Tax

Do you plan to donate your time to charity this holiday season? If travel is part of your charitable giving, for example, driving your personal auto to collect donations from local business, you may be able to these travel expenses on your tax return and lower your tax bill. Here are five tax tips you should know if you travel while giving your services to charity.

1. Qualified Charities. To be able to deduct your costs, your volunteer work must be for a qualified charity. Most groups must apply to the IRS to become qualified. Churches and governments are generally qualified and do not need to apply to the IRS. Ask the group about its status before you donate. You can also use the “Exempt Organizations Select Check” search tool on IRS.gov to check a group’s status or call the office.

2. Out-of-Pocket Expenses. You can’t deduct the value of your services that you give to charity. But you may be able to deduct some out-of-pocket costs you pay to give your services. This can include the cost of travel, but they must be necessary while you are away from home. All out-of-pocket costs must be:

• Unreimbursed,
• Directly connected with the services,
• Expenses you had only because of the services you gave, and
• Not personal, living or family expenses.

3. Genuine and Substantial Duty. Your charity work has to be real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

4. Value of Time or Service. You can’t deduct the value of your time or services that you give to charity. This includes income lost while you serve as an unpaid volunteer for a qualified charity.

5. Travel You Can Deduct. The types of expenses that you may be able to deduct include Air, rail and bus transportation, car expenses, lodging costs, cost of meals, and taxi or other transportation costs between the airport or station and your hotel.

6. Travel You Can’t Deduct. Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or vacation.

Don’t hesitate to call if you have any questions about travel expenses related to charitable work.

• By Leon Clinton
• December 28, 2017

Flexible Spending Accounts or FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, now is when many employers are offering employees the option to participate during the 2018 plan year.

Interested employees who wish to contribute to an FSA during the new year must make this choice again for 2018, even if they contributed in 2017. Self-employed individuals are not eligible.

An employee who chooses to participate can contribute up to $2,650 during the 2018 plan year (up from $2,600 in 2017). Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.

Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details about eligible expenses and claim procedures.

Under the use or lose provision, participating employees must often incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.

Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year–for example, an employee with $500 of unspent funds at the end of 2018 would still have those funds available to use in 2019. Under the grace period option, an employee has until 2 1/2 months after the end of the plan year to incur eligible expenses–for example, March 15, 2019, for a plan year ending on December 31, 2018. Employers can offer either option, but not both, or none at all.

Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. Please call if you have any questions about how FSA contributions affect your taxes.

• By Leon Clinton
• December 24, 2017

Taxpayers born before July 1, 1947, generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by December 31.

Known as required minimum distributions (RMDs), typically these distributions must be made by the end of the tax year, in this case, 2017. The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2017 RMD, this amount is on the 2016 Form 5498 normally issued to the owner during January 2017.

A special rule allows first-year recipients of these payments, those who reached age 70 1/2 during 2017, to wait until as late as April 1, 2018, to receive their first RMDs. What this means that those born after June 30, 1946, and before July 1, 1947, are eligible. The advantage of this special rule is that although payments made to these taxpayers in early 2018 can be counted toward their 2017 RMD, they are taxable in 2018.

The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by December 31. So, for example, a taxpayer who turned 70 1/2 in 2016 (born after June 30, 1945, and before July 1, 1946) and received the first RMD (for 2016) on April 1, 2017, must still receive a second RMD (for 2017) by December 31, 2017.

The RMD for 2017 is based on the taxpayer’s life expectancy on December 31, 2017, and their account balance on December 31, 2016. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) in IRS Publication 590-B. For a taxpayer who turned 72 in 2017, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than ten years younger and is the taxpayer’s only beneficiary. If you need assistance with this, don’t hesitate to call.

Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions; however, there may be a tax on excess accumulations. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

For more information on RMDs, please call.

• By Leon Clinton
• December 21, 2017