Eight Tips to Determine if Your Gift is Taxable

Issue Number:    Tax Tip 2012-62

If you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but the IRS offers the following eight tips about gifts and the gift tax.

1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2011 and 2012, the annual exclusion is $13,000.
2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are not taxable gifts:
• Gifts that are do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you pay directly to a medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.
6. You and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.
7. You must file a gift tax return on Form 709, if any of the following apply:
• You gave gifts to at least one person (other than your spouse) that are more  
      than the annual exclusion for the year.
• You and your spouse are splitting a gift.
• You gave someone (other than your spouse) a gift of a future interest that he
or she cannot actually possess, enjoy, or receive income from until some time in the future.
• You gave your spouse an interest in property that will terminate due to a future event.
8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.

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IRS Makes Partnership Interest Reporting Optional

In an email to tax professionals, the IRS said the 2011 Form 990, Appendix F instruction (and equivalent instructions in Parts VIII and X) to report interests in joint ventures and other partnerships using Form 1065, Schedule K-1 information would be optional for tax year 2011. The parallel Form 990-EZ instruction for reporting the organization’s share of assets of joint ventures and partnerships on line 24 using Schedule K-1 information is also optional for tax year 2011.

In reporting on Form 990 or Form 990-EZ its proportionate interests in the revenue, expenses and assets of joint ventures and other partnerships in which it has an ownership interest, an organization generally may report, as in prior years, based on its books and records. “Schedule K-1 information must still be used in reporting interests in joint ventures and other partnerships in Schedules H and R,” the IRS cautioned, however.

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Congress Passes JOBS Act for Small Business

Congress approved legislation intended to spur investment in small businesses and help them access the capital markets, despite criticisms that it would weaken audit safeguards and investor protections.

The Jumpstart Our Business Startups Act received strong bipartisan support and backing from the Obama administration as a way to improve job creation at small businesses. The measure passed the House for the second time on Tuesday, this time by a vote of 380-41. After the House passed the legislation earlier this month, the Senate took it up and approved an amendment intended to add some protections for investors in so-called “crowdfunding” ventures. The Senate then passed the JOBS Act last week by a vote of 73-26 and sent it back to the House. The bill will now go to President Obama for his signature.

The legislation unites a variety of bills that had made progress in Congress in the past, but until now had not been signed into law. Among them, the bill aims to reduce the costs of going public by giving companies a temporary reprieve from certain Securities and Exchange Commission regulations, phasing in the regulations over five years to allow smaller companies to go public sooner. The bill would also create a new category of issuers called emerging growth companies, which would retain that status for five years or until they exceed $1 billion in annual gross revenue or become large accelerated filers. Another provision would remove an SEC regulatory ban preventing small businesses from using advertisements to solicit investors. The bill also removes SEC restrictions on “crowdfunding” so entrepreneurs can raise equity capital from a large pool of small investors who may or may not be considered “accredited” by the SEC. Companies would be able to pool up to $1 million from investors without registering with the SEC, or up to $2 million if the company provides the SEC with audited financial statements.

 

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IRS Increases Audits of Wealthy

The Internal Revenue Service has been increasing its audits and examinations of high-income individuals in the past year, examining nearly 30 percent of the tax returns of those earning $10 million and more, nearly twice the rate of a year earlier.

Last year, the IRS examined 29.93 percent of individual income tax returns, compared to about 18 percent the previous year, according to CNN Money. Taxpayers with incomes between $5 million and $10 million were examined at a rate of 20.75 percent, compared to about 12 percent in fiscal year 2010. Those with incomes between $1 million and $5 million were audited at a rate of 11.8 percent, compared to about 7 percent a year earlier. Overall, about 1.1 percent of taxpayers were audited in FY 2011, about the same rate as in FY 2010.

IRS Commissioner Doug Shulman warned Congress during a hearing about tax season on Thursday that if budget cuts at the agency continued, the service would be forced to cut down on its audits. The agency endured a $300 billion cut in its fiscal 2012 budget, leading to effects such as long waiting times for telephone assistance. Shulman predicted that tax compliance rates would likely go down as word spread that the audit rates were decreasing as a result of further budget cuts.

Other significant information in the IRS FY 2011 Data Book included the fact that the IRS collected $2.4 trillion and processed more than 234 million tax returns from Oct. 1, 2010, to Sept. 30, 2011. Taxpayers electronically filed more than 133 million business and individual income tax returns, including 77 percent of all individual income tax returns. More than 119 million individual income tax returns, about 83 percent of all individual returns, resulted in tax refunds, totaling almost $338 billion. The IRS examined 1.1 percent of all individual income tax returns and 1.5 percent of corporation income tax returns (excluding S corporation returns).  The IRS provided taxpayer assistance through 319 million visits to IRS.gov and assisted nearly 83 million taxpayers through its toll-free telephone helpline or at walk-in sites.

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Tax Tips for the Self-employed

Issue Number:    IRS Tax Tip 2012-16

There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed.

Here are six key points the IRS would like you to know about self-employment and self- employment taxes:

1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

2. If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.

3. You file an IRS Schedule C, Profit or Loss from Business, or C-EZ, Net Profit from Business, with your Form 1040.

4. If you are self-employed you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.

5. You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.

6. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

For more information see the Self-employment Tax Center, IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

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Deducting Charitable Contributions: Eight Essentials

IRS Tax Tip 2012-57

Donations made to qualified organizations may help reduce the amount of tax you pay.

The IRS has eight essential tips to help ensure your contributions pay off on your tax return.

  1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations or candidates.
  2.  To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
  3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
  4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
  5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
  6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the contribution. For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given.
  7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
  8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining the value of donations, refer to Publication 561, Determining the Value of Donated Property. All are available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

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IRS Social Media Tools Help At Tax Deadline

IRS Tax Tip 2012-55

 With the April 17 tax deadline approaching, procrastinators may be in a rush to find the tax information they need. Businesses, media, web masters and others may also be looking for creative ways to help their own website’s visitors find official IRS tax information and tools.

Let these social media tools from IRS help you or your website visitors navigate last-minute tax-time tasks.

1. IRS2Go The IRS’s smartphone application can help you get your refund status and tax updates. IRS2Go is available for the iPhone or iTouch and the Android.

2. YouTube The IRS offers video tax tips on a variety of topics in English, Spanish and American Sign Language at www.youtube.com/irsvideos.

3. Twitter IRS tweets from @IRSnews include tax-related announcements and daily tax tips. Other IRS Twitter accounts tailor information for tax professionals and Spanish speaking taxpayers – @IRStaxpros tweets IRS news and guidance for tax professionals and @IRSenEspanol tweets IRS news and information in Spanish.

4. Podcasts These short audio recordings offer one tax-related topic per podcast. They are available on iTunes or through the Multimedia Center on www.irs.gov (along with transcripts).

5. Widgets These tools, which others can place on websites, blogs or social media networks, direct users to the relevant page on the IRS website. The 2012 widgets feature often overlooked tax credits, Free File services, common tax transactions and the popular deadline countdown widget. Marketing Express hosts the IRS widgets.

So far this tax season, more than 1 million taxpayers have viewed the IRS’s popular YouTube video tax tips, about 500,000 have downloaded the IRS phone app and more than 188,000 have viewed the IRS widgets. More than 23,000 Twitter followers get daily tax tips and IRS news at their fingertips. You can too.
Remember: The IRS uses these tools to share information with you. Do not post confidential information on any website or through social media channels, especially your Social Security number. The IRS will not be able to answer personal tax or account questions through any of these services.

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Get Your Prior Years Tax Information from the IRS

Issue Number:    IRS Tax Tip 2012-18

Sometimes taxpayers need a copy of an old tax return, but can’t find or don’t have their own records. There are three easy and convenient options for getting tax return transcripts and tax account transcripts from the IRS: on the web, by phone or by mail. There are eight things you need to know about getting federal tax return information from a previously filed tax return.

1. You can order transcripts online or by phone for the current tax year as well as the past three tax years. Earlier tax years must be requested with Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript.

2. A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.

3. A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income.

4. To request either transcript online from this website use our online tool called Order a Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message. When you use these automated self-service options, the selected transcript will be mailed to your current address of record. To have your transcript mailed to a different address, complete and mail Form 4506-T, Request for Transcript of Tax Return. The IRS does not charge a fee for transcripts.

5. To request a 1040, 1040A or 1040EZ tax return transcript through the mail, complete IRS Form 4506T-EZ. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T.

6. If you order online or by phone, you should receive your tax return transcript within five to 10 calendar days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail using Form 4506T or Form 4506T-EZ.

7. If you still need an actual copy of a previously processed tax return, it will cost $57 for each tax year you order. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area.  Copies are generally available for the current year as well as the past six years. Please allow 60 days for actual copies of your return.

8. Visit this website to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be downloaded here or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).

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What to Do If You Are Missing a W-2

Issue Number:    IRS Tax Tip 2012-20

Make sure you have all the needed documents, including all your Forms W-2, before you file your 2011 tax return. You should receive an IRS Form W-2, Wage and Tax Statement, from each of your employers. Employers have until Jan. 31, 2012 to issue your 2011 Form W-2 earnings statement.

If you haven’t received your W-2, follow these four steps:

1. Contact your employer  If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or issue the W-2.

2. Contact the IRS  If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:

•  Employer’s name, address and phone number

•  Dates of employment

•  An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return  You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X  On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X and instructions are available on this website or by calling 800-TAX-FORM (800-829-3676).

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Make it Easy on Yourself: Choose the Simplest Tax Form

Issue Number:    IRS Tax Tip 2012-03

If you’re among the taxpayers who still file a paper return, the IRS reminds you that it no longer mails paper tax packages, a step the agency took after continued growth in electronic filing, the availability of free options and as a way to reduce costs. If you’re e-filing, the software will choose the best form for you, but if you’re taking pencil to paper, make it as simple as possible by choosing the simplest tax form for your situation.

The quickest way to get forms and instructions is the IRS website at www.irs.gov. Taxpayers can also get them from a local IRS office, a participating community outlet like many libraries and post offices, or from the IRS’s automated forms line at 1-800-TAX-FORM.

Here are some general rules to consider when deciding which paper tax form to file.

Use the 1040EZ if:

  • Your taxable income is below $100,000
  • Your filing status is single or married filing jointly
  • You are not claiming any dependents
  • Your interest income is $1,500 or less

Use the 1040A if:

  • Your taxable income is below $100,000
  • You have capital gain distributions
  • You claim certain tax credits
  • You claim adjustments to income for IRA contributions and student loan interest

If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. Among the reasons you must use the 1040 are:

  • Your taxable income is $100,000 or more
  • You claim itemized deductions
  • You are reporting self-employment income
  • You are reporting income from sale of property

You can gain quick and easy access to IRS forms and instructions or find out more about e-file by visiting www.irs.gov. Tax products are available 24 hours a day, seven days a week and often appear online well before they are available on paper. To view and download tax products, visit the IRS website and select Forms and Publications.

 

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