Donations to qualified charities are generally fully deductible, and they may be the easiest deductible expense to time to your tax advantage. After all, you control exactly when and how much you give. But before you donate, it’s critical to make sure the charity you’re considering is indeed a qualified charity — that it’s eligible to receive tax-deductible contributions.

The IRS’s recently launched online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. The previous source for this information was IRS Publication 78, which is incorporated in the new tool.

You can access EO Select Check athttp://apps.irs.gov/app/eos. Information about organizations eligible to receive deductible contributions is updated monthly.

Finally, in an election year, it’s important to remember that political donations aren’t tax-deductible.

Coverdell Education Savings Accounts (ESAs), like 529 savings plans, offer a tax-smart way to fund education expenses:

• Contributions aren’t deductible for federal purposes, but plan assets can grow tax-deferred
• Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and may be tax-free for state purposes.
• You remain in control of the account — even after the child is of legal age.
• You can make rollovers to another qualifying family member.
• One major ESA advantage over a 529 plan is that tax-free distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. Many taxpayers have been taking advantage of this by using ESA funds to pay for such expenses as tutoring or private school tuition.

However, if Congress doesn’t extend this treatment, distributions used for precollege expenses will be taxable starting in 2013. So you can’t count on using tax-free ESA funds to pay these expenses next year — which essentially means as soon as the second half of the new school year.

Barring congressional action, ESAs will become less attractive in 2013 for an additional reason: The annual ESA contribution limit per beneficiary, currently $2,000, will go down to $500 for 2013. Contributions (both in 2012 and 2013) are further limited based on income.

Bringing family or friends along on a business trip and extending your stay can be an excellent way to fund a portion of your vacation costs and save taxes. But if you’re not careful, you could lose the tax benefits.

Generally, if the primary purpose of your trip is business, then expenses directly attributable to business will be deductible (or excludable from your taxable income if your employer is paying the expenses or reimbursing you through an accountable plan). Reasonable and necessary travel expenses generally include:

• Air, taxi and rail fares,
• Baggage handling,
• Car use or rental,
• Lodging,
• Meals, and
• Tips.

Expenses associated with taking extra days for sightseeing, relaxation or other personal activities generally aren’t deductible. Nor is the cost of your spouse or children traveling with you.

How do you determine if your trip is “primarily” for business? One factor is the number of days spent on business vs. pleasure. But some days that you might think are “pleasure” days might actually be “business” days for tax purposes. “Standby days,” for example, may be considered business days, even if you’re not engaged in business-related activities. You also may be able to deduct certain expenses on personal days if tacking the days onto your trip reduces the overall cost.

During your trip it’s critical to carefully document your business vs. personal expenses. Also keep in mind that special limitations apply to foreign travel, luxury water travel and certain convention expenses. For example, no deduction is allowed for expenses relating to a convention, seminar or meeting held outside North America unless it’s reasonable for the meeting to be held there.

Congress has adjourned for its August recess and we still have no extensions of tax law provisions that expired at the end of 2011 or any definitive answers on what will happen to tax rates and breaks set to expire at the end of this year. While the House and Senate each passed its own tax bill, no compromises were made that would allow either bill to generate sufficient votes in the other chamber.

Congress isn’t scheduled to return until Sept. 10, and many pundits believe no tax law changes will be passed by both the House and Senate until the lame duck session after the Nov. 6 election. Still others believe nothing will happen until the new year, with changes made retroactive to the beginning of 2012 or 2013 (depending on when a particular provision expired).

This continued uncertainty makes tax planning a challenge. For example, it’s difficult to determine how to best time your income and deductible expenses when you don’t know whether your tax rate will go up, go down or remain the same next year. Deferring income to the next year and accelerating deductible expenses into the current year typically is a good idea, because it will defer tax, which is usually beneficial.

But when you expect to be in a higher tax bracket next year — or you expect tax rates to go up — the opposite approach may be beneficial: Accelerating income will allow more income to be taxed at your current year’s lower rate. And deferring expenses will make the deductions more valuable, because deductions save more tax when you’re subject to a higher tax rate.

Now that the U.S. Supreme Court has upheld the Patient Protection and Affordable Care Act of 2010, businesses need to start preparing for provisions that will go into effect in 2013 (unless Congress repeals them). One such provision is a new limit on employee contributions to health care Flexible Spending Accounts (FSAs).

Employees can redirect pretax income to FSAs, which then pay or reimburse them for medical expenses not covered by insurance. Currently, employers that offer FSAs can set the employee contribution limits for them. But starting in 2013 the health care act applies a $2,500 limit to employee contributions. (However, there will continue to be no limit on employer contributions to FSAs. Also note that a $5,000 employee contribution limit already applies to child and dependent care FSAs.)

According to the IRS, the $2,500 limit on pretax employee FSA contributions applies on a plan year basis. Thus, non-calendar-year plans must comply for the plan year that starts in 2013. Employers will need to amend their plans and summary plan descriptions to reflect the $2,500 limit (or a lower one, if they wish) and institute measures to ensure employees don’t elect contributions that exceed the limit.

If you rent out all or a portion of your vacation home for less than 15 days, you don’t have to report the income. But expenses associated with the rental won’t be deductible.

If you rent out your vacation home for 15 days or more, you’ll have to report the income. But you also may be entitled to deduct some or all of your rental expenses — such as utilities, repairs, insurance and depreciation. Exactly what you can deduct depends on whether the home is classified as a rental property for tax purposes (based on the amount of personal vs. rental use):

Rental property. You can deduct rental expenses, including losses, subject to the real estate activity rules. You can’t deduct any interest that’s attributable to your personal use of the home, but you can take the personal portion of property tax as an itemized deduction.

Nonrental property. You can deduct rental expenses only to the extent of your rental income. Any excess can be carried forward to offset rental income in future years. You also can take an itemized deduction for the personal portion of both mortgage interest and property taxes.

In some situations, it may be beneficial to adjust your personal use of a vacation home — or the number of days you rent it out — so that it will be classified in a more beneficial way for tax purposes.

A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

Unfortunately, modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute:

• For married taxpayers filing jointly, the 2012 phaseout range is $173,000–$183,000.
• For single and head-of-household taxpayers, the 2012 phaseout range is $110,000–$125,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

If the income-based phaseout prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you. How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion.

An employer enjoys several advantages when it classifies a worker as an independent contractor instead of an employee. For example, it isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws. However, there’s a potential downside: If the IRS determines that workers have been improperly classified as independent contractors rather than employees, the employer can be subject to significant back taxes, interest and penalties.

To determine whether a worker is an employee or an independent contractor, the IRS considers three categories of factors related to the degree of control and independence:

1. 1.      Behavioral. Does the employer control, or have the right to control, what the worker does and how the worker does his or her job?
2. 2.      Financial. Does the employer control the business aspects of the worker’s job? Does the employer reimburse the worker’s expenses or provide the tools or supplies to do the job?
3. 3.      Type of relationship. Will the relationship continue after the work is finished? Is the work a key aspect of the employer’s business?

The determination of the proper classification under these factors may not always be clear. Fortunately, the IRS offers two programs that may provide some relief: 1) the Classification Settlement Program (CSP), which is available to employers undergoing an audit and allows qualified employers to prospectively reclassify workers as employees, and 2) the Voluntary Classification Settlement Program (VCSP), which allows employers to reclassify workers as employees at a relatively low tax cost outside of the audit process and without the need to go through the normal administrative correction processes.

Now that the U.S. Supreme Court has generally upheld 2010’s health care act, it’s important to consider how it will affect your tax liability. One way might be your Medicare tax liability.

Under the act, starting in 2013, higher-income taxpayers will be subject to an additional 0.9% tax on wages and self-employment income that exceed specified thresholds, generally $200,000 for single filers and heads of households and $250,000 for married taxpayers filing jointly ($125,000 for married taxpayers filing separately).

On top of that, taxpayers are scheduled to be subject to a new 3.8% Medicare tax on net investment income to the extent that their modified adjusted gross income (MAGI) exceeds specified thresholds, also generally $200,000 for single filers and heads of households and $250,000 for married taxpayers filing jointly ($125,000 for married taxpayers filing separately).

Investment income does not include distributions from IRAs, pensions, 401(k) plans or other qualified retirement plans. But distributions from these plans could trigger additional Medicare taxes on net investment income by increasing MAGI.

If your income might be high enough to subject you to these additional taxes next year, consider accelerating income into 2012 where possible. However, you’ll need to keep in mind whether such actions could trigger the alternative minimum tax.

Also consider whether, before year end, you should sell highly appreciated assets you’ve held long term. It may make sense to recognize gains now rather than risk paying Medicare tax on them next year.

These strategies may also prove beneficial if ordinary and long-term capital gains rates increase as scheduled next year. But keep an eye on Congress: A repeal of the provision imposing the additional Medicare tax (as well as an extension of current income and long-term capital gains rates) could occur.