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Tax Prep Questions: December

Tax Prep Questions

Yes, Virginia, there is an IRS

Why in the world would we start talking about such a "downer" topic like taxes when it's the holiday season; a time when we're supposed to be having fun? Well, for two reasons. One you still have time to not only take advantage 2015 deductions but make someone's life better through charitable giving. And two, it is an excellent time to "Get ready to get ready" as my mother used to say.

At this time of year our hearts are more open and it's important to us that we share those warm fuzzy holiday feelings by helping improve someone's life. There are so many people in need, in so many ways, that the number of charitable organizations in this world is staggering, and the State of Michigan (and U.S.A) is no exception. To protect yourself and those who truly need your help, take some time to get to know more about the organization you're considering donating to. By finding out as much as you can about the charity, you can avoid fraudsters who try to take advantage of your generosity. Here are tips to help make sure your charitable contributions are put to good use. For more information, visit ftc.gov/charityfraud.

Signs of a Charity Scam

These days, charities and fundraisers (groups that solicit funds on behalf of organizations) use the phone, face-to-face contact, email, the internet (including social networking sites), and mobile devices to solicit and obtain donations. Naturally, scammers use these same methods to take advantage of your goodwill. Regardless of how they reach you, avoid any charity or fundraiser that:

Refuses to provide detailed information about its identity, mission, costs, and how the donation will be used.

Won't provide proof that a contribution is tax deductible.

Uses a name that closely resembles that of a better-known, reputable organization.

Thanks you for a pledge you don't remember making.

Uses high-pressure tactics like trying to get you to donate immediately, without giving you time to think about it and do your research.

Asks for donations in cash or asks you to wire money.

Offers to send a courier or overnight delivery service to collect the donation immediately.

Guarantees sweepstakes winnings in exchange for a contribution. By law, you never have to give a donation to be eligible to win a sweepstakes.

Charity Checklist

  • Take the following precautions to make sure your donation benefits the people and organizations you want to help.
  • Ask for detailed information about the charity, including name, address, and telephone number.
  • Get the exact name of the organization and do some research. Searching the name of the organization online especially with the word "complaint(s)" or "scam" is one way to learn about its reputation.
  • Call the charity. Find out if the organization is aware of the solicitation and has authorized the use of its name. The organization's development staff should be able to help you.
  • Find out if the charity or fundraiser must be registered in your state by contacting the National Association of State Charity Officials.
  • Check if the charity is trustworthy by contacting the Better Business Bureau's (BBB) Wise Giving Alliance, Charity Navigator, Charity Watch, or GuideStar.
  • Ask if the caller is a paid fundraiser. If so, ask:
  • The name of the charity they represent
  • The percentage of your donation that will go to the charity
  • How much will go to the actual cause to which you're donating
  • How much will go to the fundraiser
  • Keep a record of your donations.
  • Make an annual donation plan. That way, you can decide which causes to support and which reputable charities should receive your donations.
  • Visit this Internal Revenue Service (IRS) webpage to find out which organizations are eligible to receive tax deductible contributions.
  • Know the difference between "tax exempt" and "tax deductible." Tax exempt means the organization doesn't have to pay taxes. Tax deductible means you can deduct your contribution on your federal income tax return.
  • Never send cash donations. For security and tax purposes, it's best to pay by check made payable to the charity or by credit card.
  • Never wire money to someone claiming to be a charity. Scammers often request donations to be wired because wiring money is like sending cash: once you send it, you can't get it back.
  • Do not provide your credit or check card number, bank account number or any personal information until you've thoroughly researched the charity.
  • Be wary of charities that spring up too suddenly in response to current events and natural disasters. Even if they are legitimate, they probably don't have the infrastructure to get the donations to the affected area or people.
  • If a donation request comes from a group claiming to help your local community (for example, local police or firefighters), ask the local agency if they have heard of the group and are getting financial support.
  • What about texting? If you text to donate, the charge will show up on your mobile phone bill. If you've asked your mobile phone provider to block premium text messages texts that cost extra then you won't be able to donate this way.
  • If a donation request comes from a group claiming to help your local community (for example, local police or firefighters), ask the local agency if they have heard of the group and are getting financial support.
  • What about texting? If you text to donate, the charge will show up on your mobile phone bill. If you've asked your mobile phone provider to block premium text messages texts that cost extra then you won't be able to donate this way.

Charities and the Do Not Call Registry

The National Do Not Call Registry gives you a way to reduce telemarketing calls, but it exempts charities and political groups. However, if a fundraiser is calling on behalf of a charity, you may ask not to get any more calls from, or on behalf of, that specific charity. If those calls continue, the fundraiser may be subject to a fine.

Report Charity Scams

If you think you've been the victim of a charity scam or if a fundraiser has violated Do Not Call rules, file a complaint with the Federal Trade Commission. Your complaints can help detect patterns of wrong-doing and lead to investigations and prosecutions.

Charitable Contribution Deductions

Of course the IRS wouldn't be the IRS if there weren't rules covering income tax deductions for charitable contributions by individuals. The following is a brief excerpt from the IRS regarding these rules. Please click here for more complete lists and guidelines.

Qualified Organizations

  • A church, synagogue, or other religious organization;
  • A war veterans' organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
  • A nonprofit volunteer fire company;
  • A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
  • A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;

Timing of Contributions

Contributions must actually be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method.

Deductible Amounts

If you donate property other than cash to a qualified organization, you may generally deduct the fair market value of the property. If the property has appreciated in value, however, some adjustments may have to be made. The rules relating to how to determine fair market value are discussed in Publication 561, Determining the Value of Donated Property.

Getting Organized

1.The IRS tracks every taxpayer through a Social Security number. When you file your own returns, this isn't a problem. But if you drop all your data off at your accountant's office, make sure your Social Security number is in there, as well as your spouse's and any other dependents.

2.By the end of January, every employee should get Form W-2 from his or her boss showing how much was earned, how much was taxable and just what taxes were withheld. If you have more than one job, you should get a Form W-2 from each employer. If you're an independent contractor, the company you worked for should send you Form 1099-MISC showing your gross earnings.

3.Wage income isn't the only earning that the IRS taxes. Are you saving money for your child's college, a new house or retirement? Good for you -- and the taxman. Interest earned on most savings accounts is taxable. Get statements from each of the account holders, as well as official tax forms. Copies of the forms also go to the IRS.

4.Now it's time to do the pre-filing preparation that could help you trim your taxable income. Costs related to your home are a good place to start. Homeowners know the value of a mortgage. Not only does the loan get you into your house, the interest you pay on it is tax deductible. Your lender will send you Form 1098 with this amount. If you made an extra mortgage payment at the end of last year, make sure that added interest payment is counted.

5.Homeowners get another way to reduce what they pay Uncle Sam: claiming real estate taxes as a tax deduction. If part of your mortgage payment each month includes an escrow amount that's used to pay annual real estate taxes, then the Form 1098 you get from your lender also will tell you this amount.

Did you pay any state and local income taxes? Check your W-2 for this information, and be sure to deduct those, too.

Don't own a house? Don't despair. There's still a tax deduction opportunity for you if your state or county charges a personal property tax. Most often, this tax is on autos, so if you pay, make sure the collecting tax agency sends you a statement showing how much so you can put it on your Schedule A

6.Good deeds can be their own reward. They also can reward you at tax time. When you give cash to a qualified charity, get a note from the group acknowledging your gift if it was $250 or more. If your donation was smaller, you don't need a formal receipt, but you will need some sort of documentation, such as a canceled check or bank or credit card statement, in case the IRS later has any questions.

You also can get a tax break for volunteering. You can't deduct the value of your time, but you can deduct 14 cents for each mile you drove to help the group. Documentation of your effort can be as easy as a mileage notation on your calendar on the days you worked.

Some FAQ

Where can I get my tax return forms?

  • Online - You can access forms and publications on the IRS website 24 hours a day, seven days a week, at IRS.gov.
  • IRS Taxpayer Assistance Centers - These centers offer assistance to tax payers and you can pick up many IRS forms and publications there. Our local IRS Taxpayer Assistance Center is located in Traverse City at 2040 N. U.S. 31 South
  • ?At convenient locations in your community - During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
  • By mail - You can call 1-800-TAX-FORM to order current year forms, instructions and publications as well as prior year forms and instructions by mail.

Are there any free programs I can use?

There are plenty of free tax programs that you can utilize. Some of these programs come with restrictions, so be sure to take the time to research your options and check reviews. You can find a list of free tax filing programs by visiting "Free File" on the IRS.gov website.

How soon can I file my returns?

The first day the IRS will begin accepting tax returns is still TBD. If you are expecting a refund you will more than likely want to file as soon as possible. Typically, the final day that you can file your taxes is on April 15. This year will be a bit different due to Emancipation Day. The tax filing deadline will be extended to Monday, April 18. Although you will receive a few extra days to get your taxes filed, it's not a good idea to wait until the last minute. If something unexpected happens and you miss the deadline the IRS can impose a 5% per month of the tax due, up to 25%. The IRS can also charge you interest on the tax you owe.

Sources: IRS.gov, bankrate.com, 4Front Credit Union.