If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are the top nine things the IRS wants every taxpayer to know before deducting charitable donations.

1. Make sure the organization qualifies Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations.
2. You must itemize Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. What you can deduct You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
4. When you receive something in return If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Recordkeeping Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
6. Pledges and payments Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.
7. Donations made near the end of the year Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. Large donations For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
9. Tax Exemption Revoked Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

Some taxpayers may have needed to take an early distribution from their retirement plan last year. Our members want you to know that individuals who took an early distribution can be subject to additional tax impact to tapping your retirement fund. Here are some facts about early distributions.

1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.

Our professionals  know there could be some tax implications of early distributions from your retirement plan.  Contact us today at 248-952-0200 or on the web at www.gordoncpa.com

Taxpayers who made some energy efficient improvements to their home or purchased energy-efficient products last year may qualify for a tax credit this year. Our firm wants you to know about these six energy-related tax credits created or expanded by the American Recovery and Reinvestment Act of 2009.

1. Residential Energy Property Credit This tax credit is for homeowners who make qualified energy efficient improvements to their existing homes. This credit is 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service in 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
2. Residential Energy Efficient Property Credit This tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the United States and geothermal heat pumps installed on or in connection with their main home located in the United States. The credit, which runs through 2016, is 30 percent of the cost of qualified property. ARRA removes some of the previously imposed annual maximum dollar limits.
3. Plug-in Electric Drive Vehicle Credit ARRA modifies this credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014, is $2,500 and the credit tops out at $7,500, depending on the battery capacity. ARRA phases out the credit for each manufacturer after they sell 200,000 vehicles.
4. Plug-In Electric Vehicle Credit This is a special tax credit for two types of plug-in vehicles — certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012.
5. Credit for Conversion Kits This credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle that is placed in service after Feb. 17, 2009. The maximum credit, which runs through 2011, is $4,000.
6. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT Starting in 2009, ARRA allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.

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Do you rent property to others? If so, you’ll want to read the following seven tips from our member firms about rental income and expenses.

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them.  An IRS Publication, 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.

1.     When to report income. You generally must report rental income on your tax return in the year that you actually receive it.

2.     Advance rent. Advance rent is any amount you receive before the period that it covers.  Include advance rent in your rental income in the year you receive it, regardless of the period covered.

3.     Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.

4.     Property or services in lieu of rent. If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income.  If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.

5.     Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses.

6.     Rental expenses. Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.

7.     Personal use of vacation home. If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use.  If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.

cpasnet

By: CPASNET

Online payment services allow business and consumers to exchange money electronically over the Internet. With an online payment service, your business can receive payment from any customer with an email account.  Online payment services have recently become very poplar with businesses and consumers.

Advantages of Online Payment Services

Online payment services can either replace or supplement your decision to accept credit and debit cards. Opening an online payment account is often faster and easier than setting up a Merchant Account (which is required to accept credit and debit card payments). Online payment accounts typically incur smaller fees than a traditional Merchant Account, which can have a big impact on businesses with many small transactions. From a customer service angle, it’s beneficial to have multiple payment options available.  Online payment services are also user-friendly and can simplify the payment process by storing customer card information or billing customers at a later date.

Disadvantages of Online Payment Services

As with all payment methods, online payment services have their drawbacks. Most of these services redirect customers to a payment service website to complete a transaction. Being forced to leave your business’s website can be confuse customers – especially those new to online shopping – and could make them abandon a purchase they may have otherwise made.

Your business may not get enough value out of offering both an online payment service and accepting card payments. On the other hand, limited payment options may turn some customers away. Finding the right balance of payment options is something that is unique for every business.

Security Concerns

Major providers of online payment services (PayPal, Bil Me Later) have developed features like two-factor authentication to help businesses enhance e-commerce security.  Two-factor authentication requires businesses to enter a six-digit code in addition to their password, making third-party scams rare. As e-commerce becomes more popular, security features will continue to evolve.  Be sure to research service provider plans for the most current security technology.

Shopping Cart Services

Online payment services require a virtual shopping cart.  Virtual shopping carts allow businesses to accept orders on multiple products from their website.  A shopping cart  can calculate the total, tax, and shipping costs of an order, in addition to collecting customer account and shipping information.

Some online payment service providers offer free shopping cart services to businesses. If your online payment service does not provide a free, secure shopping cart option, third party shopping cart services can be used.

PayPal

PayPal is an online service that enables businesses to accept payments from any customer with an email address and credit card or checking account.  PayPal is a popular option for businesses with many small transactions and businesses that do not directly process card payments.

When a customer decides to make a purchase on your business’s website via PayPal, they simply click the button that will redirect them to the PayPal website. New PayPal customers will complete a one-time, free registration to receive an account number. This account number will allow them to securely make online payments to registered merchants such as your business. After registration, the customer will complete their purchase using their account number. The payment is then processed and sent directly to your PayPal account. The customer is then returned to your business’s website.

Bill Me Later

Bill Me Later is an online payment services that allows consumers to “buy now, pay later”.  Customers are billed for the purchase after several weeks and can then chose to pay either online or through the mail.

When a customer decides to make a purchase using a ”Bill Me Later” option, they are prompted for their birth date and the last four digits of their social security number. With this information, the customer is quickly approved or denied through a credit check. If approved, the transaction is completed through a process similar to a credit card transaction. Customers typically receive their bill within 14 days, at which point they can choose to pay through the mail or online at the Bill Me Later website. Businesses that use Bill Me Later are charged a small fee, generally smaller than that of a Merchant Account, for each transaction made through Bill Me Later.

By CPASNET

Planning what to do in case of a disaster is an important part of being prepared. We would like to remind you to safeguard your records. Some simple steps can help you protect financial and tax records in case of disasters.

Listed below are tips for individuals on preparing for a disaster. Business preparation varies, and we encourage you to contact Gordon Advisors for more information on how to prepare your business for a disaster.

Recordkeeping Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.

Document Valuables The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims.

Update Emergency Plans Emergency plans should be reviewed annually. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches.

Contact your Accountant In the event of a disaster, your accountant is ready to help. They will have valuable information you can request if your records are destroyed.. If you have been impacted by a federally declared disaster, you may receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, clearly identified as a disaster related request.

Thinking about making some energy saving improvements to your home this summer? Taking some energy saving steps now may lead to bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes was increased as part of the American Recovery and Reinvestment Act of 2009.

Here are seven things we want you to know about the Nonbusiness Energy Property Credit:

1. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
2. The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
3. To qualify as “energy efficient” for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
4. Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
5. Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
6. The improvements must be made to the taxpayer’s principal residence located in the United States.
7. To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.

Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.

It’s easy for businesses to accept credit and debit cards, but ”cash only” businesses still are still common.  Use this guide to decide the right mix of payment options for your business.

Accepting Cash Only

Cash is the most commonly accepted and reliable form of payment for a business. Many small businesses operate as “cash only” merchants. Years ago this wouldn’t have been uncommon, but with advances in technology, business owners must ask themselves if they’re hurting their bottom line by limiting payment options.

If you’re thinking about starting a cash only business or if you’re considering expanding your current payment options, be aware of the pros and cons of only accepting cash.

Pro: Cash payments ensure that businesses receive funds immediately. With each transaction, your business immediately receives the appropriate payment amount without the worry of waiting periods or not getting paid at all.

Pro: Cash is the simplest form of payment and therefore involves less bookkeeping. For a business, that not only means less stress and hassle, but it also may save money in the time and labor it would take for a bookkeeper to record other payments methods.

Pro: There is limited risk of fraud when accepting cash only. There are cases of counterfeit cash payments, but compared to other payment methods, fraud is much less common in cash transactions.

Pro: Cash only businesses don’t have to worry about third-parties or fees associated with other payment options.

Con: Customers who do not have enough cash on them will have to walk away from a purchase they would otherwise make.

Con: Your business may lose customers by only accepting cash. As card payments become more and more popular, many consumers expect this to be an option when making purchases. If they find that a particular business only accepts cash, they may feel inconvenienced and shop elsewhere.

Con: Keeping large sums of cash on your business’s premises increases the amount of time you’ll spend managing finances and also creates an added security risk.

Con: The IRS requires that you file a Form 8300 if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.  The same rule applies to cash equivalents such as traveler’s checks, bank drafts, cashier’s checks, and money orders.  The form requires the name, address, and social security number of the buyer.

Accepting Card Payments

Credit and debit cards are popular, convenient, flexible, and have become increasingly important in business commerce. If your business is considering what forms of payment to accept, or if you’d like to expand the payment options of your cash only business, be sure to go over the pros and cons of accepting card payments.

Pro: Card payments are evolving into the most common method of customer payment.

Pro: Businesses can easily accept card payments.

Pro: The convenience of using credit cards generally increases the likelihood of consumer “impulse purchases,” which ultimately contributes to an increase in a business’s average sale. Customers are more likely to make these purchases if they have access to credit or their available bank account funds.

Con: Card payments come with an increased risk of fraud. Although there are laws and security measures that help protect and secure customer information, card payments are inherently more susceptible to foul play than cash. Read more about your responsibilities to protect your customers’ privacy and secure their personal information.

Con: Businesses that accept card payments encounter small processing fees for purchase transactions. These fees seem insignificant but they can certainly add up, especially if your business accepts a lot of small purchases on credit cards.  Setting up the necessary equipment to accept cards also carries additional costs.

Con: Card transactions add another layer of detail to your business’s bookkeeping practices.  Your business will have to take into account the additional time and resources it takes to maintain these books.

The Bottom Line

Accepting card payments will, at least initially, cost your business money and add extra processes in your daily operations. Many small business owners look at this as a necessary operating expense. As card payments become more popular, customers will likely begin to expect a plastic option as a rule, rather than a courtesy.

On the other hand, the nature of some small businesses may make it smarter to stay cash only. Flea markets, street vendors, and lawn service providers are just a few examples of common cash only small businesses. At the end of the day, you will have to decide which payment options will create the most success for your business. Our professionals can help you determine what payments you should be accepting and help you implement payment systems, contact Gordon Advisors, P.C. at 248-952-0200 or on the web at www.gordoncpa.com.

The length of time you should keep a document depends on the action, expense, or event the document records. Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or that the IRS can assess additional tax. The below information contains the periods of limitations that apply to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.

1. You owe additional tax and situations (2) and (3), below, do not apply to you; keep records for 3 years.
2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
3. You do not file a return; keep records indefinitely.
4. You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
5. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
6. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

The following questions should be applied to each record as you decide whether to keep a document or throw it away.

Are the records connected to assets?
Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition.  You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.

Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the bases of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.

What should I do with my records for nontax purposes?
When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes.  For example, your insurance company or creditors may require you to keep them longer than the IRS does.