• Scammers and charitable contributions
• How to check on legitimate charities
• Disaster scammers

As the end of the year approaches, you will probably be besieged by requests from charitable organizations for contributions. The holiday season is the favorite time of the year for charities to solicit donations.

But you should be aware that it is also the time of year when scammers show up in force, pretending to be legitimate charities in hopes of deceiving you into giving them your hard-earned money.

When making a donation, you should take a few extra minutes to ensure your gifts are going to legitimate charities. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.

Here are some tips to make sure your contributions are going to legitimate charities.

• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations.
• Don’t give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. Using a credit card to make legitimate donations is quite common, but please be very careful when you are speaking with someone who called you; don’t give out your credit card number unless you are certain the caller represents a legal charity.
• 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.

Another long-standing type of abuse or fraud involves scams that occur in the wake of significant natural disasters. In the aftermath of major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information and may set up phony websites that claim to solicit funds on behalf disaster victims. Unscrupulous individuals may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims to get tax refunds.

Scammers may also attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Disaster victims with specific questions about tax relief or disaster-related tax issues may call a special IRS toll-free disaster assistance telephone number (1-866-562-5227) for information.

Don’t be scammed; make sure you are donating to recognized charities. Deductions to charities that are not legitimate are not tax deductible. If you have questions, please give this office a call.

The post Don’t Be Scammed By Fake Charities first appeared on Wellman Tax & Business Advisors, Inc..

Business Provisions

• Section 179 Expensing – Would make the Sec. 179 expense cap $500,000 for 2015 (it is currently at $25,000, down from $500,000 in 2014). Would raise the expense cap to $1 million in 2016 and make the $1 million permanent with inflation adjustment for future years.
• Cash Basis Accounting – Would expand use of the cash method of accounting to small businesses with less than $25 million in average annual gross receipts, estimated to apply to 99% of all businesses.
• Qualified Small Business Stock – Would permanently extend the 100% exclusion on capital gains from sales of tax-qualified small business stock held by individuals for more than five years, and would eliminate the inclusion of excluded gain from the Alternative Minimum Tax.
• Start-Up & Organizational Expenses – Would increase and consolidate the deduction for start-up and organizational expenditures.
• Small Employer Health Insurance Credit – Would expand the credit for small employers to provide health insurance to apply to up to 50 (rather than 25) full-time equivalent employees, with phaseout between 20 and 50 employees (rather than between 10 and 25).
• Mandatory Employer IRA Payroll Deductions – Would require employers with 10 or more employees who don’t have a 401(k) plan to automatically enroll full-time and part-time employees in an optional IRA payroll deduction plan.

Individual Provisions 

• Child Care – Would allow a credit of up to $3,000 (50% credit for up to $6,000 of expenses per child) for each child under the age of 5 to enable gainful employment of the parent(s) or other qualified taxpayer. The regular credit for those ages 5 through 12 would also begin to phase out at $120,000 (instead of $15,000 under current law). Flexible spending accounts for child care would be eliminated.
• Second Earner Tax Credit – Would provide a new tax credit up to $500 (5% of the first $10,000 of earnings for the lower-earning spouse) for joint filers with two wage earners. The credit would begin to phase out at income of $120,000 and would be fully phased out when family income reaches $210,000. It is estimated that this new credit would benefit 24 million joint filers.
• Earned Income Tax Credit (EITC) – Would double the EITC for workers without a child and increase the credit applicability for childless workers with earnings up to 150% of the federal poverty level (currently about 125%). Would expand the applicability of the EITC to workers age 21 to 66 (currently 24 to 64).
• Education Tax Benefits – The American Opportunity Tax Credit (AOTC) would be expanded to cover five years of post-secondary education, and the current $2,500 tax credit would be adjusted for inflation. The refundable portion of the AOTC would be increased to $1,500. Part-time students would be eligible for a $1,250 AOTC (up to $750 refundable). Duplicative and less effective provisions, including the Lifetime Learning Credit, the tuition and fees deduction, the student loan interest deduction (for new borrowers), and Coverdell accounts (for new contributions) would be repealed or allowed to expire. The credit would also be better coordinated with Pell Grants.
• Top Capital Gains Rate – Would raise the top effective capital gains and qualified dividends tax rate to 28% (24.2% plus the 3.8% net investment income tax). For couples, the 28% rate would apply where income is more than $500,000 annually.
• Itemized Deductions – Would limit to 28% the value of itemized deductions and other tax preferences for married taxpayers with incomes over $250,000 and individual taxpayers with income over $200,000. The limit would apply to all itemized deductions as well as other tax benefits, such as tax-exempt interest and tax exclusions for retirement contributions and employer-sponsored health insurance.
• Limit Retirement Account Contributions – Would prohibit contributions to and accruals of additional benefits in tax-preferred retirement plans and IRAs once balances are about $3.4 million, which is about enough to provide an annual income of $210,000 in retirement.
• Buffett Rule – Would implement the “Buffett Rule.” This rule, which is a carryover from prior year budget proposals, would require the wealthy to pay at least a 30% effective tax rate.

Gift & Inheritance Tax Provisions

• Inheritances and Gifts – Would eliminate the current step-up in tax basis at death and require payment of capital gains tax on the increase in value of securities at the time they are inherited. Generally, a $100,000-per-person, portable-between-spouses exclusion would apply for inherited appreciated assets, along with exceptions for surviving spouses, small businesses, charities, and residences, among others. For couples, no tax would be due until the death of the second spouse. No tax would be due on inherited small, family-owned-and-operated businesses unless and until the business was sold, and any closely held business would have the option to pay tax on gains over 15 years. Couples would have an additional $500,000 exemption for personal residences ($250,000 per individual), with this exemption also automatically portable between spouses. Tangible personal property other than expensive art and similar collectibles – e.g., bequests or gifts of clothing, furniture, and small family heirlooms – would be tax-exempt.
• Inheritance and Gift Tax – Would reinstate the prior, 2009, estate and gift tax rates with lower exclusions (generally at 45% at $3.5 million for estates and $1 million for gifts).

These are all proposals by the Obama administration and must be approved by Congress. The information is being passed along so you will have an idea of what might happen in the future.

The post President’s Budget Proposal first appeared on Wellman Tax & Business Advisors, Inc..

Already Insured
If you have insurance through Medicare, Medicaid, or the Veterans Administration, then you will not be subject to the penalty. You will also avoid the penalty if you are insured through an employer plan or a private insurance plan that provides minimum essential care. US individuals and those claimed as their dependents who reside outside the US are deemed to have adequate coverage and are not subject to the penalty.

Some Are Exempt from the Penalty
Certain individuals are exempt from the health insurance mandate and are therefore not subject to the penalty. Included are:

• Those unlawfully present in the US
• Those whose income is below the federal tax filing requirement (the sum of the standard deduction and exemption amounts for the filer and spouse, if any)
• Those who cannot afford coverage based on formulas contained in the law (generally when the cost of the insurance coverage exceeds 8% of the individual’s household income)
• Members of American Indian tribes
• Incarcerated individuals, certain religious objectors, and those meeting hardship requirements

Household Income
The term “household income” is used as a measure of who qualifies for a premium assistance subsidy or tax credit and is used extensively in calculations related to the mandatory insurance requirements.

Household income includes the modified adjusted gross incomes (MAGIs) of an individual, the individual’s joint filing spouse, if any, and all of the individual’s dependents that are required to file a tax return(1).

MAGI is an individual’s regular adjusted gross income plus non-taxable social security and railroad retirement benefits, excluded foreign earned income, and non-taxable interest and dividends.

(1) An individual is required to file a tax return if their income exceeds the sum of their standard deduction and allowable exemptions. Thus, for example, a single person who only made $1,000 for the year would not be required to file a return and their income would not be included in the household income even if they did file to claim a refund.

Can’t Afford Coverage?
Families with household incomes below 400% of the federal poverty guideline may receive help to pay all, or a portion of, the cost of the premiums for health insurance.

Where the household income is below 100% of the federal poverty level, the family qualifies for Medicaid. There are no premiums for Medicaid.

If the household income is between 100% and 400% of the federal poverty level (FPL), the family qualifies for an insurance premium subsidy, also known as a premium assistance credit, provided the insurance is purchased through a government marketplace (exchange). The actual credit is based upon the current year’s household income but can be estimated and allowed in advance as a subsidy. When it is used in advance as a subsidy and the subsidy turns out to be greater than the allowable credit, the excess subsidy may have to be paid back. On the other hand, if the subsidy was not used or the subsidy was less than the credit, the difference becomes a refundable credit on the tax return.

The maximum credit is available at 100% of the poverty level and becomes less as the percentage increases and is totally phased out at 400% of the poverty level.

For family sizes larger than 4, increase the 100% rate by $4,020 for each additional child. Dollar amounts for Alaska and Hawaii are larger. Note that the table is condensed for this brochure and the actual percentage of poverty level will need to be extrapolated for income not shown in the table. For 2014, the FPL amounts are those in effect on October 1, 2013, the opening date for 2014 enrollment in plans offered through a government marketplace.

Credit/Subsidy Qualifications
To qualify for the credit, an individual must:

• Have household income for the year of at least 100% but not more than 400% of the federal poverty level
• Purchase the insurance through a government marketplace (exchange)
• Not be claimed as a dependent of another
• Not be eligible for minimum essential care through Medicaid
• If married, file a joint tax return
• Not be offered minimum essential insurance under an employer-sponsored plan

How Much Will the Subsidy Be?
The amount of the subsidy is based on need and therefore those in the lowest percentage of the poverty level will receive the greatest subsidy. The government has predetermined how much each family must pay toward their own insurance in the form of a percentage of the family’s household income. To determine how much a family must pay toward their own insurance, first determine where their income falls within the poverty table above and then determine their percentage from the table below. That percentage represents the portion of their household income that they should pay toward their own insurance.

Note: the table is condensed for this brochure and the actual percentage of household income that must be paid toward one’s own insurance will need to be extrapolated for poverty levels between those shown.

Once the percentage in the right-hand column is determined, multiply that by the family’s household income to determine what the family’s annual responsibility is and divide it by 12 to determine their monthly responsibility.

Then, to determine the subsidy, go to the government marketplace and determine the cost of the Silver(2)level of insurance for the family and subtract the amount they are required to pay themselves; the difference, if any, is the subsidy.

Example: Family of two with a household income of $31,020. From the Federal Poverty Level Chart it is determined that a family of 2 with that income is at 200% of the federal poverty level. Using the 200% of poverty level it is determined from the second table that their responsibility toward their own insurance should be 6.3% of their household income or $1,954 (.063 x $31,020) or $162.83 per month. If the cost of the Silver level of insurance is $350 per month, then the premium subsidy would be $187.17 ($350 – $162.83).

(2) Insurance acquired through the marketplace (exchange) is available in four levels of cost (premium), with varying metal designations. The least expensive is the Bronze coverage, which is also the insurance that provides the “minimum essential coverage” needed to avoid a penalty. Next is the Silver level, which is referred to as the “benchmark premium.” The Silver or benchmark premium is the one used when determining the subsidy. The Gold and Platinum designations complete the four levels of coverage. The Bronze coverage, on an overall average, is supposed to cover 60% of the insured’s medical cost. Silver plans cover 70%, the Gold 80%, and the Platinum 90%.

Paying Back Excess Subsidies
When an insured individual receives a subsidy in excess of the allowable credit based upon the current year’s household income, some portion, but not necessarily all, of the excess must be paid back on the tax return for the year. If the household income is above 400% of the poverty level then the entire amount of the excess must be repaid. If the insured’s household income is between 100% and 400% of the poverty level, then payback is capped at the following amounts:

Penalty for Not Being Insured
Beginning in 2014, there is a penalty for not being insured unless one of the exemptions mentioned earlier is met. The penalty is being phased in over three years. The monthly penalty for 2014 is the greater of $7.92 per uninsured adult plus $3.96 for each uninsured child(3), but not to exceed $23.75 per month for a family, OR, 1% of household income in excess of the individual’s income tax filing threshold(4) divided by 12.

In 2016, when the penalty is fully phased in, the monthly penalty will be $57.92 per uninsured adult and $28.96 per uninsured child(3), not to exceed $173.75 per family OR 2.5% of household income over the income tax filing threshold(4) divided by 12.

The penalty can never be greater than the national average premium for a minimum essential coverage plan purchased through a government marketplace (exchange).

(3) The child rate will apply to family members under the age of 18.
(4) Filing threshold is the sum of the standard deduction and personal exemption amounts for the tax filer and spouse, if any.

Example: A married couple without insurance in 2014 has one dependent child and a household income of $50,000. The couple’s standard deduction is $12,400 and with two exemptions at $3,950 each, their filing threshold for 2014 is $20,300. Their monthly penalty is the greater of $19.80 (2 x $7.92 plus $3.96) or $24.75 (.01 x ($50,000 – $20,300)/12). Thus their monthly penalty would be $24.75.

There is no penalty when the first lapse in coverage during a year is less than three months.

Insurance Marketplaces
Residents of states that did not set up their own exchanges must use the federal marketplace.

All policies sold through a marketplace have standardized applications, no pre-existing exclusions, and pre-set copays and deductibles. Where an insured family’s household income is between 100% and 200% of the federal poverty level, copays and deductibles are reduced by two-thirds. They are reduced by 1/2 where the insured’s income is between 200% and 300% , and 1/3 for those between 300% and 400%. Individuals who need to purchase health insurance are not required to use the government marketplaces – they can purchase plans privately. However, privately purchased plans will not be eligible for the premium assistance credit or subsidy, but if they meet the minimum essential coverage requirements, they will qualify the individual to avoid the mandatory coverage penalty. Those shopping for health insurance should check both the private and government marketplaces to compare their net out-of-pocket premium costs.

Dependents
The filer, or filers if filing jointly, is subject to the penalty for every dependent who can be claimed on their tax return. That includes children, parents, and other related individuals. This is true even if they do not claim the dependent, but were qualified to do so.

The post Understanding the Health Insurance Mandate first appeared on Wellman Tax & Business Advisors, Inc..

Details of the deal were sketchy at press time, but here are some highlights of the compromise bill as provided by unofficial sources:
The current tax rates will be kept in place for individuals making less than $400,000. Incomes above $400,000 ($450,000 for married taxpayers, $425,000 for heads of household) will be taxed at 39.6%.

• Capital gains rates will be raised from 15% to 20% for taxpayers in the 39.6% bracket.
• Qualified dividends will continue to be taxed at capital gains rates.
• The estate tax rate will rise to 40% (up from 35%) with an exemption of $5 million.
• A one-year extension of unemployment benefits will be provided.
• There will be a two-month delay on the automatic spending cuts.
• Tax credits established under President Obama’s economic recovery program will be extended for 5 years.
• The American Opportunity Tax Credit (tuition credit) will be extended for 5 years.
• The alternative minimum tax (AMT) will be made permanent with the exemption being inflation-adjusted in future years.
• Itemized deductions and personal exemptions for households will be phased out for those making more than certain amounts.

A host of individual provisions will be extended, including the treatment of mortgage insurance premiums as qualified residence interest, deductions for state and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.

Key business tax breaks will be extended such as depreciation provisions, including bonus depreciation, and the research and work opportunity tax credits.

There will be no extension of the 2% payroll tax deduction.
This is an evolving story, so we will keep you updated as additional information and details become available.

The post Congress Avoids the Fiscal Cliff first appeared on Wellman Tax & Business Advisors, Inc..

Passports Could Be Revoked for Delinquent Taxpayers – The U.S. Senate has unanimously approved a provision added to a highway transportation bill that would revoke the passports of people with seriously delinquent tax debts. The provision gives the State Department the right to deny, revoke, or limit a passport for individuals whom the Internal Revenue Service certifies as having a “seriously delinquent tax debt.” A seriously delinquent tax debt is defined as a debt in excess $50,000 (adjusted for inflation in subsequent years) for which a notice of federal lien or levy has been filed. The House of Representatives will take up the bill in the next few weeks. Only time will tell if this potential provision will become law.

Unexpected Result for Charity Volunteering – If an employer fails to pay over its payroll taxes, the IRS can seek to collect a trust fund recovery penalty equal to 100% of the unpaid taxes from a “responsible person.” A responsible person is a person who is responsible for collecting, accounting for, and paying over payroll taxes and willfully fails to perform this responsibility.

Payroll taxes withheld from an employee’s salary are monies the employee paid toward his or her tax liability and are not funds that belong to the employer. An employer that uses those funds to pay other expenses is using someone else’s money, and the IRS takes a very dim view of that act, since the government’s only recourse is with the employer and has to credit the employee with the withholding.

Case in point: an individual volunteered (unpaid position) to aid a financially struggling non-profit organization and became actively involved in the financial affairs of the non-profit, including writing the checks for the organization. The organization was behind on its trust fund payments, and the volunteer paid other liabilities ahead of the trust fund deficiency. As a result, the IRS assessed him the penalty of almost $200,000, which he paid and then went to tax court to get back. The tax court ruled in the IRS’ favor.

The case once again demonstrates the perils faced by a taxpayer who becomes involved in running a financially distressed company (for profit or non-profit) and chooses to pay other liabilities ahead of trust fund payments.

Tax Fraud on the Upswing – When a tax return is e-filed, the IRS’s computer will verify that the Social Security number(s) (SSN) on the return have not been previously used on another return for the same year, and will reject the e-file if it has. This most commonly occurs when both of the divorced or separated parents claim their child or children as dependents.

However, recently tax preparers are seeing more and more clients’ returns rejected because the taxpayer or spouse’s SSN has already been used. What is happening is thieves are stealing the taxpayer’s identity and filing phony returns to claim fraudulent refunds, leaving the taxpayer with the task of explaining to the IRS and all the other problems associated with identity theft.

If you believe you have been a victim of identity theft, you should immediately review the guidance provided by the IRS and follow the recommended procedures. If you need assistance, please give us a call and we’ll be happy to assist you.

The post Tax Tidbits first appeared on Wellman Tax & Business Advisors, Inc..

The IRS is not the only disguise these scammers use. They pretend to be attorneys representing estates, lottery payouts, and other such subterfuge to draw you into their web.

Here are some good rules to follow:

Take this example of how clever scammers can be. The latest scam is an e-mail requesting individuals to update their Intuit accounts. The e-mails claiming to be from Intuit ask recipients go to what is supposed to be an Intuit web site and update their tax return information. The e-mail includes an Intuit logo in the header. The scammer selected Intuit as the bait because so many individuals and small businesses use their Quicken and Quickbooks products.

So do not be fooled by this scam or any others that do not make sense. Do not be hasty; stop and carefully consider what you are doing before you click on a link to a potentially dangerous web site. These people are clever and can disguise their scams well.

If you ever have questions related to suspect e-mails, please call this office before responding to them.

The post The Latest Scam—Don’t be a Victim! first appeared on Wellman Tax & Business Advisors, Inc..

The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious e-mails, phone calls, faxes, or notices claiming to be from the IRS. If you find something suspicious, you should immediately call this office before responding. In fact, it is a good policy to check with this office before responding to any inquiry from the IRS or state or local tax agencies.

Here are some tips you should know about phishing scams.

1. The IRS never asks for detailed personal and financial information like PIN numbers, passwords, or similar secret access information for credit card, bank, or other financial accounts.

2. The IRS does not initiate contact with taxpayers by e-mail to request personal or financial information. If you receive an e-mail from someone claiming to be a representative of the IRS or directing you to an IRS site:

• Do not reply to the message.
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, you may have compromised your financial information. If you entered your credit card number, contact the credit card company for guidance. If you entered your banking information, contact the bank for the appropriate steps to take. The IRS website provides additional resources that can help. Visit the IRS website  and enter the search term “identity theft” for additional information.

3. The address of the official IRS website is www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site.

4. If you receive a phone call, fax, or letter in the mail from an individual claiming to be from the IRS but you suspect he or she is not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. You can forward a suspicious e-mail to phishing@irs.gov.

If you have any questions or doubts related to a letter, phone call, or e-mail from the IRS or other taxing authorities, please don’t hesitate to call us before responding or providing any financial or personal information. Better safe than sorry!

The post Don’t Be Scammed By Tax Season Cyber Criminals first appeared on Wellman Tax & Business Advisors, Inc..