Whether you live in an area affected by the recent hurricanes, or you have family or friends who live there, the IRS provides guidance to victims of Hurricanes Harvey, Irma and Maria. Special tax relief and assistance is available to taxpayers in the Presidential Disaster Areas.
For information from the IRS, please visit https://www.irs.gov/newsroom/tax-relief-in-disaster-situations.
For information on government-wide efforts related to these natural disasters, please visit https://www.usa.gov/disasters-and-emergencies.
In the aftermath of the horrific damage in Florida, Texas and the Caribbean caused by the recent hurricanes, there are multiple ways to provide charitable relief to those in need.
One way is by contributing stock gifts to 501(c)(3) organizations that are helping in the relief efforts. Donating appreciated stock can be a great tax strategy. That’s because when you donate shares of stock and other securities, you deduct the fair market value of the donated securities on your tax return and avoid paying taxes on the capital gain.
Let’s say you donate stock that you purchased for $1,000 and is now worth $5,000. By doing so, you will avoid paying capital gains tax on the $4,000 of appreciation and still get to deduct the FMV, or $5,000, of the stock. (Please don’t donate shares of stocks that have decreased in value. Instead, sell those shares, take the loss, and donate the net proceeds.)
If you donate property or goods other than cash, you may generally deduct the fair market value of the property. The rules relating to how to determine fair market value are discussed in Publication 561, Determining the Value of Donated Property. Don’t forget that the rules changed a few years back and you can only deduct goods that are in good condition or better. Please note that if you want to claim a deduction more than $5,000 for donated goods, make sure to get a written appraisal valuing the items being donated.
As the recovery process from the hurricane damage will take time, charities will need support over the long haul. Thus, you may want to set up recurring donations or give later in the year. For taxes, keep in mind that contributions are deductible in the year made. Donations charged on a credit card by December 31, 2017 are deductible in 2017 even if the credit card bill isn?t paid until 2018.
How much can you donate and still get the full deduction? Donations of money are deductible up to 50% of your Adjusted Gross Income (AGI). Donations of securities are limited to 30% of AGI. Any excess amounts not allowed in the current year can be carried over and utilized during the subsequent five years.
Unfortunately, scam charities sometimes do pop up in the wake of a tragedy. The IRS offers a tool, EO Select Check, that you can use to make sure the charity in question is an exempt organization that is eligible to receive tax-deductible contributions.
If you change jobs, you need to submit a W-4 form with your new employer. What seems like a very straightforward form can often result in a surprisingly large overpayment or balance due when you file your taxes the following year.
Some underlying issues with the W-4 form are:
– If you work for more than one employer, each employer withholds taxes as if they are your only employer.
– If you claim ?married? on the W-4, your employer withholds taxes as if your spouse does NOT work.
To address these issues, the IRS has created a new online tool, the IRS Withholding Calculator, to help you complete the W-4 in such a way that you should come close to breaking even on your taxes.
You can check out the tool at: https://apps.irs.gov/app/withholdingcalculator/ (Java script needs to be enabled)
From IRS News Bulletin- 2017-112:
The Internal Revenue Service issued a warning that tax-related scams continue across the nation even though the tax filing season has ended for most taxpayers. People should remain on alert to new and emerging schemes involving the tax system that continue to claim victims.
?We continue to urge people to watch out for new and evolving schemes this summer,? said IRS Commissioner John Koskinen. ?Many of these are variations of a theme, involving fictitious tax bills and demands to pay by purchasing and transferring information involving a gift card or iTunes card. Taxpayers can avoid these and other tricky financial scams by taking a few minutes to review the tell-tale signs of these schemes.?
A new scam which is linked to the Electronic Federal Tax Payment System (EFTPS) has been reported nationwide. In this ruse, con artists call to demand immediate tax payment. The caller claims to be from the IRS and says that two certified letters mailed to the taxpayer were returned as undeliverable. The scammer then threatens arrest if a payment is not made immediately by a specific prepaid debit card. Victims are told that the debit card is linked to the EFTPS when, in reality, it is controlled entirely by the scammer. Victims are warned not to talk to their tax preparer, attorney or the local IRS office until after the payment is made.
The IRS does not call and leave prerecorded, urgent messages asking for a call back. In this tactic, scammers tell victims that if they do not call back, a warrant will be issued for their arrest. Those who do respond are told they must make immediate payment either by a specific prepaid debit card or by wire transfer.
Private Debt Collection Scams
The IRS recently began sending letters to a relatively small group of taxpayers whose overdue federal tax accounts are being assigned to one of four private-sector collection agencies. Taxpayers should be on the lookout for scammers posing as private collection firms. The IRS-authorized firms will only be calling about a tax debt the person has had ? and has been aware of ? for years. The IRS would have previously contacted taxpayers about their tax debt.
Scams Targeting People with Limited English Proficiency
Taxpayers with limited English proficiency have been recent targets of phone scams and email phishing schemes that continue to occur across the country. Con artists often approach victims in their native language, threaten them with deportation, police arrest and license revocation among other things. They tell their victims they owe the IRS money and must pay it promptly through a preloaded debit card, gift card or wire transfer. They may also leave ?urgent? callback requests through phone ?robo-calls? or via a phishing email.
Tell Tale Signs of a Scam:
The IRS (and its authorized private collection agencies) will never:
? Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. The IRS will usually first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.
? Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
? Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
? Ask for credit or debit card numbers over the phone.
For anyone who doesn?t owe taxes and has no reason to think they do:
? Do not give out any information. Hang up immediately.
? Contact the Treasury Inspector General for Tax Administration to report the call. Use their IRS Impersonation Scam Reporting web page. Alternatively, call 800-366-4484.
? Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. Please add “IRS Telephone Scam” in the notes.
For anyone who owes tax or thinks they do:
? View tax account information online at IRS.gov to see the actual amount you owe. Then review payment options.
? Call the number on the billing notice, or
? Call the IRS at 800-829-1040. IRS workers can help
How to Know It?s Really the IRS Calling or Knocking
The IRS initiates most contacts through regular mail delivered by the United States Postal Service. However, there are special circumstances in which the IRS will call or come to a home or business, such as:
? when a taxpayer has an overdue tax bill,
? to secure a delinquent tax return or a delinquent employment tax payment, or,
? to tour a business as part of an audit or during criminal investigations.
Even then, taxpayers will generally first receive several letters (called ?notices?) from the IRS in the mail.
By Attorney Neil Cohen, guest contributor
You have until January 2, 2018 to file your portability election. What does that mean and why is it important?
If your spouse or one of your parents died after December 31, 2010 and no federal estate tax return was filed for their estate, you may be missing out on an opportunity to protect over $5 million dollars from federal estate taxes.
Under the federal gift and estate tax laws, every person has the ability to pass a certain amount of assets to anyone else during life (via gift in excess of $14k per year) or at death (via their estate) without being subjected to a gift or estate tax. This exclusion amount, (sometimes referred to as an ?exemption? or the ?unified credit?) has increased dramatically over the past few decades in response to the calls for estate tax law repeal. The exclusion amount was $600,000 during most of the ?90?s and after gradually increasing earlier last decade was set at $5,000,000 in 2011.
To allay future calls for repeal, two additional concepts were included in the new law: first, the exclusion amount was indexed for inflation so that it is now $5,490,000 for 2017 and, second, the exclusion amount became portable.
Portability means that if one spouse dies and does not use his or her entire exemption amount, the surviving spouse can still have the benefit of that unused exclusion amount on his or her death. This was a radical departure from the estate tax law of the past because the exclusion amount was a ?use it or lose it? proposition. Previously, if one spouse held $10,000,000 of assets in his or her name and the other spouse died first with no assets, then on the surviving spouse?s subsequent death the value of the assets over the exemption amount would be subject to estate taxes. A $10,000,000 estate would be subject to an estate tax in the neighborhood of $2,500,000.
With the advent of portability, however, that same couple is able to shelter the full $10,000,000 because the exclusion amount of the first spouse to die is available to the surviving spouse.
In order to claim what is now referred to as the ?deceased spousal unused exclusion? (DSUE) amount, the estate of the first spouse to die must file a ?timely filed? estate tax return, including extensions, for no other reason than to claim the DSUE. Before portability, if a person died with an estate that was not over the exclusion amount, an estate tax return was not required. This may explain why no estate tax return was filed for your spouse or parent.
As time passed people began to realize that the DSUE amount was only available if they filed a timely filed estate tax return meaning within nine months after death or 15 months if the automatic 6-month extension is requested. When people realized the filing deadline had passed, their only option was to file a Private Letter Ruling request with the IRS which came at great expense; the filing fee alone approached $10,000. The benefit however is well worth it.
After being inundated with countless identical Private Letter Ruling requests, the IRS recently issued Revenue Procedure 2017-34 which provides for a simplified method to grant relief to estates that have missed their filing deadline. This simplified method requires the executor to complete and file a properly prepared estate tax return on or before the later of January 2, 2018, or the second annual anniversary of the decedent?s date of death.
There are several other requirements as well but the Bottom Line is that estates of people that died between 2011 and 2015 can obtain relief under this streamlined Revenue Procedure instead of by filing a Private Letter Ruling request. It also extends the time to file for certain estates that may have missed their filing deadlines but have not yet exceeded the 24-month period; i.e. estates of decedents who died more than 15 months but less than 24 months prior to the date you are reading this article.
If you have any questions about the DSUE please contact Attorney Neil Cohen of Seegel Lipshutz & Lo, LLP at email@example.com.