If you donate your vehicle, the value of your deduction can vary greatly depending on what the charity does with it. You can deduct the vehicle’s fair market value (FMV) if the charity:

• Uses the vehicle for a significant charitable purpose (such as delivering meals-on-wheels to the elderly),
• Sells the vehicle for substantially less than FMV in furtherance of a charitable purpose (such as a sale to a low-income person needing transportation), or
• Makes “material improvements” to the vehicle.

But in most other circumstances, if the charity sells the vehicle, your deduction is limited to the amount of the sales proceeds.

You also must obtain proper substantiation from the charity, including a written acknowledgment that:

• Certifies whether the charity sold the vehicle or retained it for use for a charitable purpose,
• Includes your name and tax identification number and the vehicle identification number, and
• Reports, if applicable, details concerning the sale of the vehicle within 30 days of the sale.

For more information on these and other rules that apply to vehicle donation deductions, please contact us.

As the school year draws to a close, it’s a good time to think about Coverdell Education Savings Accounts (ESAs) — especially if you have young children.

One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring and private school tuition.

Here are some other key ESA benefits:

• Although contributions aren’t deductible, plan assets can grow tax-deferred.
• You remain in control of the account — even after the child is of legal age.
• You can make rollovers to another qualifying family member.

The annual contribution limit is $2,000 per beneficiary. However, the ability to contribute is phased out based on income.

Would you like more information about ESAs or other tax-advantaged ways to fund your child’s — or grandchild’s — education expenses? Contact us!

Generally, businesses are limited to deducting 50% of allowable meal and entertainment (M&E) expenses. But certain expenses are 100% deductible, including expenses:

• For food and beverages furnished at the workplace primarily for employees,
• Treated as employee compensation,
• That are excludable from employees’ income as de minimis fringe benefits,
• For recreational or social activities for employees, such as holiday parties, or
• Paid or incurred under a reimbursement or similar arrangement in connection with the performance of services.

If your company has substantial M&E expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of M&E expenses that are fully deductible. For more information on how to take advantage of the 100% deduction, please contact us.

Incentive stock options allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for.

ISOs must comply with many rules but receive tax-favored treatment:

• You owe no tax when ISOs are granted.
• You owe no regular income tax when you exercise ISOs.
• If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax.
• If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates.

There also might be alternative minimum tax consequences in certain situations. If you’ve received ISOs, contact us. We can help you determine when to exercise them and whether to immediately sell shares received from an exercise or to hold them.

Whether you filed your 2014 income tax return by the April 15 deadline or filed for an extension, you may think that it’s a good time to take a break from thinking about taxes. But doing so could be costly. Now is actually the time you should begin your 2015 tax planning — if you haven’t already.

A tremendous number of variables affect your overall tax liability for the year, and starting to look at these variables early in the year can give you more opportunities to reduce your 2015 tax bill. For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year end activity. To get started on your 2015 tax planning, contact us. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.

The additional 0.9% Medicare tax applies to FICA wages and self-employment income exceeding $200,000 per year ($250,000 for married filing jointly and $125,000 for married filing separately). Unfortunately, the withholding rules have been tripping up some taxpayers, causing them to face an unexpected tax bill — plus interest and penalties — when they file their returns.

Employers must withhold the additional tax beginning in the pay period when wages exceed $200,000 for the calendar year — without regard to an employee’s filing status or income from other sources. So if your wages don’t exceed $200,000, your employer won’t withhold the tax — even if you’re liable for it. This might occur because you and your spouse’s combined wages exceed the $250,000 threshold for joint filers or because you have wages from a second job or have self-employment income.

If you expect to be in the same situation in 2015, consider filing a W-4 form to request additional income tax withholding, which can be used to cover the shortfall and avoid interest and penalties. Or you can make estimated tax payments. If you have questions about the additional 0.9% Medicare tax, please contact us.

When a company’s deductible expenses exceed its income, generally a net operating loss (NOL) occurs (though of course the specific rules are more complex). If when filing your 2014 income tax return you’ve found that your business had an NOL, there is an upside: tax benefits.

When a business incurs a qualifying NOL, the loss can be carried back up to two years, and then any remaining amount can be carried forward up to 20 years. The carryback can generate an immediate tax refund, boosting cash flow.

However, there is an alternative: The business can elect instead to carry the entire loss forward. If cash flow is fairly strong, carrying the loss forward may be more beneficial, such as if the business’s income increases substantially, pushing it into a higher tax bracket — or if tax rates increase. In both scenarios, the carryforward can save more taxes than the carryback because deductions are more powerful when higher tax rates apply.

In the case of flow-through entities, owners might be able to reap individual tax benefits from the NOL.

Please contact us if you’d like more information on the NOL rules and how you can maximize the tax benefit of an NOL.

The IRS considers a paper return that’s due April 15 to be timely filed if it’s postmarked by midnight on April 15. But dropping your return in a mailbox on the 15th may not be sufficient.

For example, let’s say you mail your return with a payment on April 15, but the envelope gets lost. You don’t figure this out until a couple of months later when you notice that the check still hasn’t cleared. You then refile and send a new check. Despite your efforts to timely file and pay, you’re hit with failure-to-file and failure-to-pay penalties totaling $1,500.

To avoid this risk, use certified or registered mail or one of the private delivery services designated by the IRS to comply with the timely filing rule, such as:

• FedEx Priority Overnight
• FedEx Standard Overnight
• FedEx 2Day
• UPS Next Day Air Saver
• UPS 2nd Day Air
• UPS 2nd Day Air A.M.

Beware: If you use an unauthorized delivery service, your return isn’t “filed” until the IRS receives it. For example, DHL is no longer an authorized delivery service.

If you’re concerned about meeting the April 15 deadline, another option is to file for an extension. We can help you determine if that makes sense for you.

The deadline for 2014 IRA contributions is April 15, 2015. The limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on Dec. 31, 2014).

If you haven’t already maxed out your 2014 limit, consider making one of these types of contributions by April 15:

1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2014 tax return. Account growth is tax-deferred; distributions are subject to income tax.

2. Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits may reduce or eliminate your ability to contribute, however.

3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from anondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.

Generally, you’ll need to file a gift tax return for 2014 if, during the tax year, you made gifts:

• That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions, or
• Of future interests — such as remainder interests in a trust — regardless of the amount.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

There may be other instances where you’ll need to file a gift tax return — or where you won’t need to file one even though a gift exceeds your annual exclusion. Contact us for details.