Article Highlights: Crowdfunding Sites Gifts Charitable Gifts Business Ventures SEC Registration Raising money through Internet crowdfunding sites prompts questions about the taxability of the money raised. A number of sites host money-raising projects for fees ranging from 5 to 9%, including GoFundMe, Kickstarter, and Indiegogo. Each site specifies its own charges, limitations, and withdrawal processes. Whether the money raised is taxable depends upon the purpose of the fundraising campaign. Gifts – When an entity raises funds for its own benefit and the contributions are made out of detached generosity (and not because of any moral or legal duty or the incentive of anticipated economic benefit), the contributions are considered tax-free gifts to the recipient. On the other hand, the contributor is subject to the gift tax rules if he or she contributes more than $15,000 to a particular fundraising effort that benefits one individual; the contributor is then liable to file a gift tax return. Unfortunately, regardless of the need, gifts to individuals are never tax deductible. A “gift tax trap” occurs when an individual establishes a crowdfunding account to help someone else in need (whom we’ll call the beneficiary) and takes possession of the funds before passing the money on to the beneficiary. Because the fundraiser takes possession of the funds, the contributions are treated as a tax-free gift to the fundraiser. However, when the fundraiser passes the money on to the beneficiary, the money then is treated as a gift from the fundraiser to the beneficiary; if the amount is over $15,000, the fundraiser is required to file a gift tax return and to reduce his or her lifetime gift and estate tax exemption. Some crowdfunding sites allow the fundraiser to designate a beneficiary so that the beneficiary has direct access to the funds which keeps the fundraiser from encountering any gift tax problems. Gifts to specific individuals, regardless of the need are not considered a charitable contribution under tax law. An example is raising funds to help pay for someone’s funeral expenses. Another example, which includes a little tax twist, would be raising money to help someone pay for their medical expenses. Because it is a gift, it is not taxable to the recipient, but if the recipient itemizes their deductions, any amount of the gift the recipient spends to pay for their or a spouse’s or dependent’s medical expenses can be included as a medical expense on the recipient’s Schedule A. Charitable Gifts – Even if the funds are being raised for a qualified charity, the contributors cannot deduct the donations as charitable contributions without proper documentation. Taxpayers cannot deduct cash contributions, regardless of the amount, unless they can document the contributions in one of the following ways: Contribution Less Than $250 - To claim a deduction for a contribution of less than $250, the taxpayer must have a cancelled check, a bank or credit card statement, or a letter from the qualified organization; this proof must show the name of the organization, the date of the contribution, and the amount of the contribution. Cash contributions of $250 or More – To claim a deduction for a contribution of $250 or more, the taxpayer must have a written acknowledgment of the contribution from the qualified organization; this acknowledgment must include the following details: o The amount of cash contributed; o Whether the qualified organization gave the taxpayer goods or services (other than certain token items and membership benefits) as a result of the contribution, along with a description and good-faith estimate of the value of those goods or services (other than intangible religious benefits); and o A statement that the only benefit received was an intangible religious benefit, if that was the case.

Constrained cash flow is usually why most companies fold within the first two to three years of operation and often get overlooked by busy entrepreneurs focusing primarily on raising funds or posting an impressive profit. If your business profits need a second look, feel free to reach out to us to talk things over. .embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; }

Article Highlights: American Opportunity Tax Credit Lifetime Learning Credit Who Gets the Credit? Qualified Tuition and Related Expenses Eligible Educational Institutions Form 1098-T Scholarships Tax Fraud As with everything taxes, the devil is in the details, and that includes the education tax credits, which come in two types with some different rules for each. Many people think the credits are for sending their children to college, which is true, but the credits are also available to you and your spouse (if you are married) as well as to your dependents. So even taxpayers attending school part-time may qualify for a tax credit. American Opportunity Tax Credit (AOTC) – The AOTC provides a credit of up to $2,500 per year per eligible student. Generally, tax credits are non-refundable, meaning they can only be used to offset any tax liability the taxpayer may have for the year. However, up to 40% of the AOTC is refundable, even when the taxpayer has no tax liability. Thus, it can result in a refund of as much as $1,000 (40% of $2,500). The credit amount is 100% of the first $2,000 of tuition and related expenses plus 25% of the next $2,000 of qualifying expenses. However, the AOTC is only allowed for four tax years and only for the first four years of post-secondary education. The student must be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year in which the credit is claimed. This credit phases out for joint-filing taxpayers with modified adjusted gross income between $160,000 and $180,000, and between $80,000 and $90,000 for others. The credit is not allowed for married taxpayers using the filing status of married filing separately. Lifetime Learning Credit (LLC) ‒ The LLC is a non-refundable credit worth up to $2,000 per year, and there is no limit on the number of years that the LLC can be claimed. Unlike the AOTC, there is no “half-time student” requirement, and single courses can qualify. The credit is 20% of the costs of tuition and related expenses. However, while the AOTC is determined on a per student basis, the LLC is based upon the tax family’s qualified education expenses for the year. If a student qualifies for the more beneficial AOTC, that student’s expenses cannot also be used for the LLC. Like the AOTC, this credit phases out for higher-income taxpayers, but unlike the AOTC, the phaseout income levels are annually adjusted for inflation. For 2019, the LLC phases out for joint filing taxpayers with modified adjusted gross income between $116,000 and $136,000, and between $58,000 and $68,000 for others. The credit is not allowed for taxpayers who file married filing separate returns. Who Gets the Credit? – As you would expect, the credit for dependents attending college or the taxpayer (and spouse, if any) attending college will be claimed on the taxpayer’s tax return. You may qualify for this credit even if you did not pay the tuition. If a third party (someone other than the taxpayer or a claimed dependent) directly makes a payment to an eligible educational institution for a student’s qualified tuition and related expenses, then the student would be treated as having received the payment from the third party and, in turn, as paying the qualified tuition and related expenses. Furthermore, qualified tuition and related expenses paid by a student would be treated as being paid by the taxpayer if the taxpayer claims the student as a dependent. Example: If one divorced parent pays qualified tuition to a college for a child but the other parent has custody of the child (and is eligible to claim the child as a dependent), then the custodial parent is treated as having directly paid the tuition to the college and would get the credit. Example: If a grandparent, or someone else, pays the qualified tuition directly to the institution, then the parents, assuming they claim the student as a dependent, would be the ones qualified to claim the education credit. This would also apply if the tuition was paid for the taxpayer or spouse. This makes for some interesting tax planning since the tuition paid directly to an educational institution is also excluded for gift reporting or gift tax consequences, allowing individuals who wish to make gifts above the $15,000 per year per recipient limit to pay the tuition for a non-dependent child or grandchild and avoid any gift tax complications, while at the same time providing the education credit. Qualified Tuition and Related Expenses – Unfortunately, recent law changes affecting qualified expenses only applied to the AOTC, creating another difference between the two credits.

Article Highlights: Excess IRA Contributions Excess Contribution Penalty Correcting Excess IRA Contributions Applying the Excess to a Future Year Excess 401(k) Contributions Failing to Timely Correct 401(k) Excess Contributions Some individuals financially struggle just to be able to make a nominal contribution to their tax-favored retirement plan, whether it be an IRA, 401(k) plan, or some form of self-employment retirement vehicle. Others sometimes over-contribute, whether intentionally or by accident. The following is a rundown of the tax consequences of over-contributing to tax-favored retirement plans. Excess IRA Contributions – Any contribution to an IRA, either deductible or nondeductible (but not including rollovers), that is more than is allowed for the year is an excess contribution and is subject to a non-deductible penalty. For both 2019 and 2020, the maximum allowed IRA contribution is $6,000 ($7,000 for those age 50 and older). These limits apply to both traditional and Roth IRAs, or a combination of the two. After reaching age 70½, an individual is no longer allowed to contribute to a traditional IRA, and any amount contributed in the year when he or she turns 70½, or a later year, would be an excess contribution. In addition, IRA contributions are based on an individual’s earned income (income from working), and any amount contributed in excess of the earned income would also be considered an excess contribution. Penalty – The excess contribution penalty is 6% of the sum of the excess amount contributed plus any earnings attributed to the excess contribution. The penalty continues to apply every year until the excess contribution is corrected. Correcting an Excess Contribution – If the excess, including any earnings, is withdrawn by the extended income tax return due date (October 15, 2020, for 2019 returns) and no deduction was taken for the excess, here’s what will happen: No penalty will be assessed on the excess or the earnings. The earnings from the excess will be included as income for the year of the excess contribution. A 10% premature distribution penalty will apply to the earnings if the taxpayer is under age 59½. Example: Anne, age 40, had earned income of $45,000 in 2019, and she contributed $7,000 to her traditional IRA. Because she is under age 50, the maximum she is allowed to contribute to her IRA is $6,000. Her $7,000 contribution created an excess contribution of $1,000. Before the extended due date, she withdraws the $1,000 along with the $30 that the extra $1,000 had earned. On her 2019 return, she would only report a $6,000 contribution, include the $30 in income, and because she’s under age 59½, pay a 10% early withdrawal penalty of $3 on the taxable $30 earnings. Other complications apply if the excess contribution is not corrected by the extended due date and depend on the circumstances.

This is an archive of the 2019 edition of our tax organizer. Use this organizer if you have not yet filed your 2019 tax return. To get ready for your tax appointment, we use tax organizers to help us identify missing tax deductions and get you more organized before your appointment. We update the tax organizer annually to make sure you are compliant with the latest tax law changes. The 2019 individual tax organizer is provided in three configurations to assist you in collecting relevant tax information needed to properly prepare your tax return. Access any of the three versions by double-clicking on the underlined title links below. The organizers can be downloaded to your computer where you can fill and save the information until you have completed collecting all of your information. After you have completed it, please forward the organizer (printed or digitally) to our office for immediate service. If you have an office appointment, you can print it out and bring it with you to the meeting. A word of caution: you can fill the organizers online and print them out. However, if you close the file, your data will not be saved unless the form is saved to your computer. Once the completed organizer has been received, you will be contacted by phone, fax or e-mail with any questions, comments, or suggestions. If you e-mail our office advising us that you have sent your tax materials, we will notify you of their receipt. 2019 Basic Organizer

December 2 - Time for Year-End Tax Planning December is the month to take final actions that can affect your tax result for 2019. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2019 should call for a tax planning consultation appointment.December 10 - Report Tips to Employer If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.