Eight Tips to Determine if Your Gift is Taxable

IRS Tax Tip 2012-62

If you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but the IRS offers the following eight tips about gifts and the gift tax.

  1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2011 and 2012, the annual exclusion is $13,000.
  2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.
  3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.
  4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
  5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are not taxable gifts:
    • Gifts that are do not exceed the annual exclusion for the calendar year,
    • Tuition or medical expenses you pay directly to a medical or educational institution for someone,
    • Gifts to your spouse,
    • Gifts to a political organization for its use, and
    • Gifts to charities.
  6. You and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion
  7. You must file a gift tax return on Form 709, if any of the following apply:
    • You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
    • You and your spouse are splitting a gift.
    • You gave someone (other than your spouse) a gift of a future interest that he
    or she cannot actually possess, enjoy, or receive income from until some time in the future.
    • You gave your spouse an interest in property that will terminate due to a  future event.
  8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.

For more information see Publication 950, Introduction to Estate and Gift Taxes. Both Form 709 and Publication 950 can be downloaded at www.IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

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Taxpayers Get More Time to Contribute to IRAs in 2012

IRS Tax Tip 2012-61

You have two extra days this year to make contributions to your Individual Retirement Arrangements. That’s because April 15 falls on a weekend and Emancipation Day, a legal holiday in the District of Columbia, will be observed on Monday, April 16. That means the due date for filing your tax return and making contributions to your 2011 IRA is Tuesday, April 17.

Here are the top 10 things the IRS wants you to know about setting aside retirementmoney in a traditional IRA.

  1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit, formally known as the Retirement Savings Contributions Credit.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means you must make contributions for 2011 by April 17, 2012. If you contribute between Jan. 1 and April 17, you should designate the year targeted for the contribution.
  3. The funds in your IRA are generally not taxed until you receive distributions from it.
  4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for your IRA contributions. 
  5. For 2011, the most you can contribute to your traditional IRA is generally the smaller of the following amounts: $5,000 for most taxpayers, $6,000 for taxpayers who were 50 or older at the end of 2011 or the amount of your taxable compensation for the year.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
  7. You must use either Form 1040A or Form 1040 to deduct your IRA contribution or claim the Credit for Qualified Retirement Savings Contributions.
  8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
  9. To contribute to an IRA, you must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. If you file a joint return, generally only one spouse needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements, for additional rules.
  10. Refer to IRS Publication 590 for more information on contributing to your IRA account.

Form 8880 and Publication 590 can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).

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Injured or Innocent Spouse Tax Relief

IRS Tax Tip 2012-60

You may be an injured spouse if you file a joint tax return and all or part of your portion of a refund was, or is expected to be, applied to your spouse’s legally enforceable past due financial obligations.

Here are seven facts about claiming injured spouse relief:

1. To be considered an injured spouse; you must have paid federal income tax or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint return, and not be legally obligated to pay the past-due debt.

2. Special rules apply in community property states. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.

3. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation.

4. You may file form 8379 along with your original tax return or your may file it by itself after you receive an IRS notice about the offset.

5. You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

6. If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form.

7. Do not use Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857, Request for Innocent Spouse Relief. This relief from a joint liability applies only in certain limited circumstances. However, in 2011 the IRS eliminated the two-year time limit that applies to certain relief requests. IRS Publication 971, Innocent Spouse Relief, explains who may qualify, and how to request this relief.

For complete information on Injured and Innocent Spouse Tax Relief, visit IRS.gov.


Links:

  • Publication 555, Community Property ( PDF)
  • Form 8379, Injured Spouse Allocation ( PDF)
  • Instructions for Form 8379, Injured Spouse Allocation ( PDF)
  • Form 8857, Request for Innocent Spouse Relief ( PDF)
  • Instructions for Form 8857, Request for Innocent Spouse Relief ( PDF)
  • Publication 971, Innocent Spouse Relief ( PDF)

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Tagged Delinquent Taxes IRS Tax Tip Injured Spouse

Tax Refunds May Be Applied to Offset Certain Debts

IRS Tax Tip 2012-59

Past due financial obligations can affect your current federal tax refund. The Department of Treasury's Financial Management Service, which issues IRS tax refunds, can use part or all of your federal tax refund to satisfy certain unpaid debts.

Here are eight important facts the IRS wants you to know about tax refund offsets:

  1. If you owe federal or state income taxes, your refund will be offset to pay those taxes. If you had other debt such as child support or student loan debt that was submitted for offset, FMS will apply as much of your refund as is needed to pay off the debt and then issue any remaining refund to you.

  2. You will receive a notice if an offset occurs. The notice will include the original refund amount, your offset amount, the agency receiving the payment and its contact information.

  3. If you believe you do not owe the debt or you are disputing the amount taken from your refund, you should contact the agency shown on the notice, not the IRS.

  4. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. Attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset. Form 8379 can be downloaded from the IRS website at www.irs.gov.

  5. You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

  6. If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the IRS Service Center where you filed your original return.

  7. The IRS will compute the injured spouse's share of the joint return. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.

  8. Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. If you don't receive a notice, contact the Financial Management Service at 800-304-3107, Monday through Friday from 7:30 a.m. to 5 p.m. (Central Time).


Links:

  • Form 8379, Injured Spouse Allocation ( PDF)

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Eight Tax-Time Errors To Avoid

IRS Tax Tip 2012-58

If you make a mistake on your tax return, it can take longer to process, which in turn, may delay your refund. Here are eight common errors to avoid .

  1. Incorrect or missing Social Security numbers When entering SSNs for anyone listed on your tax return, be sure to enter them exactly as they appear on the Social Security cards.

  2. Incorrect or misspelling of dependent’s last name When entering a dependent’s last name on your tax return, make sure to enter it exactly as it appears on their Social Security card.

  3. Filing status errors Choose the correct filing status for your situation. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) With Dependent Child. See Publication 501, Exemptions, Standard Deduction and Filing Information, to determine the filing status that best fits your situation.

  4. Math errors When preparing paper returns, review all math for accuracy. Or file electronically; the software does the math for you!

  5. Computation errors Take your time. Many taxpayers make mistakes when figuring their taxable income, withholding and estimated tax payments, Earned Income Tax Credit, Standard Deduction for age 65 or over or blind, the taxable amount of Social Security benefits and the Child and Dependent Care Credit.

  6. Incorrect bank account numbers for direct deposit Double check your bank routing and account numbers if you are using direct deposit for your refund.

  7. Forgetting to sign and date the return An unsigned tax return is like an unsigned check – it is invalid. Also, both spouses must sign a joint return.

  8. Incorrect adjusted gross income If you file electronically, you must sign the return electronically using a Personal Identification Number. To verify your identity, the software will prompt you to enter your AGI from your originally filed 2010 federal income tax return or last year's PIN if you e-filed. Taxpayers should not use an AGI amount from an amended return, Form 1040X, or a math-error correction made by IRS.

 

Links:

  • Publication 501, Exemptions, Standard Deductions and Filing Information ( PDF)

 

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Deducting Charitable Contributions: Eight Essentials

IRS Tax Tip 2012-57


Donations made to qualified organizations may help reduce the amount of tax you pay.
The IRS has eight essential tips to help ensure your contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations or candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.

2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.

3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.

4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.

5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the contribution. For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given.

7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.

8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining the value of donations, refer to Publication 561, Determining the Value of Donated Property. All are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

  • Publication 526, Charitable Contributions (PDF)
  • Publication 561, Determining the Value of Donated Property (PDF)
  • Form 8283, Noncash Charitable Conributions (PDF)
  • Instructions for Form 8283, Noncash Charitable Contributions (PDF)

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Farm Income and Deductions: 10 Key Points

IRS Tax Tip 2012-56

You are in the business of farming if you cultivate, operate or manage a farm for profit, either as an owner or a tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms. It also includes plantations, ranches, ranges and orchards.
The IRS has 10 key points for farmers regarding federal income taxes.


1. Crop insurance proceeds You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.


2. Sales caused by weather-related condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone until the next year the reporting of the gain from selling the additional animals.


3. Farm income averaging You may be able to average all or some of your current year's farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.


4. Deductible farm expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses.  An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.


5. Employees and hired help You can deduct reasonable wages paid for labor hired to perform your farming operations. This includes full-time and part-time workers. You must withhold Social Security, Medicare and income taxes for employees.


6. Items purchased for resale You may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm.


7. Net operating losses If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.


8. Repayment of loans You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.


9. Fuel and road use You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.


10.  Farmers Tax Guide More information about farm income and deductions is in IRS Publication 225, Farmer’s Tax Guide, which is available at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

 

Links:

Publication 225, Farmer’s Tax Guide (PDF)

Tagged Expenses Farmers IRS Tax Tip Income

Employee Business Expenses

IRS Tax Tip 2012-54

Some employees may be able to deduct certain work-related expenses. The following facts from the IRS can help you determine which expenses are deductible as an employee business expense. You must be itemizing deductions on IRS Schedule A to qualify.

Expenses that qualify for an itemized deduction generally include:

  • Business travel away from home
  • Business use of your car
  • Business meals and entertainment
  • Travel
  • Use of your home
  • Education
  • Supplies
  • Tools
  • Miscellaneous expenses

You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals available on this website, or by calling 1-800-TAX-FORM (800-829-3676).

If your employer reimburses you under an accountable plan, you should not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.

An accountable plan must meet three requirements:

  1. You must have paid or incurred expenses that are deductible while performing services as an employee.

  2. You must adequately account to your employer for these expenses within a reasonable time period.

  3. You must return any excess reimbursement or allowance within a reasonable time period.

If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.

Generally, you report unreimbursed expenses on IRS Form 2106 or IRS Form 2106-EZ and attach it to Form 1040. Deductible expenses are then reported on IRS Schedule A, as a miscellaneous itemized deduction subject to a rule that limits your employee business expenses deduction to the amount that exceeds 2 percent of your adjusted gross income.

For more information see IRS Publication 529, Miscellaneous Deductions, which is available on this website, or by calling 1-800-TAX-FORM (800-829-3676).

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IRS Offers Tax Tips for Taxpayers with Foreign Income

IRS Tax Tip 2012-53

The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2011, that they may have a U.S. tax liability and a filing requirement in 2012.

The IRS offers the following seven tips for taxpayers with foreign income:

  1. Filing deadline U.S. citizens and resident aliens residing overseas or those serving in the military outside the U.S. on the regular due date of their tax return have until June 15, 2012 to file their federal income tax return. To use this automatic two-month extension beyond the regular April 17, 2012 deadline, taxpayers must attach a statement to their return explaining which of the two situations above qualifies them for the extension.

  2. World-wide income Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

  3. Tax forms In most cases, affected taxpayers need to fill out and attach Schedule B, Interest and Ordinary Dividends, to their tax return. Certain taxpayers may also have to fill out and attach to their tax return the new Form 8938, Statement of Foreign Financial Assets. Some taxpayers may also have to file Form TD F 90-22.1 with the Treasury Department by June 30, 2012.

  4. Foreign earned income exclusion Many Americans who live and work abroad qualify for the foreign earned income exclusion. If you qualify for tax year 2011, this exclusion enables you to exempt up to $92,900 of wages and other foreign earned income from U.S. tax.

  5. Credits and deductions You may be able to take either a credit or a deduction for income taxes paid to a foreign country or a U.S. possession. This benefit is designed to lessen the tax burden that results when both the U.S. and another country tax income from that country.

  6. Free File Taxpayers abroad can now use IRS Free File. This means U.S. citizens and resident aliens living abroad with adjusted gross income of $57,000 or less can use brand-name software to prepare their returns and then electronically file them for free.

  7. Tax help If you live outside the U.S., the IRS has full-time permanent staff in four U.S. embassies and consulates. A list is available on this website in the Contact Your Local Office Section, under International. These offices have tax forms and publications that can help you with filing issues and answer your questions about notices and bills.

More information is available in Publication 4261, Do You Have a Foreign Financial Account?

IRS publications, forms and more information on topics useful to individual international taxpayers can be found on the International Taxpayer page on this website.

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