Highlights of Important 2023 Federal Tax Updates

For the 2023 tax year, several new federal tax laws and adjustments went into effect. Here are some key changes:

1. Tax Inflation Adjustments: The IRS announced annual inflation adjustments for more than 60 tax provisions, including tax rate schedules and other tax changes. (Refer to: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023)

2. Major Policy Change by IRS: A significant policy change was announced in July 2023, ending most unannounced visits to taxpayers by agency revenue officers. This move aims to reduce public confusion and enhance safety measures for taxpayers and employees. (Refer to https://www.irs.gov/newsroom/fact-sheets-2023)

3. Reporting Rules for Form 1099-K: There’s a change in reporting rules for Form 1099-K, Payment Card and Third Party Network Transactions. Taxpayers should receive Form 1099-K by January 31, 2023, if they received third-party payments in tax year 2022 for goods and services that exceeded $600. (Refer to: https://www.irs.gov/newsroom/get-ready-for-taxes-whats-new-and-what-to-consider-when-filing-in-2023)

4. 2023 Tax Brackets and Rates: There are seven federal income tax rates in 2023: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top marginal income tax rate of 37% applies to taxpayers with taxable income above $539,900 for single filers and above $693,750 for married couples filing jointly. (Refer to: https://taxfoundation.org/data/all/federal/2023-tax-brackets/)

5. Increased Paychecks Due to IRS Rules: The IRS raised the maximum amounts one can claim for the Earned Income Tax Credit (EITC) by about 7%, which could result in bigger paychecks. However, the additional money will not be received until the 2023 taxes are filed in early 2024. (Refer to: https://www.cnn.com/2022/10/19/success/inflation-adjustment-2023-taxes/index.html)

These changes reflect some of the US Federal government’s efforts to adjust to inflation and economic conditions, aiming to provide relief and clarity to taxpayers.

If you have questions, please contact us. We are happy to help:

Majid Tavabi, EA LLC

WK Tax & Resolution Services

23505 Crenshaw Blvd. Suite 222

Torrance, CA 90505

mike@wkacctax.com

Line1:  310-539-1068

Line2:  310-894-9244

Fax:     310-988-2624

www.wkacctax.com

Important Tax Updates for 2015-2016

This has been a busy time for both the Internal Revenue Service and Congress. On December 18th Congress passed, and President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015. The IRS has been busy with the Affordable Care Act and the employer mandate, new FATCA regulations, and legislation to regulate the tax practitioner community.

While year-end planning is best done before the year end, the lateness of legislation passed by Congress is always a challenge for both the individual taxpayer and the tax preparer. The new PATH Act has made some provisions permanent, and others are now subject to a two-year implementation schedule, which will assist both of us in future years. For now, all we can do is look to see what provisions have been included in the extender bill and be sure to consider those as you put together your 2015 tax documents.

As always, the best strategy is to defer income and accelerate expenses to the extent possible. The one notable exception may be prepaying your state estimated taxes as that may trigger the alternate minimum tax (AMT) in some situations. Following are selected provisions and a brief description of the tax consequences. Be sure to contact our office if you have any questions regarding these tax provisions and how they may affect your tax return.

Qualified Dividends and Long Term Capital Gains

The income tax brackets for individuals remains the same from 2014. (They were last adjusted as a result of the Affordable Care Act.) The tax rates for qualified dividends and long-term capital gains are tied to the income tax brackets and range from 20% for those in the 39.6% bracket; 15% for those in the 25% to 35% brackets; and down to zero percent for those in the 10% to 15% tax brackets.

Assuming ordinary taxable income of $66,400 and long-term capital gains of $10,000 the taxpayer is taxed first on $18,450 which is in the 10% bracket and the remaining ordinary income of $47,950 would be taxed at the 15% bracket. Since the 15% bracket ends at $74,900 the difference of $8,500 attributable to the long-term capital gain would be taxed at zero percent and the remaining $1,500 of long- term capital gain would be at the 15% tax rate.

Net Investment Income Tax (NIIT)

As a result of the Affordable Care Act a new tax was assessed in 2013 on passive income. Net investment income includes interest income, capital gains and stock dividends. Also subject to the NIIT is income from a business in which you are a limited or passive participant, and some rental income. The NIIT may be assessed once your adjusted gross income has exceeded the threshold amount of $200,000 for an individual or $250,000 for a joint return. The NIIT is assessed on the lower of the excess over the threshold or the actual passive income.

myIRAs

A new Roth IRA plan – these are viewed as starter IRA’s for those with no plan available at their place of employment. myRA is a Roth IRA that invests in a new United States Treasury retirement savings bond, which will not lose money. myRA was designed for people without access to employer-sponsored retirement savings plans and for people looking for a simple, safe, and affordable way to start saving for retirement. myRA accounts cost nothing to open, have no fees, and don’t require a minimum amount of savings.

myRA could be a good option for you if you have not started saving for retirement because:
• You don’t have access to a retirement savings plan through your work,
• You have no other options available to start saving for retirement,
• You find the cost of opening and maintaining a retirement savings account is too high, or
• You are concerned about complicated investment options and losing money.

You can have a myRA even if you have other IRA or Roth IRA accounts. If you choose to open and contribute to a myRA and another IRA account, you need to make sure that the total of your contributions to all of your IRA accounts (Traditional IRA and Roth IRA accounts) do not exceed the annual contribution limit which is $5,500 for 2015 (plus the $1,000 catchup for those 50 years of age and older).

Traditional IRA vs Roth IRA

Are you confused about your choices for deferring taxable income? Is it better to defer now or contribute to a post-tax IRA which then lets you grow your retirement money tax- free? Many factors can contribute to this decision including your age, taxable income bracket or other retirement options. There are many software tools available to help you with these choices. You can get help from your financial advisor or there are many online software tools such as the Vanguard calculator which determines your net benefit after taxes.

What is a Roth IRA?
A Roth IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An account must be designated as a Roth IRA when opened.

What is a SIMPLE IRA?
A savings incentive match plan for employees (SIMPLE) plan is a salary reduction between you and your employer that allows you to choose to reduce your pay by a certain percentage each pay period, and have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. All contributions under a SIMPLE IRA plan must be made to a SIMPLE IRA, not to any other type of IRA.The SIMPLE IRA can be an individual retirement account. If your employer maintains a SIMPLE IRA plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution.

What is an IRA?
An IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An IRA is referred to as a Traditional IRA if it is not a Roth IRA or a SIMPLE IRA. Traditional IRAs include SEP IRAs. Contact us for help in assessing your tax situation before making your investment choices. There are significant penalties for excess or ineligible IRA contributions.

Affordable Care Act (ACA)

Shared Responsibility Payment
The ACA requires that all individuals who are either U.S. citizens, or an alien lawfully present in the U.S., must carry health insurance coverage that meets the definition of minimum essential coverage.You should verify with your insurance agent or employer that the policy provided satisfies the ACA minimum essential coverage requirements. There are two thresholds that must be met – the policy must provide minimum value and is affordable. If you have obtained your coverage through the health insurance marketplace, it is deemed to meet the requirements. If your insurance is through a government or military program (such as TRICARE, CHIPS or Medicare) it has also been determined to meet the definition of minimum essential coverage.

Those without healthcare insurance may be subject to the shared responsibility payment unless one of the exemptions applies. The minimum penalty amount for the shared responsibility payment is $325 for an individual and $975 for a family. The maximum penalty is $2,484 for an individual and $12,420 for a family of five or more members. This penalty is based on the average Bronze Plan premium of $207 per month.

Some of the exemptions include:
• Members of certain religious sects
• Hardship
• Members of Indian tribes
• Members of health care sharing ministries
• Incarcerated individuals
• Short coverage gap
• Member of tax household born, adopted or died

Premium Tax Credit
If you obtained your insurance through the health insurance marketplace, you may be eligible for the premium tax credit if your household income falls between 100% and 400% of the federal poverty line. Taxpayers who received their insurance through a private company or who had access to a qualified health plan at work are not eligible for the premium tax credit, even if their income would have otherwise qualified them for the credit.

An annual reconciliation of the advanced premium tax credit is calculated on Form 8962, Premium Tax Credit, which is filed with the Form 1040. All taxpayers who received their insurance through the health care exchange will receive Form 1095-A, Health Insurance Marketplace Statement, indicating the amount of advanced premium tax credit received. If you received the premium tax credit then you must file the Form 1040 to reconcile the amount received. If a return is not filed then the taxpayer will not be eligible to receive the credit in the next tax year.

You may have to repay all or part of the advanced premium tax credit if your income is greater than that reported when the insurance was obtained on the health insurance marketplace or if your income exceeded 400% of the federal poverty line. Individuals will exceed 400% of the federal poverty line when their income exceeds $46,680 and when a family of two persons exceeds $62,920.

Employer Mandate
In 2015, employers are subject to the shared responsibility payment if they are an applicable large employer (more than 50 employees) and do not provide health insurance coverage or the plan that is available does not meet the definition of minimum essential coverage.

New forms that you will see this year include Form 1095-B, Health Coverage, which will be issued by insurance companies to report the months that coverage was provided to you and your dependents. Employers will be issuing Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to those employees who are employed by an applicable large employer. Form 1095- C will provide information about the insurance provided by the employer, who is covered by the insurance, and if it meets the definition of minimum essential coverage. Even if your employer does not provide health insurance coverage, you will receive Form 1095-C to note the absence of a qualified health insurance plan.

Protecting Americans from Tax Hikes (PATH) Act of 2015

Finally, during the late evening hours of Friday, December 18, President Obama signed the long awaited tax extender bill. Some of the provisions that had expired on December 31, 2014 have been made permanent, some have a two-year extension and others have been extended for one more year. Following is a selected list of provisions as they may affect your individual income tax return:

Enhanced child tax credit made permanent
The child tax credit (CTC) is a $1,000 credit. To the extent the CTC exceeds the taxpayer’s tax liability; the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15 percent of earned income in excess of a threshold dollar amount (the “earned income” formula). Until 2009, the threshold dollar amount was $10,000 indexed for inflation from 2001 (which would be roughly $14,000 in 2015). Since 2009, however, this threshold amount has been set at an unindexed $3,000 and is scheduled to expire at the end of 2017, returning to the $10,000 (indexed for inflation) amount. The provision permanently sets the threshold amount at an unindexed $3,000.

Enhanced American opportunity tax credit made permanent
The Hope Scholarship Credit is a credit of $1,800 (indexed for inflation) for various tuition and related expenses for the first two years of post-secondary education. It phases out for AGI starting at $48,000 (if single) and $96,000 (if married filing jointly) – these amounts are also indexed for inflation.The American OpportunityTax Credit (AOTC) takes those permanent provisions of the Hope Scholarship Credit and increases the credit to $2,500 for four years of post-secondary education, and increases the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly) for 2009 to 2017. The provision makes the AOTC permanent.

Enhanced earned income tax credit made permanent
Low and moderate income workers may be eligible for the earned income tax credit (EITC). For 2009 through 2017, the EITC amount has been temporarily increased for those with three (or more) children and the EITC marriage penalty has been reduced by increasing the income phase-out range by $5,000 (indexed for inflation) for those who are married and filing jointly. The provision makes these provisions permanent.

Extension and modification of deduction for certain expenses of elementary and secondary school teachers
The provision permanently extends the above-the-line deduction (capped at $250) for the eligible expenses of elementary and secondary school teachers. Beginning in 2016, the provision also modifies the deduction to index the $250 cap to inflation and include professional development expenses.

Extension of deduction of State and local general sales taxes
The provision permanently extends the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes. The taxpayer may either deduct the actual amount of sales tax paid in the tax year, or alternatively, deduct an amount prescribed by the Internal Revenue Service (IRS).

Extension of tax-free distributions from individual retirement plans for charitable purposes
The provision permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs) in a trustee to trustee transfer from their IRA to a qualified charity. The exclusion may not exceed $100,000 per taxpayer in any tax year.

Extension of exclusion of 100 percent of gain on certain small business stock
The provision extends the temporary exclusion of 100 percent of the gain on certain small business stock for non- corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item.

Extension of reduction in S corporation recognition period for built-in gains tax
The provision permanently extends the rule reducing to five years (rather than ten years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built- in gains.

Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property
The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

Extension and modification of bonus depreciation
The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019.

Extension and modification of exclusion from gross income of discharge of qualified principal residence indebtedness
The provision extends through 2016 the exclusion from gross income of a discharge of qualified principal residence indebtedness. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a written agreement entered into in 2016.

Extension of mortgage insurance premiums treated as qualified residence interest
The provision extends through 2016 the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. This deduction phases out ratably for a taxpayer with AGI of $100,000 to $110,000.

Extension of above-the-line deduction for qualified tuition and related expenses
The provision extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

Requirements for the issuance of ITINs
The provision provides that the IRS may issue taxpayer identification numbers (ITIN) if the applicant provides the documentation required by the IRS either (a) in person to an IRS employee or to a community- based certified acceptance agent (as authorized by the IRS), or (b) by mail. The provision requires that individuals who were issued ITINs before 2013 are required to renew their ITINs on a staggered schedule between 2017 and 2020. The provision also provides that an ITIN will expire if an individual fails to file a tax return for three consecutive years. The provision also directs the Treasury Department and IRS to study the current procedures for issuing ITINs with a goal of adopting a system by 2020 that would require all applications to be filed in person. The provision is effective for requests for ITINs made after the date of enactment.

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NOTE: To review your tax situation, contact Mike Tavabi at (310) 894-9244 or mike@wkacctax.com for a thoughtful evaluation of your options so you can be well ahead of the curve for the tax season.

Use Health Flexible Spending Arrangements in 2016

(Source: IR-2015-126, Nov. 12, 2015)

WASHINGTON — The Internal Revenue Service today reminded eligible employees that now is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2016. Plan now to use health flexible spending arrangements in 2016; contribute up to $2,550; a $500 carryover option is available to many.

FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers this fall are offering their employees the option to participate during the 2016 plan year.

Interested employees wishing to contribute during the new year must make this choice again for 2016, even if they contributed in 2015. Self-employed individual are not eligible.

An employee who chooses to participate can contribute up to $2.550 during the 2016 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.

Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.

Under the use or lose provision, participating employees often must incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.

Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year—for example, an employee with $500 of unspent funds at the end of 2016 would still have those funds available to use in 2017. Under the grace period option, an employee has until 2Vz months after the end of the plan year to incur eligible expenses—for example, March 15, 2017, for a plan year ending on Dec. 31, 2016. Employers can offer either option, but not both, or none at all.

Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found in Publication 969 , available on IRS.gov.

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We are always happy to help. If you have any questions, please contact:

Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com

Five Easy Ways to Spot a Scam Phone Call

(Source: IRS Special Edition Tax Tip, September 2, 2014)

The IRS continues to warn the public to be alert for telephone scams and offers five tell-tale warning signs to tip you off if you get such a call. These callers claim to be with the IRS. The scammers often demand money to pay taxes. Some may try to con you by saying that you’re due a refund. The refund is a fake lure so you’ll give them your banking or other private financial information.

These con artists can sound convincing when they call. They may even know a lot about you. They may alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. If you don’t answer, they often leave an “urgent” callback request.

The IRS respects taxpayer rights when working out payment of your taxes. So, it’s pretty easy to tell when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a sign of a scam. The IRS will never:

1. Call you about taxes you owe without first mailing you an official notice.

2. Demand that you pay taxes without giving you the chance to question or appeal the amount they say you owe.

3. Require you to use a certain payment method for your taxes, such as a prepaid debit card.

4. Ask for credit or debit card numbers over the phone. 5. Threaten to bring in local police or other law-enforcement to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what to do:

1. If you know you owe taxes or think you might owe, call the IRS at 800-829-1040 to talk about payment options. You also may be able to set up a payment plan online at IRS.gov.

2. If you know you don’t owe taxes or have no reason to believe that you do, report the incident to TIGTA at I .800.366.4484 or at www.tigta.gov.

3. If phone scammers target you. also contact the Federal

Trade Commission at FTC.gov. Use their “FTC Complaint Assistant” to report the scam. Please add “IRS Telephone Scam” to the comments of your complaint.

Remember, the IRS currently does not use unsolicited email, text messages or any social media to discuss your personal tax issues. For more information on reporting scams, go to www.irs.gov and type “scam” in the search box.

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We are always happy to help. If you have any questions, please contact:

Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com

Tips from IRS for Year-End Gifts to Charity

(Source: IRS Newswire, Issue Number IR-2015-134, November 25, 2015)

WASHINGTON — The Internal Revenue Service today reminded individuals and businesses making year-end gifts to charity that several important tax law provisions have taken effect in recent years.

Some of the changes taxpayers should keep in mind include:

Rules for Charitable Contributions of Clothing and Household Items

Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.

Guidelines for Monetary Donations

A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

The IRS offers the following additional reminders to help taxpayers plan their holiday and year-end gifts to charity:

Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2015 count for 2015, even if the credit card bill isn’t paid until 2016. Also, checks count for 2015 as long as they are mailed in 2015.
Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2015 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.

Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
Special Rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

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We are always happy to help. If you have any questions, please contact:

Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com

IRS Tax Tips for Deducting Gifts to Charity

(Source: IRS Special Edition Tax Tip 2015-20, November 24, 2015)

The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:

1. Give to qualified charities. You can only deduct gifts you give to a qualified charity. Use the IRS Select Check tool to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.

2. Keep a record of all cash gifts. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods must be in good condition. Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Additional records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts. Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.

6. Special rules. Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file another form with your tax return. Use Form 8283, Noncash Charitable Contributions to report these gifts. For more on these rules, visit IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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We are always happy to help. If you have any questions, please contact:

Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com

Tax Preparedness Series: Make a Wise Choice when Selecting a Tax Preparer

(Source: IRS NewsWire Issue Number: IR-2015-124, November 5, 2015)

WASHINGTON — While there is still time before the next tax filing season, choosing a return preparer now allows more time for taxpayers to consider appropriate options and to find and talk with prospective tax preparers rather than during tax season when they’re most busy. Furthermore, it enables taxpayers to do some wise tax planning for the rest of the year. If a taxpayer prefers to pay someone to prepare their return, the Internal Revenue Service encourages them to choose that person wisely as the taxpayer is legally responsible for all the information included on the return.

This is the third in a series of weekly tax preparedness releases designed to help taxpayers begin planning to file their 2015 return.

Below are some tips taxpayers can keep in mind when selecting a tax professional:

Select an ethical preparer. Taxpayers entrust some of their most vital personal data with the person preparing their tax return, including income, investments and Social Security numbers.

Ask about service fees. Avoid preparers who base their fee on a percentage of the refund or those who say they can get larger refunds than others. Taxpayers need to ensure that any refund due is sent to them or deposited into their bank account, not into a preparer’s account.

Be sure to use a preparer with a preparer tax identification number (PTIN). Paid tax return preparers must have a current PTIN to prepare a tax return. It is also a good idea to ask the preparer if they belong to a professional organization and attend continuing education classes.

Research the preparer’s history. Check with the Better Business Bureau to see if the preparer has a questionable history. For the status of an enrolled agent’s license, check with the IRS Office of Enrollment (enrolled agents are licensed by the IRS and are specifically trained in federal tax planning, preparation and representation). For certified public accountants, verify with the state board of accountancy; for attorneys, check with the state bar association.

Ask for e-file. Any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically.

Provide tax records. A good preparer will ask to see records and receipts. Do not use a preparer who is willing to e-file a return using the latest pay stub instead of the Form W-2. This is against IRS e-file rules.

Make sure the preparer is available after the filing due date. This may be helpful if questions come up about the tax return. Taxpayers can designate their paid tax return preparer or another third party to speak to the IRS concerning the preparation of their return, payment/refund issues and mathematical errors. The third party authorization checkbox on Form 1040, Form 1040A and Form 1040EZ gives the designated party the authority to receive and inspect returns and return information for one year from the original due date of the return (without regard to extensions).

Review the tax return and ask questions before signing. Taxpayers are legally responsible for what’s on their return, regardless of whether someone else prepared it. Make sure it’s accurate before signing it.

Never sign a blank tax return. If a taxpayer signs a blank return the preparer could then put anything they want on the return — even their own bank account number for the tax refund.
Preparers must sign the return and include their PTIN as required by law. The preparer must also give the taxpayer a copy of the return.

Directory of Federal Tax Return Preparers with Credentials and Select Qualifications

To help taxpayers determine return preparer credentials and qualifications, the IRS launched a public directory earlier this year containing certain tax professionals. The directory is a searchable, sortable database with the name, city, state and zip code of credentialed return preparers as well as those who have completed the requirements for the new IRS Annual Filing Season Program and have a valid 2015 PTIN.

Understanding Tax Return Preparer Credentials and Qualifications

Any tax professional with an IRS PTIN is authorized to prepare federal tax returns. However, tax professionals have differing levels of skills, education and expertise.

An important difference in the types of practitioners is “representation rights.” Below is guidance on each credential and qualification:

Unlimited Representation Rights: Enrolled agents, certified public accountants and attorneys have unlimited representation rights before the IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment/collection issues, and appeals.

• Enrolled Agents – Licensed by the IRS. Enrolled agents are subject to a suitability check and must pass a three-part Special Enrollment Examination, which is a comprehensive exam that requires them to demonstrate proficiency in federal tax planning, individual and business tax return preparation and representation. They must complete 72 hours of continuing education every three years. Learn more about the Enrolled Agent Program.

• Certified Public Accountants – Licensed by state boards of accountancy, the District of Columbia and U.S. territories. Certified public accountants have passed the Uniform CPA Examination. They have completed a study in accounting at a college or university and also met experience and good character requirements established by their respective boards of accountancy. In addition, CPAs must comply with ethical requirements and complete specified levels of continuing education in order to maintain an active CPA license. CPAs may offer a range of services; some CPAs specialize in tax preparation and planning.

• Attorneys – Licensed by state courts, the District of Columbia or their designees, such as the state bar. Generally, they have earned a degree in law and passed a bar exam. Attorneys generally have on-going continuing education and professional character standards. They may also offer a range of services; some attorneys specialize in tax preparation and planning.

Limited Representation Rights: Preparers without one of these credentials (also known as unenrolled preparers) have limited practice rights. They may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare and sign the return in question.

• Annual Filing Season Program participants – This new voluntary program recognizes the efforts of return preparers who are generally not attorneys, certified public accountants, or enrolled agents. The IRS issues an Annual Filing Season Program Record of Completion to return preparers who obtain a certain number of continuing education hours in preparation for a specific tax year.

Beginning with the 2015 filing season, unenrolled return preparers could opt to participate in this IRS program, which was designed to encourage education and filing season readiness.

• PTIN holders – Tax return preparers that have an active PTIN but no professional credentials and do not participate in the annual filing season program, are authorized to prepare tax returns. In 2015, they also have limited representation rights. This is the final year that PTIN holders without another credential or qualification will have limited representation rights for returns they prepare and sign. For returns prepared beginning Jan. 1, 2016, only annual filing season program participants will have limited representation rights.

Most tax return preparers are professional, honest and provide excellent service to their clients. However, dishonest and unscrupulous tax return preparers who file false income tax returns do exist. Always check any return for errors to avoid potential financial and legal problems. See information about Abusive Return Preparers on IRS.gov, and learn How to Make a Complaint About a Tax Return Preparer.

For more information about choosing a tax return preparer, see Choosing a Tax Professional and IRS Tax PRO Association Partners on IRS.gov.

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We are always happy to help. If you have any questions, please contact:

Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com

Key Tax Tips on the Tax Effects of Divorce or Separation

(SOURCE: IRS Summertime Tax Tip 2015-23, August 24, 2015)

Income tax may be the last thing on your mind after a divorce or separation. However, these events can have a big impact on your taxes. Alimony and a name change are just a few items you may need to consider. Here are some key tax tips to keep in mind if you get divorced or separated.

Child Support. If you pay child support, you can’t deduct it on your tax return. If you receive child support, the amount you receive is not taxable.

Alimony Paid. If you make payments under a divorce or separate maintenance decree or written separation agreement, you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. If the decree or agreement does not require the payments, they do not qualify as alimony.

Alimony Received. If you get alimony from your spouse or former spouses, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.

Spousal IRA. If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse’s traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.

Name Changes. If you change your name after your divorce, notify the Social Security Administration of the change. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. The name on your tax return must match SSA records. A name mismatch can delay your refund.

Health Care Law Considerations

Special Marketplace Enrollment Period. If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependants you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.

Changes in Circumstances. If you purchase health insurance coverage through the Health Insurance Marketplace, you may get advance payments of the premium tax credit in 2015. If you do, you should report changes in circumstances to your Marketplace throughout the year. Changes to report include a change in marital status, a name change and a change in your income or family size. By reporting changes, you will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.

Shared Policy Allocation. If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf. Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation.

For more on this topic, see Publication 504, Divorced or Separated Individuals. You can get it on IRS.gov/forms at any time.

Each and every taxpayer has a set of fundamental right they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:  Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

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We are always happy to help. If you have any questions, please contact:

Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com

Employee Sick Pay Benefits Begin July 1st

Effective July 1, 2015, employers will be required to provide at least three days of annual sick leave to their employees (Labor Code §245 et seq.). Not only will businesses be required to provide the benefits, but there are numerous notification, posting, and employee information reporting requirements that must be satisfied as well.

Employers must comply with the following new sick pay benefit requirements:

• Display a poster on paid sick leave where employees can read it easily; you can get this poster and many others from this website: www.dir.ca.gov/wpnodb.html
• Provide written notice to employees with sick leave rights at the time of hire;
• Provide at least 24 hours or three days of paid sick leave for each eligible employee to use per year;
• Allow eligible employees to use accrued paid sick leave upon reasonable request;
• Show how many days of sick leave an employee has available on an employee’s pay stub or a document issued the same day as a paycheck; and
• Keep records showing how many hours have been earned and used for three years (Labor Code §§246, 247).
• Every employer should keep a signed copy of the letter of understanding in the employee file.

You may download the Sick Pay Benefit Letter template by clicking on the link below:

Sick Pay Benefit Letter

If you have any questions, please contact:

Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com

What Employers Need to Know about California’s New Sick Pay Law

We are continuously keeping a watchful eye for changes that affect our clients, which is why we are alerting you to California AB 1522. This law, also known as the Healthy Workplace, Healthy Families Act of 2014, became effective January 1, 2015 and California businesses must take immediate steps to make sure that they are in compliance.

Employer posting, notice and recordkeeping requirements went into effect on January 1, 2015, and employee entitlement to paid sick leave takes effect on July 1, 2015, provided the employee has worked in California for 30 or more days within a year from the commencement of their employment.

Posting Requirement

Beginning January 1, 2015, employers must display a poster notifying employees of their paid sick leave rights. This poster must be available for viewing in a conspicuous place in each workplace. Employers who willfully violate the posting requirement may be subject to a penalty of up to $100 per offense.

Covered Employers

Employers who employ at least one person are covered under AB 1522, regardless of their size or status.

Covered Employees

Employees who work in California for 30 or more days within a year from commencement of employment are covered under AB 1522. Covered employees may be full-time, part-time, temporary, or seasonal employees.

Accrual Method or Annual Grant (Up-front Method)

Employers may choose to use the accrual method or the annual grant method. The Annual Grant method allows covered employees at least three days or 24 hours of paid sick leave at the beginning of each year. Under the Annual Grant method, no accrual or carry-over is required.

Enforcement and Penalties

Among the potential fines and penalties that may be levied is an administrative penalty that is determined by using either the dollar value of paid sick days withheld from the employee multiplied by three or $250, whichever is greater; however, the fine may not exceed $4,000. Moreover, if the violation results in harm to the employee, an additional penalty of $50 per day is applied but may not exceed $4,000.

Employee Handbook

The Healthy Workplace Healthy Family Act of 2014 must be reflected in Employee Handbooks.
Summary of California AB 1522

For your information, we are providing the summary statement of the Act:

“This bill would enact the Healthy Workplaces, Healthy Families Act of 2014 to provide that an employee who, on or after July 1, 2015, works in California for 30 or more days within a year from the commencement of employment is entitled to paid sick days for prescribed purposes, to be accrued at a rate of no less than one hour for every 30 hours worked. An employee would be entitled to use accrued sick days beginning on the 90th day of employment. The bill would authorize an employer to limit an employee’s use of paid sick days to 24 hours or 3 days in each year of employment. The bill would prohibit an employer from discriminating or retaliating against an employee who requests paid sick days. The bill would require employers to satisfy specified posting and notice and recordkeeping requirements. The bill would define terms for those purposes.”

For more information, go to:  http://www.dir.ca.gov/dlse/ab1522.html

Employers Sample Sick Pay Plan Letters

Following this article are two sample sick pay plan letters, one that applies to the Accrual Method and one that applies to the Annual Grant or Up-front Method. Each employee should sign the appropriate letter for inclusion in their employee file.

Questions?

Please call me at (310) 894-9244 or email me at mike@wkacctax.com if you have any questions or concerns. I am available to help.

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Employers Sample Sick Pay Plan Letter — Accrual Method (Option 1)

Effective July 1, 2015, under California law, all employees of [COMPANY], including part-time and temporary employees who have worked for more than 90 days, are eligible for up to three (3) days of sick pay benefits each year, beginning on the first day of employment, and continuing every anniversary date thereafter. Benefits accrue at the rate of one (1) hour per 30 hours worked, but may only be claimed after 90 days of employment.

The maximum hours of sick pay that may accrue in a year are 24 hours. Although up to six (6) days of benefits may be carried over, you are only entitled to use three (3) days of paid sick leave in a 12-month period, commencing on your hire/anniversary date.

The benefits are available to cover time taken for the diagnosis, care, or treatment of an existing health condition, to cover preventive care for yourself or a family member (e.g., spouse, registered domestic partner, child, parent, sibling, grandparent), or for specified purposes for an employee who is a victim of domestic violence, sexual assault, or stalking. Sick leave may not be used for vacation or personal time off. The company may require verification of illness from a physician.

The benefits may be claimed for partial or full days (minimum two (2) hours). You will not be compensated for unused sick days if you are no longer employed by [COMPANY].

Signed
Employee: _____________________________________ Date: _____________________
Employer: _____________________________________ Date: _____________________
Effective/anniversary date: _____________________________________________________

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Employers Sample Sick Pay Plan Letter — Up-front Method (Option 2)

Effective July 1, 2015, under California law, all employees of [COMPANY], including part-time and temporary employees who have worked for more than 90 days, are eligible for up to three (3) days of sick pay benefits each year, beginning on the first day of employment, and continuing every anniversary date thereafter.

The benefits are available to cover time taken for the diagnosis, care, or treatment of an existing health condition, to cover preventive care for yourself or a family member (e.g., spouse, registered domestic partner, child, parent, sibling, grandparent), or for specified purposes for an employee who is a victim of domestic violence, sexual assault, or stalking. Sick leave may not be used for vacation or personal time off. The company may require verification of illness from a physician.

The benefits may be claimed for partial or full 8-hour days (minimum two (2) hours). This benefit does not accrue and cannot be carried over from one year to the next. An employee will not be compensated for unused sick days at the end of the year or if the employee is no longer employed by [COMPANY].

Signed
Employee: _____________________________________ Date: _____________________
Employer: _____________________________________ Date: _____________________
Effective/anniversary date: ____________________________________________________