For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. Although this break hasn’t yet been extended to 2014, it is available for 2013.

It can be valuable if you reside in a state with no or low income taxes or if you purchase major items, such as a car or boat. So see if you can save more by deducting sales tax on your 2013 return. And if you’re contemplating a major purchase, keep an eye on Congress to see if the break will be revived for 2014. You may want to factor the deduction’s availability into your purchase decision.

For help determining whether deducting sales tax makes sense for you — and for the latest information on the status of the deduction for 2014 — please contact us.

To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services.

“Contemporaneous” means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. So if you made a donation in 2013 but haven’t yet received substantiation from the charity, it’s not too late — as long as you haven’t filed your 2013 return. Contact the charity and request a written acknowledgement.

And don’t take the substantiation requirements lightly. In one U.S. Tax Court case, the taxpayers substantiated a donation deduction with canceled checks and a written acknowledgment. The IRS denied the deduction, however, because the acknowledgment failed to state whether the taxpayers received goods or services in consideration for their donation. The taxpayers obtained a second acknowledgment including the required statement, but the Tax Court didn’t accept it because it wasn’t contemporaneous.

Additional substantiation requirements apply to some types of donations. We can help ensure you meet them so you can enjoy the deductions you’re expecting.

If your use of a home office is for your employer’s benefit or because you’re self employed, you may be able to deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space. Or you may be able to take the new, simpler, “safe harbor” deduction.

Beginning with 2013 tax returns, taxpayers can use the safe harbor deduction in lieu of calculating, allocating and substantiating actual expenses. Other rules — such as the requirement that the office be used regularly and exclusively for business — still apply. The safe harbor deduction is capped at $1,500 per year, based on $5 per square foot up to a maximum of 300 square feet.

Also be aware that, for employees, home office expenses are a miscellaneous itemized deduction. This means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses exceed 2% of your adjusted gross income (AGI). If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income.

Questions about deducting home office expenses? Contact us; we’d be pleased to answer them.

With the well-publicized security breach at major retailer Target recently, identity theft is likely on your mind. And stolen credit isn’t your only risk.

In an increasingly common scam, identity thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. When the real taxpayers file their returns, they’re notified that they’re attempting to file duplicate returns. It can take months to straighten things out, causing all sorts of headaches and delaying legitimate refunds.

You can reduce your likelihood of becoming a victim by filing your return as soon as possible after you receive your W-2 and 1099s. If you file first, it will be the thief who’s filing the duplicate return, not you.

Also, if you did shop at Target during the security breach, be sure to check your bank and credit card accounts frequently, and consider signing up for the free year of credit monitoring the retailer is offering potential victims.

If you’d like to file your tax return early this year, please contact us. We’d be happy to help. Also let us know if you have questions about protecting yourself from tax return fraud and identity theft.

Under the Affordable Care Act (ACA), beginning in 2013, taxpayers with FICA wages over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) had to pay an additional 0.9% Medicare tax on the excess earnings.

Unlike regular Medicare taxes, the additional Medicare tax doesn’t include a corresponding employer portion. But employers are obligated to withhold the additional tax to the extent that an employee’s wages exceed $200,000 in a calendar year. The $200,000 amount doesn’t include the employee’s income from any other sources or take into account his or her tax filing status.

In November 2013, the IRS released final regulations regarding the additional Medicare tax and the employer withholding requirements. The only substantial change from the proposed regulations is that employers no longer have access to relief from payment liability for any additional Medicare tax that was required to be withheld but that they didn’t withhold — unless the employer can provide evidence that the employee in question has paid the tax.

Please let us know if you have questions about the requirements. We’d be happy to answer them and help you ensure you’re in compliance with these as well as other ACA requirements.

Now that we’re in the new year, it’s time for an estate plan checkup. Why? First, various exclusion, exemption and deduction amounts are adjusted for inflation and can change from year to year, so it’s a good idea to see if they warrant any updates to your estate plan:

But inflation adjustments aren’t the only reason for an estate plan checkup. You should also review your plan whenever there are significant changes in your family, such as births, deaths, marriages or divorces. And your estate plan also merits a look if your financial situation has changed significantly.

If you want to find out if your estate plan needs updating — or if you don’t have an estate plan and would like to put one in place — please contact us. We can help you ensure you have a plan that will achieve your goals.

Many valuable tax breaks expired at the end of 2013. But Congress probably will revive at least some of them, likely retroactively to Jan. 1, 2014. The question is exactly which breaks they’ll extend and when they’ll pass the necessary legislation to do so.

Here are several that may benefit you or your business if extended:

• The deduction for state and local sales taxes in lieu of state and local income taxes,
• Tax-free IRA distributions to charities,
• 100% bonus depreciation,
• Enhanced Section 179 expensing,
• Accelerated depreciation for qualified leasehold improvement, restaurant and retail improvement property,
• The research tax credit,
• The Work Opportunity tax credit, and
• Various energy-related tax incentives.

Please check back with us for the latest information. In the meantime, keep in mind that, if you qualify, you can take advantage of these breaks on your 2013 tax return.

With the new year upon us, it’s time to start thinking about 2014 retirement plan contributions. Contributing the maximum you’re allowed to an employer-sponsored defined contribution plan is likely a smart move:

• Contributions are typically pretax.
• Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
• Your employer may match some or all of your contributions pretax.

Also consider contributing to a traditional IRA. If you participate in an employer-sponsored plan, your IRA deduction may be reduced or eliminated, depending on your income. But you can still benefit from tax-deferred growth.
Consider your Roth options as well. Contributions aren’t pretax, but qualified distributions are tax-free.

Retirement plan contribution limits generally aren’t going up in 2014, but consider contributing more this year if you’re not already making the maximum contribution. And if you are already maxing out your contributions but you’ll turn age 50 in 2014, you can put away more this year by making “catch-up” contributions.

For more ideas on making the most of tax-advantaged retirement-savings options in 2014, please contact us.

Every December are your employees scrambling to use up their vacation time because of limits on what they can roll over to the new year? Or do you allow rollovers and have long-time employees who’ve built up large balances that create a significant liability on your books? Then you may want to consider a paid time off (PTO) contribution arrangement that allows employees with unused vacation hours to elect to convert them to retirement plan contributions.

If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting the excess PTO amounts to employer contributions.

If you’d like to offer this option, you simply need to amend your plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms, and additional rules apply. Please contact us for more information on the ins and outs.

For 2013, the maximum IRA contribution is $5,500 — $6,500 if you’re age 50 or older on Dec. 31. (The maximum IRA contribution or deduction may be reduced or eliminated depending on various factors.) But if you’re self-employed, you may be eligible for a retirement plan that allows you to make much larger contributions. As long as you set up one of the following plans by Dec. 31, 2013, you can make deductible 2013 contributions as late as the 2014 due date of your tax return:

Profit-sharing plan. This allows discretionary contributions and flexibility in plan design. The 2013 contribution limit is $51,000 ($56,500 for taxpayers age 50 and older).

Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. So you may be able to contribute more to a defined benefit plan than to a profit-sharing plan. The maximum future annual benefit toward which 2013 contributions can be made is generally $205,000.

Various caveats and limits apply, so contact us for details. But act soon; there’s not much time left to set up a plan for 2013.