Records

Tracking Down Donation Substantiation

Personal Finance, Records, Taxes, Uncategorized / By

If you’re like many Americans, letters from your favorite charities may be appearing in your mailbox acknowledging your 2021 donations. But what happens if you haven’t received such a letter? Can you still claim a deduction for the gift on your 2021 income tax return? It depends.

What’s Required?

To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation if it’s cash. If the donation is property, the acknowledgment must describe the property, but the charity isn’t required to provide a value. The donor must determine the property’s value.

“Contemporaneous” means the earlier of the date you file your tax return or the extended due date of your return. So, if you donated in 2021 but haven’t yet received substantiation from the charity, it’s not too late (as long as you haven’t filed your 2021 return). Contact the charity and request a written acknowledgment.

Keep in mind that, if you made a cash gift of under $250 with a check or credit card, generally a canceled check, bank statement or credit card statement is sufficient. However, if you received something in return for the donation, you generally must reduce your deduction by its value and the charity is required to provide you a written acknowledgment as described earlier.

Deduction for Non-Itemizers

Generally, taxpayers who don’t itemize their deductions (and instead claim the standard deduction) can’t claim a charitable deduction. But, under the CARES Act, individuals who didn’t itemize deductions could claim a federal income tax write-off for up to $300 of cash contributions to IRS-approved charities for the 2020 tax year.

Fortunately, the Consolidated Appropriations Act extended this tax break to cover $300 of cash contributions made in 2021. The law also doubled the deduction limit to $600 for married, joint-filing couples for cash contributions made in 2021.

Let Us Assist You

Additional substantiation requirements apply to some types of donations. We can help you determine whether you have sufficient substantiation for the donations you hope to deduct on your 2021 income tax return. We also can guide you on the substantiation you’ll need for gifts you’re planning this year to ensure you can enjoy the desired deductions on your 2022 return.

3 Things to Know After Filing Your Tax Return

Business, Personal Finance, Records, Taxes / By

Given that it’s after April 15, normally most people would have filed their income tax return by now. But with the deadline for filing 2020 individual returns pushed out to May 17, you might not have filed yours quite yet. Or you might be taking advantage of extending your return to Oct. 15. Whenever you file, here are three important things to keep in mind afterwards:

1. You can check on your refund. 

The IRS has an online tool that can tell you the status of your refund. Go to irs.gov and click on “Get Your Refund Status.” You’ll need your Social Security number, filing status and the exact refund amount.

2. You can file an amended return if you forgot to report something. 

In general, you can file an amended tax return and claim a refund within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later. But if you filed before the deadline (without regard to extensions), you typically have until three years from the deadline to file an amended return.

There are a few opportunities when you have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. In general, you can amend your tax return to claim a bad debt for seven years from the due date of the tax return for the year that the debt became worthless.

3. You can throw out some old tax records. 

You should keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. The statute of limitations is generally three years after you file your return.

That means you can probably dispose of most tax-related records for the 2017 tax year and earlier years. (If you filed an extension for your 2017 return, hold on to your records until at least three years from when you filed the extended return.) However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.

You’ll need to hang on to certain tax-related records longer. For example, keep actual tax returns indefinitely so you can prove to the IRS that you filed legitimately. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)

Keep records associated with retirement accounts until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (Keep these records for six years if you want to be extra safe.)

Our CPAs are always available.

Contact the Maggart team if you have further questions about your refund, filing an amended return, or record retention. We’re here all year!

Federal Tax Relief to Alleviate COVID-19 Hardships

Business, Employment, Estate Planning, Medical Expenses, Personal Finance, Records, Retirement, Taxes / By

The massive Coronavirus Aid, Relief and Economic Security (CARES) Act includes numerous tax-related provisions. But before the CARES Act was signed into law March 27, the federal government provided other valuable tax relief in response to the novel coronavirus (COVID-19) pandemic. Here is a closer look.

Families First Coronavirus Response Act

On March 18, President Trump signed into law the Families First Coronavirus Response Act. In certain situations, it mandates paid leave benefits for small business employees affected by COVID-19. The paid leave provisions generally apply to employers with fewer than 500 employees, though employers with fewer than 50 employees may be eligible for an exception. Here are the benefits:

Paid Sick Leave

The law requires covered employers to provide 80 hours of paid sick leave for full-time employees in certain situations. (Part-time employees are entitled to this paid sick leave for the average number of hours worked over a two-week period.)

Generally, paid sick leave is required when an employee is subject to a COVID-19-related quarantine or isolation order, has been advised to self-quarantine or is seeking a medical diagnosis for COVID-19 symptoms. It’s also generally required when an employee is caring for someone subject to a COVID-19-related quarantine or isolation order or is caring for a child whose school or place of care has been closed, or whose childcare provider is unavailable, due to COVID-19 precautions.

When leave is taken for an employee’s own COVID-19 illness or quarantine, the leave must be paid at the employee’s regular rate, up to $511 per day (up to $5,110 in total). When the leave is related to caring for someone else, the leave must be paid at a minimum of two-thirds of the employee’s usual pay, up to $200 per day (up to $2,000 in total).

Paid Family Leave

The law gives an employee the right to take up to 12 weeks of job-protected family leave if the employee’s child’s school or childcare location is closed due to COVID-19. The first two weeks are unpaid (though they might qualify for sick pay). For the remaining 10 weeks, the employer must pay at least two-thirds of the employee’s usual pay, up to a maximum of $200 per day, subject to an overall maximum of $10,000 in total family leave payments.

Tax Credit for Employers

To help employers cover this paid leave, the law allows a refundable tax credit equal to 100% of qualified sick leave wages and family and medical leave wages paid by the employer.

The credit applies only to eligible leave payments made during the period beginning on the effective date of April 1, 2020, and ending on December 31, 2020.

Tax credits may also be available to certain self-employed individuals.

Federal tax deadline deferrals

On March 18, the IRS released guidance that outlined the details of a postponed deadline for paying federal income taxes. Notice 2020-17 clarified that individual taxpayers and corporations can defer until July 15 federal income tax payments that would otherwise be due on April 15.

Notice 2020-18 subsequently provided additional clarifications, including a postponement of the federal income tax filing deadline to July 15 as well.

Some specifics under these relief measures are as follows:

For Individuals:

Individual taxpayers can defer federal income tax payments (including any self-employment tax) owed for the 2019 tax year from the normal April 15 deadline until July 15. They can also defer initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15.

For Corporations:

Corporations that use the calendar year for tax purposes can defer until July 15 federal income tax payments that would otherwise be due on April 15. This relief covers the amount owed for the 2019 tax year and the amount due for the first quarterly estimated tax payment for the 2020 tax year. Both of those amounts would otherwise be due on April 15.

For Trusts & Estates:

Trusts and estates pay federal income taxes, too. Normally, federal income tax payments for the 2019 tax year of trusts and estates that use the calendar year for tax purposes would be due on April 15. The initial quarterly estimated federal income tax payments for the 2020 tax year of trusts and estates that use the calendar year for tax purposes would also normally be due on April 15. These deadlines have also been postponed to July 15.

Notice 2020-20 postponed the filing and payment deadlines for 2019 federal gift and generation-skipping transfer taxes from April 15 to July 15.

Moving Target

We’ve covered only some of the COVID-19-related tax law changes that have already been finalized. There are also other types of federal relief under the CARES Act and through federal agencies. And many states have announced their own COVID-19 relief. More federal measures and additional guidance are expected, some of which could affect the relief discussed here. Contact Maggart to discuss which relief measures may apply in your specific situation.

Gig Workers, Know Your Tax Responsibilities

Business, Employment, Records, Taxes / By

Let’s say you drive for a ride-sharing app, deliver groceries ordered online or perform freelance home repairs booked via a mobile device. If you do one of these jobs or myriad others, you’re a gig worker — part of a growing segment of the economy.

In fact, a 2019 IRS report found that the share of the workforce with income from alternative, nonemployee work arrangements grew by 1.9 percentage points from 2000 to 2016. (That’s a big increase.) And, over 50% of this rise occurred during the period 2013 to 2016, almost entirely because of gigs set up online.

A Different Way

No matter what the job or app, all gig workers have one thing in common: taxes. But the way you’ll pay taxes differs from the way you would as an employee.

To start, you’re typically considered self-employed. As a result, and because an employer isn’t withholding money from your paycheck to cover your tax obligations, you’re responsible for making federal income tax payments. Depending on where you live, you also may have to pay state income tax.

Quarterly Tax Payments

The U.S. tax system is considered “pay as you go.” Self-employed individuals typically pay both federal income tax and self-employment taxes four times during the year: generally on April 15, June 15, and September 15 of the current year, and January 15 of the following year.

If you don’t pay enough over these four installments to cover the required amount for the year, you may be subject to penalties. To minimize the risk of penalties, you must generally pay either 90% of the tax you’ll owe for the current year or the same amount you paid the previous year.

The 1099

You may have encountered the term “the 1099 economy” or been called a “1099 worker.” This is because, as a self-employed person, you won’t get a W-2 from an employer. You may, however, receive a Form 1099-MISC from any client or customer that paid you at least $600 throughout the year. The client sends the same form to the IRS, so it pays to monitor the 1099s you receive and verify that the amounts match your records.

If a client (say, a ride-sharing app) uses a third-party payment system, you might receive a Form 1099-K. Even if you didn’t earn enough from a client to receive a 1099, or you’re not sent a 1099-K, you’re still responsible for reporting the income you were paid. Keep in mind that typically you’re taxed on income when received, not when you send a request for payment.

Good Record Keeping

As a gig worker, you need to keep accurate, timely records of your revenue and expenses so you pay the taxes you owe — but no more. Maggart can help you set up a good record keeping system, file your taxes and stay updated on new developments in the gig economy.

Expense Deductions

By definition, gig workers are self-employed. So, your taxes are based on the profits left after you deduct business-related expenses from your revenue. Expenses can include payment processing fees, your investment in office equipment and specific costs required to provide your service. Remember, if you use a portion of your home as a work space, you may be able to deduct the pro rata share of some home-related expenses.