President Barack Obama released his proposed FY 2014 budget on Wednesday. In it, he aims to raise approximately $580 billion in revenue through new taxes, limits on deductions, and other tax proposals. The revenue-raising portion of the proposed budget generally mirrors the president’s proposals made during the fiscal cliff negotiations last December.

One big part of the revenue proposal is the so-called Buffett rule, which would ensure that households with income over $1 million pay at least 30% of their income (after charitable donations) in tax. Its name derives from Warren Buffett’s observation that his effective tax rate is lower than his secretary’s. A White House press release describes this as “prevent[ing] millionaires from taking advantage of special provisions to pay taxes at lower rates than many middle-class families do.”

The Buffett rule proposal would implement a new “Fair Share Tax,” which would equal 30% of the taxpayer’s adjusted gross income, less a charitable donation credit equal to 28% of itemized charitable contributions allowed after the overall limitation on itemized deductions. The Fair Share Tax would be phased in, starting at adjusted gross incomes of $1 million, and would be fully phased in at adjusted gross incomes of $2 million. The Office of Management and Budget estimates that this rule would increase government revenues by $99 billion over 10 years.

Another large proposal is to limit the value of tax deductions and other tax preferences. This would affect married taxpayers filing jointly with income over $250,000 and single taxpayers with income over $200,000. The proposal would limit the tax rate at which these taxpayers can reduce their tax liability to a maximum of 28%. This limit would apply to all itemized deductions; foreign excluded income; tax-exempt interest; employer-sponsored health insurance; retirement contributions; and certain above-the-line deductions. This proposal was also in the president’s 2013 budget but was not enacted.

The proposed $3.77 trillion budget also contains many proposals beyond tax initiatives, and according to the White House it “contains $2 in spending cuts for every $1 of new revenue” and would reduce the federal deficit by $1.8 trillion over 10 years.

Other tax proposals include expanding the tax credit for child and dependent care, a tax credit to encourage employers to offer retirement savings plans, and a $3 million limit on the size of individual retirement accounts and other tax-preferred savings accounts.

In another proposal that has turned up several times in the past few years, the budget would tax carried interests in partnerships (such as those held by hedge fund managers and private-equity partners) at ordinary income rates, instead of as capital gains. This change is estimated to raise $16 billion over 10 years.

The budget also promises to make permanent the increased Sec. 179 expensing amounts currently in effect.

The proposed budget would also reintroduce the estate, gift, and generation-skipping transfer (GST) tax rules that were in effect in 2009, except that portability of the estate tax exclusion between spouses would be retained. This change would take effect in 2018. Under the proposal, the top tax rate would be 45% and the exclusion amount would be $3.5 million for estate and GST taxes, and $1 million for gift taxes.

The president’s budget would also change the depreciation rules for corporate aircraft. Currently, airplanes, such as corporate jets, that are not used in commercial aviation or to carry freight can be depreciated over five years. Commercial aircraft, on the other hand, have a seven-year depreciation period. The budget proposes applying the seven-year deprecation period to all aircraft. It is estimated that this change would reduce the deficit by $2.7 billion over 10 years.

In another proposal carried over from last year’s proposed budget, the 2014 budget would repeal a number of tax preferences that are currently available for oil, gas, and coal production. It is estimated that this would reduce the deficit by almost $44 billion over 10 years.

Other proposed tax changes in the budget would:

• Repeal the LIFO method of accounting for inventories;
• Provide a temporary 10% tax credit for new jobs and wage increases;
• Provide additional tax credits for investment in advanced energy manufacturing;
• Make permanent the deduction for energy-efficient commercial building property expenditures;
• Create America Fast Forward (AFF) Bonds to attract new sources of
  capital for infrastructure investment;
• Make the American opportunity tax credit permanent;
• Provide for automatic enrollment in IRAs, including a small-employer tax credit;
• Expand the child and dependent care tax credit;
• Extend the exclusion from income for cancellation of certain home mortgage debt;
• Provide exclusion from income for certain student loan forgiveness;
• Provide a new manufacturing communities tax credit;
• Enhance and make permanent the research and experimentation (R&E) tax credit;
• Provide a tax credit for the production of advanced technology vehicles;
• Provide a tax credit for medium- and heavy-duty alternative-fuel commercial vehicles;
• Extend and modify certain energy incentives;
• Eliminate capital gains taxation on investments in small business stock;
• Expand and simplify the tax credit provided to qualified small employers for nonelective contributions to employee health insurance;
• Create Promise Zones to rebuild high-poverty communities across the country by attracting private investment to build new housing and provide tax incentives for hiring workers and investing within the zones;
• Provide tax incentives for transportation infrastructure;
• Modify tax-exempt bonds for Indian tribal governments;
• Allow current refundings of state and local governmental bonds;
• Reform and expand the low-income housing tax credit; and
• Raise the federal tax on cigarettes and tobacco products to fund a Preschool for All initiative.

Proposals affecting foreign income and taxpayers include ones that would:

• Defer deduction of interest expense related to deferred income of foreign subsidiaries;
• Determine the foreign tax credit on a pooling basis;
• Tax currently excess returns associated with transfers of intangibles offshore;
• Limit shifting of income through intangible property transfers;
• Disallow the deduction for nontaxed reinsurance premiums paid to affiliates;
• Limit earnings stripping by expatriated entities;
• Modify tax rules for dual-capacity taxpayers;
• Tax gain from the sale of a partnership interest on a lookthrough basis;
• Prevent use of leveraged distributions from related foreign corporations to avoid dividend treatment;
• Extend Sec. 338(h)(16) to certain asset acquisitions; and
• Remove foreign taxes from a Sec. 902 corporation’s foreign tax pool
  when earnings are eliminated.

Several tax administration changes also are proposed. The proposed budget would:

• Require a certified taxpayer identification number (TIN) from
  contractors and allow withholding if the contractor does not provide a TIN;
• Make e-filing mandatory for exempt organizations;
• Authorize Treasury to require additional information to be included in Form 5500, Annual Return/Report of Employee Benefit Plan;
• Revise offer-in-compromise application rules;
• Streamline large partnership audits;
• Make repeated willful failure to file a tax return a felony;
• Extend the statute of limitation where a state adjustment affects federal tax liability;
• Require taxpayers who prepare their returns electronically but file their returns on paper to print a 2D bar code;
• Provide whistleblowers with stronger protections from retaliation and provide stronger protection against improper disclosure of taxpayer information in whistleblower actions;
• Extend IRS math error authority in certain circumstances;
• Index all penalties to inflation;
• Extend paid preparer earned income tax credit (EITC) due-diligence requirements;
• Extend IRS authority to require truncated Social Security numbers on Forms W-2; and
• Impose a civil penalty on tax identity theft crimes.

Finally, the budget proposes certain tax simplifications, including:

• Simplifying the rules for claiming the EITC for workers without qualifying children;
• Eliminating minimum required distribution rules for IRAs with balances of $75,000 or less; and
• Allowing all inherited plan and IRA balances to be rolled over within 60 days.

—Alistair M. Nevius (anevius@aicpa.org) is the JofA’s editor-in-chief, tax.

http://www.journalofaccountancy.com/News/20137754.htm

(MoneyWatch) The IRS examined 1.1 percent of all individual tax returns in 2010 and 2011, so the chances that your tax return will be audited are only about 1 in 90.

But the odds of an audit can increase substantially depending on your income, types of income, deduction amount and changes you have made since filing your last tax return.

The IRS uses a computerized process to check all tax returns for math and clerical errors, such as incorrect Social Security numbers and addresses. If a mistake is detected, a notice of the error and a recalculation of the tax due is sent to the taxpayer.

The IRS also runs tax returns through a process that compares the information you report from your bank,  employer, and W-2, 1099 and other forms and documents. If you omit an item from your tax return, it’s very likely to be picked up by the IRS’s computers. The agency will send a computer-generated notice that includes a recalculation of your tax and the additional interest and penalties you will owe.

A few newer items that can trip up some taxpayers include payments received by businesses from credit and debit cards and investors who report the sale of their investments. As for businesses who accept credit and debit card payments, those gross and monthly totals are reported to the IRS by banks and other settlement entities that process the transactions. So it’s important to make sure these amounts are reported accurately on the businesses tax returns.

Also, individuals who report gains from the sale of their investments should also take note that the securities industry is now reporting to the IRS the cost basis of investments that were sold as the gross proceeds from the sale.

Meanwhile, the IRS assigns numerical weights to certain tax return characteristics. These weights are added together to obtain a national composite score for all tax returns. When the total score of all selected items on your tax return exceeds the national average score set by the IRS, the agency will flag the return for a possible audit. The exact items the IRS zeroes in on and scoring method is a closely guarded secret, but some of the things the agency is believed to scrutinize include: 

– Large amounts of income not subject to tax withholding
– Unusually large amounts of deductions claimed than seem reasonable when compared to your income
– A large number of dependent exemptions claimed that doesn’t square wtih reported SSNs, tax withholding allowances and so forth
– Large deductions for charitable contributions, casualty losses, home office expenses, and travel and entertainment expenses
– Indicating a change of address when not reporting a sale of your residence and not changing your home related deductions 

While an IRS audit is not something most sane folks want to go through, it also isn’t something to be feared. If you have kept complete and accurate records of all of your deductions and have reported all of your income, you should be fine. In fact, in about a quarter of audits, the IRS makes no changes or issues a refund. 

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President Barack Obama’s budget plan will incorporate deficit-cutting proposals that include changing the calculation for Social Security cost-of-living increases and tax brackets, according to a White House statement.

The plan, set for release April 10, will track the offer on spending cuts and revenue increases that Obama made to House Speaker John Boehner of Ohio as part of an end-of-the-year deal on expiring tax cuts, according to the statement e-mailed today.

“While this is not the president’s ideal deficit reduction plan, and there are particular proposals in this plan like the CPI change that were key Republican requests and not the president’s preferred approach, this is a compromise proposal” that will be part of the budget, according to the statement.

Obama’s offer to Boehner “still stands,” it said.

“That means that the things like CPI that Republican leaders have pushed hard for will only be accepted if congressional Republicans are willing to do more on revenues,” said the statement. “This isn’t about political horse trading; it’s about reducing the deficit in a balanced way.”

The plan includes a new inflation gauge that would effectively reduce cost-of-living increases for Social Security beneficiaries, a measure that is sure to draw opposition from many Democrats. It also proposes using the calculation for adjusting income tax brackets, which would mean higher payments for many taxpayers.

President’s Priorities

While Obama’s fifth budget proposal stands little chance of becoming law because of opposition from Republicans who control the House, it emphasizes the president’s priorities and will set the stage for talks with Republicans on a broader debt-reduction package.

For the first time, Obama is adding specific entitlement benefit cuts in his official budget, an attempt to signal to Republicans that he still wants to reach a deal on reducing the deficit.

Republicans have said the president needs to take the lead if there’s any chance to address the biggest long-term driver of the debt, Medicare spending, because Democratic lawmakers have resisted trimming entitlement-program costs.

“I’m in a wait-and-see mode as to whether this White House is very serious,” House Majority Leader Eric Cantor, a Virginia Republican, said today on CNBC. “There are some things we can agree on.”

By making the offer to reduce Social Security and other entitlement benefits, Obama is making it clear that Republicans must be willing “to do more on revenues,” the statement said.

Deficit Reduction

By including Obama’s deficit reduction offer in his budget, the White House statement calculated that it would cut the deficit by $1.8 trillion over 10 years.

Including $2.5 trillion in deficit reduction from the year-end budget deal, the administration asserted that the total deficit-reduction package would reach more than $4.3 trillion over 10 years.

In turn, that would trim the deficit to 2.8 percent of Gross Domestic Product by 2016 and 1.7 percent by 2023, putting the U.S. on a fiscally sustainable path with debt declining as a share of the economy, the White House statement said.

The president will also offer new initiatives and ways to pay for them.

In his State of the Union message in February, the president called for a new pre-kindergarten program for four- year-olds nationwide under a federal aid to states arrangement.

This would be paid for by raising taxes on cigarettes and other tobacco products, according to the White House. The amount of the new taxes wasn’t specified.

The budget also will call for raising about $9 billion over a decade by prohibiting individuals from accumulating more than $3 million in Individual Retirement Accounts and other tax-retirement instruments. A $3 million limit would be about equal to an annuity of as much as $205,000 a year, according to the White House.

Changing the inflation calculator potentially provides Obama and congressional Republicans with a way to accomplish their goals. Obama is seeking more revenue through tax-code changes, while Republicans are pushing to trim entitlement programs such as Social Security.

The change in calculation would make the annual adjustments smaller than they are now. As a result, more income would be subject to higher income tax rates. The administration in its earlier proposal estimated that would bring in additional tax revenue of about $100 billion over 10 years.

In 2020, the change would raise taxes for 78.3 percent of households by an average of $124, according to the nonpartisan Tax Policy Center in Washington. Taxes would increase for 98 percent of households making between $75,000 and $100,000 a year.

Boehner’s spokesman said House Republicans will resist attempts to raise tax revenue to cut the deficit, which was $1.1 trillion in fiscal 2012.

“The president got his tax hikes already,” the spokesman, Michael Steel, said in an e-mail. “It’s time to deal with Washington’s spending problem, so we can get our economy moving again and create more American jobs.”

Switching to the alternative inflation yardstick for Social Security would save $130 billion, according to the plan Obama offered last year. Obama hasn’t included the changes to Social Security and tax bracket calculations in previous spending blueprints.

Generating Opposition

The prospect of such a change already is generating opposition.

“Millions of working people, seniors, disabled veterans, those who have lost a loved one in combat, and women will be extremely disappointed if President Obama caves into the long standing Republican effort to cut Social Security,” Vermont Senator Bernie Sanders, an independent who caucuses with Democrats, said in a statement.

Roger Hickey, co-director of Campaign for America’s Future, which opposes the move, said, “It means the White House is continuing to offer up cuts to Social Security and other programs in order to get Republicans to the bargaining table.”

While lawmakers wrangle over the budget, investors have focused on an improving economy. The benchmark Standard & Poor’s 500 Index has risen about 9 percent so far this year. The S&P added 0.4 percent yesterday in New York, rebounding from the previous day’s 1.1 percent retreat from a record.

Comfort Index

The Bloomberg Consumer Comfort Index increased to minus 34.1 in the week ended March 31 from a six-week low of minus 34.4 in the prior period. The comfort readings from January through March were the strongest on average of any first quarter since 2008 as a pickup in hiring and record stock prices helped consumers overcome an increase in the payroll tax.

Even though the president’s budget is more than two months late, because of tax-and-spending-legislation at year’s end known as the “fiscal cliff,” Pat Griffin, former President Bill Clinton’s lobbyist in Congress, said the timing “may be just right.”

“If there’s one more chance this year to ignite this conversation, this would be it,” Griffin said.

That’s because House Republicans and Senate Democrats have passed non-binding budget resolutions that are far apart, and there’s little likelihood they will be reconciled. Obama plans to dine with Senate Republicans the evening of April 10, just hours after his budget plan is released.

Failed Negotiations

The chained CPI was a centerpiece of failed negotiations between Obama and Boehner over a “grand bargain” budget deal in the summer of 2011, and it was also the key tradeoff Obama was willing to make as part of the so-called fiscal cliff negotiations in December in the context of a broad debt- reduction package.

Unlike the consumer price index, chained CPI adjusts for consumers’ tendency to switch products when prices rise. In that way, economists say it is a more accurate measure of the cost of living for purposes of setting tax policy and Social Security benefits. The regular CPI tends to overstate inflation because it doesn’t adjust for consumer behavior, economists say.

A concern for Democrats is whether a change can be made in a way that would protect low-income and other vulnerable groups of senior citizens. Obama’s 2010 debt commission recommended instituting a flat-dollar benefit “bump-up” for Social Security recipients who have been receiving benefits for 20 years, and a minimum benefit for lower-income beneficiaries.

Another major concern for Democrats and Republicans will be protecting disabled veterans. That could be addressed by enhancing Social Security disability benefits or increasing certain credits for low-income taxpayers.

http://www.fa-mag.com/news/obama-budget-to-include-social-security-deficit-cutting-plan-13889.html?section=43

President Barack Obama’s fiscal 2014 budget proposal unveiled Wednesday repeated calls for reducing tax incentives for retirement savings on higher income taxpayers with a new call to cap individual retirement accounts at $3 million.

(Bloomberg)

The president’s budget also calls for eliminating the carried interest rate paid by general partners in private equity and other alternative investments, higher premiums charged by the Pension Benefit Guaranty Corp. and higher employee contributions to federal retirement accounts.

“The recent explosion of activity among large private equity firms and hedge funds has increased the breadth and cost of this tax preference” and benefited highest-income earners, the proposal stated.

A private equity industry source who declined to be named said the idea has been raised every year by Mr. Obama, without any action by Congress. “I don’t think it signals anything,” the source said.

Capping retirement accounts at $3 million “is an outrageous proposal,” said Brian Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries. “People have been making contributions for years, they’ve been playing by the rules and now they want to change the game?” Mr. Graff said in an interview.

Lynn Dudley, senior vice president of policy for the American Benefits Council, said she shares Mr. Graff’s concerns that the cap will discourage smaller business owners from offering retirement plans at all.

“I’m worried about the how the mechanics will work, too,” Ms. Dudley said in an interview. She was also discouraged that the president’s budget calls for eliminating the tax deduction for employee stock contributions to retirement plans. “It’s going to affect a lot of companies’ willingness to deliver stock to their employees,” Ms. Dudley said.

http://www.pionline.com/article/20130410/DAILYREG/130419982?AllowView=VDl3UXpKTzlDL1NCbGhMRkNQdVFEalMyams4VUR1ZFVFQklD&utm_campaign=smartbrief&utm_source=linkbypass&utm_medium=affiliate#

On April 9, Gov. Nikki Haley signed into law R.14, S.261, the Annual State-Federal Income Tax Conformity Act. Thank you to all of our members who expended efforts to encourage passage of this important bill.  

Following are highlights of the legislation:

1. The bill updates the SC conformity to the Internal Revenue Code to Jan. 2, 2013. The January date was required instead of the normal Dec. 31 date due to delay to Jan. 2 for the President’s signature on the federal bill. The code sections to which SC has conformed are the same sections as last year with the exception of:
2. The conformity bill removes the transition provision from last year that would have allowed automatic conformity for certain late-passing provisions last year. The provision was specific to one year and was no longer needed.
3. The conformity bill decoupled from the federal change that will limit the itemized deductions of certain taxpayers in 2013 and later. This provision has no impact on 2012 returns being prepared now. The SC DOR has also not announced how this additional SC deduction for 2013 and later will be presented on the returns.

The IRS has 10 important tips for you about setting aside money for your retirement in an Individual Retirement Arrangement.

1. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.

2. You must have taxable compensation to contribute to an IRA. This includes income from wages, salaries, tips, commissions and bonuses. It also includes net income from self-employment. If you file a joint return, generally only one spouse needs to have taxable compensation.

3. You can contribute to your traditional IRA at any time during the year. You must make all contributions by the due date for filing your tax return. This due date does not include extensions. For most people this means you must contribute for 2012 by April 15, 2013. If you contribute between Jan. 1 and April 15, you should contact your IRA plan sponsor to make sure they apply it to the right year.

4. For 2012, the most you can contribute to your IRA is the smaller of either your taxable compensation for the year or $5,000. If you were 50 or older at the end of 2012 the maximum amount increases to $6,000.

5. Generally, you will not pay income tax on the funds in your traditional IRA until you begin taking distributions from it.

6. You may be able to deduct some or all of your contributions to your traditional IRA.

7. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure the amount of your contributions that you can deduct.

8. You may also qualify for the Savers Credit, formally known as the Retirement Savings Contributions Credit. The credit can reduce your taxes up to $1,000 (up to $2,000 if filing jointly). Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit.

9. You must file either Form 1040A or Form 1040 to deduct your IRA contribution or to claim the Saver’s Credit.

10. See Publication 590, Individual Retirement Arrangements, for more about IRA contributions.

Top Six Tax Tips for the Self-Employed

When you are self-employed, it typically means you work for yourself, as an independent contractor, or own your own business. Here are six key points the IRS would like you to know about self-employment and self-employment taxes:

1. Self-employment income can include pay that you receive for part-time work you do out of your home. This could include income you earn in addition to your regular job.

2. Self-employed individuals file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with their Form 1040.

3. If you are self-employed, you generally have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. You figure this tax using Schedule SE, Self-Employment Tax.

4. If you are self-employed you may have to make estimated tax payments. People typically make estimated tax payments to pay taxes on income that is not subject to withholding. If you do not make estimated tax payments, you may have to pay a penalty when you file your income tax return. The underpayment of estimated tax penalty applies if you do not pay enough taxes during the year.

5. When you file your tax return, you can deduct some business expenses for the costs you paid to run your trade or business. You can deduct most business expenses in full, but some costs must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years.

6. You may deduct only the costs that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.

For more information, visit the Small Business and Self-Employed Tax Center on the IRS website. There are three IRS publications that will also help you. See Publications 334, Tax Guide for Small Business; 535, Business Expenses and 505, Tax Withholding and Estimated Tax. All tax forms and publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

• Small Business and Self-Employed Tax Center
• Publication 334, Tax Guide for Small Business
• Publication 535, Business Expenses
• Publication 505, Tax Withholding and Estimated Tax
• Schedule C, Profit or Loss from Business
• Schedule C-EZ, Net Profit from Business
• Schedule SE, Self-Employment Tax
• Form 1040-ES, Estimated Tax for Individuals

IRS YouTube Videos:

• Estimated Tax Payments – English | Spanish | ASL

Need more time to file your federal income taxes? Consider an extension!

These days, life can really be hectic and something is bound to be forgotten in the shuffle, even filing your income tax return. If you can’t get it completed by April 15, you can file for an automatic extension of time to file to give yourself something very precious — time.

Tax-filing extensions are available if you need more time to finish your returns. Remember, this is an extension of time to file, not an extension of time to pay. However, taxpayers who are having trouble paying what they owe usually qualify for payment plans and other relief.

Either way, you’ll avoid stiff penalties if you file either a regular income tax return or a request for a tax-filing extension by this year’s April 15 deadline. You should file, even if you can’t pay the full amount due. Here are further details on the options available to file an extension.

More Time to File:

If you haven’t finished filling out your return, the fastest, easiest and free way to get an
automatic six-month extension is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868.

Filing this form gives you until Oct. 15 to file a return. To get the extension, you must estimate your tax liability on this form and should also pay any amount due.
By properly filing this form, you’ll avoid the late-filing penalty, normally five percent per month based on the unpaid balance that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.
Besides Free File, you can choose to request an extension through a paid tax preparer, using tax-preparation software or by filing a paper Form 4868, available on IRS.gov.
Details on all filing and payment options are on IRS.gov.

The American Opportunity Credit and the Lifetime Learning Credit may help you pay for the costs of higher education. If you pay tuition and fees for yourself, your spouse or your dependent you may qualify for these credits.

Here are some facts the IRS wants you to know about these important credits:

The American Opportunity Credit

• The AOTC is worth up to $2,500 per eligible student.
• The credit is available for the first four years of higher education at an eligible college, university or vocational school.
• The credit lowers your taxes and is partially refundable. This means you could get a refund of up to $1,000 even if you owe zero tax.
• An eligible student must be working toward a degree, certificate or other recognized credential.
• The student must be enrolled at least half time for at least one academic period that began during the year.
• You generally can claim the costs of tuition and required fees, books and other required course materials. Other expenses, such as room and board, do not qualify.

The Lifetime Learning Credit

• The credit is worth up to $2,000 per tax return per year. The yearly limit applies no matter how many students are eligible for the credit.
• The credit is nonrefundable. This means the amount you can claim is limited to the amount of tax you owe.
• The credit is available for all years of higher education. This includes courses taken to acquire or improve job skills.
• You can claim the costs of tuition and fees required for enrollment or attendance. This includes amounts you were required to pay to the institution for course-related books, supplies and equipment.

You cannot claim either of these credits if someone else claims you as a dependent on his or her tax return. Both credits are subject to income limitations and may be reduced or eliminated depending on your income.

Keep in mind that you can’t claim both credits for the same student in the same year. You may not claim both credits for the same expense. Parents or students claiming either credit should receive a Form 1098-T, Tuition Statement, from their educational institution. You should make sure it is complete and correct.

Find out more details about these credits and other college tax benefits in Publication 970, Tax Benefits for Education. You can get the booklet at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

• Publication 970, Tax Benefits for Education
• Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

Giving to charity may make you feel good and help you lower your tax bill. The IRS offers these nine tips to help ensure your contributions pay off on your tax return.

1. If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization or a political candidate

2. You must file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.

3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event or other goods and services.

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

5. Fair market value is generally the price at which someone can sell the property.

6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.

7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.

8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.

9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, see Publication 526, Charitable Contributions. For information about noncash contributions, see Publication 561, Determining the Value of Donated Property. Forms and publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

• Publication 526, Charitable Contributions
• Publication 561, Determining the Value of Donated Property
• Schedule A, Itemized Deductions
• Form 8283, Noncash Charitable Contributions

IRS YouTube Videos:

• Fair Market Value of Charitable Donations – English | Spanish | ASL