBooks’ Statements.

QuickBooks’ statements provide an overview of every transaction that has occurred between you and individual customers during a specified period of time. They’re easy to create, easy to understand, and can be effective at resolving payment disputes.

A Simple Process

Here’s how they work. Click Statements on the home page, or open the Customers menu and select Create Statements. A window like this will open:


Figure 1: QuickBooks provides multiple options on this screen so you create the statement(s) you need.

First, make sure the Statement Date is correct, so that your statement captures the precise set of transactions that you want. Next, you will need to tell QuickBooks what that set is. Should the statement(s) include transactions only within a specific date range? If so, then click the button in front of Statement Period From, and enter that period’s beginning and ending dates by clicking on the calendar graphic. If you would rather, you can include all open transactions by clicking on the button in front of that option. As you can see in the screenshot above, you can choose to Include only transactions over a specified number of days past due date.

Choosing Customers

Now, you need to tell QuickBooks which customers you want to include in this statement run. Your options here are:

 

    • All Customers.

 

    • Multiple Customers. When you click on this choice, QuickBooks displays a Choose button. Click on it, and your customer list opens in a new window. Click on your selections there to create a check mark. Click OK to return to the previous window.

 

    • One Customer. QuickBooks displays a drop-down menu. Click the arrow on the right side of the box, and choose the correct one from the list that opens.

 

    • Customers of Type. Again, a drop-down list appears, but this one contains a list of the Customer Types you created to filter your customer list, like Commercial and Residential. You would have assigned one of these to customers when you were entering data in their QuickBooks records (click the Additional Info tab in a record to view).

 

  • Preferred Send Method. E-mail or Mail?

Miscellaneous Options

At the top of the right column, you can select a different Template if you would like, or Customize an existing one. Not familiar with the options you have to change the layout and content of forms in QuickBooks? Let one of our QuickBooks experts introduce you to the possibilities.

Below that, you can opt to Create One Statement either Per Customer or Per Job. The rest of the choices here are pretty self-explanatory–except for Assess Finance Charges. If you have never done this, then it may be helpful to call the office and arrange for a QuickBooks pro to work with you on this complex process.

When you are satisfied with the options that you have selected in this window, click the Preview button in the lower left corner of the window (not pictured here). QuickBooks will then prepare all the statements in the background, and display the first one. Click Next to view them one by one. At the bottom of each, you will see a summary of how much is due in each aging period, like this:


Figure 2: It is easy to see how much each customer is past due within each aging period. This summary appears at the bottom of statements.

After you have checked all the statements, click the Print or E-mail button at the bottom of the window.

Other Avenues

Your company’s cash flow depends on the timely payment of invoices. Sending statements is only one way to encourage your customers to catch up on their past due accounts. There are many others, like opening a merchant account so customers can pay you online with a bank card or electronic check. If poor cash flow is threatening the health of your business, a QuickBooks professional can help.

For more tips visit www.PlumCPAs.com

Copyright © 2017 CPA Site Solutions

This information is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

November 21, 2017 / Jessica Connell

Tax Deductions for Educators

With the fall semester of the school year well underway teachers, administrators and aides should not forget to keep track of education-related expenses that could help reduce their taxes when they file their returns next spring. With that in mind, let’s take a look at three key work-related tax benefits that are available to educators.

Educators can take advantage of tax deductions for qualified expenses related to their profession. The costs many educators incur out-of-pocket include items such as classroom supplies, training and travel.

There are two methods educators can choose for deducting qualified expenses: Claiming the Educator Expense Deduction (up to $250) or, for those who itemize their deductions, claiming eligible work-related expenses as a miscellaneous deduction on Schedule A, Itemized Deductions.

A third key benefit enables many teachers and other educators to take advantage of various education tax benefits for their ongoing educational pursuits, especially the Lifetime Learning Credit or, in some instances depending on their circumstances, the American Opportunity Tax Credit.

Educator Expense Deduction

Educators can deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators, but not more than $250 each) of unreimbursed business expenses. The educator expense deduction is available even if an educator doesn’t itemize their deductions. To do so, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

Itemizing Deductions using Schedule A

Often educators have qualifying classroom and professional development expenses that exceed the $250 limit. In that case, the IRS encourages them to claim these excess expenses as a miscellaneous deduction on Schedule A (Form 1040 or Form 1040NR). In addition, educators can claim other work-related expenses, such as the cost of subscriptions to professional journals, professional licenses, and union dues. Transportation expenses may also be deductible in situations such as, for example, where an educator assigned to teach at two different schools needs to drive from one school to the other on the same day.

Miscellaneous deductions of this kind are subject to a two-percent limit. This means that a taxpayer must subtract two percent of their adjusted gross income from the total qualifying miscellaneous deduction amount. For more information, see Publication 529, Miscellaneous Deductions or call the office for assistance.

Keeping Records

Educators should keep detailed records of qualifying expenses noting the date, amount, and purpose of each purchase. This will help prevent a missed deduction at tax time.

Taxpayers should also keep a copy of their tax return for at least three years. Copies of tax returns may be needed for many reasons. If applying for college financial aid, a tax transcript may be all that is needed. A tax transcript summarizes return information and includes adjusted gross income. Tax transcripts are available free of charge from the IRS.

The quickest way to get a copy of a tax transcript is to use the Get Transcript application on the IRS website. After verifying identity, taxpayers can view and print their transcript immediately online. The online application includes a robust identity verification process. Those who can’t pass the verification must request the transcript be mailed. This takes five to 10 days, so plan ahead and request the transcript early.

Questions about tax deductions for educators?

Don’t hesitate to call the office if you have any questions about tax deduction available to educators including teachers, administrators, and aides.

For more tips visit www.PlumCPAs.com

Copyright © 2017 CPA Site Solutions

This information is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

November 16, 2017 / Jessica Connell

Small Business: Tax Breaks for Charitable Giving

Tax breaks for charitable giving aren’t limited to individuals, your small business can benefit as well. If you own a small to medium size business and are committed to giving back to the community through charitable giving, here’s what you should know.

1. Verify that the Organization is a Qualified Charity.

Once you’ve identified a charity, you’ll need to make sure it is a qualified charitable organization under the IRS. Qualified organizations must meet specific requirements as well as IRS criteria and are often referred to as 501(c)(3) organizations. Note that not all tax-exempt organizations are 501(c)(3) status, however.

There are two ways to verify whether a charity is qualified: use the IRS online search tool or ask the charity to send you a copy of their IRS determination letter confirming their exempt status.

2. Make Sure the Deduction is Eligible

Not all deductions are created equal. In order to take the deduction on a tax return, you need to make sure it qualifies. Charitable giving includes the following: cash donations, sponsorship of local charity events, in-kind contributions such as property such as inventory or equipment.

Lobbying. A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks the loss of its tax-exempt status. As such, you cannot claim a charitable deduction (or business expense) for amounts paid to an organization if both of the following apply.

  • The organization conducts lobbying activities on matters of direct financial interest to your business.
  • A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses.

Further, if a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues.

3. Understand the Limitations

Sole proprietors, partners in a partnership, or shareholders in an S-corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Corporations (other than S-corporations) can deduct charitable contributions on their income tax returns, subject to limitations.

Note: Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Likewise, if the payments are charitable contributions or gifts, you cannot deduct them as business expenses.

Sole Proprietorships

As a sole proprietor (or single-member LLC), you file your business taxes using Schedule C of individual tax form 1040. Your business does not make charitable contributions separately. Charitable contributions are deducted using Schedule A, and you must itemize in order to take the deductions.

Partnerships

Partnerships do not pay income taxes. Rather, the income and expenses (including deductions for charitable contributions) are passed on to the partners on each partner’s individual Schedule K-1. If the partnership makes a charitable contribution, then each partner takes a percentage share of the deduction on his or her personal tax return. For example, if the partnership has four equal partners and donates a total of $2,000 to a qualified charitable organization in 2017, each partner can claim a $500 charitable deductions on his or her 2017 tax return.

Note: A donation of cash or property reduces the value of the partnership. For example, if a partnership donates office equipment to a qualified charity, the office equipment is no longer owned by the partnership, and the total value of the partnership is reduced. Therefore, each partner’s share of the total value of the partnership is reduced accordingly.

S-Corporations

S-Corporations are similar to Partnerships, with each shareholder receiving a Schedule K-1 showing the amount of charitable contribution.

C-Corporations

Unlike sole proprietors, Partnerships and S-corporations, C-Corporations are separate entities from their owners. As such, a corporation can make charitable contributions and take deductions for those contributions.

4. Categorize Donations

Each category of donation has its own criteria with regard to whether it’s deductible and to what extent. For example, mileage and travel expenses related to services performed for the charitable organization are deductible but time spent on volunteering your services is not. Here’s another example: As a board member, your duties may include hosting fundraising events. While the time you spend as a board member is not deductible, expenses related to hosting the fundraiser such as stationery for invitations and telephone costs related to the event are deductible.

Generally, you can deduct up to 50 percent of adjusted gross income. Non-cash donations of more than $500 require completion of Form 8283, which is attached to your tax return. In addition, contributions are only deductible in the tax year in which they’re made.

5. Keep Good Records

The types of records you must keep vary according to the type of donation (cash, non-cash, out of pocket expenses when donating your services) and the importance of keeping good records cannot be overstated.

Ask for–and make sure you receive–a letter from any organizations stating that said organization received a contribution from your business. You should also keep canceled checks, bank and credit card statements, and payroll deduction records as proof or your donation. Further, the IRS requires proof of payment and an acknowledgment letter for donations of $250 or more.

Here are six things to keep in mind about charitable donations and written acknowledgments:

1. Taxpayers who make single donations of $250 or more to a charity must have one of the following:

  • A separate acknowledgment from the organization for each donation of $250 or more.
  • One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.

2. The $250 threshold doesn’t mean a taxpayer adds up separate contributions of less than $250 throughout the year. For example, if someone gave a $25 offering to his or her church each week, they don’t need an acknowledgment from the church, even though their contributions for the year are more than $250.

3. Contributions made by payroll deduction are treated as separate contributions for each pay period.

4. If a taxpayer makes a payment that is partly for goods and services, their deductible contribution is the amount of the payment that is more than the value of those goods and services.

5. A taxpayer must get the acknowledgment on or before the earlier of these two dates:

  • The date they file their return for the year in which they make the contribution.
  • The due date, including extensions, for filing the return.

6. If the acknowledgment doesn’t show the date of the contribution, the taxpayers must also have a bank record or receipt that does show the date.

If you’re a small business owner, don’t hesitate to call if you have any questions about charitable donations.

For more tips visit www.PlumCPAs.com

Copyright © 2017 CPA Site Solutions

This information is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.