Archive for the ‘2015 year-end tax tips’ Category

Tax Roundup, 12/31/15: Still time to give. Still time to count inventory.

Thursday, December 31st, 2015 by Joe Kristan

20150811-1Beat the clock gifts. The hours of 2015 dwindle to a precious few, but there is still time to get some important things right in your tax planning, many of which we have covered in our 2015 year-end planning tips series. Today’s tip is for those who would like to make a small gift to an outfit that has made the world a little better this year. These are organizations I support.

Iowa Donor Network, the Iowa organ procurement organization. Good people who save lives by providing donor organs and tissue, saving and improving lives every day. Donate here.

Institute for Justice, the public-interest law firm that stands up for the little guy against big government and crony capitalists. It was IJ attorneys who recovered the life savings confiscated from the Northwest Iowa restaurant owner from the IRS, and who won the fight against the IRS preparer regulation power grab. Donate here.

Salvation Army. They work tirelessly to help the down and out in the inner city, and when disaster strikes, they are quietly on the ground providing food and shelter while the politicians are busy showing their concern for the cameras. Donate here.

Tax FoundationThe good people at the Tax Foundation are a doughty little brigade fighting the battle for good tax policy against the armies of lobbyists and politicians who do everything possible to screw things up even more. Donate here.

Reason Foundation, supporting liberty against all comers.

Alzheimers Association, fighting an awful disease.

Sertoma, little platoons working to prevent hearing loss through education and awareness.

Cornell College, my undergraduate alma mater.

Southern Illinois University, where I got my accounting degree.

Des Moines Community Jazz Center.

If these don’t do it for you, TaxGrrrl Kelly Phillips Erb has been running her annual 12 Days of Giving series, highlighting the following worthy causes: Big Cats Initiative, Women’s Center & Shelter of Greater PittsburghFender Music FoundationRed Paw Emergency Relief TeamThe Innocence ProjectWounded Warrior ProjectPACT For AnimalsFamily Hope FoundationCops For Kids With CancerLiberty’s Promise and The Jahri Evans Foundation.

Remember, gifts made to these organizations on your credit card by midnight tonight are 2015 tax deductions.

 

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Russ Fox “honors” his 2015 Tax Offender of the Year. You may be surprised that Commissioner Koskinen only came in second. But the winner is a good old Midwesterner.

William Perez, How You Can Deduct Up to $4,000 in Tuition Costs Per Year

Tony Nitti, IRS Rejects S Corporation’s Ordinary Deduction For Worthless Subsidiary Stock

Keith Fogg, 9th Circuit Bankruptcy Appellate Panel Decision on Unfiled Returns Takes Issue Back to the Future (Procedurally Taxing). On tax discharges in bankruptcy.

Peter Reilly, How Much Is That Picasso In The Window? Tax Court Says Quite A Bit.

Jason Dinesen reviews his Top 5 Blog Posts of 2015

Annette Nellen, Top Ten Items of Tax Policy Interest for 2015 – #9. The sharing economy is discussed.

 

Kay Bell, Hard cider makers toasting new tax law changes

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Scott Greenberg, Regarding the “Private Tax System” of the Wealthy (Tax Policy Blog). “The most important reason why the 400 highest-income taxpayers pay an income tax rate of 17 percent is not a loophole; it is the lower rate on long-term capital gains and qualified dividends (20 percent in 2012, 23.8 percent since 2013).” Like I said yesterday, but with more and better explanation.

Richard Auxier, What you can learn about the tax policies of governors running for president (TaxVox).  See more at:

TaxProf, The IRS Scandal, Day 966

 

Career Corner. Auto Supplies, a Condescending Partner and Chick-fil-A: An Inventory Count Horror Story (Leona May, Going Concern).

 

Happy New Year, everyone! Thanks for reading in 2015, and best wishes for 2016 for you and for all my tax fellow bloggers, few of whom I’ve met, but who all make every day of writing the Tax Update enjoyable and rewarding.

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Tax Roundup, 12/30/15: What needs to be paid by tomorrow. And: NY Times has fun with a chart.

Wednesday, December 30th, 2015 by Joe Kristan

20141226-1Things that have to be paid for by the end of the day tomorrow. The unforgiving calendar is nearly ready to turn, and that leaves only today and tomorrow to do some things to help lower 2015 taxes. Some expenses are only deductible if they are paid by the deadline.

For cash basis business taxpayers, payment needs to be made for most business expenses by the end of the day tomorrow. “Payment” means the check is written and postmarked, or a wire transfer is completed, or a legitimate liability has been incurred. If it’s on the credit card by the end of the day tomorrow, it’s considered paid for.

The only business expenses that normally can be paid and deducted after year-end for cash-basis taxpayers are pension and profit-sharing contributions. these are deductible this year if paid by the due date of the 2015 tax return, including any extensions.

For accrual-basis taxpayers, any expenses owed related parties are deductible only if paid by the end of the day tomorrow (Section 267). For C corporations, this generally includes expenses owed to 50% owners and their family members, and to corporations and partnerships owned by 50% owners. For S corporations and partnerships, any ownership at all makes you “related,” and the definition of “family” goes beyond ancestors, descendants and siblings to include aunts, uncles, nephews and nieces.. These rules can get complicated, so be sure to pay by tomorrow or consult your tax advisor if you aren’t sure.

Gifts are a different story. It’s not enough to mail a check by tomorrow to count as a 2015 gift; the check actually must be cashed. If you are trying to get an annual exclusion gift under the wire by tomorrow, consider a wire transfer or a cashiers check.

Charitable contributions can deducted this year if mailed this year, but be sure to get a certified mail postmark if it’s a big one — or better yet, use a credit card. If you are making a gift of appreciated stock, it has to be in the charity’s brokerage account by the end of the day tomorrow to count.

Finally, if you are spending money on depreciable property, even if you plan to use the Section 179 deduction, it’s not enough to buy and pay for the property by tomorrow. It must be “placed in service.” That means on-site, ready to go, not at the dealership or in crates on the dock.

This is the penultimate entry of our 2015 year-end planning tips series. Come back tomorrow for the finale!

 

The New York Times yesterday ran an article headlined For the Wealthiest, a Private Tax System That Saves Them Billions: The Very Richest Are Able to Quietly Shape Tax Policy That Will Allow Them to Shield Billions in Income. It offers a lot less than it promises. It pretty much establishes that really rich people can afford expensive tax advice, and they buy it.

The article includes this misleading chart:

 

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This shows that those 400 people are really putting one over on the IRS with their clever planning, doesn’t it?  Well, not really. I’ll superimpose the top capital gains rates that applied for the years on the chart (sourced here):

 

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Funny how that income tax rates of those sneaky 400 people correspond with the top capital gain rates. Why would that be — because those dastardly 400 rich people conspire to incur capital gains?

No. As we’ve pointed out here, capital gains are what get people on that top 400 list. They normally hit the top 400 only once, by having a once-in-a-lifetime capital gain, like the sale of a business.

You also may notice that the New York Times cuts off the chart conveniently right before two big increases in the capital gain rate — the 2013 expiration of the Bush 15% capital gain rates and the 2013 effective date of the 3.8% net investment income tax. You can bet that the line goes right back up starting in 2013.

Update, 12/30/15, 4:25 pm, from The Washington Post:

On Wednesday, the Internal Revenue Service published an update to its annual assessment of how much the 400 highest-earning Americans pay in taxes. It showed that the effective tax rate paid by those Americans jumped in 2013 to nearly 23 percent.

Gee, amazing how that works! I’ve updated the chart to show the new number.

Correction: this post originally stated in error that the Net Investment Income Tax took effect in 2014, instead of 2013.

Related: Scott Hodge, New Treasury Data Shows How Progressive America’s Tax Code Really Is (Tax Policy Blog):

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More coverage: TaxProf, NY Times:  How The Ultra Wealthy Buy Tax Policy

Robert D. Flach, THE YEAR IN TAXES 2015

TaxGrrrl, 12 Days Of Charitable Giving 2015: The Innocence Project

Robert Wood, Tax Double Whammy: IRS Can Revoke Passports And Uses Collection Agencies

Peter Reilly, World Class Rider Does Not Insure Allowable Tax Losses In Horse Case

Kay Bell, IRS seeks tax pros’ input on fighting tax ID theft fraud

William Perez, Forgiven or canceled mortgage debts could be nontaxable

Paul Neiffer, 50% Bonus Depreciation Applies to More Property. “Any interior improvement made to non-residential real estate will qualify for bonus depreciation with certain exceptions for (1) elevators and escalators, (2) internal structural framework, and (3) enlarging a building.”

 

TaxProf, The IRS Scandal, Day 965:

Donors listing the IRS as their employer have donated roughly $453,800 to Democratic candidates and causes and $221,400 to Republican candidates and causes since 1990. About one in four of the dollars for Democrats, or roughly $117,500, went to President Barack Obama.

But IRS employees since 1990 have also donated $203,000 to the National Treasury Employees Union, which in turn has given about 95 percent of its $6 million in political contributions to Democrats over the last 25 years, OpenSecrets.org data shows.

Yet we are asked to believe the IRS operates in a fair and neutral manner towards all political persuasions.

 

Harvey Galper, Five Questions to Ask When You Look at a Presidential Candidate’s Tax Plan (TaxVox). How about, “Should I seek counseling?”

 

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Tax Roundup, 12/29/15: No year-end basis, no S corporation loss. And: ACA 1095 deadlines extended.

Tuesday, December 29th, 2015 by Joe Kristan

S-SidewalkBasis or bust. With the re-enactment of bonus depreciation for 2015, some S corporations find themselves with taxable losses for 2015. That won’t do much for the 2015 tax returns of S corporation shareholders who have no basis in their stock at year-end. While they also have to get by the “at-risk” and “passive loss” limits, they don’t even get to those problems without basis.

A taxpayer’s initial basis in an S corporation is the amount paid for the stock. It is increased by capital contributions and by undistributed income of the S corporation. It is reduced by distributions of S corporation earnings and by S corporation losses. If there have been 2015 distributions, they count before the losses do.

A shareholder with no stock basis can still get deductions by loaning money to the S corporation by year-end. The loan has to meet the at-risk rules (it can’t be funded by another shareholder or by the corporation, for example), but if it meets those requirements, it can create basis for S corporation losses. But don’t do anything hokey like making a loan on December 31 and having the corporation repay it on January 3.

It’s a trap! Well, it doesn’t have to be, but remember that any losses you take against a loan reduce the basis of the loan. That means that if the loan is repaid before the losses are restored by S corporation income, the repayment will be taxable gain to the extent of the unrestored losses.

This is another installment of our 2015 year-end planning tips series running through December 31. Collect them all!

 

1095-C cornerIRS delays due dates for 1095-B and 1095-C reporting2015 is the first year many employers are required to file a new form documenting insurance coverage, or offers of coverage, for their employees. Apparently many employers are still scrambling to figure out how to comply with the complex rules, because yesterday the IRS announced (Notice 2016-4) a delay in the deadlines for providing these forms to employees and to the IRS. A summary:

2016-4 deadlines

Employers are encouraged to file under the old deadlines if they can, but they now have a blanket extension, with no need to file any extension request.

While the IRS will be processing forms starting January 16, this announcement tells us that millions of taxpayers will lack the forms they need to properly report their ACA tax credits or penalties for inadequate coverage. The IRS says that employees can rely upon “other information received” from employers or insurers, and do not have to amend returns if the 1095s they receive later show that their original amounts are incorrect. What could possibly go wrong with this? Aside from rampant errors and outright fraud, I mean.

We are now approaching six years since the enactment of the ACA, and it’s still a mess.

Related: Russ Fox, IRS: We’ll Trust You on Health Insurance for 2015 Because… “We won’t have delays regarding filing returns because taxpayers haven’t received Forms 1095-B or 1095-C as long as they’re aware of their health insurance coverage. That’s a very good thing for all.”

 

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If you are trying to lose weight added by holiday treats, go to Robert D. Flach’s place for a “slender” Tuesday Buzz!

TaxGrrrl, 12 Days Of Charitable Giving 2015: Red Paw Emergency Relief Team

Robert Wood, House Oversight Probes Hillary Speech Fees To Clinton Foundation. The assignment of income rules only apply to little people.

Leslie Book, PATH, CDP Venue and Berglund v Commissioner, A Recent Tax Court Case Where Venue Matters (Procedurally Taxing)

Jason DinesenFrom the Archives: Taxation of Emotional Distress Payments

Kay Bell, 10 tax-saving things to do by December 31

Jana Luttenegger WeilerLast Minute Tax Extenders – 2015 Edition (Davis Brown Tax Law Blog)

William Perez, Protecting Americans from Tax Hikes Act of 2015

Annette Nellen, Top Ten Items of Tax Policy Interest for 2015 – #6 and #7. Includes coverage of the return due date changes enacted this year.

Me, Forget April 15. Well, don’t, actually, but Dec. 31 matters more. My latest at IowaBiz.com, the Des Moines Business Record Business Professionals’ Blog.

 

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TaxProf, The IRS Scandal, Day 964.

Renu Zaretsky, Bans, Subsidies, Searches, and Bubbles. Today’s TaxVox headline roundup covers new EITC restrictions and Nevada’s corporate welfare cornucopia for Tesla, among other morsels.

Stephen Entin, Disentangling CAP Arguments against Tax Cuts for Capital Formation: Part 4 (Tax Policy Blog). “Most major tax bills of the last thirty years have provided serious tax reductions or refundable credits (resulting in negative taxes) for lower income families. These are extraordinarily expensive, but do next to nothing to promote capital formation to raise productivity, wages, and employment.”

 

Caleb Newquist, Opening Day of Tax Season Less Than a Month Away (Going Concern). “Anyone with a PTIN is due to report on January 4.” Haven’t renewed your PTIN yet? Get on it!

 

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Tax Roundup, 12/28/15: Harvesting without a combine. And: Tax Credits as a fiscal trap.

Monday, December 28th, 2015 by Joe Kristan

harvestThe corn’s in, but the harvest isn’t over. The tax law taxes capital gains for almost all individual taxpayers when you sell an appreciated asset, even though it shouldn’t. Still, if you’re like most of us, not everything you buy goes up.

The tax law allows individuals to deduct capital losses when they cash out a money-losing investment, up to the amount of capital gains plus $3,000. That means paying capital gain taxes is optional to the extent you have unrealized capital losses in your taxable portfolio. That’s a silly option to exercise. Here are some thoughts on loss harvesting:

You have to take the loss in a taxable account. A loss in an IRA or 401(k) plan doesn’t help you.

Normally the “trade date” is the effective date for tax purposes, so you can sell a stock as late as December 31 this year and still deduct the loss on your 2015 1040.

If you have a loss on a short sale, the tax law treats it as closing on the settlement date, not the trade date, so you can’t wait until the last minute to close a short sale to get a deduction. (See also Russ Fox, Harvesting Capital Losses: Act Quickly on Shorts!)

You don’t need to overdo it.  You can deduct your capital losses only to the extent of your capital gains, plus $3000.  But if you do overdo it, individual capital losses carry forward indefinitely.

Long-term losses can offset short-term gains, and vice-versa.

Harvesting losses helps taxpayers subject to the Obamacare/ACA Net Investment Income Tax to the extent it helps for regular taxes.

– Watch out for the wash sale rules. If you buy the same stock within the 30 days preceding or following the sale of a loss stock, your loss is disallowed. This is true even if you sell from a taxable account and buy in an IRA, according to the IRS.

See also

This is another installment of our 2015 year-end planning tips series running through December 31. 

Related — weekend tax tips:

Altaring your tax planning

Keep on giving! A high-end tax planning tip.

 

1916 Spaulding by The editors of Horseless Age. Public Domain via Wikimedia Commons.

1916 Spaulding by The editors of Horseless Age. Public Domain via Wikimedia Commons.

Tax Credits as a trapThe Sunday Des Moines Register this week told the story of a tax credit deal gone awry, leaving the small college town of Grinnell, Iowa in a financial pickle.

Grinnell once housed Spaulding Manufacturing Company, one of many small early Midwest automakers. The Spaulding story is told in my college buddy Curt McConnell’s fine book, Great Cars of the Great Plains.

There is only one known surviving Spaulding vehicle. It was to be a crown jewel of a transportation museum to be built around the dilapidated remains of the old Spaulding plant. But it hasn’t gone well, according to the Register:

Three years after it opened, the Iowa Transportation Museum has hit a dead end, losing its building to foreclosure and leaving the city of Grinnell on the hook to repay more than $4 million in federal aid for the project.

The museum, which had operated in a renovated portion of the old Spaulding manufacturing plant in downtown Grinnell, closed in October, unable to pay its mortgage to Iowa City’s MidWestOne Bank. The bank even took possession of the museum’s crown jewel, a rare 1913 Spaulding automobile built at the Grinnell plant.

It sounds as though the business plan of attracting auto tourists to Grinnell was hopelessly optimistic, but it was tax credit failure that finished things off:

The museum built its budget around receiving $900,000 in federal historic tax credits that never arrived. A 2012 federal appeals court ruling about a real estate project in New Jersey shook up the market for historic tax credits. A subsequent IRS memo explaining the ruling said, essentially, that investors should not stand to profit from historic tax credits without shouldering some of the risk. As a result, investors backed away from historic tax credit projects.

“That is where things really started to come apart on us, and it was just kind of a chain reaction from there,” Brooke said.

This is where I find myself puzzled. By their terms, federal historic rehab credits have never been transferable. A transferable tax credit can be sold by the original recipient to cash in on a tax break too big to use by itself. Tax credit middlemen tried to make them transferable by setting up “partnership” structures where investors were nominal partners, but really were in it only for the tax credits, with economic gains and losses from the rehab project allocated elsewhere.

To my surprise, the Tax Court had gone along with that structure, but the Third Circuit Court of Appeals reversed them in Historic Boardwalk Hall LLC (CA-3, No. 11-1832). The court held that because the tax credit investor didn’t share meaningfully in either potential income or loss from the project, it wasn’t a partner eligible for tax credits.

That was the risk I had always seen in these deals, and it came home to Grinnell.

The Moral? When it takes tax credits to make a deal work, it doesn’t really work. It’s just crony capitalism.

Enjoying a short Des Moines winter commute.

Enjoying a short Des Moines winter commute.

Robert D. Flach has started a new organization, TAX PROFESSIONALS FOR TAX REFORM. “We believe that the one and only purpose of the Tax Code is to raise the money necessary to fund the government.” A worthy cause.

William Perez, Understanding Canceled Debt Income and Taxes

Kay Bell, Uncommon charitable gifts still provide donors the typical tax deduction. A discussion of property donations. “As with all tax deductible donations, you also need to make these more uncommon ones by Dec. 31 in order to claim them on this year’s taxes.”

Paul Neiffer, Farm and Ranch Provided Housing. A partnership, sole proprietor or S corporation cannot provide and deduct employee related housing for any of its owners (unless they own less than 2% AND are not related to any other owners).”

TaxGrrrl, 12 Days Of Charitable Giving 2015: Fender Music Foundation

 

Seventh Avenue, Des Moines, this morning.

TaxProf, Hemel:  Taxes To Cause Vanguard Fund Fees To ‘Quadruple’? Not So Fast. We know the nosy busybodies would punish Vanguard’s small saver base with higher fees to feed the federal black hole. The only dispute is how much.

Tax Policy Blog, Apple CEO Tim Cook: We Need a Tax Code for the Digital Age. “The solution to ‘profit shifting’ is not a new patch to an already complicated tax code. The solution that the U.S. needs is a comprehensive tax reform that reduces both the corporate tax rate and the complexity of the entire tax code.”

TaxProf, The IRS Scandal, Day 961Day 962Day 963. The Day 961 post notes the obvious problems of giving one of the most aggressively secretive agencies power over passports. Day 962 inadvertently confirms one of the driving forces of the IRS scandal — ongoing bitterness over the Citizens United decision preventing bureaucrats from selectively restricting free speech rights.

Robert Wood, More Calls To Impeach IRS Chief Over Targeting, Bonuses, Obstruction

 

Stuart Gibson, Unlikely New Year’s Resolutions (Tax Analysts Blog). Like these:

-Citizens of Greece: Pay all the taxes they owe.

-Greek tax collectors: Pay all taxes they collect into the Greek treasury.

Unlikely indeed.

 

Peter Reilly, Did You Hear The One About Bernie Sanders And Kent Hovind Walking Into A Tax Blog? Well, Bernie is evidence of the co-existence of dinosaurs and hominids.

 

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Altaring your tax planning

Sunday, December 27th, 2015 by Joe Kristan
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Margaret and John Kristan, Newlyweds, 1952.

Today is the 63rd anniversary of my parents’ wedding, so today’s post goes up in their honor.

Love is a many-splendored thing, but love is even better when it saves taxes. Your marital status at year-end is your filing status for the entire year, so maybe you want to run down to the courthouse and tie the knot before the ball drops before midnight January 1, local time. Sure, call me a hopeless romantic. The Tax Update just rolls that way.

A quick trip to the preacher may be in order in the following circumstances — assuming, of course, you have sufficient non-tax reasons to get married:

– One prospective spouse has a big capital gain, and the other has capital losses that would otherwise go unused.

– One of you has passive income, the other has passive losses. If you are married on the last day of the year, the losses can offset the income on a joint return.

– One of you has substantial income in 2013, and the other doesn’t. If you have only one income between the two of you, you’ll save taxes on a joint return because of the wider tax brackets on a joint filing.

– If you are Iowans, and one of you has pension income, marriage will enable you to exclude up to $12,000 from your Iowa income tax return. A single filer can only exclude $6,000.

– One of you has AGI over $200,000 and investment income, and the other has AGI under $50,000.  A quick wedding gets the higher-earning spouse out of the new Obamacare Net Investment Income Tax.

But it’s a complicated calculation, as this Tax Foundation chart illustrates:

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There are  other special circumstances that could lead you to tie the knot. A good tax marriage results when one partner has tax attributes, like capital losses, that can be used on a joint return but would not be useful on a single return. Other such items could include tax credit carryforwards and investment interest carryforwards.

‘Til death do us part, but you first! For the wealthy single taxpayer, the estate tax can also offer a more macabre tax planning opportunity. By marrying and surviving a poor spouse, the rich spouse can pick up an extra $5.4 million in estate tax exemption. That’s because a widowed spouse can now inherit the short-lived spouse’s unused exemption.

Of course these things apply to couples pondering divorce, too, but that’s too sad to dwell on this time of year. Oops, I just did. And some couples, particularly those where both have good incomes, are better off postponing marriage, or (shudder) accelerating divorce.

Anyway, you should marry for the right reasons. But if you can both be in love and cut your taxes, why not let IRS help pay for your honeymoon?

Check back tomorrow for another installment of our 2015 year-end planning tips series

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Keep on giving! A high-end tax planning tip.

Saturday, December 26th, 2015 by Joe Kristan

20151226-1As the holiday giving frenzy morphs into the holiday return frenzy, many tax-wise folks are still thinking of giving. Taxpayers with enough net worth to worry about paying estate tax are considering their annual gifts to family (the estate tax kicks in for estates starting at $5.43 million in 2015). For such taxpayers, the basic tool is the $14,000 per-donor, per-donee gift tax exclusion. A couple with four kids maximizing annual giving can reduce their taxable estates by $560,000 over five years, not even counting appreciation of the gift.

Taxpayers often ignore the opportunities for annual giving, thinking “the annual exclusion will be there for me next year.” While true, that’s the 2016 exclusion. But then the 2015 opportunity is lost forever – for our hypothetical four-child couple, it’s a $560,000 tax-saving move lost.

If it’s worth doing, it’s worth doing right. To get the gift to count in 2015, here are some tips:

– If you’re writing a check, march the lucky recipient down to the bank to cash it by December 31. Checks not cashed by year-end normally won’t count as 2015 gifts.

– If you are donating private company stock, make sure the corporate secretary records the transfer on the company’s books by year-end. Also make sure the tax returns reflect the gift – if you make a December 28 gift of S corporation stock, make sure the donee gets a K-1 showing income for the 12/28 through 12/31 period.

– If you are donating public company stock, make sure it’s in the donee’s brokerage account before the end of the day December 31.

Personal gifts are neither deductible to the donor nor taxable to the recipient. For non-cash gifts, the recipient steps into the donors basis for a future sale if the property has appreciated.  If the value at the date of gift is less than the basis, the recipients basis for determining loss only is the date of gift value.

Plan on filing a gift tax return for any property gifts, even if you owe not gift tax; a properly prepared gift tax return starts the three-year statute of limitations, preventing any future IRS quibbling over the values.

Check back tomorrow for another installment of our 2015 year-end planning tips series

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Year-end tip: The Iowa Student Tuition Organization Tax Credit

Thursday, December 24th, 2015 by Joe Kristan

20151224-1If you’re in a generous mood on Christmas Eve but want more out of your charitable gift than a straight-up deduction, consider a gift to an Iowa Student Tuition Organization. A gift to an STO yields a 65% non-refundable Iowa tax credit, in addition to the federal charitable deduction. You don’t get an Iowa charitable deduction, but that trades an 8.9-cent benefit for a 65-cent tax benefit, so that works.

Student Tuition Organizations exist to help make private K-12 schools affordable for lower-income families. Iowa has 12 STOs, listed here.

The credit is capped annually, though, so some STOs may have already used up their 2015 credits, and you would have to wait until 2016 to get one. Eligible donors get a certificate with a unique identification number that they use when they claim the credit. 

More information is available from Jason Dinesen or the Iowa Alliance for Choice in Education.

Programming note: The Tax Update is taking it easy the rest of this week. Tax Roundups resume Monday, but check back every day the rest of the year for another installment of our 2015 year-end planning tips series

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Tax Roundup, 12/22/15: If you want a 2015 qualified plan, time to fly! And lots more.

Tuesday, December 22nd, 2015 by Joe Kristan
The view from Tax Update world headquaters yesterday.

The view from Tax Update world headquaters yesterday.

10 days to get a qualified plan in place. Some of the best deductions for sole proprietors and one-owner corporations are found in the tax law’s “qualified plan” rules. A payment to a qualified pension or profit-sharing plan is deductible now, grows tax free, and is only taxable on retirement. For one-employee companies, it’s a deduction for taking money from one pocket and putting it in another.

One of the best of these opportunities is the “Solo 401(k),” which allows a deduction of up to $53,000 for contributions to a solo owner-employee’s retirement plan. But there’s one little catch: the plan has to be in place by December 31 of this year to allow a 2015 deduction.

If that sort of deduction sounds attractive, you should consult a qualified plan professional. Some brokerage houses can steer you the right way, as can the Vanguard mutual fund company.

Remember, though, that once money is in a qualified plan, expect it to stay there. Early withdrawals face a 10% penalty, as well as income tax liability. 401(k) plans generally can’t be investors in or lenders to the plan owner’s business. There are annual compliance costs that inevitably reduce the tax benefits. Still, for an annual deduction that size, some inconvenience can be tolerated.

This is the second installment of our 2015 year-end planning tips series. Collect them all!

 

Kay Bell, Upcoming filing season will start on time: Jan. 19, 2016. Almost none of my clients are ready by then. While I’m glad that the season isn’t delayed by a failure to pass an extender bill, I think identity theft requires a later start to issuing tax refunds. They shouldn’t be processed until W-2 and 1099 information is in the IRS system – preferably with special W-2 codes like those the IRS is experimenting with this season to catch fraudulent claims. 

Of course, that means the government will sit on overpayments longer. That should be addressed by changing the “I got a big refund!” culture. That could be done by lowering to 75% the amount of taxes that have to be paid in by April 15 to avoid a penalty and by changing the withholding tables to make refunds less likely.

 

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Robert D. Flach comes through with a “meaty” Christmas Week Buzz, with lots of Extender bill discussion and a hint of perhaps the most unusual Christmas Eve tradition ever.

Tony Nitti, Top Ten Tax Cases (And Rulings) Of 2015: #4 – Who Can Qualify As A Real Estate Pro?

Russ Fox, Are Tips (Gratuities) at the Poker Table Deductible? “As long as the tip is reasonable, it’s clear that a professional poker player can deduct the tip as a business expense.” You’ll have to read the post to see whether it works for amateurs.

William Perez, All About the Earned Income Tax Credit. “The easiest way to find out if you qualify for the earned income credit is to use an application found on the IRS Web site called the EITC Assistant.”

Andrew Mitchel offers a True / False Quiz on FAST Act Passport Revocation Provisions

Hank Stern, Major O’Care Disappointment (Insureblog). “Now that the (disastrous) first phase of the 2016 Open Enrollment season is behind us, lets’ take a look at what a huge disappointment it was.”

Carlton Smith, Tilden v. Comm’r: Postal Service Tracking Data Determines Timeliness of Tax Court Petition (Procedurally Taxing)

TaxGrrrl, 12 Days Of Charitable Giving 2015: PACT For Animals

 

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Scott Greenberg, Fact-checking Hillary Clinton on Millionaires’ Taxes (Tax Policy Blog). “There are very few millionaires in the U.S. that pay “10 percent to nothing” in taxes.”

TaxProf, The IRS Scandal, Day 957. Today’s link goes to a Washington Post story that says “There is no love lost between Republicans in Congress and the Internal Revenue Service, whether it’s their dislike for the tax code, the current tax commissioner or their fury at the agency’s treatment a few years ago of conservative groups.” If you want to see increases in the IRS budget, you want Commissioner Koskinen to resign.

Howard Gleckman presents The TaxVox Lump of Coal Awards for the Ten Worst Tax Ideas of 2015. While I might quibble with one or two of the choices, it’s a strong list. For example:

8. Tax credits for what ails you. Hillary Clinton has taken a page out of Bill Clinton’s fiscal playbook: Identify a kitchen table problem and propose a modest tax subsidy to relieve the pain. She has tax credits for families burdened by the high costs of education, caring for aging parents, and high medical costs. And she’s proposed another credit to encourage employers to give workers a stake in their companies. My TPC colleague Gene Steuerle has a name for this: tax deform.

It’s more than a federal problem, for sure.

 

Matt Gardner, What Apple’s Tim Cook Gets Wrong About Its Tax Avoidance (Tax Justice Blog). Mr. Cook has the temerity to think that he has a duty to shareholders, instead of to grasping politicians.

 

Career Corner (or, News from the Profession). Former EY Employee Who Liked Secretly Filming People in the Bathroom Given Four Years to Think About His Choices (Caleb Newquist, Going Concern).

 

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