Gifts do more than help out children who need the money. They also reduce your estate so your estate will pay less estate tax upon your death. Apart from annual gift giving, you can currently transfer (during your lifetime or through your estate) a total of $5,000,000 with no estate or gift tax liability. On amounts above this threshold, you or your estate will be faced with taxes at the current top rate of $35%. So a consistent program of annual gift giving might create substantial tax savings.  

Note that gifts to individuals do not entitle you to an income tax deduction. A gift isn’t a charitable contribution. Conversely, a gift doesn’t constitute taxable income to the recipient. Gifts of income-producing property may, however, reduce your taxable income. Once you’ve given the property away, the recipient, not you, receives the income it produces and pays any income tax due on it.  

One advantage to annual gift giving is that it is relatively simple to do, especially if you’re giving away cash. Another advantage is flexibility. You’re not locked into anything; you can see how much you can afford to give away each year. You can give away anything – cash, stock, art, real estate. Valuation is the fair market value on the date of the gift. Subsequent appreciation, if any, belongs to the donee’s estate, not yours.  

Before you give away assets, be sure you will not need them yourself to provide income in later years. Consider the impact inflation will have on your resources.  

Proper planning is essential in this area; get professional assistance before you do any gift giving.

For example -  

• Wash sales. Thinking of selling a security before December 31 to take advantage of a capital loss? To make sure the loss is deductible, refrain from buying a substantially identical security during the 61-day period that begins 30 days before you sell and ends 30 days after.
• Worthless stocks. For capital loss purposes, securities with no value are treated as if you sold them on the last day of the year. Your loss is generally the same as your cost.  

If you want to deduct worthless securities on your 2011 return, you’ll need to prove the security became worthless during the year and that it truly has no value. Not sure you can meet those requirements? Selling before year-end may be a better option.  

• Stock donations. Giving appreciated stock to charity lets you avoid capital gains tax and claim a charitable deduction.  

In order to deduct the donation on your 2011 return, the gift must be complete. For certificates you endorse and present directly, the date of mailing or other delivery is considered the date of the gift. When your broker or the issuing company handles the transaction, the gift is complete when the stock is titled to the charity.

Be sure to consult your investment advisor for guidance.

There are many things you can do to spot employee theft in your business. Have an inquiring mind, ask lots of questions, and never accept answers that don’t make sense. Spend time each month monitoring your financial results. Look for inconsistencies, such as inventory declining in a slow sales month or excessive customer returns. Listen to customer complaints about late deliveries or missing items, and don’t accept “computer problems” as an excuse. If you know your business, you don’t have to be an accounting expert to sense when something is wrong.  

You could also spot-check your accounting records by reviewing one category each month. For example, you might scan the check register to see just what payments are being made. Look for missing check numbers and ask to see any voided checks. Another month you might review the payroll log or look over the records of returned items. Look for multiple entries of similar items or suspicious customer names. 

Finally, watch your employees for changes in behavior or spending that seems to be beyond their means. And beware of an employee who insists on doing all the detail work and never takes a vacation. It could be the sign of someone with something to hide.

Bonds have been available through TreasuryDirect since 2002, but investors have been slow to purchase bonds electronically. Only 11% of bonds purchased from October 2010 through June 2011 were bought through TreasuryDirect.  

Selling bonds exclusively through electronic means will save the government $70 million over five years. The Treasury points out that investors benefit too: electronic bonds are less likely to be misplaced, and they are automatically redeemed when they mature.  

The change won’t affect outstanding paper bonds.

• Recordkeeping is vital if you want to be able to deduct a contribution to charity.  

What records do you need? For starters, to claim an itemized deduction, you’re required to have support for all cash contributions, no matter what the amount. A bank statement, a copy of the cancelled check, or a credit card record will usually suffice for donations under $250. For donations of $250 or more, a statement from the charity is required, giving the charity’s name, the date, the amount of your donation, and the value of goods and services received for the donation, if any. In the case of payroll donations, your pay stub or W-2 can back up your deduction.  

The substantiation rules for noncash donations such as household items differ depending on the type of property and its value. For instance, you’ll need a contemporaneous written acknowledgment from the charity for donations of $250 or more. As a general rule, “contemporaneous” means you receive the acknowledgment before you file your return or before the due date of your return, whichever is earlier.  

• Make a gift from your IRA. The break allowing a transfer of up to $100,000 from your IRA to a qualified charity is available for 2011. To benefit, you must be over age 70½, and the contribution has to be a direct payment from your IRA to the charitable organization.
• Write down your vehicle mileage for charitable driving. Written records rule, whether you claim the standard mileage deduction of 14¢ a mile or actual expenses. Make sure your log or other paperwork includes the name of the charity, the date, and the miles you drove or the total cost you incurred.  

Contact us for advice on getting the most benefit from your donations, including appreciated property and out-of-pocket expenses. 

Email info@fedoriwcpa.com or call 561-852-4577

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One reason why: While you can generally deduct only half the cost of meals related to your business activities, the tax code includes specific exceptions that allow a deduction of 100% of what you spend on food and beverages in certain situations.

Here are three exceptions to the general rule.

• Meals provided to your employees on a social basis. That once-a-year holiday party qualifies for 100% deductibility as a “recreational, social, or similar activity,” as long as it is primarily for the benefit of all your employees.
•  Food with nominal cost. Do you supply bottled water, morning-meeting donuts or office snacks for your staff? “De minimis” employee benefits — those small items your business pays for that are not considered taxable income to your employees — are typically 100% deductible.
• Items available to the public. Food served at seminars, promotions, or a “new office warming” reception where you invite the public is 100% deductible.

Remember that you’ll still need to keep detailed records to substantiate your deductions for meals and food served under these exceptions.

We’ll be happy to help you review your expenses and set up a system to account for items that qualify for a more generous deduction.

Call (561) 852-4577 or email info@fedoriwcpa.com

www.fedoriwcpa.com

If you or someone in your family could qualify to make a charitable IRA rollover, should it be considered? Here are some of the situations in which this tax break could be beneficial.

• You have to take the RMD, but you don’t need the money and you don’t want to pay tax on the distribution. 
• You want to give to charity, but you don’t itemize deductions so any contribution you make would not be tax-deductible. 
• You do itemize deductions, but your charitable contribution deduction would be affected by the 50% / 30% of AGI limit. 
• Having to include your RMD in income would result in the phasing out of other deductions and credits based on adjusted gross income.

The charitable IRA rollover is a powerful tool for tax planning. But remember, as it now stands, this provision will expire December 31, 2011. Give us a call if you would like to analyze whether this option makes tax sense for you or a family member.

Call (561) 852-4577 or email info@fedoriwcpa.com

www.fedoriwcpa.com

• The option for deducting state and local sales taxes in lieu of deducting state and local income taxes.
• The above-the-line deduction for up to $4,000 of higher education expenses.
•  The above-the-line deduction of up to $250 for classroom supplies purchased by teachers.
•  The tax-free charitable contribution from an IRA of up to $100,000 allowed for taxpayers 70½ or older.
•  100% bonus depreciation on new equipment purchased by business.
•  $500 energy credit for energy-saving expenditures for your personal residence.
•  Section 179 expensing election on up to $500,000 of new or used business equipment purchases.

 Prior to this law, a business was able to claim 50% bonus depreciation on qualified new (but not used) property placed in service in 2010. This included property with a cost recovery period of 20 years or less, most computer software, qualified leasehold improvement property, and certain water utility property. Bonus depreciation could be coordinated with Section 179 first-year expensing and regular depreciation deductions (subject to the annual limits).

 The “Tax Relief Act,” signed December 17, 2010, improved and extended the tax benefits. It allows a business to claim 100% bonus depreciation for qualified property placed in service from September 9, 2010, through December 31, 2011 (through 2012 for property with a cost recovery period of ten years or more and certain aircraft and transportation property). As the law currently stands, 50% bonus depreciation can be claimed for qualified property placed in service during 2012.

 The “Tax Relief Act of 2010″ did not change the definition of “qualified property”; it remains the same as it was before.

 Recently, the IRS issued new guidance on using bonus depreciation. It focuses on the following areas:

• Depreciation step-down. You’re allowed to “step down” from 100% bonus depreciation to 50% bonus depreciation this year if it suits your needs. For example, it may not be advantageous for a business to front-load its depreciation deductions to receive the maximum amount. The IRS guidance spells out the procedure for cutting back to 50% bonus depreciation.
•  Company vehicles. The first-year depreciation deduction for “luxury cars” and other vehicles is enhanced by $8,000 due to the bonus depreciation rules.

 Be aware that certain heavy-duty SUVs and other vehicles weighing more than 6,000 pounds are exempt from the luxury car limits. If purchased after September 8, 2010, and before January 1, 2012, they may qualify for 100% bonus depreciation.

• Qualified leasehold property. The IRS says that qualified restaurant and retail improvement properties may be eligible for 100% bonus depreciation under the definition of “qualified leasehold property.”
• Component depreciation. A business may be able to deduct certain components of a business building over a faster cost recovery period than the usual 39-year period required for an entire building. The IRS ruling authorizes an election to use 100% bonus depreciation for qualified components of a self-constructed building.

Even with the recent IRS guidance, the depreciation rules remain very complicated. For assistance in applying the rules for maximum tax benefit to your business, contact our office.  

Call (561) 852-4577 or email info@fedoriwcpa.com

What happens if you fail to file your return by the extended due date? One consequence: Unless a disaster-relief exception applies or you have a valid reason, you may be charged penalties and interest.

For example, the penalty for filing your return after October 17, 2011, is 5% of the amount of your unpaid tax, per month, up to a maximum of 25%. After 60 days, a minimum penalty of the smaller of $135 or 100% of the tax due applies.

In addition, a late payment penalty of ½ of 1% of the tax due may apply for each month or part of a month that you fail to pay the tax due until you reach the full 25%. The two penalties interact and can be combined.

You’ll also have to pay interest on the tax due. During 2011, the rate on underpayment of tax was 3% in the first quarter, 4% in the second and third quarters, and back to 3% in the fourth quarter. The interest is compounded daily and can be charged on penalties.

Since the penalty and interest are based on unpaid tax, neither applies when your return shows zero tax due. Filing a return is still a good idea, however. Why? The general rule limiting the IRS to a three-year period for assessing tax begins when you file. No return means no triggering of the statute of limitations.

Give us a call if you think you may miss a deadline. We can help keep penalties to a minimum.