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Lions and Tigers and IRS Notices Oh My

October 4, 2011 6:22 am / Leave a comment

Mug shot of Wesley Snipes.

Open Your Tax Notices

By Stacie Kitts, CPA

Once upon a time, a long time ago, I knew a taxpayer who was afraid to open correspondence from the IRS and accumulated a pile of letters hoping it would all go away.  It didn’t and bad things happened.

If you receive correspondence, open it right away while there is still time to do something about it.

Most of the time correspondence from the IRS is no big deal – you forgot to report some investment income, or you made an estimated tax payment a little later than your were supposed to so you owe some interest.

Honestly, I can’t think of many things you should be worried about when the IRS comes a-callin unless…..

  • You’re a crook and you know it
  • You don’t have advisers or you don’t listen to them
  • Someone was feeding you a line that was to good to be true.  Wesley Snipes is a good example of what not to believe.  Mr Snipes failed to file several years of tax returns based on the advice of shyster tax preparer and is now serving time in jail.

Getting a letter from the IRS informing you of an audit of your tax return can be distressing.  And let’s face it, even if you did everything hunky dory, it can be costly to have someone represent you.

There are things you can do ahead of time to help mitigate the cost of an audit should you win that lottery.

  • Choose the right tax preparer.  Do your research and make sure they are qualified to help you
  • Have your accountant look over your accounting records before the end of each tax year.
  • If you have a business, make sure you give details of your accounting transactions to your preparer. (full general ledger detail)
  • Do some tax planning with your tax professional
  • Keep records of your income and deductions organized and easy to find
  • During the audit process – provide your representative the requested information timely and as organized as possible.  Messy records are not going to help you and will likely drive up the cost of the audit.

The IRS published the following points they think you should know if you receive a notice.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
  2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
  4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. Have a copy of your tax return and the correspondence available when you call.
  8. It’s important that you keep copies of any correspondence with your records.

Not All Giving is Deductible

October 3, 2011 6:28 am / Leave a comment

Stacie Kitts, CPA is a partner at Katherman Kitts & Co. LLP

On occasion I run across a taxpayer who “helped” out a family or a friend and wants to deduct the money given as a charitable contribution.  They are always shocked to find out that helping your neighbor isn’t tax deductible unless its through a charitable organization.

Charity is good, but if you want to deduct it, be sure to check out the items below.

If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are the top nine things the IRS wants every taxpayer to know before deducting charitable donations.

  1. Make sure the organization qualifies Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations. It is available at www.IRS.gov.
  2. You must itemize Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
  3. What you can deduct You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
  4. When you receive something in return If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
  5. Recordkeeping Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
  6. Pledges and payments Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.
  7. Donations made near the end of the year Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
  8. Large donations For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
  9. Tax Exemption Revoked Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

For the list of organizations whose tax-exempt status was revoked, visit www.IRS.gov. For general information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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