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Tips to Maximize the Value of a Car Donation- A little mistake could cost you plenty

At the end of the year you will be inundated with commercials to donate a vehicle to charity. While it is one of the biggest contributions a taxpayer can make, if not done carefully, the tax deduction of a donated vehicle could be a lot lower than you think.

The rule

When you donate a vehicle, the value of your donation is either the fair market value of your vehicle when you donate it OR the value received by the charitable organization for your donation. Unfortunately, you do not choose the value of the donated vehicle.

  • If the organization uses the vehicle, or is in the business of using your vehicle to train others, you can deduct the fair market value of the vehicle.
  • If the charitable group simply resells your donated vehicle, your donation is limited to what the organization receives for your vehicle and NOT the usually much higher fair market value of the item.

What you should do

Select the organization wisely. Select an organization that will either use the vehicle themselves or will use it to train others. Examples of qualified organizations include groups that help single mothers obtain transportation to and from work or use the vehicles to deliver meals to seniors. Other organizations teach auto repair and body shop work to the unemployed. The cars then are given to other non-profits or needy folks. From the IRS perspective, a qualifying charitable use either;

  • makes significant intervening use of the vehicle or,
  • makes significant improvement to the vehicle that increases its value or,
  • donates the vehicle (or sells it at a below market rate) to a needy person that helps further the cause of the organization.

Special Caution: Be aware of national advertisers like KARZ4KIDS..they almost always limit your donation amount by what they can resell your car for…often below the fair market value. And before donating, know how, and be pleased with how, the funds are to be used.

Research the fair market value. Prior to donating your vehicle go to a reputable source and estimate the value of your vehicle. Online resources like and (Kelley Blue Book) are two reliable sites to do this. Also make a copy of your title and take pictures of your car prior to donating it to the charity to help support your fair market value claim.

Obtain the proper tax form. When donating your vehicle make sure the organization gives you a proper Form 1098-C at the time you provide your vehicle. Double check the value assigned to your donation form to ensure it meets or exceeds the estimated fair market value of your donation. Remember, if your valuation exceeds $5,000 you will need an approved appraisal.

Sell the vehicle and donate the cash. If you cannot find a charitable organization that will allow you to maximize your fair market value deduction, consider selling the vehicle and then donating the proceeds. There is a potential problem with this approach, however. Take care that you do not create an unplanned taxable capital gain with the transaction.

Note: These rules apply to other vehicle donations as well. This includes motorcycles, trucks, vans, buses, RV’s and other transportation vehicles.

2022 Health Savings Account Limits- New contribution limits are on the horizon

The savings limits for the ever-popular health savings accounts (HSA) are set for 2022. The new limits are outlined here with current year amounts noted for comparison. So plan now for your contributions.

What is an HSA?

An HSA is a tax-advantaged savings account whose funds can be used to pay qualified health care costs for you, your spouse and your dependents. The account is a great way to pay for qualified health care costs with pre-tax dollars. In fact any investment gains on your funds are also tax-free as long as they are used to pay for qualified medical, dental or vision expenses. Unused funds may be carried over from one year to the next. To qualify for this tax-advantaged account you must be enrolled in a high-deductible health plan (HDHP).

The limits

Note: An HDHP plan has minimum deductible requirements that are typically higher than traditional health insurance plans. To qualify for an HSA, your coverage must have out-of-pocket payment limits in line with the maximums noted above.

The key is to maximize funds to pay for your medical, dental, and vision care expenses with pre-tax money. By building your account now, you could have a next egg for unforeseen future expenses.

Roll it Before You Pull it- Tips to avoid IRS penalties on 401(k) retirement plan distributions

While each retirement plan has similar early withdrawal penalty exemptions, they are not all alike. Knowing these subtle differences within 401(k) plans can help you avoid a 10 percent tax penalty if you take money out of the plan prior to reaching age 59 1/2. This is true because a basic rollover of funds into a Traditional IRA is a readily available option to avoid the penalty. You should consider rolling over your 401(k) into an IRA prior to early distribution when:

  • Using Retirement Funds for Qualified Higher Education Expenses. Want to use retirement funds to pay for college? Pull the funds out of an IRA and not another retirement account type or you could be subject to an additional 10 percent early withdrawal penalty. After rolling the funds into an IRA, the funds can be used penalty-free as long as they are for qualified educational expenses at a qualified school.
  • Using Retirement Funds to Buy, Build, or Rebuild a First Home. You may use up to $10,000 of your IRA per person to purchase a first home and avoid paying the 10 percent early withdrawal penalty. If these same funds are pulled out of a 401(k) plan you could be subject to an additional federal tax of up to $1,000. So roll the funds to a Traditional IRA first, and save the tax.
  • Using Retirement Funds to Pay for Medical Insurance. There is also a provision for an unemployed individual to use IRA funds to pay for medical insurance. This provision does not exist in 401(k)s, so to avoid the early withdrawal penalties, roll the money from your 401(k) into an IRA prior to using the funds to pay for your insurance premiums.

Remember, by rolling the funds prior to pulling the funds for pre-retirement distribution you are avoiding the early withdrawal penalties, but you must still pay the applicable income tax.

Bonus Retirement Plan Tips

Two other quirks in the retirement tax code to be aware of:

  1. Early Distributions From a SIMPLE IRA Could Trigger a 25 Percent Penalty. The early distribution penalty of 10 percent increases to 25 percent for those in SIMPLE IRAs, if the withdrawal occurs during a two-year time period starting from your initial enrollment date in the SIMPLE plan. You may not roll your funds into another retirement plan type during this two year period to try to avoid the increased early withdrawal penalty.
  2. Minimum Distributions are Required From ROTH 401(k)s but Not ROTH IRAs. In an unusual quirk in the tax code, if you have a ROTH 401(k) you are required to make minimum required distributions from this account like other 401(k)s and IRAs when you reach age 72. If, however, you roll the ROTH 401(k) funds into a ROTH IRA you are no longer subject to the minimum distribution rule requirements.

Is it really the IRS?- Four tips to ensure your security

Pretending to be an IRS agent is one of the favorite tactics of scam artists, according to the Better Business Bureau. The con artists impersonate the IRS to either intimidate people into making payments over the phone, or to send misleading emails tricking people into sharing personal information digitally.

You can defend yourself against these scammers by knowing these simple rules:

Tip 1: Expect a letter first

In almost every case, the IRS will send you a letter via standard mail if they need to get in touch with you. This will alert you to expect future communication from the agency and instruct you on the best ways to get in touch with them.

What to do: If you get a letter from the IRS that is unexpected or suspicious, it should have a form or notice number searchable on the IRS website, If something doesn’t look right, you can call the IRS help desk at 1-800-829-1040 to question it.

Tip 2: Never over email

The IRS will never initiate contact with you using email. A common scammer trick is to send emails to taxpayers using accounts and graphics that imitate the agency’s logo. These emails may threaten imprisonment or fines if you don’t pay up, or promise an extra refund if you send money to “prepay” your taxes. Often the emails contain links to an official-looking fake website to collect payments. Clicking on them may also trigger the installation of virus programs on your computer.

What to do: Don’t respond to any email communications supposedly from the IRS. Don’t click on any links. Delete the email or forward it to to help catch the scammers.

Tip 3: Proper phone call etiquette

After notification via the USPS, the real IRS may call to discuss options for handling delinquent taxes or an audit. A real IRS agent or a debt collector won’t demand immediate payment without giving you an opportunity to question or appeal the bill. Nor will they threaten lawsuits, arrest or deportation. Their tone should not be hostile or insulting. Finally, if they ask for payment, they should be asking you to make payments only to the United States Treasury.

What to do: If you get a call from the IRS or an IRS debt collector, politely ask for the employee’s name, badge number and phone number. They shouldn’t hesitate to provide this information. You should then end the call and dial the IRS at 1-800-366-4484 to confirm the person’s identity.

Tip 4: Check in-person visits

Ask the person for their credentials. Every IRS agent is able to produce two forms of credentials: a pocket commission card and a personal identity verification card issued by the Department of Homeland Security, also called an HSPD-12.

What to do: Never provide sensitive information nor confirm information they may have without first independently verifying they are legitimate representatives of the IRS. If you have concerns, call the IRS at 1-800-366-4484 to confirm the person’s identity.

You do not need to navigate this problem on your own. Call immediately for assistance. It is good to have a knowledgeable expert on your side.

A Dozen Tax Planning Triggers

With all the tax law changes over the past few years, here are some things that should trigger you to conduct a full tax planning session to ensure your tax bill is not higher than it needs to be.

1. You owed tax in 2020. Having a surprising tax bill is never fun. So if you owed taxes last year, project your current year obligation if you have not already done so.

2. Your household income is over $150,000 single and $200,000 joint. As your income grows, so does your tax bill. This occurs because tax rates increase, and tax benefits phase out. This includes things like; lower child tax credit amounts, increases in capital gains tax rates, higher income tax rates, medicare surtaxes plus more.

3. You are getting married or divorced. The tax penalty for being married is higher than ever. Are you prepared?

4. You have kids attending college next year. There are a number of tax programs that can help, you may wish to review your options and their impact on your tax return.

5. You have a small business. There are depreciation benefits, qualified business deductions, and numerous small business tax credits to consider. A review is especially important if you have a business that is a flow through entity like Sub Chapter S or LLC companies as these entities are taxed on your personal tax return..

6. You plan on selling investments. Capital Gains tax rates can now range from 0% to 37% (or even higher with the Net Investment Tax).

7. There are changes in your employer provided benefits. These changes could impact your taxable income this year.

8. You buy, sell or go through home foreclosure. There are great tax benefits within your home, but only if you know about them and plan accordingly.

9. You have major medical expenses. It is harder than ever to itemize deductions, but one way it possible to itemize is if you have a major medical expense. When this happens it is time to review ALL itemized deductions to minimize your taxes.

10. You recently lost or changed jobs. Understanding the tax impact of unemployment benefits is crucial.

11. You have not conducted a tax withholding review. To avoid under withholding penalties, you need to ensure your withholdings are sufficient.

12. Your estate has not been reviewed in the past 12 months. Recently passed estate laws and potential changes in these rules make an annual review a must.

If any of these triggers apply to you, please schedule a tax planning appointment.

Employee Tax-Free Income

While most income received from your employer quickly ends up on a W-2 tax form at the end of the year, here are some common employee benefits that often avoid the impact of Federal taxes.

Health Benefits. While now reported on W-2’s, employer-provided health insurance premiums are currently not required to be reported as additional income by the employee. This includes premiums paid for the employee and qualified family members. In addition, the employee portion of premiums can be paid in “pre-tax” dollars.

Credit Card Airline “miles”. Credit card benefits like miles are not generally deemed as taxable income. So those miles earned on corporate credit cards that go to you as an individual are not likely to increase your tax bill.

Employee tuition reimbursement. Up to $5,250 of tuition reimbursed to you by your employer is not deemed to be additional taxable income.

Commuting expenses. You can generally exclude the value of transportation benefits you receive up to the following limits.

  • $270 per month for combined commuter highway vehicle transportation and transit passes.
  • $270 per month for qualified parking.
  • For a calendar year, $20 multiplied by the number of months for qualified bicycle commuting expense reimbursement.

Company Health Savings Account (HSA) Contributions. Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax.

Group Term Life Insurance. You can generally exclude the cost of up to $50,000 of group-term life insurance from your wages.

Small gifts. The IRS calls these “de minimis” benefits. Small-valued benefits are not included in income and could include things like the use of the company copy machine, occasional meals, small gifts, and tickets to a sporting event.

Inflation Spikes Social Security Checks for 2022

The Social Security Administration announced a whopping 5.9 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2022. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2021.

For those contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 2.9 percent this year, to $147,000. Here’s a recap of the key dollar amounts:

2022 Social Security Benefits – Key Information

What it means for you

  • Up to $147,000 in wages will be subject to Social Security taxes, an increase of $4,200 from 2021. This amounts to $9,114.00 in maximum annual employee Social Security payments. Any excess amounts paid due to having multiple employers can be returned to you via a credit on your tax return.
  • For all retired workers receiving Social Security retirement benefits, the estimated average monthly benefit will be $1,657 per month in 2022, an average increase of $92 per month.
  • SSI is the standard payment for people in need. To qualify for this payment, you must have little income and few resources ($2,000 if single, $3,000 if married).
  • A full-time student who is blind or disabled can still receive SSI benefits as long as earned income does not exceed the monthly and annual student exclusion amounts listed above.

Social Security & Medicare Rates

The Social Security and Medicare tax rates do not change from 2021 to 2022.

Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also a 0.9 percent Medicare wages surtax for single taxpayers with wages above $200,000 ($250,000 for joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

Five Tax-Loss Harvesting Tips

Though the markets have been up strongly this year, your investment portfolio could have a few lemons in it. Using the tax strategy of tax-loss harvesting, you may be able to turn those lemons into lemonade. Here are five tips:

Tip #1: Separate short-term and long-term

Your investments are divided into short-term and long-term buckets. Short-term investments are those you’ve held a year or less, and their gains are taxed as ordinary income. Long-term investments are those you’ve held more than a year, and their gains are taxed at generally, lower capital gains tax rates. A goal in tax-loss harvesting is to use losses to reduce short-term gains.

Example: By selling stock in Alpha Inc., Sly Stocksale made a $10,000 profit. Sly only owned Alpha Inc. for six months, so his gain will be taxed at his ordinary income tax rate of 35 percent (versus 20 percent had he owned the stock more than a year). Sly looks into his portfolio and decides to sell another stock for a $10,000 loss, which he can apply against his Alpha Inc. short-term gain.

Tip #2: Follow netting rules

When tax-loss harvesting, use IRS netting rules on the realized gains and losses in your portfolio. Short-term losses must first offset short-term gains, while long-term losses offset long-term gains. Only after you net out each category can you use excess losses to offset other gains. Use this knowledge to your advantage to reduce your taxable income when selling investments.

Tip #3: Lower your ordinary income by $3,000

In addition to reducing capital gains tax, excess losses can also be used to offset up to $3,000 of ordinary income each year. If you still have excess losses after reducing both capital gains and ordinary income, you can carry these losses forward to use in future tax years.

Tip #4: Beware of wash sales

The IRS prohibits use of tax-loss harvesting if you buy a “substantially similar” asset within 30 days before or after selling it. Plan your sales and purchases to avoid this problem.

Tip #5: Consider administrative costs

Tax-loss harvesting comes with costs in both transaction fees and time spent. Reduce the hassle by conducting tax-loss harvesting once a year as part of your annual tax-planning strategy.

Remember, you can turn an investment loss into a tax advantage, but only if you know the rules.

File That Tax Return!- October extension deadline fast approaching

Friday, October 15 marks the extension deadline for filing your 2020 Form 1040 Tax return. Given all the recent tax legislation, numerous stimulus checks and COVID-related tax changes, there are more open tax return filings than ever!

If you have not filed a tax return and don’t think you need to file one, please reconsider. Billions of refunds go unclaimed each year by taxpayers that really should file a tax return.

Here’s a quick checklist of situations when filing a tax return might make sense even if you don’t have to:

  • You are due a refund. Without filing, the government could end up keeping these funds. So double check your stimulus check payments. Did you get them? Were they for the full amount? Preparing a tax return, even if not filed, is a good exercise to ensure you received the full benefit.
  • You paid tax on unemployment benefits. With the federal government making up to $10,700 of these benefits tax-free, you may be due a nice refund.
  • You had taxes withheld from your paychecks, but end up owing no tax for the year.
  • You are eligible for Health Insurance Premium Credits. Be aware of this possible benefit if you use the market exchange to purchase your health care insurance.
  • You are eligible for a refundable credit. This is true with the popular Earned Income Tax Credit, the Additional Child Tax Credit, and a portion of the American Opportunity Tax Credit.
  • Your state requires a federally filed tax return.
  • You want the filed tax return for your records.
  • You wish to start your audit time clock. Remember the audit time-frame never starts if you do not file your tax return.

Many taxpayers have trouble gathering accurate and complete information necessary to file their tax return. When they cannot get all the necessary information, they get stuck. Should this be your situation, please ask for help. Even a reasonably close tax filing that is later amended when more information becomes available is sometimes a better alternative than not filing at all.

How to Reduce Your Property Taxes

Market values of homes are skyrocketing and higher property tax bills are soon to follow. Prepare now to knock your property taxes back down to earth.

What is happening

Property taxes typically lag the market. In bad times, the value of your home goes down, but the property tax is slow to show this reduction. In good times, property taxes go up when you buy your new home, but these higher prices quickly impact those that do not plan to move.

To make matters worse, you can now only deduct up to $10,000 in taxes on your federal tax return. That figure includes all taxes – state income, property and sales taxes combined! Here are some suggestions to help reduce your property tax burden.

What you can do

If you dread the annual letter informing you that your property tax is going to go up again what can you do? Your best bet is usually to approach the assessor and ask for a property revaluation. Here are some ideas to successfully reduce your home’s appraised value.

Do some homework to understand the approval process to get your property revalued. It is typically outlined on your property tax statement.

Understand the deadlines and adhere to them. Most property tax authorities have strict deadlines. Miss one deadline by a day and you are out of luck.

Do some research BEFORE you call your assessor. Talk to neighbors and honestly assess the amount of disrepair your property may be in versus other comparable properties in your neighborhood. Call a few real estate professionals. Tell them you would like a market review of your property. Try to choose a professional that will not overstate the value of your home hoping to get a listing, but will show you comparable sales for your area. Then find comparable sales in your area to defend a lower valuation.

Look at your property classification in the detailed description of your home. Often times errors in this code can overstate the value of your home. For example, if you live in a condo that was converted from an apartment, the property’s appraised value could still be based on a non-owner occupied rental basis. Armed with this information, approach the assessor seeking first to understand the basis of the appraisal.

Ask for a review of your property. Position your request for a review based on your research. Do not fall into the assessor trap of defending your review request without first having all the information on your property. Meet the assessor with a specific value in mind. Assessors are used to irrational arguments, that a reasonable approach is often readily accepted.

While going through this process remember to be aware of the pressure these taxing authorities are under. This understanding can help temper your position and hopefully put you in a better position to have your case heard.