The tax administrations from the United States, Australia and the United Kingdom announced on May 8, 2013, a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world. The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands.  The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure. The IRS, Australian Tax Office and HM Revenue & Customs have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions. Thus, they have developed a plan for sharing the data, as well as their preliminary analysis, if requested by those other tax administrations.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. “Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”

There is nothing illegal about holding assets through offshore entities; however, taxing authorities believe that such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements. The taxing authorities expected that this multilateral cooperation and coordinated effort will allow many countries to efficiently process this information and effectively enforce any laws that may have been broken.  Increasingly, tax administrations are working together in this way to assist one another in identifying non-compliance with the tax laws.

U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate.  Failure to do so may result in significant penalties and possibly criminal prosecution.

For further information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this article with others that might benefit from this information.

The IRS recently reminded taxpayers that saving for their retirement can make them eligible for a tax credit worth up to $2,000. If you contribute to an employer-sponsored retirement plan, such as a 401(k) or to an IRA, you might be eligible for the “Saver’s Credit.” Following are seven points you should know about the Saver’s Credit:

1. The Saver’s Credit is formally known as the Retirement Savings Contribution Credit. The credit can be worth up to $2,000 for married couples filing a joint return or $1,000 for single taxpayers.

2. Your filing status and the amount of your income affect whether you are eligible for the credit. You may be eligible for the credit on your 2012 tax return if your filing status and income are:

• Single, married filing separately or qualifying widow or widower, with income up to $28,750
• Head of Household with income up to $43,125
• Married Filing Jointly, with income up to $57,500

3. You must be at least 18 years of age to be eligible. You also cannot have been a full-time student in 2012 nor claimed as a dependent on someone else’s tax return.

4. You must contribute to a qualified retirement plan by the due date of your tax return in order to claim the credit. The due date for most people is April 15.

5. The Saver’s Credit reduces the tax you owe.

6. You need to use IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit (see link below). Be sure to attach the form to your federal tax return. If you use IRS e-file, the software will do this for you.

7. Depending on your income, you might be eligible for other tax benefits if you contribute to a retirement plan. For example, you may be able to deduct all or part of your contributions to a traditional IRA.

For more information about the Saver’s Credit or other retirement savings tax credits, contact your professional tax advisor or tax preparer, or contact Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also is available in IRS Publication 590, Individual Retirement Arrangements, IRS Publication 4703, Retirement Savings Contributions Credit, and IRS Form 8880 (links below). These also are available at the official IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article with others that might benefit from this information.

Additional IRS Resources:

• Form 8880, Credit for Qualified Retirement Savings Contributions
• Publication 590, Individual Retirement Arrangements
• Publication 4703, Retirement Savings Contributions Credit

The Internal Revenue Service announced on January 11, 2012, annual inflation adjustments for tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012. The tax items for 2013 of greatest interest to most taxpayers include the following changes:

• Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance below contains the taxable income thresholds for each of the marginal rates.
• The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
• The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
• The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However, beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). The personal exemption phases out completely at $372,500 ($422,500 for married couples filing jointly).
• The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
• Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.
• For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

For more information about these adjustments, and more generally the amounts and types of deductions and exemptions which might be available in your specific situation, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Further details on these inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan. 28, 2013. Other inflation adjusted items were published in October 2012 in Revenue Procedure 2012-41. Please also feel free to share this article with others that might benefit from this information.

The Internal Revenue Service, on January 15, 2013, announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction). The IRS estimated that the new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record-keeping burden on small businesses by 1.6 million hours annually.

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829), often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form. Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option. The new simplified option is available starting with the 2013 return most taxpayers file early in 2014.

For more information about the home office deduction, and more generally the amounts and types of deductions which might be available in your specific situation, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Further details on the new option to claim the home office deduction also can be found in Revenue Procedure 2013-13, posted on www.IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013. Please also feel free to share this article with others that might benefit from this information.

Late spring and summer always are popular times for a wedding. If you recently were married, there are several changes that also might be necessary with regard to your tax filing status. Remember that even if the planning for your wedding is over, you still cannot forget about planning for the tax-related changes that marriage brings. Following are some tips for recently married taxpayers related to updating your name, address and tax filing status following a marriage, as well as other tips to remember. (Note that some of these tips also are equally applicable for people that are recently divorced.)

• Notify the Social Security Administration. It is important that your name and Social Security number match on your next tax return, so if you have taken on a new name, report the change to the Social Security Administration. File Form SS-5, Application for a Social Security Card (for applicants in the U.S.), Form SS-5-SP, Application for a Social Security Card (for Spanish speaking applicants who have difficulty translating the SS-5), or Form SS-5-FS, Application for a Social Security Card (for applicants applying outside the United States). The forms also can be obtained on the SSA’s official website at www.SSA.gov, by calling 800-772-1213, or by visiting a local SSA office. For additional tips and useful links related to making a name change following a marriage or divorce, see the article, “Five Tax Filing Tips for Recently Married or Divorced Taxpayers.”
• Notify the IRS if you move. IRS Form 8822, Change of Address (link also below), is the official way to update the IRS of your address change. Download Form 8822 using the link below or directly from the official IRS website at www.IRS.gov, or order it by telephone by calling 800-TAX-FORM (800-829-3676).
• Notify the U.S. Postal Service.  To ensure your mail—including mail from the IRS—all is forwarded to your new address, you will need to notify the U.S. Postal Service. Submit a forwarding request online at www.USPS.com, or visit your local post office.
• Notify your employers of any address changes.  Report any name and address changes to your employer or employers to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
• Check your withholding.  If both spouses work, keep in mind that you and your spouse’s combined income may move you into a higher tax bracket. You can use IRS Publication 505, Tax Withholding and Estimated Tax (link also below), to help determine the correct amount of withholding for your marital status, and it also will help you complete a new IRS Form W-4, Employee’s Withholding Allowance Certificate. Fill out and print Form W-4 online and give it to your employers so that the correct amount will be withheld from your pay.
• Select the right tax form.  Choose your individual income tax form wisely because it can help save you taxes. Newlywed taxpayers may find that they now have enough deductions to itemize on their tax returns rather than taking the standard deduction. Itemized deductions must be claimed on a Form 1040, not on a Form 1040A or Form 1040EZ.
• Choose the best filing status. A person’s marital status on Dec. 31 determines whether the person is considered married for that year for tax purposes. Tax law generally allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Calculating the tax both ways can determine which filing status will result in the lowest tax, but filing jointly is usually more beneficial.

For more information about these topics, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. More information about changing your name, address and income tax withholding is available on the official IRS website at www.IRS.gov, and by using the links below. IRS forms and publications also can be obtained from www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article with others you know that might benefit from this information.

IRS Links:

• Form 8822, Change of Address (PDF)
• Form W-4, Employee’s Withholding Allowance Certificate (PDF)
• Publication 505, Tax Withholding and Estimated Tax (PDF)

IRS YouTube Videos:

• Changed Your Name After Marriage or Divorce? – English | Spanish | ASL
• Getting Married? – English

IRS Podcasts:

• Change Your Name After Marriage or Divorce – English | Spanish

The Internal Revenue Service recently sent out a reminder about the benefits of miscellaneous deductions, as well as some basic rules to remember in claiming miscellaneous deductions. For those taxpayers that are able to itemize their deductions on their tax return instead of claiming the standard deduction, they may be able to claim the benefits of certain miscellaneous deductions. Remember that a tax deduction reduces the amount of your taxable income and generally reduces the amount of taxes you may have to pay. Following are some things to know about miscellaneous tax deductions:

Deductions Which are Subject to a 2 Percent Limit. You can deduct the amount of certain miscellaneous expenses that exceed 2 percent of your adjusted gross income. Deductions subject to the 2 percent limit include:

• Unreimbursed employee expenses, such as searching for a new job in the same profession, certain work clothes and uniforms, work tools, union dues, and work-related travel and transportation. To be deductible, the expenses must be:
  • Paid or incurred in the tax year,
  • Used for carrying on your trade or business of being an employee, and,
  • Considered ordinary and necessary.
• Tax preparation fees.
• Other expenses that you pay to:
  • Produce or collect taxable income,
  • Manage, conserve, or maintain property held to produce taxable income, or
  • Determine, contest, pay, or claim a refund of any tax.

Examples of other expenses include certain investment fees and expenses, some legal fees, hobby expenses that are not more than your hobby income, and rental fees for a safe deposit box if it is not used to store jewelry and other personal effects.

Deductions Which are Not Subject to the 2 Percent Limit. The list of deductions not subject to the 2 percent limit of adjusted gross income includes:

• Casualty and theft losses from income-producing property, such as damage or theft of stocks, bonds, gold, silver, vacant lots, and works of art.
• Gambling losses up to the amount of gambling winnings.
• Impairment-related work expenses of persons with disabilities.
• Losses from Ponzi-type investment schemes.

Qualified miscellaneous deductions are reported on Schedule A, Itemized Deductions, which is available on the official IRS website along with Instructions for Schedule A. If you plan to utilize the benefits of these miscellaneous deductions, then it is important to remember that you also should keep complete and accurate records of your miscellaneous deductions to make it easier for you to prepare your tax return when the filing season arrives, as well as to be able to substantiate the deductions if your tax return ever is selected for examination by the IRS. In fact, review and substantiation of miscellaneous deductions is a frequent subject of IRS examinations. Note also that there are many expenses which you cannot deduct, such as personal living or family expenses.

For more information about the amounts and types of deductions which might be available in your specific situation, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. You also can find more information and examples in IRS Publication 529, Miscellaneous Deductions, which is available on the official IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article with others that might benefit from this information.

IRS Links:

• Publication 529, Miscellaneous Deductions (PDF)
• Schedule A, Itemized Deductions (PDF)
• Instructions for Schedule A (PDF)

IRS YouTube Videos:

• Standard Versus Itemized Deductions – English | Spanish | ASL
• Record Keeping – English | Spanish | ASL

IRS Podcasts:

• Standard Versus Itemized Deductions – English | Spanish

For those that own vacation homes, summer is the time to get away to those homes on a long weekend, or even to invite friends and family. Others choose to maximize the value of a second home by finding short-term renters. It is important to remember that income that you receive for the rental of your vacation home generally must be reported on your federal income tax return. However, if you rent the property for only a short time each year, you may not be required to report the rental income. Following are some tips on reporting rental income from a vacation home, such as a house, apartment, condominium, mobile home or boat:

•Rental Income and Expenses.  Rental income, as well as certain rental expenses that can be deducted, normally are reported on Schedule E, Supplemental Income and Loss.

•Limitation on Vacation Home Rentals.  When you use a vacation home as your residence and also rent it to others, you must divide the expenses between rental use and personal use, and you may not deduct the rental portion of the expenses in excess of the rental income. You are considered to use the property as a residence if your own personal use during the calendar year is more than 14 days, or more than 10% of the total days it is rented to others if that figure is greater. For example, if you live in your vacation home for 17 days and rent it 160 days during the year, then the property is considered used as a residence and your deductible rental expenses would be limited to the amount of rental income.

•Special Rule for Limited Rental Use.   If you use a vacation home as a residence and rent it for fewer than 15 days in a year, then you do not have to report any of the rental income. Schedule A, Itemized Deductions, may be used to report regularly deductible personal expenses, such as qualified mortgage interest, property taxes, and casualty losses.

For more information about rental income, deductions, and exclusions, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information can be found in IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), which is available on the IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). The booklet offers more information about rental property, including special rules about personal use and how to report rental income and expenses. Please also feel free to share this article with others that might benefit from this information.

For many people, summertime is the season that often leads to major life decisions, such as moving, buying a home, or a job change. If you are one of the many people looking for a new job that is in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return. While the amount and scope of the deduction is limited, this could be a helpful benefit for a taxpayer that otherwise must spend money on job search expenses. The key to getting a deduction for such expenses is keeping good, contemporaneous records. The expenses generally are deductible whether or not you get the job. Following are seven things the IRS recently reminded taxpayers to remember about deducting costs related to a job search:

1. To qualify for a deduction, the expense must be spent on a job search in the taxpayer’s current occupation. Taxpayers may not deduct expenses incurred while looking for a job in a new occupation.

2. Taxpayers can deduct employment and outplacement agency fees paid while looking for a job in the taxpayer’s present occupation. If a taxpayer’s employer pays the taxpayer back in a later year for employment agency fees, then the taxpayer must include the amount received in the taxpayer’s gross income, up to the amount of the tax benefit received in the earlier year.

3. Taxpayers can deduct amounts spent for preparing and mailing copies of résumés to prospective employers, as long as the taxpayer is looking for a new job in the taxpayer’s present occupation. This would inlcude the costs of typing, printing, copying and postage.

4. If a taxpayer travels to look for a new job in the taxpayer’s present occupation, then the taxpayer may be able to deduct travel expenses to and from the area to which the taxpayer travelled. This includes any local transportation and travel away from home. A taxpayer only can deduct the travel expenses if the trip is primarily to look for a new job. The amount of time a taxpayer spends on personal activity unrelated to the job search compared to the amount of time spent looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job. The taxpayer should keep a mileage log for vehicle transportation or other appropriate receipts to substantiate the cost of the travel and the primary purpose as being for a job search.

5. A key restriction on the deduction for job search expenses is that a taxpayer cannot deduct such expenses if there was a substantial break—e.g., several years—between the end of the taxpayer’s last job and the time the taxpayer begins looking for a new one.

6. Unfortunately, a taxpayer also cannot deduct job search expenses if the taxpayer is looking for a job for the first time.

7. The amount of job search expenses that a taxpayer can claim also is limited. To determine the available deduction amount, a taxpayer needs to use Schedule A, Itemized Deductions (see link below). Job search expenses should be claimed as a miscellaneous itemized deduction and the total of all miscellaneous deductions must be more than two percent of the taxpayer’s adjusted gross income.

For more information about the deduction for job search expenses, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985, or see IRS Publication 529, Miscellaneous Deductions (link below). This publication also is available on www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article with others you know that might benefit from this information.

Links:

• Schedule A, Itemized Deductions (PDF)
• Publication 529, Miscellaneous Deductions (PDF)

If you paid expenses to adopt an eligible child in 2011, you may be able to claim a federal tax credit of up to $13,360 on your U.S. income tax return. Here are six facts you should know related to claiming the expanded adoption credit for federal income tax purposes:

1. Refundable Credit. The Affordable Care Act increased the amount of the credit and made it refundable, which means you can get the credit as a tax refund even after your tax liability has been reduced to zero.

2. Filing. For tax year 2011, you must file a paper tax return, along with IRS Form 8839, Qualified Adoption Expenses (see links below for form and instructions), and also attach documents supporting the adoption. Taxpayers claiming the credit still will be able to use IRS Free File or other software to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.

3. Documents. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and/or the state’s determination for special needs children.

4. Eligible Expenses. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child. These expenses may include adoption fees, court costs, attorney fees and travel expenses.

5. Eligible Child. An eligible child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.

6. Applicable AGI Limits. If your modified adjusted gross income is more than $185,210, your credit is reduced. If your modified AGI is $225,210 or more, you cannot take the credit.

For more information about the federal adoption credit, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also can be found on the IRS’s Adoption Credit FAQ page (see link below) at www.IRS.gov, or in the instructions to IRS Form 8839 (link below), which form and instructions also can be downloaded from the IRS website directly or ordered from the IRS by calling 800-TAX-FORM (800-829-3676). Please also feel free to share this article with others that might benefit from this information.

Links:

• IRS Form 8839 (2011)
• Instructions for IRS Form 8839
• Adoption Benefits FAQs
• IRS Publication 4903, Affordable Care Act Expands Adoption Tax Credit Flyer

YouTube Video:

• Claiming the Adoption Credit

Donations made to qualified organizations may help reduce the amount of tax you pay.  As a tax-time reminder, following are eight essential tips to help ensure your charitable contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations or candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.

2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you also must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return. (See also, Instructions to Form 8283.)

3. If you receive a benefit because of your contribution—such as merchandise, tickets to a ball game, or other goods and services—then generally you can deduct only the amount that exceeds the fair market value of the benefit received.

4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items generally must be in good used condition or better to be deductible. Special rules apply to vehicle donations.

5. Fair market value generally is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.

6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the contribution. For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given.

7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.

8. Taxpayers donating an item or a group of similar items valued at more than $5,000 also must complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Taxpayers also can refer to IRS Form 8283, Noncash Charitable Contributions and the Instructions to Form 8283, as well as IRS Publication 526, Charitable Contributions. For information on determining the value of donations, refer to IRS Publication 561, Determining the Value of Donated Property. All are available at the official IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please feel free to share this article with others that might benefit from this information.