Welcome to the Tax Blog

News, information, and opinions about:

  • Federal, State, and Virginia Beach Taxes
  • The Tax Preparation Business
  • Tax Planning

If you have a question or comment, please drop me a line. Paul @ PIM Tax.

2 March 2016

virginia beach tax prep child tax creditsChildren under the age of 17 can be very valuable on a tax return. I miss the days when my children were younger and I could claim them all on my return. I think I was always extra nice to them around tax season after seeing how much they had saved me on my taxes. They might have noticed, though I doubt they enjoyed being called “my little exemptions” for a week or two.

Any dependent for tax purposes will provide some benefits, but this article is focused on the federal tax benefits for children under the age of 17. When I use the term “children” in this article I am referring to children under the age of 17.

The five big benefits children can bring to a tax return are:

• The child’s personal exemption, reducing the amount of your money exposed to taxation
• The ability to claim Head of Household filing status (for single taxpayers)
• Child Tax Credit/Additional Child Tax Credit
Child and Dependent Care Credit (for children under 13)
Earned Income Tax Credit

With all of those potential benefits, the ability to claim children on your tax return can make a huge difference in your tax liability to the federal government. Not surprisingly, the value of children on a tax return has led to some disputes between taxpayers as to who can claim a child for tax purposes. Often this is between parents who have split up, with both parents providing support to the child(ren).

The IRS has rules governing who may claim a child for tax purposes. These rules do not always match a “divorce decree” or other ruling from a state court. In such cases the IRS rules take precedence for federal tax purposes. Many people find this shocking. They spent a lot of time and legal fees to get a divorce agreement in place, and they find it difficult to believe the IRS doesn’t have to adhere to it. Well, believe it, because they don’t. Marriage, divorce, and parental support of children are governed by state laws. The IRS is not.

If you want to claim all of the tax benefits for a child then you need to have custody as defined by the IRS. Your divorce arrangement may say you have “joint custody”, but if you have not met the IRS definition of custody, then you don’t have custody for federal income tax purposes.

The IRS standard is based on the number of nights the child spent with one parent or the other. Whichever parent the child spent the most nights with is the custodial parent in the eyes of the IRS. That standard resolves the majority of custody disputes for tax issues. There are additional “tie-breaker rules” for the unlikely situations in which the child(ren) spends an equal number of nights with both parents. (If you have questions about those tie-breaker rules, call me.)

Meeting the IRS custody standard enables a taxpayer to:
a. File as Head of Household
b. Claim the child for Earned Income Tax Credit
c. Claim the Child and Dependent Care Credit

These benefits are non-transferable. If you do not have custody of the child(ren) according to the terms laid out by the IRS, you cannot claim any of the above-listed benefits – even if the other parent isn’t claiming those benefits or says they don’t mind if you do. In other words, if your child(ren) lived with their other parent more than they lived with you, you are not Head of Household, you can’t use your child(ren) to claim the Earned Income Tax Credit, and you can’t claim the Child and Dependent Care Credit. The IRS rules are very clear on this.

The parent with custody will also normally have the right to claim
a. The child’s personal exemption
b. Child Tax Credit/Additional Child Tax Credit

HOWEVER, those last two tax benefits can be claimed by the non-custodial parent if the custodial parent agrees. The custodial parent can transfer these tax benefits to the non-custodial parent by filing Form 8332, Release of Claim to Exemption for Child by Custodial Parent. Form 8332 can be submitted for a single year or for multiple years. The same form can also be used to revoke a previously made release of claim.

It is not uncommon for divorced parents to legally share the tax benefits of their child(ren) either during a tax year or over multiple tax years. Parents with two or more children may agree that some of the children lived the majority of the year with one parent and some of the children lived a majority of the year with the other parent. This enables each parent to claim the non-transferable tax benefits of the children who lived with them for most of the year.

Parents of a single child can share the tax benefits over time if the child lives the majority of the year with one parent in some years and lives the majority of the year with the other parent for the other years. This would likely cause large variations in federal taxes between the years of claiming the child and the years of not claiming the child. If both parents are agreeable, however, it should be manageable with some appropriate planning.

Remember that we are dealing with federal tax law. I don’t recommend trying to be clever and claim something that isn’t true. If your return is audited the IRS may ask for evidence that your child lived with you for the majority of the year claimed. School records, day care records, medical bills, etc. is typically what they are looking for. You might have a difficult time convincing them your child lived with you here in Virginia Beach if they attended school in Santa Monica that year.

The IRS rules on this are rigid, but there is always a little wiggle room. The laws have to apply to every taxpayer, and sometimes people’s situations are not a perfect fit to the situations envisioned by the lawmakers when they were crafting the laws. If you have questions about your ability to claim a child on your tax return, please contact me.

virginia beach tax prep partnership

03 February 2016

I am writing this post because I have seen several clients who have formed a business partnership without knowing there were tax filing implications for doing so. I am not trying to dissuade anyone from forming a partnership, but I think it would be helpful for people to know how that is going to impact their tax return preparation.

OK, let me get this disclaimer out of the way: I am not a lawyer. I don't give legal advice, and this blog post is not meant to be legal advice. This post isn't even tax advice. This post is meant to educate taxpayers on the tax ramifications of forming a partnership.

A partnership can be formed in several ways, but the one that seems to surprise the most people in my experience is when they form a Limited Liability Company (LLC) together. Limited Liability Companies have become very popular for the protection against personal liability they extend to small business owners. LLCs are organized under state laws, and many states - including Virginia - have made them relatively easy and affordable to form.

When an LLC is formed the state wants to know who the members of the LLC are. The members are the owners. If you list more than one member when you form your LLC then under federal tax law you have just created a partnership. (Unless you decide to incorporate, which I cover in more detail later.)

A simple scenario might be one in which Jim and John are friends and generally handy do-it-yourselfers. John has a truck, they both have some tools, and they decide to try to make a little money on the side by doing simple repair work at people's residences. They form an LLC to limit their liability, listing both Jim and John as members of the LLC.

In the eyes of the IRS they have just formed a partnership.

Why do Jim and John care that they have just formed a partnership? Because partnerships are required to file a separate federal income tax return - the Form 1065, US Return of Partnership Income. Like most states, Virginia also requires partnerships to file a separate tax return - Form 502, Pass Through Entity Return of Income.

Don't misunderstand - Jim and John's partnership does not have to pay any tax. A partnership is a pass through entity - all of the profits and losses are passed through to the partners. Jim and John will pay the taxes for the partnership through their individual income tax returns. BUT, the partnership must file the 1065 return so the IRS has a record of the profits and losses that were passed through to each partner. 

The process works as indicated in the diagram below. The partnership files form 1065. At the time the 1065 is created Schedule K-1s are created for each of the partners. The K-1 contains the information about each individual partner's income and expenses from the partnership. Each partner would use the Schedule K-1 issued by the partnership when preparing his or her individual income tax return. The information from the K-1 generally gets placed on Schedule E of form 1040 of the individual return.

How a Partnership Return Works

(There are other uses for Schedule K-1, by the way. It's not only used for partnerships, so if you hear someone talking about a schedule K-1 it doesn't always mean there was a partnership involved.)

Partnership tax returns are generally more complex than individual income tax returns. While Jim and John have a very simple partnership, the same tax form also has to be able to handle a partnership between Berkshire Hathaway (an American corporation) and Fiat (a foreign corporation). That partnership does not exist, but those two corporations could form a partnership, and if they did the partnership would have to file a form 1065.

To further complicate things, income on an individual tax return (form 1040) falls into different categories for tax purposes. For example, long term capital gains are taxed differently than wages. Those two types of income have different character. Because the income from the partnership is passing through to the individual partners, it is important for the character of income to be preserved. Long term capital gains from a partnership must pass to the partners as long term capital gains. Rents as rents, etc. In order for this to happen some of the income items on a form 1065 must be separately stated. This can make the Form 1065 a real pain in the neck to figure out.

In addition to the complexity of the return, the software to create the 1065 isn't cheap, either. There are some significant hassles for do-it-yourselfers. I'm not saying a small business owner couldn't figure out how to prepare and file his or her own Form 1065, but Jim and John would probably benefit from some professional assistance.

Is there a way to get out of filing a partnership return? Well, there's this: You file a form 8832 and have your partnership declared a corporation. You might have some very good reasons for doing this, but simplifying your tax situation is not one of them. Corporations file their own separate tax return and some of them also have to pay their own taxes. You wouldn't reclassify your partnership as a corporation as a method of streamlining your tax paperwork, because you will very likely have more paperwork with a corporation than with a partnership. 

Partnerships and LLCs are some great tools for small business owners. Just be sure your eyes are open about the tax consequences if you form one. You are going to have to file some additional tax forms. If you have questions please contact me.

18 February 2016

virginia beach tax treparation gambling taxesLet me start by stating that I enjoy some forms of gambling - I'm a numbers guy, I like the numbers - but I really hate the federal tax treatment of gambling. I think the laws are ridiculous and grossly unfair. Ridiculous because they are nearly impossible for an average taxpayer to comply with. Grossly unfair because...well, that's a long explanation that I'll get to later. Regardless of my personal feelings, however, the laws are the laws and we will always attempt to adhere to them. 

How to Account for Gambling Winnings on Your Tax Return

Gambling winnings of any amount are considered taxable income. If you won $50 in the office Super Bowl squares game you're supposed to pay taxes on it. Gambling winnings of that simplicity are on the honor system, though. There is no paper trail for the IRS to follow, so compliance is very low. Only a fanatically compliant taxpayer would actually consider including that $50 on his or her tax return, but legally they're supposed to. 

To encourage compliance at higher forms of gambling the government requires casinos, horse tracks, and dog tracks to generate the form W-2G for certain winners. Those winners would be

  • anyone who wins more than $600 when the payout is at least 300 times the original bet
  • anyone who wins more than $1,200 playing slots or bingo
  • anyone who wins more than $1.500 at keno
  • anyone who wins more than $5,000 in a poker tournament

Not only is the casino required to issue you a W-2G, they are also required to deliver a copy to the IRS and withhold either 25% or 28% of your winnings and send that to the IRS as well. The rules on whether to withhold 25% or 28% are somewhat convoluted, but the casino is never wrong if they withhold 28%, so many default to that amount to be safe.

Your gambling winnings go on line 21 of form 1040. If you filed a 1040EZ or a 1040A in the past, congratulations, you have graduated to the form 1040. It is the only form that can accommodate gambling winnings.

If you itemize your tax deductions you can deduct gambling losses on schedule A up to the amount of gambling winnings. In other words, if you have $1,000 of gambling winnings and $3,000 of gambling losses you can deduct $1,000 of your gambling losses. You still eat $2,000 of gambling losses without getting any tax benefit, but at least it zeroes out your gambling winnings for tax purposes.  Well.... kinda... Let me show you how that isn't 100% true.

Why Gambling Tax Laws are Grossly Unfair

This is where I explain why I think the tax laws on gambling are grossly unfair. Let's look at an example. This example is exaggerated to make my point, but after reading it you should be able to understand the inherent unfairness of how the law works.

John is a school teacher earning $50,000 per year. He drives a Corolla, has a child, contributes $300 per month to his IRA, is working toward his master's degree, and pays his taxes on time every year. John also visits a local casino every night and bets $1,000 on a single hand of blackjack. That's it, one bet, $1,000, every night, 365 days a year.

In 2015 John won 182 times and lost 183 times for a net loss of $1,000 for the year.

Model citizen John includes $182,000 (his 182 wins) as income on line 21 of his form 1040 and deducts $182,000 on schedule A (the maximum he can deduct up to his winnings). John's adjusted gross income (AGI) for the year is now $232,000 (his gambling winnings plus his teacher's salary). At that AGI his contributions to his IRA are no longer tax deductible, increasing his tax bill by $900 given his 25% top marginal rate. He no longer qualifies for the child tax credit, costing him another $1,000. He no longer qualifies for the lifetime learning credit for his college expenses, costing him up to $2,000. He may even owe Alternative Minimum Tax. 

John's $182,000 deduction for gambling losses peaks the interest of the friendly neighborhood IRS agent, who decides to audit John. Does John have records and/or receipts for his gambling losses? Probably not. Most people who gamble recreationally don't bother. Why would you? You're just having a bit of fun, not running a business. But John better hope he can prove he lost $182,000 at the casino, or his gambling deduction could be disallowed and then he is in for a ton of taxes due.

John's net gambling losses for the year were $1,000, and the tax code beats the hell out of him for it. That is why I believe the tax laws on gambling are grossly unfair. You can't net your wins and losses for the year on your tax return. You have to claim all your wins as income and then deduct the losses later on the form. That approach can wreck someone's tax situation. 

When it comes to gambling, it's like Uncle Sam is your silent mafia partner. If you win you pay him his cut. If you lose he can get it out of you in other ways. 

If you do a fair amount of recreational gambling it is prudent to keep a good record of your wins and losses. If you ever hit a big payout you will want to be able to substantiate the deduction for losses you'll take on schedule A to offset your winnings. If you have questions about taxes and gambling please contact me. 

virginia beach tax preparation cool guy

14 February 2016

Tom left his wife Wilma in May 2015 and moved in with his pregnant girlfriend Greta. Tom and Wilma have a 3-year-old daughter who remains with Wilma in the house where they previously all lived together. Tom is not providing any support to Wilma or their daughter. Greta gives birth to a boy in November. Legal proceedings for Tom and Wilma's divorce have not yet started.

What is Tom's filing status for his 2015 tax return?

What about Wilma and Greta? How should they file? These are tricky situations.

No one complains more than I do about the complexity of the tax code, but in some ways it has to be complex. It must cover every US Taxpayer - and there will be some unusual situations in the mix. Situations that don't fit the typical pattern or original intent of the law. Yet, the law must be interpreted to cover every one of those situations, even Tom and his children and their mothers and their living arrangements.

In this situation there are several legal ways for Tom to file, so we want to use the one that would be most advantageous. You will often hear me say Legal and Most Advantageous, which I also abbreviate as LAMA

Based on our knowledge of the situation thus far his options may include Married Filing Jointly (MFJ), Married Filing Separately (MFS), Single, and Head of Household (HoH). There might be some additional circumstances that prevent Tom from using one or more of those filing statuses, so we need to explore them a bit further.

Tom and Wilma could file Married Filing Jointly, and this may well be their most advantageous filing status. While filing this way might be advantageous with respect to minimizing their tax burden, filing jointly would require a degree of cooperation between Tom and Wilma that may not exist. Tom can't file jointly if Wilma refuses. Likewise, Wilma can't file jointly if Tom refuses. They would need to agree to do it, and share information to get their tax return completed. They might cooperate if they are shown that it saves them money, but in situations like these it is not uncommon for people to forgo their most advantageous filing status to avoid cooperating with a soon-to-be ex. Emotion has been known to trump logic in such matters.

Tom's filing status could be Married Filing Separately. This may seem like the most logical way for Tom to file, since he is married and he is separated from his spouse. However, it is probably also the least advantageous way for him to file (but we don't yet know for sure). Remarkably, it could still require a small degree of cooperation between Tom and Wilma. When a married couple elects to file separately they must both claim their tax deductions in the same manner - meaning they must both itemize on schedule A OR they must both claim the standard deduction for married filing separately. In order to know how your spouse claimed deductions you have to ask them. 

Tom may qualify to file as Head of Household. Although married, the IRS makes provision for a taxpayer to be considered unmarried and file as Head of Household if they meet ALL of the following tests:

  • You file a separate return from your spouse (you can't be HoH if you have a spouse on your tax return)
  • You paid more than half the cost of keeping up the home 
  • Your spouse did not live in the home in the last 6 months of the year (Tom left in May)
  • Your house was the main house of your child for more than half the year 
  • You can claim an exemption for the child on your taxes
    read more here: https://www.irs.gov/publications/p17/ch02.html

The child in question for the above IRS tests isn't Tom's daughter with Wilma, but his son with Greta. Although the child was born in November he is considered to have lived with Tom all year. As long as Tom paid for more than half of the upkeep on the home he lives in with Greta, he can qualify. He would need to cooperate with Greta for this filing status, as she may also be able to claim the child on her return, and they cannot both claim the child. (Their contributions to home upkeep would need to be relatively close for it to be questionable who can claim the child.)

Tom could also file as single. He can be considered unmarried as he did not live with his spouse for the last 6 months of the year. State marriage laws may come into play here. If the state has a process for being legally separated it must be used. (Virginia does not have such a provision.) Filing singly is less advantageous than filing as HoH, so Tom would only use this filing status if Greta is claiming their son on her taxes.

To find the most advantageous filing status solution Tom should calculate his taxes all of the different ways and compare the results. In the above scenario I would expect the most advantageous filing status would be for Tom and Wilma to file jointly and Greta to file as Head of Household (assuming all other criteria are met), but I wouldn't know for sure until I had run the numbers through my software every possible way. That can be tedious and time consuming, but might be worth the effort.

If you have questions about your filing status, please feel free to contact me.

20 January 2016

risk'You don't know what you don't' know was a commonly used expression in my former career as a Navy Intelligence Officer. It carried two different meanings. Sometimes it meant never stop researching the adversary. Other times it meant we have intelligence not everyone can be told. Either way, I don't think the expression was as useful in that line of work as it is in tax preparation.

Most people who seek professional assistance with their taxes do so because they are afraid of what they do not know. They fear they will leave something critical off of their tax return causing them to underpay their taxes and landing them in hot water with the IRS. They also fear they will be unaware of a tax break they qualify for and will pay more in taxes than they need to.

The peace of mind they get from having a professional prepare their taxes is worth the cost of the service. They don't know what they don't know, but they expect the professional will know.

I would say that is usually true, but not always. There are, unfortunately, some inexperienced and under-educated tax preparers out there. My first year as a preparer I frequently worked alone in the shop with another first year preparer. We were the only two available to work the evening shift, so it was just us most evenings. Customers had no idea we didn't have a very broad base of tax knowledge or experience. They assumed (reasonably so, I think) that the nationally known company for which we worked would never leave two newbies alone in the store during tax season.

So, you don't know what you don't know extends beyond knowledge of taxes, but also to the knowledge, credentials, and experience of your tax preparer. Does that person across the desk actually know what they are doing? Remarkably, only one customer that entire year ever asked me about my credentials or experience. I was a little stunned when she asked (probably because of the way she threw it at me like an accusation), but I think it is a very reasonable question.

So, you're sitting across from your tax preparer. What do you ask? How do you know if that person about to prepare your taxes is competent? Here are some rules of thumb I recommend:

- If your taxes can be filed on a 1040EZ or a 1040A, anyone will do. Seriously. In fact, you should probably just do them yourself.

- If you file a plain old form 1040 you probably want someone with at least a year's worth of experience.

- If you file a 1040 with a Schedule C, E, F, or H, you want someone with at least 3 year's experience. Preferably someone with the Enrolled Agent (EA) credential.

- If you are filing something other than an individual tax return, such as a form 1041, 706, 709, 990, 1065, or 1120, you want an EA or a CPA.

In retrospect I am glad I worked alongside another new preparer my first tax season. I was forced to deal with some more complex tax issues than I would have been if paired with a senior tax preparer. I was forced to learn at a faster rate. It was good for my growth as a tax professional. It worked out well for me that most of my clients didn't know what they didn't know. That doesn't make it right, of course, but it worked out.

I am an Enrolled Agent, federally licensed and regulated by the IRS to prepare taxes and represent taxpayers at any office within the IRS. If you want professional assistance with your tax return, please contact me.

navy family2

13 January 2016

Last week I discussed the Military Spouse Residency Relief Act and how Virginia applies it. Virginia has some additional tax laws specific to military personnel, and I thought this would be a good time to run through those.

1. If you are military, but not a resident of Virginia, you do not have to  pay income tax on your military pay or on interest earned from deposits in Virginia banks. However, if you have income attributable to Virginia sources  - like an extra part-time job or income from a rental property - this is taxable in Virginia.

Virginia is not unique in this regard. Most states will tax the non-military income of military members. One Navy Petty Officer I know had inherited an IRA during the year. She cashed out the entire amount, which was just about equal to what the Navy was paying her for the year. Her home state, Missouri, didn't tax her military pay, but they wanted a piece of that IRA distribution. She wasn't very happy when she found that out, which is why I always encourage people to contact a tax professional whenever something unusual is happening with their finances. It could save you a bundle.

2. Virginia provides a deduction for military basic pay for Virginia residents. Military  personnel who are Virginia residents can exempt up to $15,000 of their basic pay from Virginia income taxes. However, this benefit starts to phase out, dollar-for-dollar at $15,000 of basic pay. If your basic pay is $20,000 you  can deduct $10,000 from your Virginia taxes. {$15,000 - ($20,000 - $15,000)}  = $10,000. The benefit completely disappears at $30,000, so it is only useful to junior personnel. (If you're a supervisor, make sure your junior personnel are aware of that provision. Most tax software has to be prompted to use that credit.)

3. The wages of O-3 and below serving in the Virginia National Guard are exempt from Virginia income taxes (up to $3,000).

4. If you are stationed outside the US when your Virginia return is due (1  May), then you are automatically granted an extension until 1 July.

5. Remember - if one spouse is a Virginia resident and the other is not,  then the resident of Virginia should file their Virginia return as "Married  Filing Separately" even if their Federal tax return was file "Married Filing Jointly".  This is for Virginia residents, only. Not all states handle the situation of spouses being from different states the same way. If you are doing your own taxes you will need to research the states where you file.

If you would like some assistance with your taxes, please contact me or schedule an appointment!.


16 December 2015

time fliesWhere did 2015 go? It flew by. The older I get the faster the years seem to go. they tell me most people experience that phenomenon, and that makes sense. When you're 10 years old 1 year is 10% of your entire life. That makes a year a significant span of time. When you're 50 years old 1 year is 2% of your life. A much less significant span of time.

I retired from the US Navy 5 years ago. Hard to believe it's been 5 years, but it has. I was in the Navy for 23 years, 8 months and 18 days (but who's counting?) and it seems like just yesterday. But as of 30 November I have officially been a civilian for 5 years.

I was thinking about my transition to civilian life recently. There were a few bumps. Figuring out Tricare and Delta Dental were two of those bumps. Then there was the Survivor Benefit Plan (SBP). In addition there was also a bump related to figuring out my taxes. You'd think a tax nerd would have an easy time with his own tax situation, but I made a few mistakes. I thought I'd share those with you. Maybe some future retirees will have a smoother transition than I had if they read this.

My lovely wife, Tade, and I decided to remain in Virginia after I retired from the Navy. She had a good job. We still had one child in high school and one in college in Virginia. We like it here. It was a good fit for us. I focused my civilian job search on Virginia, and I was fortunate to find a great job right here in Virginia Beach.

One consequence of remaining in Virginia, however, is that I immediately became a Virginia resident and subject to Virginia income taxes. I could no longer hide behind the (rather flimsy) veil of being a Florida resident transported to Virginia against my will by the Navy. (Never mind that I owned a house here, voted here, had 4 cars registered here, and sent my kids to school here.) I was a Florida resident for as long as I was on active duty. (Florida has no state income tax if you didn't know, so it was to my personal advantage to maintain my residency in that state for as long as I could.) That good deal came to a screeching halt on 01 December of the year I became a civilian. I was fully exposed to Virginia taxation. So was my pension.

A few states do not tax military pensions, but Virginia isn't one of them. Just like the federal government, Virginia will tax it like it is income. They will also withhold taxes from your pension just like they would withhold taxes from your active duty pay. The problem is they tend to under withhold - by a lot! So much, in fact I had to pay a penalty for under withholding to both Washington and Richmond my first full year out of the service.

The reason this under withholding tends to happen is that the DoD doesn't know you have other income in addition to your pension. They treat it like it is your only income. Let's say your pension is $30,000 per year. The DoD looks at that and says, this person will be in the 10% tax bracket, and they'll withhold taxes as though you are in the 10% tax bracket. They don't know you and your wife are also making a combined $150,000 at your jobs, and your top marginal rate will be 25% (or maybe 28%). They should be withholding a lot more. When you file your tax return you'll discover not nearly enough tax was being withheld from your pension and you're going to have to stroke a check to both the United States and the Great State of Virginia.

That stings a bit.

You can avoid that sting by setting up your tax withholding in MyPay to match what you will actually owe in taxes. You can do this by lowering the claimed exemptions on your form W-4, but that still might not be enough. I found it easier to just give them a straight dollar amount to withhold every month. I estimated our tax bill, subtracted what was already being withheld by our employers, and then told MyPay to withhold the rest from my pension. Now I don't have to worry about under withholding and the associated penalties that can lead to.

If you want some help estimating your taxes so you can set an appropriate withholding amount , please contact me

30 December 2015

virginia beach tax preparation new years resolutionIt is Resolution Season, that magical time when we pick something we want to accomplish in the coming year and take a solemn vow to make it happen. Solemn being in the eye of the beholder, of course. Most of our pasts are littered with abandoned resolutions.

Tade has actually been keeping a record of our New Year's resolutions for the past couple of decades. She has a small book for just that purpose. She breaks it out somewhere between December 27 and January 2 and we review resolutions from previous years. Then we make this year's resolutions and she dutifully records them for posterity.

Like many Americans, most of my previous resolutions have had something to do with becoming healthier and taking better care of myself. Sometimes my resolutions are general - I will exercise more. Sometimes they are specific - I will go to the gym 3 times per week this year. Usually they are abandoned by February, which is why I must make the same resolutions over and over again.

Looking back, the years where I did best at sticking to my physical fitness resolutions were the years I had someone to workout with. Someone who knew, or even shared, my fitness goals. Someone who knew things about fitness I did not know, and we could discuss techniques. Someone who would note even small amounts of my progress. Someone who would know when I wasn't sticking to my plan. Someone keeping me motivated and accountable.

There's just something about having a partner that makes doing the hard things easier. Many people resolve themselves (at this time of year) to get their personal finances in order. Just like most other resolutions it gets abandoned by February.

Change is hard. Perhaps if people had a partner helping them with their personal finance goals they would be more likely to stick to them. Someone to discuss strategies and techniques. Someone to note small amounts of progress. Someone to provide accountability.

One of my favorite things to do is to help other people reach their financial goals. If you would like to start to work towards yours this year, you should contact me. I will be your partner.

23 December 2015

virginia beach tax prep givingIt is the Giving Season. That time of year when we open our hearts and our wallets to our families, friends, and communities. A situation brought on by both the holidays and the realization that the tax year is nearly over and we are running out of time to make a tax deductible charitable contribution.

That may sound like I am being cynical, but I am not. There are some very good reasons to wait until this time of year to donate to charity:

  1. I know what the Christmas bills came to and I can balance my books. While I have a ballpark figure of how much I am going to donate in a given year I like to make sure Tade and I didn't overdo it at Christmas before I commit the money. I like the security of knowing the check is going to clear before I send it.
  2. I have a clearer picture of our overall tax situation at the end of the year. With children in college there is some question about who is going on my return and who is filing their own return. Also, as a small business owner my revenue for the year can be a mystery until the very end.I prefer having clarity on my taxsituation before I donate.
  3. Lots of businesses do matching donations this time of year. Always nice to get my favorite charities some extra money by making a donation at a time when someone else will double it.

If you are giving at this time of the year, and I hope you are, make sure you are keeping track of those receipts and thank you letters. Here are the IRS recordkeeping requirements:

  • If you gave a gift of $250 or more you need a letter from the charity stating the amount donated and the value of any benefits you received as a result of your gift. (For example, if you paid $300 to attend a charity dinner you must decrease the amount of your deduction by the value of the meal you received.)
  • Receipts or other written records of the donation (credit card statement, cancelled check) showing the amount donated, the date, and the name of the charity.
  • If you give property in lieu of cash you can deduct the fair market value at the time of the donation. If the property is valued at over $500 you may need to obtain an independent appraisal of the property.

You are not required to include these receipts and other records with your tax return, but you are required to produce them for review if the IRS audits your income tax return.

Donating Appreciated Property

It is often advantageous for taxpayers to donate appreciated property instead of cash. Imagine for a minute that you have some ABC stock worth $2,000. You originally paid $1,000 for the ABC stock, but it has appreciated and is now worth $2,000. You would like to make a $2,000 contribution to your favorite charity. You can donate the stock or you could just give them cash. If you donate the cash you can deduct the $2,000 from your taxes. If you donate the ABC stock you can also deduct the fair market value of the stock - $2,000. However, by donating the stock you also avoid paying the capital gains taxes on the $1,000 of capital gain on the stock when you sell it. For most people the capital gains rate (long term) is 15%. Donating the stock instead of cash saved you an extra $150 in taxes.

It's a great time of year for charitable giving. If you want some assistance figuring out the best way for you to be more effective with your charitable donations, please contact me.


Information in the Tax Blog is current as of the day it was posted. Tax laws change frequently, and it is likely that as time passes acts of Government will make some of the older blog content out of date.

The information provided is for education purposes only. It is general in nature and may not pertain to the Reader's situation. Every taxpayer's circumstances are unique. Reader's are urged to do some research or talk to a tax professional before acting on any of the information posted in this blog.

Paul D. Allen is a founding member of the Military Financial Advisors Association, as well as a member of the National Association of Enrolled Agents, the National Association of Tax Professionals, the Financial Planning Association of Hampton Roads, the National Association of Personal Financial Advisors (NAPFA), and the XY Planning Network. Paul is the Director of the CFP Board-Registered Program at The Regent University School of Law where he also teaches the Capstone Course in Financial Planning. You can read more about Paul's background here.


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Common Acronyms

ACTC - Additional Child Tax Credit

AGI - Adjusted Gross Income

AMT - Alternative Minimum Tax

APTC - Advanced Premium Tax Credit

AOC - American Opportunity Credit

CTC- Child Tax Credit

EIC - Earned Income Credit

HoH - Head of Household

LLC - Lifetime Learning Credit

MFJ - Married Filing Jointly

MFS - Married Filing Separately

MAGI - Modified Adjusted Gross Income

PIM - Plan of Intended Movement

PTC - Premium Tax Credit

QC - Qualifying Child

QHEE - Qualifying Higher Education Expenses

QR - Qualifying Relative

QW - Qualifying Widow(er)


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