January, 2006
Tax-saving Opportunities for Volunteers
January, 2006
Tax-saving Opportunities for Volunteers
The spirit of volunteerism is alive and well in the U.S. According to the Bureau of Labor statistics, about 64.5 million Americans volunteered at least once between September 2003 and September 2004. If you did volunteer work for a charitable organization in 2005 and you itemize deductions on your tax return, you may be able to count some of your expenses as charitable donations for the year.
You may not, however, deduct the cost of your time, even if the organization would have to pay someone else to do the same job. Here are some expenses that are deductible:
Car expenses. - As long as you don't receive reimbursement, you can deduct out-of-pocket expenses incurred in traveling to and from the place where you volunteer or in the driving you do on behalf of a charitable organization. You can deduct either the actual cost of gas and oil used in these activities, or use the standard mileage rate of 14 cents a mile. The costs of repairs, maintenance, tires, and insurance are not deductible, nor are registration fees or depreciation. Parking fees and tolls are deductible. Just make sure you keep appropriate records so you can back up your deduction.
Mileage rate increase for Katrina relief. - The standard charitable mileage rate has been raised to 70% of the business mileage rate for taxpayers using a vehicle to provide donated services for Katrina relief. The higher rate applies from August 25, 2005 through December 31, 2006.
Overnight travel expenses. - If you travel on behalf of a charitable organization (to a conference, for example), you may be able to deduct your unreimbursed transportation costs and reasonable lodging and meal expenses. None of the expenses can be for your personal entertainment or for accompanying family members.
Office supplies. - If you purchased materials (paper, envelopes, ink cartridges, etc.) and use them for volunteer work you do for a qualified organization, you can deduct any unreimbursed expenses.
Volunteers often do not realize they may be able to count some of their expenses as charitable donations. If you have questions, please let us know.
Self-employed with little or no retirement savings? Need a retirement plan that will allow you to set aside some serious cash and take a tax deduction for your contribution? A "defined benefit" pension plan may be of interest.
Employers typically shy away from defined benefit plans because they are usually more expensive to fund than 401(k)s and other "defined contribution" plans. But many sole proprietors don't have any employees, or they employ only low-hour workers who don't have to be covered under a retirement plan. With only your own retirement to fund, making the largest possible tax deductible contribution can make a lot of sense.
How much would you be required to contribute each year? It depends on your age and the size of the retirement benefit your plan is designed to provide. An actuary does the computation each year, and various tax rules apply.
When it comes to depositing federal income taxes and FICA taxes withheld from employees' wages, the government holds employers to strict timeliness. Pay late and an IRS penalty notice is almost sure to follow. Fail to pay and the IRS may pursue not just the company, but also so-called "responsible persons" - officers, employees, and other individuals who are responsible for collecting, accounting for, and paying over the company's payroll taxes.
In Trust
Federal employment-tax withholdings are considered government property, which an employer holds "in trust" until the money is paid to the IRS. The penalty for willfully failing to turn over the tax amount to the government is known as the 100% trust fund recovery penalty because it is equal to 100% of the unpaid taxes.
In the Hot Seat
In one recent case, the IRS was successful in its efforts to hold a corporation's former CFO and CEO personally liable for the penalty. The company, which eventually declared bankruptcy and liquidated, failed to remit more than $5 million in payroll taxes over a period of several years.
In granting the IRS summary judgment, the court noted that the CFO had the authority to direct and decline creditor payments, sign checks, oversee general cash flow, and hire and fire employees in the accounting department. When questions, he admitted that he knew that other creditors were being paid before the IRS.
The CEO held general control of the company's operations, could hire and fire employees, and had the authority to sign checks. Although he was told about the tax problem, he did not take action to correct it, instead delegating the problem to the CFO. According to the court, "his apparent choice to turn a blind eye and a deaf year" to warnings that the payroll taxes were not being paid, while shifting blame to the CFO, did not relieve him of personal liability.
Assessment Period
The IRS may be preparing to become more aggressive in its pursuit of the penalty. In recent advice, the agency;'s chief counsel said that the government has no time limit to assess the penalty if an employer has committed fraud, willfully attempted to evade tax, or failed to file an employment-tax return.
Have you ever inadvertently deleted an important spreadsheet or file on your computer? Did you fear it was gone for good? Well, it wasn't. Deleting a file does not necessarily remove the information from your hard drive. Instead, it changes your ability to find the "deleted" information. Fortunately, file recovery software can "undelete" missing files.
The Dark Side
Unfortunately, file recovery software also has a much more destructive use. In the wrong hands, it can be used to glean sensitive data from computer drives and data storage media, even after the disks have been reformatted. If cyber-thieves retrieve sensitive data from equipment you've disposed of, it could be costly in many ways.
Data Zapping
It is imperative that all computer and electronic data storage equipment be properly wiped clean or "sanitized" before you dispose of it. There are three basic sanitization methods to choose from.
Which method you choose depends mainly on the sensitivity of the data being erased. Disk shredding and demagnetizing are totally effective but should only be done by special technicians. Data shredding, which generally can be performed by computer users, should be sufficient treatment for all but-top secret data.
Your business' accounts receivable should always be on your radar. If your cash flow gets a little sluggish, here are some things to keep in mind.
Try the carrot and stick approach
The carrot, in this case, could be a discount for customers who pay their invoices early. If that doesn't work, switch to the stick - charge an extra percentage on past-due invoices.
Keep them talking
Your invoice might have gone unnoticed. Call to make sure clients with past due accounts are aware of the situation. As a last-ditch effort, you may want to negotiate. A partial payment now is better than coming up empty if you hold out for full payment.
Pass the buck
Or, in this case, sell the debt - to a third party. The discount will be steep, but some payment is better than none.
Jack built his business from the bottom up, and he really can't picture anyone else running it as well as he does. then again, he'd like to have more free time to enjoy life while he is still active and in good health. He wants to protect the company and the value of his investment in it, but he's not getting any younger, and something needs to change.
A Common Problem
Jack's situation is not unusual. Small business owners often find it difficult to make the transition from full to part-time involvement in the daily operations of their companies. Even tougher issues can emerge when weighing an actual transfer of leadership and control.
Finding Solutions
If you're an entrepreneur who would like to see your business continue its success without you at the helm someday, it's critical to address success planning.
Get your arms around the situation early
Your first step is to assess your company's management as it exists today. If any of your children are working in the business, evaluate their current roles and where you think they're going within the operation. Also consider employees who aren't family members and children who are not now involved and what their roles might be in the future. If conflicts are to be minimized, it's best to assess the situation early. Be honest as you evaluate strengths and weaknesses - your company's future could depend on it.
Make your expectations known
After you've worked through a plan for the future of the company, you'll want selected individuals to know about it long before you turn over the leadership role. Good communication can reveal potential problems with your plan and allow you to address them up front.
Groom your successor(s)
You may want your successor to obtain work experience outside the company or rotate from position to position within the company to learn all aspects of the business. Gradually introducing your successor to keep customers, supplies, and other contacts well before your departure may make for a smoother transition.
Mark and Tamika were thrilled to learn they were going to be first-time parents. When they learned that Tamika was pregnant with twins, they began looking at their finances in earnest.
It appears that Mark and Tamika are okay financially. they both have nice cars. They bought a home in an upscale neighborhood two years ago. And they both have professional careers. Even with two babies on the way, they should be able to cover their expenses.
but looks can be deceiving. Tamika and Mark also have high credit card balances. Added to their large mortgage and car loans, their debt level is quite high relative to their income. Plus, they used all their savings for their down payment on the house. If one of them decides to leave his or her job to stay home with the twins, of it a financial emergency arises, Mark and Tamika could be in trouble.
It's time for the couple to establish a realistic spending plan. To do that, they'll need to review their fixed expenses, discretionary spending, and family balance sheet. Although it may be difficult at first, Mark and Tamika can learn to live within a budget that allows them to pay their bills and save for their financial goals - including saving for college and their retirement.
If your debts are high and your expenses are increasing, take the first step right now to get your finances under control. We're here to help you plan - just give us a call.
The maximum amount of earnings subject to Social Security tax in 2006 is 494,200, up from $90,000 in 2005.
$1.1 trillion. That's the financial burden of federal regulations on U.S. businesses. Companies with fewer than 20 employees spend the most per employee: $7,647. Firms with between 20 and 499 workers spent $5,411 per person. The largest companies spend $5,282 per employee. Source: Small Business Administration, Office of Advocacy.
The SBA's Office of Advocacy also reported that there were 24.7 million businesses in the U.S. in 2004, 99.9% of which had fewer than 500 employees.
Nonprofits and their executives may want to review how they account for the use of laptops, cell phones, and other equipment provided by the organizations. Personal use of property belonging to a nonprofit is considered to be taxable compensation unless the organization is reimbursed for the use. The IRS has recently trained agents to look for infringements.
Q. After taking five years off to stay home and take care of our daughter, my wife is looking for a job. are any of her job search expenses deductible?
A. Unfortunately, no. Although qualified expenses associated with finding a job are deductible under certain circumstances, they aren't deductible when there has been a substantial break in employment, which is the case for many stay-at-home parents. college graduates looking for their first jobs and people who are changing careers are also not eligible to deduct job search expenses.
Q. Our trade group is holding its convention on a cruise ship this year. Will I be able to deduct my expenses?
A. You can deduct business-related expenses of up to $2,000 for attending a convention held aboard a cruise ship as long as the ship is registered in the U.S. and all of the ship's ports of call are in the U.S. or in U.S. possessions. When you file your tax return for the year, you'll need two written statements, including one from the convention sponsor, substantiating that the cruise was for business purposes.