Friday, March 10, 2017

Gift Tax - the annual exclusion and lifetime exemption

A client - a married couple - wants to help their daughter and her husband to buy a house. They can give a gift this year of $56,000 without tax consequences - if they write four checks. If they write one check, there could be gift tax consequences. Why? 
Under Federal tax law, each person is allowed to give away up to $14,000 per year to as many people as they want – the “annual gift tax exclusion”. This can be done without tax consequences or tax returns. 
Actually, each person is allowed to give more than that – in fact over your lifetime you are allowed to give away over $5.49 million without tax consequences. But when you are doing so, you have to keep a running tally with the IRS – by filing a gift tax return each year showing that you gave more than the annual exclusion amounts that year. At your death, your estate is entitled to the first $5.49 million – free of federal tax. You only pay the federal estate tax on the excess. (Ignoring state death taxes for another day.) 
But that lifetime exemption amount of $5.49 million is reduced by reportable gifts made during your life. Whether you are giving it away now, or giving it away then, a running tally is kept, so that each person has the same $5.49 million exemption at death. 
But the $14,000 per year gifts are not reportable – and so they do not eat into your lifetime exclusion amount. That’s the beauty of those gifts – there are no tax consequences or reporting requirements.
So, to avoid having to file a return for the proposed gift to the children to help with their house, the father and the mother each give the daughter and the son in law a check for $14,000. Four checks, each for the annual exclusion amount. In doing so, they qualify for the annual exclusion on all 4 gifts, and they don’t have to file a gift tax return. And they don’t eat into their lifetime exemption amounts.
Could you do with one check what you do with four - and argue with the IRS about whether in fact it is essentially the same transaction and result? If you like to argue with the IRS, and want to pay an attorney to do so, then you can choose the convenience of one check and then pay a lot of money to battle on principle. I think writing 4 checks is the easier option.

Thursday, February 25, 2016

W-2? 1099? And now, introducing the 1095-C!

Every year in late winter and early spring, you receive formal looking statements from various sources that are either paying money to you or receiving money from you in payment of certain types of expenses, such as mortgage interest and taxes.  Now with the next stage of the Obamacare regulations, if you are an employee you will be receiving a new IRS form - the 1095-C.  Everyone is required to obtain health insurance.  If you do not do so, you may have to pay a "individual shared responsibility payment", which is the bureaucratic doublespeak for a penalty. Here is the IRS Tax Tip that explains what this form does and what you need to do when you receive it:

Here’s What You Need to Do with Your Form 1095-C

This year, you may receive one or more forms that provide information about your 2015 health coverage.  These forms are 1095-A, 1095-B and 1095-C. This tip is part of a series that answers your questions about these forms.

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance, provides you with information about the health coverage offered by your employer.  In some cases, it may also provide information about whether you enrolled in this coverage.

Here are the answers to questions you’re asking about Form 1095-C:

Will I get a Form 1095-C?
  • You will receive a Form 1095-C – which is a new form this year – if you were a full time employee working for an applicable large employer last year. An applicable larger employer is generally an employer with 50 or more full-time employees, including full-time equivalent employees.
  • Even if you were not a full time employee, you will receive form 1095-C if your employer offered self-insured coverage and you or a family member enrolled in that coverage.
  • You might get more than one Form 1095-C if you worked for more than one applicable large employer last year.
How do I use the information on my Form 1095-C?
  • This form provides you with information about the health coverage offered by your employer and, in some cases, about whether you enrolled in this coverage.
  • If you enrolled in a health plan through the Marketplace, the information in Part II of Form 1095-C could help determine if you’re eligible for the premium tax credit. If you did not enroll in a health plan through the Marketplace, this information is not relevant to you.
  • If there is information in Part III of Form 1095-C, review this information to determine if there are months when you or your family members did not have coverage. If there are months you did not have coverage, you should determine if you qualify for an exemption from the requirement to have coverage. If not, you must make an individual shared responsibility payment.
  • You are not required to file a tax return solely because you received a Form 1095-C if you are otherwise not required to file a tax return.
  • Do not attach Form 1095-C to your tax return - keep it with your tax records.
What if I don’t get my Form 1095-C?
  • You might not receive a Form 1095-C by the time you are ready to file your 2015 tax return, and it is not necessary to wait for it to file.
  • The information on these forms may assist in preparing a return.  However, you can prepare and file your return using other information about your health insurance.
  • The IRS does not issue and cannot provide you with your Form 1095-C. For questions about your Form 1095-C, contact your employer. See line 10 of Form 1095-C for a contact number. 
Depending upon your circumstances, you might also receive Forms 1095-A and 1095-B. For information on these forms, see our Questions and Answers about Health Care Information Forms for Individuals.

Thursday, February 11, 2016

Your Social Security Benefits May be Taxable

Passing along another Tax Tip from the IRS:

When are your Social Security Benefits taxable?

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. These IRS tips will help you determine if you need to pay taxes on your benefits.
  • Form SSA-1099.  If you received Social Security benefits in 2015, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.
  • Only Social Security.  If Social Security was your only income in 2015, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources you may have to pay taxes on some of your benefits.
  • Free File.  Use IRS Free File to prepare and e-file your tax return for free. If you earned $62,000 or less, you can use brand-name software. The software does the math for you and helps avoid mistakes. If you earned more, you can use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It’s best for people who are used to doing their own taxes. Free File is available only by going to
  • Interactive Tax Assistant.  You can get answers to your tax questions with this helpful tool and see if any of your benefits are taxable.  Visit and use the Interactive Tax Assistant tool.
  • Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.
  • Base Amounts.  The three base amounts are:
    • $25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2015
    • $32,000 – if you are married filing jointly
    • $0 – if you are married filing separately and lived with your spouse at any time during the year
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your TaxpayerBill of Rights. Explore your rights and our obligations to protect them on
Additional IRS Resources:
IRS YouTube Videos:

Tuesday, February 9, 2016


Here is a reminder to all Pennsylvania employers from the state Department of Labor and Industries about your obligation to report the hiring of new employees:

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 along with Pennsylvania's Act 58 of 1997 requires all employers to report certain information on their newly-hired employees to a designated state agency. As an employer, you are a key partner in ensuring financial stability for many children and families across the Commonwealth.

New Hire Reporting is designed to increase child support collections from non-custodial parents and parents who change jobs frequently, thus securing a better life for children. As an employer, your role of reporting newly-hired employees is critical to the success of the program. By reporting your newly-hired employees within 20 days of hire, you aid the Commonwealth of Pennsylvania in speeding up the child support income withholding order process, locating non-custodial parents to expedite collection of child support and in many cases, establishing paternity.

The New Hire program has experienced not only significant increases in child support collections from non-custodial parents but also savings in unemployment compensation, workers' compensation and public assistance programs through fraud detection. As a result, Pennsylvania is committed to this endeavor and expects continued diligence from the employer community to aid in this endeavor. For more information on this law, please visit the Pennsylvania State Law.

If you are a custodial or non-custodial parent needing information on Pennsylvania legislation and programs, please follow the link here to the PA Child Support Program website within the Pennsylvania Department of Human Services.

There are multiple ways to report your new hires to the Pennsylvania New Hire Reporting Program. The preferred method is through timely and secure electronic reporting.

Electronic Reporting:
Please use one of the two secure electronic methods listed below for reporting new hires to the Program.

Through the Pennsylvania CareerLink® website,

Scroll down the page to the “Report New Hires” box (or press the “Online Services” link at the top menu navigation bar to go directly to the box) and press the link “Report New Hires Now,” to proceed to the Program homepage.

Through Secure File Transfer Protocol (SFTP) to the Pennsylvania Department of Labor & Industry server at

If interested in using SFTP, please notify the Pennsylvania New Hire Reporting Program by submitting an email to the Program at, subject line: “SFTP Credentials – PA”.

Data File Format:
Data files must adhere to the layout specification for each respective file type listed at the Pennsylvania CareerLink® website’s New Hire Reporting Program Information page. At that page, press “Examples and Instructions” under the “Choosing the Best Method for Reporting New Hires as a PA CareerLink®-Registered Employer” section of the page, to view the data file specifications.

For more information on timely and secure new hire reporting, please visit, or call the Pennsylvania New Hire Reporting Program at 1.888.724.4737 or 800-932-0211.

Do Your 2015 Federal Taxes for Free

Passing this along from our friends at the IRS -

Do Your Federal Taxes for Free

You can prepare and electronically file your federal taxes for free using IRS Free File. It is fast, safe and easy to use. IRS Free File does the hard work for you with either brand-name tax software or online fillable forms.

Here are six facts that you should know about Free File.

1. Free Options for All. If you make $62,000 or less – as do 70 percent of Americans – you can choose easy-to-use software to do your taxes and e-file for free. If you make more than $62,000 can use FreeFile Fillable Forms, the electronic version of IRS paper forms. Either way, it’s free.

2. Free File Does the Hard Work. IRS Free File is a partnership between the IRS and tax software manufacturers that make their products available for free. You don’t need to be a tax expert. The software will help find tax breaks you may be able to claim but might overlook, such as the EarnedIncome Tax Credit. The software asks the questions; you provide the answers. It will choose the right tax forms and do the math for you. Free File can also help with the healthcare law tax provisions.

3. Free File on Access IRS Free File on to avoid any charges for preparing or e-filing your federal tax return. Once you choose a Free File company, you’ll go to their website to prepare, print and e-file your federal tax return.

4. All Forms and Schedules are Free. Whether you file Form 1040 EZ, Form 1040A or Form 1040, all are free. If you have a mortgage interest deduction, children in college or made money in the stock market, the Free File software will complete the forms and schedules you need.

5. Free Extensions. If you can’t make the April 18 deadline (April 19 if you live in Maine or Massachusetts), you can use Free File to request an automatic six-month extension. Making the request is easy and free through IRS Free File. Just look for “free extensions for anyone” in the company offers. Remember, this is a six-month extension of time to file your tax return, not to pay your tax. If you think you owe, make an estimated payment with your extension request. Tax software will help you make this payment, or you can view other paymentoptions at

6. Use IRS E-file. Remember, the fastest way to get your refund is to combine e-file with directdeposit. If you owe taxes, you can e-file now and set up an automatic payment on any day until the due date. To view your payment options visit

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your TaxpayerBill of Rights. Explore your rights and our obligations to protect them on

IRS YouTube Videos:

Tuesday, November 24, 2015

Tis the Season - Charitable Giving

"Freedom from Want", Norman Rockwell (1943)
Thanksgiving and Christmas both put people in the frame of mind for giving - for giving thanks for what they may be blessed to have, and giving to others who might not be as blessed this year.   And while generally those feelings are not tax-driven, certain gifts can be deductible, if you color within the lines drawn by the IRS and the tax code. In that spirit, I am passing along this week's IRS Tax Tips, with advice on charitable giving.  May it inspire you to give generously to those in need, now and throughout the year.

IRS Tax Tips for Deducting Gifts to Charity

The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:

1. Give to qualified charities. You can only deduct gifts you give to a qualified charity. Use the IRS Select Check tool to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.

2. Keep a record of all cash gifts.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods must be in good condition.  Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Additional records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts.  Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.

6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file another form with your tax return. Use Form 8283, Noncash Charitable Contributions to report these gifts. For more on these rules, visit

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on

Additional IRS Resources:

Tuesday, January 20, 2015

Tis the season to file taxes!

Now that you've had time to digest your holly jolly holiday, you should be receiving your W-2 and 1099 statements from the IRS showing your income for 2014.  Time to start thinking about doing your tax returns.  There will be a new wrinkle this year as you need to report whether you have health insurance coverage or not; and if not, whether you you qualify for an exemption, or instead may have to pay a penalty; and then there will be a complex calculation of the penalty based on your particular circumstances.  Rather than trying to explain all of that in all its permutations, I am going to suggest, for you folks who still don't do your taxes online or with software, that you make this the year to E-file with the IRS.  And here is the IRS to explain the many reasons why this makes sense.

Top Five Reasons to E-file

Are you still using the old school method of doing your taxes? Do you still mail paper forms to the IRS? If so, make this the year you switch to a much faster and safer way of filing your taxes. Join the nearly 126 million taxpayers who used IRS e-file to file their taxes last year. Here are the top five reasons why you should file electronically too:

1. Accurate and easy.  IRS e-file is the best way to file an accurate tax return. The tax software that you use to e-file helps avoid mistakes by doing the math for you. It guides you every step of the way as you do your taxes. IRS e-file can also help with the new health care law tax provisions. The bottom line is that e-file is much easier than doing your taxes by hand and mailing paper tax forms. 

2. Convenient options.  You can buy commercial tax software to e-file or ask your tax preparer to e-file your tax return. You can also e-file through IRS Free File, the free tax preparation and e-file program available only on You may qualify to have your taxes filed through the IRS Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs. In general, VITA offers free tax preparation and e-file if you earned $53,000 or less. TCE offers help primarily to people who are age 60 or older.

3. Safe and secure.  IRS e-file meets strict security guidelines. It uses secure encryption technology to protect your tax return. The IRS has safely and securely processed more than 1.3 billion e-filed tax returns from individuals since the program began.

4. Faster refunds.  In most cases you get your refund faster when you e-file. That’s because there is nothing to mail and your return is virtually free of mistakes. The fastest way to get your refund is to combine e-file with direct deposit into your bank account. The IRS issues most refunds in less than 21 days.

5. Payment flexibility.  If you owe taxes, you can e-file early and set up an automatic payment on any day until the April 15 due date. You can pay electronically from your bank account. You can also pay by check, money order, debit or credit card. Visit for more information.
If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media. You can also subscribe to IRS Tax Tips or any of our e-news subscriptions.

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