Lower Your Taxes THIS YEAR! Here are 6 ideas that most people can use

While 2012 winds down, there is still time to reduce your tax burden. Here are six ideas that can save money for most of us.

1.   Pre-tax Savings. Take advantage of opportunities to set aside income on a pre-tax basis. This includes participation in company sponsored retirement savings programs, Health Savings Accounts (HSA), and “Flex Benefits” accounts that allow using pre-tax earnings to pay for childcare and out-of-pocket medical costs. Remember, however, unlike HSAs it is important to use up any funds in your Flex health care accounts and dependent care accounts prior to the end of the plan year as any unused funds will be forfeited.

2.   Defer Income and Accelerate Deductions (or vice versa!). When possible think about whether it is better to reduce taxable income in this year or next year. By understanding which tax year will be more advantageous to you, you can act to defer income into a subsequent tax year and accelerate deductible expenses into the current tax year. On the other hand you may believe tax rates will be higher next year. If this is the case you will want to move as much income into the current year and defer expenses.

Here are some ideas if your strategy is to minimize taxable income this year:

o    Delay depositing a bonus check

o    Make an extra house payment

o    Make extra charitable contributions (that you would make anyway)

o    Make next year’s church donations this year.

o    Make extra trips to donate non-cash items prior to January 1^st

o    Review your investments to book gains and/or losses

3.   Make Interest Expense Deductible. Move non-deductible interest expenses (personal credit cards) to deductible interest expense (home equity loans).

4.   Maximize tax-exempt and tax-deferred Investments. The higher your tax bracket the more tax savings you’ll realize with tax exempt and tax deferred contributions such as employer sponsored 401(k)s, IRA’s, tax-free municipal bonds, and Section 529 College Savings Plans.

5.   Navigate Estate Planning. Manage the value of your estate to minimize estate taxes through gifting, trusts, life insurance, annuities, and other estate planning tools.

6.   Avoid Penalties. Avoid costly penalties and interest charges by filing your returns and paying taxes owed on a timely basis, as required by the IRS.

Plus a bonus thought. Look for ways to double dip the tax savings. One of the best examples of this is the donation of appreciated stock (held over one year) to a charitable organization. Not only do you get to deduct the appreciated value of the stock, you also avoid paying capital gains tax on the increased value of the shares.

Contemporaneous Records... Why Should You Care?

Sometimes big IRS related terms can mean BIG trouble

If you have problems getting to sleep at night and you turn to the IRS tax code for help, you might find some vocabulary that is very foreign to words you use every day. One of the more common words used by the IRS is the term "contemporaneous". So what does it mean and why should you care?

Contemporaneous Defined

According to the IRS it means the records used to support a claim on your tax return were created and originated at the same time as your claimed deduction. In other words, if you realize that you forgot to get a receipt for something, you are out of luck if you try to get one at a later date.

Not Fair!

Perhaps you know you had the expense, but you simply forgot to get a receipt. You can cry foul, but time and again the IRS has had tax courts uphold their elimination of a taxpayer's deduction for lack of contemporaneous documentation. Here are some areas where contemporaneous documentation is especially important:

• Charitable contributions
• Business deductions for expenses and capital purchases
• Mileage logs
• Tip records
• Gambling losses
• Traveling and entertainment expenses
• Hobby losses

The donation of vehicles, boats, and planes is often the most cited area where lack of contemporaneous documentation is a problem. This is because the value of this type of donation can be high and the estimated market value could change each month. But timely, written acknowledgement from the charitable organization is also required for any donation of $250 or more.

What you need to know

• Always get a receipt. Before you leave a donated item, always ask for a receipt. In the case of a vehicle, make sure the charitable organization gives you a 1098-C fully filled out. In addition, make sure the organization uses your vehicle or is a qualified charitable group that allows you to take the full market value of your donation.
• If you forget, call right away. As soon as you realize a confirmation or receipt is missing, call to get one sent to you. Request that the receipt be dated as of the date of the service or activity.
• Think tax year. Understanding the definition of contemporaneous is important, because it is not always "precisely" defined. If the documentation is received in the same year as the donation or transaction, you are usually in good shape.
• Keep a log. Many expenses require the correct documentation at the time the activity occurred. This is true with deductible mileage, gambling loses, and documenting your tip income. So keep a log of your activities when they occur.

Wait to file. Often, to meet the IRS definition of contemporaneous, the receipt or acknowledgement must be received the earlier of either; when you file your tax return OR the due date (including extensions) of your tax return. This is particularly true with charitable contributions. So if you want to play it safe, do not file until all documentation is in hand.

Hurricane Sandy Relief

Help get the word out

The devastation caused by Hurricane  (now Superstorm) Sandy is widespread. And while you may not have been impacted directly by the storm, you may know of someone who was. Fortunately, the relief wheels are in motion, albeit never fast enough. In an effort to help those impacted and to help get the word out to those who may have been impacted here are some tips.

• Qualified Disaster Area. The first step is to understand if you or someone you know is in a Designated Disaster Relief area. Counties in New York, New Jersey, Connecticut, and Rhode Island have been included in the Disaster Area for Sandy. Please go to the Federal Emergency Management Agency and review the covered areas. You may have to check often as the covered areas continue to change.
• What do I Qualify for? There are so many programs, how do you know what aid is available to you? FEMA has a number of resources available to help work through the maze of programs. Here is a link to these tools; http://www.fema.gov/apply-assistance. If someone you know has lost power or is dislocated, consider helping them walk through these tools.
• Relief Payments Received May Not be Income. Employers may donate money directly to an employee impacted by Superstorm Sandy without creating taxable income for the person receiving money. As long as the person receiving money qualifies, and the money is used for qualifying expenses not reimbursed by insurance, it is not considered taxable income. This also includes money received from individuals. While payments directly to an individual may not qualify as a charitable deduction for the donor, at least they are not deemed income to those in need.
• Qualified Expenses. Qualified expenses per the IRS include amounts to “cover necessary personal, family, living or funeral expenses not covered by insurance. They also include expenses to repair or rehabilitate a personal residence.”
• Tax-exempt Status Safe Harbor. Employer-sponsored private foundations can also provide disaster relief to their employee-victims without jeopardizing their tax-exempt status. Guidance on how to do this correctly can be found in IRS Publication 3833.
• Consider Donating Your Vacation. Employees can donate vacation, sick, or personal leave time off for employer cash payments to qualified tax-exempt organizations providing Sandy relief. The forgone time off is not considered income to the employee. In addition, your employer may deduct the amounts paid. This special tax benefit can be applied for time off before 1/1/2014.
• Tax Deadline Assistance. The IRS has postponed a number of tax and payment filing deadlines starting in late October and now gives impacted taxpayers until Feb. 1, 2013 to file the affected tax returns and pay any amounts due. The IRS will abate any late filing penalties and interest due. This includes:
• 4^th quarter individual estimated tax payments (normally due 1/15/2013)
• 3^rd/4^th quarter excise tax returns and payments (due in the 3rd/4th quarter 2012)
• Tax exempt Form 990 return filings due during this period
• The IRS is also waiving failure-to-deposit penalties for federal payroll and excise tax deposits normally due on or after the disaster area start date and a delayed payment date. The delayed payment date is now set as November 26, 2012.
• Not in the Area? Relief is also available to a business or entity that is not located in the Declared Disaster Area but is impacted by the storm because the books, records, or tax professional is located within the disaster area. This includes those who are assisting in disaster relief activity. To receive this assistance you must contact the IRS directly (866-562-5227).
• Other Assistance. There are numerous programs available to those in need. The help includes grants for temporary housing, grants for home repairs, low-cost loans for uninsured property loses, and Transitional Housing Assistance.

Fortunately, to receive much of the aid outlined here you do not need to contact the IRS for approvals. The benefits are applied automatically. So, if you have been impacted by Sandy, or know of someone who has been impacted, please help get the word out.