Tag Archives: income tax

New 2015 Tax Law Changes Tax and FBAR Filing Deadlines & Other Noteworthy Compliance Provisions: The Good, The Bad & The Ugly

2015 Tax Law Changes

On Friday, July 31, 2015, President Barack Obama signed HR 3236, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” (the “Act”). Not sure how this name relates to taxes but in any event the following tax law changes and provisions became law under this Act:

  • Changes to the due dates for various returns. The Act sets new due dates for partnership returns, C corporation returns.
  • Foreign Bank Account Reporting:  New due dates for the important and often overlooked foreign bank account reporting (FBAR) forms, known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts have been implemented.
  • Changing the six year statute of limitations to apply to understatements of income that resulted from taxpayers overstating tax basis when calculating sales.  This change overturns the Home Concrete case where the Supreme Court ruled that understatements of income as a result of basis miscalculations would not trigger the extended six-year statute of limitations applicable to understatements of income.
  • Requiring consistent basis reporting for estates and estate beneficiaries.
  • Requiring additional information to be included in mortgage information statements.
  • Other Information Returns:  The new act imposes new filing requirements for several other IRS information returns.

Continue reading

2014 Year-End Tax Planning Guide For Businesses: Discover 9 Proven Tax Planning Strategies

Year-End Tax Planning For Business

Business Year-End Tax Planning

The arrival of year-end presents special opportunities for most small businesses to take steps in lowering their tax liability. The starting point is to run projections to determine the income and tax bracket for this year and what it may be next year.  Once this is known, decisions can be made as to whether any of the following planning tools should be employed to cut taxes before the tax year closes.

Last second tax law changes also must be considered.  It is also important to know that on December 19, 2014, the President passed the Tax Increase Prevention Act that extended many expired tax provisions some of which are discussed in more detail below.  Note that these tax breaks are only available through the end of  2014.  If any of these tax breaks are available to you, it would be prudent to take advantage of them before they expire.

Also keep in mind ordinary income tax rates for individuals can be as high as 35% to 39.6%  so members of flow through entities such as partnerships, limited liability companies (LLCs) and S Corporations need to recognize this and other tax changes and plan accordingly.

The following presents some year-end tax strategies that may prove helpful to  businesses of all shapes and sizes:

1. Accelerating or Deferring Income and Deductions as Part of a Year-end Tax Strategy

A good part of year-end tax planning involves techniques to accelerate or postpone income or deductions, as your tax situation dictates. The idea is to keep income even from year to year. Having spikes in taxable income in any one tax year puts you in a higher average tax bracket than you would be in if you had evened out the amount of taxable income between current and later year(s).  (Historical note:  For those of you old enough to remember, there was an income averaging rule built into the tax code that actually corrected for the inequity that can result in big shifts in income from year to year.  That provision has long been abolished.)

So every year, businesses can take advantage of the traditional planning technique that involves alternatively deferring income or accelerating deductions. For example, business taxpayers such as pass-through entities (limited liability companies, partnerships, S corporations, sole proprietorship) should consider accelerating business income into the current year and deferring deductions until 2015 (and perhaps beyond) if they expect income to rise next year. Continue reading

2014 Year End Tax Planning Tips: Instantly Discover What You Can Do Now To Start Saving Taxes Before Year End With Proven Tax Attorney Strategies

Year End Tax Planning

As the year-end quickly approaches, there is still time to do year-end tax planning to generate significant tax savings.  As many of you know, changes to the tax laws in 2013 made many tax rates (subject to cost of living adjustments) and certain tax breaks permanent.  But some tax breaks expired in 2013 (discussed in more detail below) and Congress has not as yet revived them making year-end planning more complicated and frustrating.  The President and Congress have reinstated expired tax breaks for only the 2014 tax year, as discussed in more detail below.

Overview:

This 2014 tax year will again be challenging as taxpayers will have to deal with the following recent tax law changes:

  • Higher marginal income tax rates
  • Higher capital gain tax rates
  • Restoration of the phase out of itemized deductions and exemptions: If your adjusted gross income exceeds applicable thresholds, certain itemized deductions are reduced.  The applicable thresholds for 2014 are $254,200 for singles, $279,650 for head of household and $305,050 for joint filers
  • The new 3.8 % Medicare tax on unearned income, including interest, dividends and capital gains. etc.  For more details please read 2013 Sneaky New Tax – Not Too Early to Plan for 3.8 % Medicare Tax on Investment Income
  • The new 0.9% tax on earned income in excess of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly
  • Same Sex Couples:  The recent Supreme Court decision in Windsor may result in same-sex couples with dual income paying more income taxes filing jointly than if they were still able to file singly. For more details on the tax implications for same-sex couples please read Same-Sex Marriage Tax Guide: 16 Essential Tax Rules and Tips

It is important to know that this year-end tax guide only provides an overview of various tax strategies and some of the more important tax provisions and by no means covers all tax minimization techniques.  Each taxpayer situation is unique and as a result tax strategies and projections should be developed for each client for the greatest results.

Where To Begin:

As a starting point, it is essential to know the customary year-end planning techniques that can cut income taxes.  It all starts with a tax projection of whether you will be in a higher or lower tax bracket next year. In some cases it is imperative to project income and expenses for multiple years to smooth income out over time to avoid higher tax brackets over an extended period.  This type of planning is beyond the scope of this discussion and should be explored directly with tax counsel.

Once your tax bracket for this year and next year are known, there are two basic income tax planning considerations:

  • Should income be accelerated or deferred?
  • Should deductions and credits be accelerated or deferred?

However, life is never that simple.  Tax laws always make for some real guesswork.  As discussed below, when it comes to certain deductions that have Continue reading

Weddings: Quick and Easy Tax Guide For Those Getting Married and Newlyweds

My Loving In-Laws-RITA AND JOE circa 1950

Rita and Joe, My Wonderful In-Laws, On Their Wedding Day, June 23,1950

The excitement, joy and anticipation of getting married can be almost overwhelming.  With the planning that goes into the wedding it is easy to overlook the tax implications of marriage.  Although taxes are probably not high on your summer wedding plan checklist, it is important to be aware of the tax changes that come along with marriage. Here are some basic tips that can help keep those issues under control.

Name Change:

The names and Social Security numbers on your tax return must match your Social Security Administration (SSA) records. If you change your name, it is imperative to report it to the SSA.

Change Income Tax Withholding:

A change in your marital status means you must give your employer a new Form W-4, Employee’s Withholding Allowance Certificate.

If you and your spouse both work, your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information.

To avoid problems and to get specific advice speak with your tax adviser.

Changes In Circumstances:

Marriage can have an impact on insurance. It is important that you report changes in circumstances, such as changes in your income or family size, to your health insurance company (or Health Insurance Marketplace).  You should also notify your insurance company when you move out of the area covered by your current insurance plan.

Address Change:

Let the IRS know if your address changes.

You should also notify the U.S. Postal Service. You can ask them online at USPS.com to forward your mail. You may also report the change at your local post office.

Change In Filing Status:

If you’re married as of December 31, that’s your marital status for the entire year for tax purposes. You and your spouse can choose to file your federal income tax return either jointly or separately each year.

Note: Once married, neither of you can file using single status.

Generally and in most cases, married filing jointly results in a lower amount of taxes due.  However, you may want to figure the tax both ways to find out which status results in the lowest tax.

Filing Status For Same-Sex Couples:

If you are legally married in a state or country that recognizes same-sex marriage, you generally must file as married on your federal tax return. This is true even if you and your spouse later live in a state or country that does not recognize same-sex marriage. See Same-Sex Marriage Tax Guide: 16 Essential Tax Rules and Tips for a more detailed discussion. Continue reading

The Biggest (Tax) Loser: Misguided Gifts of Real Estate By Uninformed Do It Yourselfers, Realtors & Attorneys

gift, income tax, estate planning

“Son, I am sick and getting old, so fill out a deed to transfer my house into your name now.”

With the increase of the federal estate tax exemption to $5,340,000 in 2014, most taxpayers are not subject to federal estate taxes.  The focus for many now has shifted to the income tax implications that arise when wealth passes to the next generation.  With no regard to the income tax implications, many times elderly people get the idea that the transfer of real estate to children during their lifetime is a good idea in trying to avoid probate and to make things easier for loved ones. Even uninformed realtors, attorneys and other financial advisers sometime make such a recommendation without knowing the tax impact.  However well-meaning, this uninformed strategy can have disastrous income tax results for the children recipients of such ill-conceived lifetime gifts.

Basis Rules:

It is important to understand the following income tax basis rules for calculating gain or loss:

  • Lifetime Gifts:  Children who receive lifetime gifts take a carryover basis in the property received.  The carryover basis is determined by what the maker of the gift originally paid for the asset plus any improvements made to the property.
  • Bequest At Death:  Beneficiaries who receive assets at the decedent’s death get a step up in basis to the date of death value of such assets received.

Basis Rules:  Illustrating How These Rules Operate

Example:  DIY Dad wants to avoid probate and to transfer during his lifetime his real estate to his son, Sad Son.  DIY Dad bought his house in the 1970s for $17,000 and made improvements during the years of $23,000.  As a result his adjusted basis is $40,000.  The house is now worth $540,000.  To save lawyer fees, DIY Dad asks Sad Son to draft a deed to transfer the property.  Sad Son does so and DIY Dad signs the deed and has it recorded with the recorder of deeds.

  • Since this was a lifetime gift, Sad Son takes a carryover basis for the house of $40,000.  Sad Son sells the house for $540,000 shortly afterwards and has a capital gain of $500,000 which he surprisingly  and shockingly learns from his accountant will cost him $100,000 (20% x $500,000) in federal taxes alone.  His accountant tells him there will also be state income taxes on this gain. Since Sad Son is a Pennsylvania resident, he will pay an extra $15,350 in Pennsylvania income taxes.  Total Taxes: $115,350.
    • Form 709:  Any lifetime gifts of over $14,000 require the filing of a Form 709, United States Gift Tax Return, in the year of the gift.  It should also be noted the IRS now checks recorded deeds.  For more on the IRS policing this area please see IRS Checking Real Estate Transfers For Unreported Gifts.
  • Alternate Universe:  DIY Dad consults with his tax/estate attorney who drafts a will that provides for the transfer of his house at death to Sad Son. Sad Son (who now legally changes his name to Happy) Son, has a basis of $540,000 upon his receipt of the house from the estate.  Happy Son, now sells the house and has zero, yes, zero capital gain (Sale Price $540,000 less basis of $540,000 = 0)!
    • Note: Certain states have inheritance taxes.  For example, in Pennsylvania there would be a 4.5% inheritance tax on the real estate, but this is a smaller cost than the capital gains tax that results from taking a carryover basis via a lifetime gift.
  • Fall Back Solutions:
    • If Sad Son stays in the house long enough to qualify the house as his primary residence and all statutory requirements for exclusion are met, he may then exclude $250,000 of the gain on the sale of the house once he sells the house.  If married and all statutory requirements are satisfied,  Sad Sam may be entitled to a $500,000 exclusion. Continue reading

Small Businesses: 8 Great Year-End Tax Planning Tips and Tricks: A Must Read

2013 Year-End Tax Planning Guide For Small Businesses

The arrival of year-end presents special opportunities for most small businesses to take steps in lowering their tax liability. The starting point is to run projections to determine the income and tax bracket for this year and what it may be next year.  Once this is known, decisions can be made as to whether any of the following planning tools should be employed to cut taxes before the tax year closes.

It is also important to know that the recent tax act known as ATRA has extended many tax breaks for 2013.  If any of these tax breaks are available, it would be prudent to take advantage of them before they expire.

Also keep in mind that ATRA increased ordinary income tax rates for individuals from 35% to 39.6% starting in 2013 so owners of flow through entities such as partnerships, limited liability companies (LLCs) and S Corporations need to recognize this and other tax changes and plan accordingly.

The following presents some year-end tax strategies that may prove helpful to small businesses and other businesses:

1. Accelerating or deferring income/deductions as part of a year-end tax strategy

A good part of year-end tax planning involves techniques to accelerate or postpone income or deductions, as your tax situation dictates. The idea is to keep income even from year to year. Having spikes in taxable income in any one tax year puts you in a higher average tax bracket than you would be in if you had evened out the amount of taxable income between the current and later year(s).  (Historical note:  For those of you old enough to remember, there was an income averaging rule built into the tax code.  That provision has long been abolished.)

So every year, businesses can take advantage of a traditional planning technique that involves alternatively deferring income and accelerating deductions. For example, business taxpayers such as pass-through entities (limited liability companies, partnerships, S corporations, sole proprietorships) should consider accelerating business income into the current year and deferring deductions until 2014 (and perhaps beyond) if they expect income to rise next year or in the future.

The strategy of accelerating or deferring income and deductions may apply to a number of transactions affecting your business including but not limited to the following:

  • Selling property
  • Leasing
  • Inventory
  • Compensation and bonus practices
  • Depreciation and expense elections.

Cash Basis Small Businesses

Generally, a cash-basis taxpayer recognizes income when received and takes deductions when paid. Here are some more rules for cash basis taxpayers:

  • Income is generally taxable in the year received, by cash or check or direct deposit. You cannot postpone tax on income by refusing payment until the following year once you have the right to that payment in the current year. (This is the so-called the “constructive receipt” rule.)  Therefore, businesses using the cash basis method of accounting recognize and report income when the business actually or constructively receives cash or something equivalent to cash.
  • However, if you make deferred payments a part of the overall transaction, you may legitimately postpone both the income and the tax into the year or years in which payment occurs. Examples include:
    • Installment sales, on which gain is prorated and taxed based upon the years over which installment payments occur
    • Like-kind exchanges through which no gain occurs except to the extent other non-like-kind property (including cash) may change hands
    • Tax-free corporate reorganizations under Section 368 of the Internal Revenue Code.
  • Deductions, however, are generally not allowed until you pay for the item or service for which you want to take the deduction. Merely accepting the liability to pay for a deductible item does not make it deductible. Therefore, a supply bill does not become deductible in the year that the bill is sent for payment. Rather, it is only considered deductible in the year in which you pay the bill.
  • Determining when you pay your bills for tax purposes also has its nuances. A bill may be paid when cash is tendered; when a credit card is charged; or when a check is put in the mail (even if delivered in due course a few days into a new calendar year).

Cash basis businesses that expect to be in a higher tax bracket in 2014 should shift income into 2013 by accelerating cash collections this year, and deferring the payment of deductible expenses until next year, where possible. In this situation, small businesses should try to collect outstanding accounts receivables before the end of 2013.

Accrual Basis Small Businesses

Basically, for accrual-basis taxpayers, generally the right to receive income, rather than actual receipt, determines the year of inclusion of income.  Accrual method businesses that anticipate being in higher rate brackets next year may want to accelerate shipment of products or provision of services into 2013 so that your business’s right to the income arises this year.

Taking the opposite approach:  If you will be in a lower tax bracket next year, an accrual basis taxpayer would delay delivering services or shipping products.

2. Tax Break For Small Business Expense Election Under Section 179

ATRA extended until the end of 2013 the enhanced Code Sec. 179 small business expense. Small businesses that purchase qualifying property can immediately expense up to $500,000 this year.  This amount is reduced dollar for dollar to the extent of the cost of the qualifying property placed in service during the year exceeds $2 million. If you plan to buy property (even computer software qualifies), consider doing so before year-end to take advantage of the immediate tax write-off.

Warning:  Remember that any asset must meet the “placed in service” requirements as well as being purchased before year-end.

Also included as qualified Code Sec. 179 property (only temporarily though) is “qualified” real property, which includes qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. However, businesses are limited to an immediate write-off of up to $250,000 of the total cost of these properties.

Note, the Section 179 expense limit goes down to $25,000 and the phaseout threshold kicks in at $200,000 starting in 2014.  Also the qualified leasehold-improvement breaks end at the end of 2013.  If you are planning major asset purchases or property improvements over time, you may want to take advantage of this break before year-end.

Final note:  In addition to new property, Section 179 can be applied to used property.

3. Bonus deprecation

ATRA extended this additional first year depreciation allowance into 2013.  This bonus depreciation allows taxpayers to immediately deduct fifty percent (50%) of the cost of qualifying property purchased and placed in service in 2013. Qualifying property must be purchased and placed into service on or before December 31, 2013.

Qualifying property must be new tangible property (refurbished assets do not qualify) with a recovery period of 20 years or less, such as office furniture, equipment and company vehicles, off the shelf computer software and qualified leasehold improvements.

Note that bonus depreciation is not subject to any asset purchase limit like Section 179 property.

4. Accelerated Depreciation

ATRA has retained through 2013 the tax break that allows a shortened 15 year recovery period for qualified leasehold improvements, restaurant and retail improvement property.  Normally the recovery period for this type of property is 39 years so this is a huge tax break.

5. Increased start-up expense deduction

New businesses can take advantage of the increased deduction for start-up expenditures. This start-up expense deduction limit is $10,000. The phaseout threshold is $60,000. Thus, if you have incurred during 2013 start-up costs to create an active trade or business, or the investigation of the creation or acquisition of an active trade or business, you may benefit from this increased deduction. Entrepreneurs can recover more small business start-up expenses up-front, thereby increasing cash flow and providing other benefits.

6. Repair Regulations

The so-called “repair” regulations include a valuable de minimis rule, which could enable taxpayers to expense otherwise capitalized tangible property. Qualified taxpayers may claim a current deduction for the cost of acquiring items of relatively low-cost property, including materials and supplies, if specific requirements are met.

The IRS with their issuance of final regulations relaxed many of the requirements contained in the earlier temporary regulations.  For example, the final regulations removed the ceiling requirements on deductions and now allows the de minimis rule for businesses that do not generate financial statement (applicable financial statements (AFS)).  This allows many small businesses to take advantage of these tax breaks.

The modified safe harbor allows businesses without an AFS to immediately deduct up to $500 or less (or $5,000 or less for taxpayers with an AFS) for qualified property purchases. For example, a business could deduct hundreds of lap-top computers or scanners costing $500 or less each year.

Bottom Line:  The modified safe harbor may be easier for certain small businesses than the Section 179 deduction and 100% bonus depreciation. Most importantly, the regulations now allow taxpayers that do not prepare financial statements to use de minimis safe harbor.  This provides a great benefit for many small businesses that do not normally generate these statements as part of their regular business operations.

7. Compensation arrangements

Timing of Compensation:

In a regular C corporation, compensation paid to employees reduces the taxable income of such corporation.  Ideally, compensation should be used to eliminate taxable income at the corporate level or at least minimize such income.  It is imperative that the total compensation paid is “reasonable” in light of the services performed and industry norms. For more insights into the reasonable compensation issue please read Reasonable Compensation:A Favorite Issue For IRS Auditors.

Use of Retirement Plans:

Corporate retirement plans such as profit sharing, money purchase pension, and defined benefit plans can generate large tax deductions for the entity.  These plans are quite useful when compensation has already reached the highest level of reasonableness.

Important Points:

  • These corporate retirement plans must be drafted and signed before year-end to get tax deductions for that year.
  • These plans can generate a deduction even though the plan is not funded until after year-end, so long as funded by the due date (or the extended due date) of the corporate or entity return.  This gives the small business owner some after the taxable year-end planning flexibility.
  • For profit sharing, money purchase pension and other defined contribution plans, an employer can contribute up to $51,000 per participant.  For participants age 50 and older this amount can be $56,500 because of the catch-up contribution rules.
  • For defined benefit plans, the plan retirement amount and funding are determined by various actuarial computations.  The maximum future benefit can be $205,000 per year upon retirement.  Depending on the age of a participant this can result in a very large contribution each year and one far in excess of the amounts available under the defined contribution plans discussed immediately above.
  • There are various limits and rules specific to each of these plans and the particular make-up of the employees and their ages bear heavily in the proper choice of plan and the design of any plan chosen.

Additionally, and maybe more importantly, when compensation paid to owners is approaching their own:

additional taxes can be saved by making contributions to such plans instead of paying more compensation to the owner.  This can produce a double benefit:  huge income tax savings  and having money being put into a retirement plan to grow tax-free for the benefit of the small business owner.

Use of 2 ½ Month Bonus Rule:

Particularly relevant to employers at year-end is an annual bonus rule. Bonuses paid within a brief period after the end of the employer’s tax year are deductible in that tax year. Compensation is generally considered paid within a brief period of time if it is paid within two and one-half months of the end of the employer’s tax year.

Compensation and K-1 Distributions

Compensation and shareholder or partner distributions from a business, and drawing the often fine line between the two, can make a significant difference to a business owner’s overall tax liability for the year.  For example, for an S corporation, payment of salaries are subject to social security taxes while K-1 income is not subject to this tax.  The strategy here would be to pay less in salary and have more income reported on the Form K-1.  However, taxpayers can be in trouble here if they get greedy.  The IRS is policing this area to make sure that the salary paid is reasonable.  Therefore,   a reasonable salary must be carefully determined and supportable in a tax audit.

Deferring payments of accrued bonuses

In certain situations, it may be preferable to simply ask that your employer pay your bonus in the following year where you expect that your tax bracket will be lower.

8. Other Tax Planning Strategies and Ideas

Here are a number of other year-end tax planning strategies you may want to consider, depending on your particular tax and business situation:

  • Accelerating installment sale proceeds or electing out of the installment method;
  • Elect slower depreciation methods;
  • Determine if you can write-off any bad debts;
  • Consider changing your accounting method to advance income or defer expenses.  This one needs careful consideration, however, as accounting method changes can have a binding effect on taxpayers for many future years;
  • Determining the difference between ordinary business activities and passive activities before implementing a year-end strategy also makes good sense. Rental income or losses, and other passive activity gains and losses, must be netted separately from business gains and losses. Year-end timing for one does not necessarily help control your bottom-line tax cost on the other;
  • Cost Segregation Study:  For those who have purchased, constructed or rehabilitated a building this year, a cost segregation workup may save taxes.  It identifies property components and related costs that can be depreciated faster than the building itself, generating larger deductions.  For example, breaking out costs for fixtures, security equipment, landscaping and parking lots may generate larger tax deductions.  Be careful to take into account the impact of the alternative minimum tax and to consider states that do not follow the federal tax rules.

Final Thoughts:

The above are not intended as a comprehensive list of year-end tax planning tools for small businesses.  The point here is that each business has its own unique tax and business situation.  A case by case analysis to determine which tax planning tools will minimize taxes is the best course of action for small businesses.

If I have missed something or if there is a strategy you want me to explore or explain more fully, please leave a comment below.  I would be glad to help.

For an analysis of what deferral or acceleration planning at year-end may work best for you and your business, please do not hesitate to contact me.

Disclosure and Disclaimer: As required by United States Treasury Regulations, you should be aware that this communication is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws. This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.

 

Fraud Alert: Latest Reprehensible Tax and Financial Scam: Phony Charitable Contributions To Aid Typhoon Victims

IRS Alert: Charitable Contribution Scam

Typhoon Haiyan Disaster

The Internal Revenue Service has just issued a consumer alert about possible scams taking place in the wake of Typhoon Haiyan.  As most of us know, on Nov. 8, 2013, this typhoon known as Yolanda in the Philippines – made landfall in the central Philippines, bringing strong winds and heavy rains that have resulted in flooding, landslides, and widespread damage and personal devastation.

Following major disasters, it is now increasing common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers.

Fraudulent Contact:

Such fraudulent schemes may involve contact in many ways including the following:

  • Telephone
  • Social media
  • Email or
  • In-person solicitations.

Tips To Avoid Being Scammed:

To avoid your own personal financial disaster, please follow these recommendations:

  • To help disaster victims, donate only to recognized charities.
  • Be wary of charities with names that are similar to familiar or sound like nationally known organizations.
  1. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations.
  2. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, through which people may find legitimate, qualified charities; this will help make sure that the donations to these charities are tax-deductible.
  3. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) website at fema.gov.
  • BASIC RULE OF LIFE:  Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone soliciting contributions.  Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.  Please read IRS Slams Taxpayers: Attention to Tax Details Matter to learn why this is so important from a tax perspective.

    • Ultra-Careful Tip #1:  In fact, it is probably better to use your credit card as your card company may protect you against such fraudulent charges.
  • If you plan to claim a deduction for your contribution, see IRS Publication 526, Charitable Contributions, to read about the kinds of organizations that can receive deductible contributions.
    • Ultra-Careful Tip #2: Even in situations where there is no fraud, it is prudent to make sure the organization is a qualified tax-exempt organization under federal law.  You may be unpleasantly surprised to know that many organizations erroneously hold themselves out as tax-qualified.  This can result in some nasty tax consequences if an audit by the IRS determines that the organization was not tax-exempt and disallows your charitable deduction.

Bogus Websites and E-Mails:

Bogus websites may solicit funds for disaster victims. Such fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim affiliation with legitimate charities to persuade members of the public to send money or provide personal financial information that can be used to steal identities or financial resources.

Additionally, fraudsters often send e-mail that steers the recipient to bogus websites that seem affiliated with legitimate charitable causes.

Final Thoughts:

This is such a sad commentary about our world.  The old refrain “No good deed goes unpunished” is clearly applicable here.  It seems our best and noblest intentions can and will be used against us.  Vigilance, skepticism and prudence are imperative even when we are trying to do the right thing.

Does this kind of fraud strike a nerve or really make you angry?  Or are we just numb to it all and just pass it off as the way of the world? What are your thoughts?  Be sure to let me know what you think in the Leave a Reply below.

As required by United States Treasury Regulations, you should be aware that this communication is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws.

As required by United States Treasury Regulations, you should be aware that this communication is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.