Make Sure Your Donations are Tax Deductible

It’s that time of year when taxpayers are thinking about how they want to give back, and many taxpayers will want to donate to a charity that means something to them. The IRS has a tool that may help them make sure their donations are as beneficial as possible.

Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for tax-exempt charities. Taxpayers can use this tool to determine if donations they make to an organization are tax-deductible charitable contributions. 

Here are some things to know about the TEOS tool:

• It provides information about an organization’s federal tax status and filings.
• It’s mobile device friendly.
• Donors can use it to confirm that an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
• Users can find out if an organization had its tax-exempt status revoked.
• Organizations are listed under the legal name or a “doing business as” name on file with the IRS.
• The search results are sortable by name, Employee Identification Number, state, and country.
• Users may also download entire lists of organizations eligible to receive deductible contributions, auto-revoked organizations and e-Postcard filers.

Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions? to help determine if a charitable contribution is deductible.

Source: The IRS

Filing 1099's

The deadline for issuing 1099’s to independent contractors is approaching.  Do you know who you’ve paid & how much?  Most people don’t usually start thinking about issuing 1099’s until January, but it’s not too early to start now.  

Here are a few steps you can take to prepare for this deadline:

• Gather all W-9’s that have been received
• Make a list of all non-corporations that were paid more than $600 for services or rent in 2019
• Track down any missing W-9’s
• Gather any IRS notices you received regarding past 1099’s filed

If you use QuickBooks to track your finances, reconciling your bank and credit card accounts can help you determine an accurate number for your independent contractor payments.

1099’s need to be filed by no later than January 31^st, 2020.  A 1096 needs to be filed along with most types of 1099 forms.

Because there is no extension to this tax deadline, the process can often get frantic.  Don’t let that be you this January, and start preparing today.

Apply for Tax Exempt Status

Some taxpayers think simply creating a nonprofit automatically means an organization is tax exempt. There’s more to it than that.

To become a tax-exempt nonprofit, there are few things the group must do up front. An organization must determine whether it’s a trust, corporation or association. They then must apply for tax-exempt status with the IRS and be approved. This process includes these steps.

1. Gather documents about the organization

An organization applying for tax-exempt status must have organizing documents.  Each application must be accompanied by an exact copy of the organizing documents, except for Form 1023-EZ filings.

These documents include:

• Articles of incorporation for a corporation
• Articles of organization for a limited liability company
• Articles of association or constitution for an association
• Trust agreement or declaration of trust

If the organization’s name is legally changed by an amendment to these documents, also attach a copy of that amendment to the application.

2. Determine state’s registration requirements

State government websites have useful information for tax-exempt organizations. On these sites, they can find tax info and registration requirements for charities.

3. Get an employer identification number for the new organization

Organizations can apply for an EIN online, by fax or by mail.

An organization must be legally formed before applying for an EIN. Nearly all organizations will see their tax-exempt status terminated if they fail to file a required tax return or notice for three years in a row.

4. Submit your tax-exempt application

Use Form 1023 to submit your tax-exempt application. Certain small organizations can use Form 1023-EZ to submit for tax-exempt status.

Source: The IRS

Child Tax Credit

• The maximum amount of the credit is $2,000 per qualifying child.
• Taxpayers who are eligible to claim this credit must list the name and Social Security number for each dependent on their tax return.
• The child must be younger than 17 on the last day of the tax year, generally Dec 31.
• The child must be the taxpayer’s son, daughter, stepchild, foster or adopted child, brother, sister, stepbrother, stepsister, half-brother or half-sister. An adopted child includes a child lawfully placed with them for legal adoption.
• The child must have not provided more than half of their own support for the year.
• The taxpayer must claim the child as their dependent on their federal tax return.
• The child cannot file a tax return for the same year with the status married filing jointly, unless the only reason they are filing is to claim a refund.
• The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
• In most cases, the child must have lived with the taxpayer for more than half of 2019.
• In some cases, a taxpayer qualifies and gets less than the full credit. These taxpayers must have earned income of at least $2,500 to receive a refund, even if they owe no tax, with the additional child tax credit.
• The credit begins to phase out at $200,000 of modified adjusted gross income. This amount is $400,000 for married couples filing jointly.

Source: The IRS

The New W-4

The IRS released the second draft of the 2020 W-4 in mid-August. It's also said that the final form will not vary significantly from this draft.

Since withholding allowances are suspended for the foreseeable future, the IRS removed the word "Allowance” from the title of the form and the lines on the form on which employees can indicate them. Instead, the draft is built on five "steps.” Employees with the simplest tax situation—single, one job, no tax dependents, no other income or deductions—need only complete Steps 1 and 5. Steps 1 and 5 are the only mandatory steps.

Step 1: Enter Personal Information

Similar to the 2019 W-4, employees enter their names, addresses and tax filing status.

What's new: The draft eliminates the checkbox for married, withhold at the single rate, but adds a checkbox for heads of households. However, married couples can still check the box in Step 1c for single, married filing separately (even if they're joint filers) if they want to increase their withholding, since there's no mandate that employees change their W-4 status once they get married. Divorce is different: Couples who divorce must refile their W-4s within 10 days, if they were claiming married status.

Step 2: Multiple Jobs or Spouse Works

This step is optional for employees to complete.

Employees may account for up to two jobs (either their own second job or their spouse's job) by checking the box in this step. By checking this box, employees will increase their withholding on a pay period basis by about 50%.

Step 3: Claim Dependents

This step is optional for employees to complete.

Employees who choose to take advantage of child and dependent care credits and other credits (e.g., the education credit) may complete this step. This is an annual reduction in employees' tax liability for the year, and ultimately, their pay period withholding. Warning: The figures in Step 3 are geared toward claiming dependent credits. Employees who want to claim other tax credits should estimate the value of those credits.

Step 4: (optional) Other Adjustments

Employees account for other income, like capital gains, on Line 4a and other deductions on Line 4b. Employees increase the annual amount of wages subject to withholding by the amount shown in Line 4a and decrease the annual amount of wages subject to withholding by the amount shown in Line 4b.

Employees indicate any additional withholding to you on Line 4c. Currently, employees indicate additional withholding on Line 6.

Employees may claim an exemption from withholding by writing the word Exempt underneath Line 4c. Currently, employee write the word Exempt on Line 7 to claim an exemption form withholding.

Step 5: Sign here

Employees sign the form under penalties of perjury. Employees also date the form.

Property Lien Scam

With scam artists hard at work all year, taxpayers should watch for new versions of tax-related scams. One such scam involves fake property liens. It threatens taxpayers with a tax bill from a fictional government agency.
Here are some details about the property lien scam that will help taxpayers recognize it:

• This scheme involves a letter threatening an IRS lien or levy.
• The scammer mails the letter to a taxpayer.
• The lien or levy is based on bogus overdue taxes owed to a non-existent agency.
• The non-existent agencies might have a legitimate-sounding name like the “Bureau of Tax Enforcement.” There is no such agency.
• This scam may also reference the IRS to confuse potential victims into thinking the letter is from a real agency.

For anyone who doesn’t owe taxes and has no reason to think they do should:

• Contact the Treasury Inspector General for Tax Administration to report the letter. The taxpayer should use their IRS Impersonation Scam Reporting web page. When reporting the scam, they should include the key words “IRS Lien.”
• Scan a document received as a letter or fax, and send it to phishing@irs.gov. 
• Report it to the Federal Trade Commission using the FTC Complaint Assistant on FTC.gov.
• Report it also to the FBI’s Internet Crime Complaint Center, known simply as IC3.

More information:
Tax Scams/Consumer Alerts
How Do You Report Suspected Tax Fraud Activity?

Source: The IRS

Taxpayer Preparation for Natural Disasters

Natural disasters can – and do – happen at any time. Whether it’s a hurricane, fire, flood, earthquake or tornado, there are things people can do to prepare in advance of a disaster.

Here are several links that can help taxpayers before and after a disaster:

Reconstructing records after a disaster; IRS provides tips to help taxpayers
This fact sheet helps people who are facing the challenge of reconstructing their financial records after a disaster. It covers how to properly document a tax-deductible loss.

Tax relief in disaster situations
This page features links to disaster resources. They walk taxpayers through information that will help them after a disaster. This page also links to local news releases and frequently asked questions.

Around the nation
This page highlights news specific to local areas. This includes disaster relief and tax provisions that affect certain states.

FAQs for disaster victims
Users will find links to several different pages of FAQs. Each set of FAQs is about a specific topic to help people after a disaster.

Publication 2194, Disaster Resource Guide for Individuals and Businesses
This resource guide provides information for individuals and businesses affected by a disaster. It also covers the help available for disaster victims. The guide can help taxpayers claim unreimbursed casualty losses on property that was damaged or destroyed.

Publication 584, Casualty, Disaster, and Theft Loss Workbook
This workbook helps individual taxpayers figure the loss on their property because of a disaster, casualty or theft.

Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook
This workbook helps businesses figure the loss on business property because of a disaster, casualty or theft.

Publication 547, Casualties, Disasters and Thefts
This publication explains the tax treatment of casualties, thefts and losses.

More information:
Publication 5307, Tax Reform Basics for Individuals and Families

Source: The IRS