Author: Leon Clinton

7 Tips to Help You Figure out if Your Gift Is Taxable

If you’ve given money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but there are exceptions. Because gift tax laws can be confusing, here are eight tips you can use to figure out whether your gift is taxable.

1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. In 2019, the annual exclusion amount is $15,000.

2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.

3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.

4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. For example, the following gifts are not taxable:

• Gifts that do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you pay directly to a medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

6. You and your spouse can make a gift up to $30,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting.

7. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.

If you have any questions about the gift tax, please contact the office for assistance.

• By Leon Clinton
• September 24, 2019

5 Tips for Applying for Tax-Exempt Status

If you’re thinking about starting a nonprofit and want to apply for tax-exempt status under Section 501(c)(3) of the tax code, you’ll need to use Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Here are five tips to ensure a successful application:

1. The application must be complete and must include the user fee.

2. Some organizations may be able to file Form 1023-EZ, a streamlined version, if they meet certain criteria such as projected or past annual gross receipts of $50,000 or less for a period of three years.

3. Churches and their integrated auxiliaries (organizations affiliated with a church or association of churches that receives financial support primarily from internal church sources and not public or governmental sources), as well as public charities whose annual gross receipts are normally less than $5,000 do not need to apply for 501(c)(3) status to be tax-exempt.

4. Every tax-exempt organization, including a church, should have an Employer Identification Number (EIN) regardless of whether the organization has employees. An employer identification number is an organization’s account number with the IRS and is required for the organization to apply for tax-exempt status. Once the EIN is received by the organization, it must include it on the application.

5. Generally, an organization that is required to apply for recognition of exemption must notify the IRS within 27 months from the date it was formed.

If you have any questions about applying for tax-exempt status, please call the office for assistance.

• By Leon Clinton
• September 20, 2019

Estimated Tax Penalty Waived for Eligible Filers

More than 400,000 eligible taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability will have the estimated tax penalty automatically waived or refunded (if they already paid the penalty) on 2018 returns filed with the IRS.

Eligible taxpayers who have already filed a 2018 return do not need to request penalty relief, contact the IRS or take any other action to receive this relief.

The automatic waiver applies to any individual taxpayer who paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but did not claim the special waiver available to them when they filed their 2018 return earlier this year. While some taxpayers were unaware of the waiver, others filed their returns too early to take advantage of it.

Earlier this year, the IRS lowered the usual 90 percent penalty threshold to 80 percent to assist taxpayers whose withholding and estimated tax payments fell short of their total 2018 tax liability. The IRS also removed the requirement that estimated tax payments be made in four equal installments, as long as all of the estimated tax payments were made by January 15, 2019. In addition, the 90 percent threshold was initially lowered to 85 percent on January 16 and further lowered to 80 percent on March 22.

Over the next few months, affected taxpayers will receive copies of CP 21 notices in the mail granting them penalty relief. Furthermore, any eligible taxpayer who already paid the penalty will receive a refund check about three weeks after their CP21 notice regardless if they requested penalty relief.

If you haven’t filed a 2018 return yet, for example, if you have an extension until October 15, 2019, you should claim the waiver on your return when you do file. The fastest and easiest way is to file your return electronically. You may also file a paper return and claim the waiver by filling out Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and attaching it to your 2018 return.

If you have any questions about the estimated tax penalty waiver or estimated taxes, don’t hesitate to call.

• By Leon Clinton
• September 17, 2019