Posts Tagged "deductions"

Tax Filing Reminders

Posted on Oct 16, 2017

Filing deadline for 2016 tax returns for individuals or corporations if you requested/received a six -month extension. Pay taxes due by this date. Deadline to recharacterize a Roth IRA to a Traditional IRA. Deadline to fund your Keogh or SEP plans if you requested a filing...

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Fair market value (FMV): What is it and how to defend it

Posted on Oct 6, 2017

So what is fair market value (FMV)? According to the IRS, it’s the price that property would sell for on the open market. This is the price that would be agreed on between a willing buyer and a willing seller. Neither would be required to act, and both would have reasonable knowledge of the relevant facts. This is the standard the IRS uses to determine if an item sold or donated by you is valued correctly for income tax purposes. It is also a definition that is so broad that it is wide open to interpretation. Understand when FMV is used Fair market value is used whenever an item is bought, sold or donated and has tax consequences. The most common examples are: Buying or selling your home, other real estate, personal property or business property Establishing values of other business assets like inventory Valuing charitable donations of personal goods and property like automobiles Valuing bartering of services, business ownership transfers or assets in an estate of a deceased taxpayer Know how to defend your FMV determination If the IRS decides your FMV opinion is wrong, you are not only subject to more tax, but also penalties. Here are a few tips to help defend your FMV in case of an audit. Properly document donations. Fair market value of non-cash charitable donations is an area that can easily be challenged by the IRS. Ensure your donated items are in good or better condition. Properly document the items donated and keep copies of published valuations from charities like the Salvation Army. Don’t forget to ask for a receipt confirming your donations. Get an appraisal. If you sell a major asset such as a small business, collections, art or capital asset, make sure you get an independent appraisal of the property first. While still open to interpretation by the IRS, this appraisal can be a solid basis for defending any differences between your valuation and the IRS. Keep pricing proof for similar items and transactions. This is especially important if you barter goods and services. If you have a copy of an advertisement for a similar item to the one you sold, it can readily support your FMV claim. Take photos and keep detailed records. The condition of an item is often a key consideration in establishing FMV. It is fair to assume an item has wear and tear when you sell or donate it. Visual documentation can be used to support your claimed amount. And keeping copies of invoices for major purchases is also a good idea. With proper planning, establishing FMV of an item can be done in a reasonably defendable way if ever challenged. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Your receipts are important: save them

Posted on Oct 2, 2017

When it comes to taking qualified deductions on your federal tax return, three things must happen: Recognize that an expense might be deductible on your tax return. Keep a record of the expense in an organized fashion. Obtain the proper (and timely) documentation to support your deduction. This might be obvious to most people, but here are some typical areas where taxpayers often fall short. In the long run, these items could end up costing you plenty during tax filing season, and trigger IRS audits. Cash donations to charity. To deduct and support your deduction to a qualified charity you must have valid support. Donations of cash are no longer deductible if they are not supported by a canceled check or written acknowledgement from the charity. A donation deduction of $250 or more needs to be supported by documentation created at the time of the donation. A canceled check and bank statement are not sufficient. If you get audited, having the charity issue documentation after the fact may not be enough. Non-cash contributions. You need documentation for these donations as well. This includes a detailed list of items donated, the condition of the items and their estimated fair market values. While this level of detail is not required for small donations, keeping good records and taking photos is a good practice. Investment purchases and sales. If you bought or sold an investment you will need to know your cost basis. Today’s regulations require brokers to report to the IRS the cost basis of investment sales. Review your broker accounts and correct any errors. It’s very difficult to defend yourself in an audit when records reported to the IRS are in error. Copies of divorce decrees, alimony and child support agreements. There are often conflicts between two taxpayers taking the same child as a deduction. Do you have the necessary proof to defend your position? The same is true with alimony and child support. Keep these documents in a safe place and be ready to use them if necessary. Copies of financial transactions. Keep copies of documents from any major financial transaction. This includes real estate settlement statements, refinancing documents and any records of major purchases. These documents are necessary to ensure your cost basis in the property is properly recorded. The documents will also help identify any tax-related items like mortgage insurance, property taxes and possible sales tax paid. Mileage logs. Lack of tracking deductible miles is probably one of the most commonly overlooked documentation requirements. Properly recording charitable, medical and business miles can really add up to a large deduction. If the record is not available, the IRS is quick to disallow your deduction. If you are not sure whether a document is needed, retain it. Then you can always retrieve it if needed. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Contractor or Employee? Knowing the difference is important

Posted on Sep 28, 2017

Is a worker an independent contractor or an employee? As an employer, getting this wrong could land you with an IRS audit and cost you plenty in many other ways.Here’s what you should know: As the worker: If the worker is a contractor and not considered an employee, he/she must: Pay self-employment taxes (Social Security and Medicare-related taxes). Make estimated federal and state tax payments. Handle his/her own benefits, insurance and bookkeeping. As the employer: You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to: Payment and penalties related to Social Security and Medicare taxes. Payment of possible overtime, including penalties for a contractor reclassified as an employee. A legal obligation to pay for benefits. When the IRS recharacterizes an independent contractor as an employee, they look at the business relationship between the employer and the worker. The IRS considers if the employer has the right to control the work (when, how and where the work is done) and the financial relationship (i.e., a contractor has a contract and customers, and invoices the company). The more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be...

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The tax benefits of staying single

Posted on Sep 26, 2017

Have you ever heard of the marriage penalty? It means you could be taxed more as a married couple than you would as single people making the same amount of money. This is because single filers almost always have higher income thresholds when moving to higher tax brackets. Personal exemptions and itemized deductions can also phase out more quickly for married couples than for single filers. The marriage penalty might not be a reason to skip matrimony, but it could motivate you to find out more about how taxes may change for you and yours. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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