The IRS has issued a warning to tax professionals regarding a rise in phishing emails and cyber threats aimed at stealing sensitive taxpayer data. This alert has been released as part of the second in...
The IRS and Security Summit partners launched the summer Protect Your Clients; Protect Yourself campaign on July 1, alongside the Nationwide Tax Forum. The five-week campaign provides biweekly ti...
The IRS has issued updated guidance to help individuals recognize legitimate communication from the agency and avoid falling victim to scams. As reports of fraud through emails, texts, social media an...
The IRS has issued indexing adjustments for the applicable dollar amounts under Code Sec. 4980H(c)(1) and (b)(1), which are used to determine the employer shared responsibility payments (ESRP). Thi...
The California Franchise Tax Board has issued guidance on how a Deferred Intercompany Stock Account (DISA) balance affects basis and income recognition when stock is distributed to shareholders in a n...
The IRS has outlined key provisions of the One Big Beautiful Bill Act (P.L. 119-21), signed into law on July 4, 2025, that introduce new deductions beginning in tax year 2025. The deductions apply through 2028 and cover qualified tips, overtime pay, car loan interest, and a special allowance for seniors.
The IRS has outlined key provisions of the One Big Beautiful Bill Act (P.L. 119-21), signed into law on July 4, 2025, that introduce new deductions beginning in tax year 2025. The deductions apply through 2028 and cover qualified tips, overtime pay, car loan interest, and a special allowance for seniors.
Under the “No Tax on Tips” provision, employees and self-employed individuals may deduct up to $25,000 in voluntary cash or charged tips received in IRS-designated tip-based occupations. Tips must be reported on Form W-2, Form 1099 or directly on Form 4137. The deduction phases out above $150,000 in modified adjusted gross income ($300,000 for joint filers). Self-employed individuals engaged in a Specified Service Trade or Business under Code Sec. 199A and employees of SSTBs are ineligible.
The “No Tax on Overtime” provision permits workers to deduct the premium portion of overtime pay required under the Fair Labor Standards Act. The deduction is capped at $12,500 ($25,000 for joint filers), with a similar income-based phaseout.
The “No Tax on Car Loan Interest” rule allows individuals to deduct up to $10,000 in interest on loans used to purchase new, personal-use vehicles assembled in the U.S. Qualifying loans must originate after December 31, 2024, and be secured by the vehicle. Used and leased vehicles do not qualify. The deduction phases out for income above $100,000 ($200,000 for joint filers).
Finally, taxpayers aged 65 or older can claim a new $6,000 deduction per person in addition to the current senior standard deduction. The deduction phases out above $75,000 ($150,000 for joint filers).
All deductions are available to itemizing and non-itemizing taxpayers. Transition relief for tax year 2025 will be provided.
Funding uncertainty and a constantly changing tax law environment are presenting challenges to the Internal Revenue Service as it works to meet legislative and executive mandates to improve the taxpayer experience.
Funding uncertainty and a constantly changing tax law environment are presenting challenges to the Internal Revenue Service as it works to meet legislative and executive mandates to improve the taxpayer experience.
A July Government Accountability Office report highlighted three specific challenges that the agency is facing as it works to improve the taxpayer experience.
GAO noted that "uncertainty about stable multiyear funding hinders efforts to modernize IRS computer systems and offer digital services to quickly resolve taxpayer issues. "
IRS had been using the supplemental funding provided by the Inflation Reduction Act to help address these issues, but those fundings have been a constant target for Republicans in Congress as well as the current Trump Administration, despite regular calls for stable and adequate funding.
The second challenge GAO reported was that "complicated and changing tax laws limit IRS’s ability to offer timely guidance to taxpayers," the report states, though agency officials said it had plans in place to ensure the guidance flowing from the IRS is provided in a manner that is accurate, up-to-date, and available in a user-friendly format.
Staffing was highlighted as the third challenge.
GAO reported that "being unable to hire enough staff trained to help taxpayers can undercut the ability to optimally improve taxpayer experiences. IRS officials said IRS had efforts to boost hiring and training as well as improved systems to enable staff to improve taxpayer experiences."
However, in March 2025, "IRS officials said it was unclear how reductions to the IRA funding and to its staffing will affect these efforts to address the challenges," GAO reported.
The government watchdog also noted that IRS has not established key practices to:
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Define taxpayer experience goals related to service improvements;
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Generate new evidence from measures, analytical tools, and dashboards to track progress with the taxpayer experience goals;
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Involve external stakeholders to help assess the affects of its service improvements on the taxpayer experience; and
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Promote accountability for achieving the taxpayer experience goals.
"IRS officials said establishing an evidence-based approach using these and other key practices has been delayed," GAO reports. "The IRS offices that had been coordinating IRA and taxpayer experience initiatives were disbanded in March 2025 and April 2025, respectively, according to IRS officials."
GAO recommends that the agency "fully establish an evidence-based approach to determine the effects of service improvements on the taxpayer experience."
By Gregory Twachtman, Washington News Editor
Audits on high-income individuals and partnerships have increased in recent years as audits on large corporations have decreased in response to the Internal Revenue Service’s focus on the former group, the Treasury Inspector General For Tax Administration found.
Audits on high-income individuals and partnerships have increased in recent years as audits on large corporations have decreased in response to the Internal Revenue Service’s focus on the former group, the Treasury Inspector General For Tax Administration found.
In a report on trends in compliance activities through fiscal year 2023 dated July 10, 2025, examination starts for partnerships increased 63 percent from FY 2020 (4,106 starts) to FY 2023 (6,709 starts), while examination starts decreased 18 percent in the same time frame from 1,700 to 1,400.
For individuals, the overall combined number of examinations open and closed from FY 2020 through 2023 decreased from 466,921 to 400,446. For individuals with income tax returns of $400,000 or less, the percentage of examinations opened and closed dropped from 94.8 percent to 91.2 percent (442,856 to 365,229) while the percentage of examinations opened and closed for individual income tax returns more than $400,000 increased from 5.2 percent to 8.8 percent (24,065 to 35,217).
"The IRS planned to increase enforcement activities to help ensure tax compliance among high-income and high-wealth individuals," TIGTA reported, adding that it planned to use the supplemental funding provided by the Inflation Reduction Act and that the IRS as of May 2024, the agency plans to audit twice the number of individual returns with more than $400,000 in FY 2024 compared to FY 2023.
However, whether the IRS will be able to meet any compliance goals for both individuals as well as partnerships and corporations is questionable, with agency’s "ability to move forward with hiring efforts in these complex audit areas of corporations, partnerships and high-income individuals is uncertain considering the decreased enforcement funding and recent government staffing cuts."
To that end, the agency’s Field Collection, Campus Collection, and Examination staff is already on a downward trend.
TIGTA reported that the staff decreased from 18,472 employees in FY 2020 to 17,475 in 2023 due to attrition. The Collection staff slightly increased from 7,246 to 7,371 and the Examination staff decreased from 11,226 to 10,104.
"The status of the IRS’s IRA plan, other IRA transformational initiatives, along with the IRS’s hiring plans is uncertain, at best," TIGTA reported. "Although the IRS made substantial progress with hiring 4,048 revenue officers and revenue agents in FY 2024, the recissions of IRA funding, the hiring freeze, early retirement incentives, and future reductions in force present a challenge to improving taxpayer service and enforcing the nation’s tax laws."
The report also noted that in FY 2023, $10.1 billion in enforcement revenue was collected by the Automated Collection System. Field Collection collected a total of $5.9 billion.
In a separate report dated July 10, 2025, TIGTA reported the IRS planned to increase examinations across individuals, partnerships and businesses reporting total positive income of more than $400,000 in FY 2024. The average starts from FY 2019-2023 was 29,466 and the IRS planned to increase that to 70,812. At the same time, the number of returns with a total positive income reported of less and $400,000 is planned to decrease from an average of 452,051 from FY 2019-2023 to 354,792 in FY 2024. But it is not clear whether the agency will be able to meet these targets even though it was on track to meet these goals.
The agency "has not defined key terminology or aspects of its methodology for compliance to meet with these goals as outlined in the 2022 Treasury Directive that higher income earners would be targeted for audit," TIGTA reported. "The IRS stated that the FY 2024 plan was created with the assumptions available at the time. Any subsequent decisions about these issues could affect the effectiveness of future examination plans in meeting compliance requirements."
TIGTA did not make any recommendations in either report and the IRS did not make any comments on them.
By Gregory Twachtman, Washington News Editor
The IRS has released guidance clarifying the withholding and reporting obligations for employers and plan administrators when a retirement plan distribution check is uncashed and later reissued.
The IRS has released guidance clarifying the withholding and reporting obligations for employers and plan administrators when a retirement plan distribution check is uncashed and later reissued.
In the scenario addressed, a plan administrator issued an $800 designated distribution to a former employee, withheld the correct amount of federal income tax under Code Sec. 3405, and sent the remaining balance by check. When that check went uncashed and was subsequently voided, a second check was mailed. Because the original withholding amount was correct and fully remitted, the IRS has concluded that no refund or adjustment is available under Code Secs. 6413 or 6414, as there was no overpayment involved.
For the second check, the IRS has stated that no further withholding is required if the amount reissued is equal to or less than the original distribution. However, if the new amount exceeds the prior distribution—due, for example, to accumulated earnings—the excess portion is treated as a separate designated distribution subject to new withholding under Code Sec. 3405.
With respect to reporting obligations, the IRS noted that Code Sec. 6047(d) requires a Form 1099-R to be filed for designated distributions of $10 or more. For the first check, the $800 distribution must be reported for the applicable year, with the full amount listed in Boxes 1 and 2a, and the tax withheld in Box 4. No additional reporting is required for the second check if the amount is equal to or less than the original. However, if the second check includes an excess of $10 or more, that additional amount must be reported on a separate Form 1099-R for the year in which the second distribution occurs.
Rev. Rul. 2025-15
The Treasury Department and the IRS have withdrawn proposed rules addressing the treatment of built-in income, gain, deduction, and loss taken into account by a loss corporation after an ownership change under Code Sec. 382(h). The withdrawal, effective July 2, 2025, follows public criticism on the proposed regulations’ approach.
The Treasury Department and the IRS have withdrawn proposed rules addressing the treatment of built-in income, gain, deduction, and loss taken into account by a loss corporation after an ownership change under Code Sec. 382(h). The withdrawal, effective July 2, 2025, follows public criticism on the proposed regulations’ approach.
The proposed rules were Reg. §1.382-1, proposed on September 10, 2019 (84 FR 47455), and Reg. §§1.382-1, 1.382-2 and 1.382-7, proposed on January 14, 2020 (85 FR 2061). The proposed regulations would have adopted as mandatory, with certain modifications, (a) the safe harbor net unrealized built-in gain (NUBIG) and net unrealized built-in loss (NUBIL) computation provided in Notice 2003-65, 2003-40 I.R.B. 747, based on the principles of Code Sec. 1374, and (b) the “1374 approach,” (as described in Notice 2003-65) for the identification of recognized built-in gain and recognized built-in loss. The IRS considered that the 1374 approach would make it easier for taxpayers to calculate built-in gains and built-in losses and comply with Code Sec. 382(h).
The IRS received critical comments from practitioners on the proposed rules, leading the agency to conclude that further study is needed before issuing any new proposed regulations.
The proposed regulations are withdrawn. Taxpayers may continue to rely on Notice 2003-65 for applying Code Sec. 382(h) to an ownership change before the effective date of any temporary or final regulations under Code Sec. 382(h).
Proposed Regulations, NPRM REG-125710-18
The Treasury and IRS removed this final rule from the Code of Federal Regulations (CFR) that involved gross proceeds reporting by brokers for effectuating digital asset sales.
The Treasury and IRS removed this final rule from the Code of Federal Regulations (CFR) that involved gross proceeds reporting by brokers for effectuating digital asset sales. The agencies reverted the relevant text of the CFR back to the text that was in effect immediately prior to the effective date of this final rule.
Congress passed a joint resolution disapproving the final rule titled “Gross Proceeds Reporting by Brokers that Regularly Provide Services Effectuating Digital Asset Sales.” The Treasury Department and the IRS were not soliciting comments on this action, nor delaying the effective date.
Effective Date
This final rule is effective on July 11, 2025.
A more then 25 percent reduction in the Internal Revenue Service workforce will likely present some significant challenges on the heels of a 2025 tax season described as a "measured success," according to the Office of the National Taxpayer Advocate.
A more then 25 percent reduction in the Internal Revenue Service workforce will likely present some significant challenges on the heels of a 2025 tax season described as a "measured success," according to the Office of the National Taxpayer Advocate.
In the "Fiscal Year 2026 Objectives Report to Congress," National Taxpayer Advocate Erin Collins noted that the 2025 filing season marked the IRS’ "third consecutive year of delivering a generally successful filing season, and by some measures, it was the smoothest yet. Most taxpayers filed their returns and paid their taxes or received their refunds without any delays or intervention from the IRS."
The report highlights that more than 95 percent of individual returns were filed electronically and more than 60 percent of taxpayers received refunds, "the majority within standard processing timeframes."
Despite having a successful season, the agency has reduced its workforce by more than 25 percent since the federal government under President Trump began cutting the federal workforce.
In analyzing what agency functions are affected by this workforce reduction, the report states that "many functions are more visible to taxpayers and directly impact service delivery, while other functions play vital supporting roles in providing taxpayer service and delivering on the IRS’s mission."
Collins in the report when on to encourage Congress ignore requests to cut the IRS budget and ensure the agency is properly staffed and financed.
"The Administration’s budget proposal envisions a 20 percent reduction in appropriated IRS funding next year and an overall reduction of 37 percent after taking into account after taking into account the decrease in supplemental funding from the Inflation Reduction Act. A reduction of that magnitude is likely to impact taxpayers and potentially the revenue collected."
The issues of the workforce reduction could be compounded by the expected permanent extension of the Tax Cuts and Jobs Act.
Collins stated that most of the changes related to the extension won’t take effect until January 1, 2026, "but several provisions impacting tens of millions of taxpayers will likely be effective during the 2025. This suggests additional complexity with taxpayers file their 2025 tax returns during the 2026 filing season and more complexity the following year. In addition, the reduction of more than 25 percent in the IRS workforce has the potential to reduce taxpayer services."
The report also echoed ongoing calls it has made in the past, as well as calls by other stakeholders, to continue to improve its information technology modernization strategy. Collins notes that in recent years, "the agency has made notable strides in modernizing its systems. … If this momentum continues, the IRS will be well positioned to deliver high quality service, enhance the taxpayer experience, and perhaps improve tax compliance at a reduced cost."
She highlighted the improvements that were made possible through the supplemental funding from the Inflation Reduction Act, but added that the Trump Administration has paused indefinitely or cancelled projects and replaced them with nine distinct modernization "’vertical,’ which are technology projects designed to meet specified technology demands."
"While these initiatives are promising, the IRS must provide clear and detailed communication to Congress and the public regarding the objectives, scope, business value, milestones, projected timelines, costs, and anticipated impacts of these nine vertical projects on taxpayer service," the report stated. "Without such transparency, there is a real risk these initiatives could stall or deviate from their intended outcomes."
Collins also made a case for sustained funding for IT improvements, recalling a 2023 blog post where she highlighted that large U.S. banks "spend between $10 billion and $14 billion a year on technology, often more than half on new technology systems. Yet in fiscal year (FY) 2022, Congress appropriated just $275 million for the IRS’s Business Systems Modernization (BSM) account. That’s less than five percent of what the largest banks are spending on new technology each year, and the IRS services far more people and entities than any bank."
By Gregory Twachtman, Washington News Editor
The Internal Revenue Service Electronic Tax Administration Advisory Committee (ETAAC) released its 2025 annual report during a public meeting in Washington, D.C., outlining 14 recommendations—ten directed to the IRS and four to Congress.
The Internal Revenue Service Electronic Tax Administration Advisory Committee (ETAAC) released its 2025 annual report during a public meeting in Washington, D.C., outlining 14 recommendations—ten directed to the IRS and four to Congress. ETAAC operates under the Federal Advisory Committee Act and collaborates with the Security Summit, a joint initiative established in 2015 by the IRS, state tax agencies and the tax industry to address identity theft and cybercrime.
ETAAC recommended that the IRS update tax return forms to strengthen security and reduce fraud and identity theft. It also advised the agency to revise Modernized e-File reject codes and explanations, expand information sharing with state and industry partners, and continue transitioning taxpayers toward fully digital interactions.
Congress was urged to support tax simplification aligned with policy objectives, grant the IRS authority to regulate non-credentialed tax return preparers, ensure stable funding for taxpayer services and operations, and prioritize sustained technology modernization. For more information, visit the Electronic Tax Administration Advisory Committee (ETAAC) page.
The individual income tax filing season opens on January 23, 2017, the IRS has announced. The IRS also reminded taxpayers that the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) (P.L. 114-113) may impact certain refunds in 2017.
The individual income tax filing season opens on January 23, 2017, the IRS has announced. The IRS also reminded taxpayers that the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) (P.L. 114-113) may impact certain refunds in 2017.
Filing season launch
The IRS will begin accepting electronic tax returns and processing paper returns on January 23, 2017.
Unlike past years, the IRS did not have to deal with late tax legislation in 2016. Typically, the IRS needed extra time to reprogram its processing systems for late tax legislation and that can move the start of the filing season to later in January.
The deadline for filing 2016 returns is Tuesday, April 18, 2017. The deadline is three days later in 2017 because April 15, 2017 falls on a Saturday. Additionally, Monday, April 17, 2017 is a holiday in the District of Columbia. That holiday moves the deadline to April 18, 2017.
Refunds
The PATH Act generally requires that no credit or refund for an overpayment for a tax year will be made to a taxpayer before the 15th day of the second month following the close of that tax year, if the taxpayer claimed the earned income tax credit (EITC) or Additional Child Tax Credit (ACTC) on the return. The provision in the PATH Act applies to credits or refunds made after December 31, 2016.
The IRS explained that it must hold the entire refund, even the portion not associated with the EITC and the ACTC. The IRS reported that it will begin releasing affected refunds starting February 15, 2017. However, the IRS reminded taxpayers that it may take additional time for financial institutions to accept and despot the refunds to taxpayers’ accounts. The IRS added that taxpayers can track the status of a refund by using the Where’s My Refund? tool on the IRS website and also the IRS2Go app.
"This is an important change as some of these taxpayers are used to getting an early refund," IRS Commissioner John Koskinen said. "We want people to be aware of the change for their planning purposes. We don't want anyone caught by surprise if they get their refund a few weeks later than in previous years."
ITINs
Another important change affects individual taxpayer identification numbers (ITINs). Under the PATH Act, any ITIN not used on a tax return at least once in the past three years expires January 1, 2017. In addition, any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN) will also expire on that date. The IRS encouraged affected taxpayers to renew their ITINs.
If you have any questions about the start of the filing season, refunds or ITINs, please contact our office.
IR-2016-167
A new year may find a number of individuals with the pressing urge to take stock, clean house and become a bit more organized. With such a desire to declutter, a taxpayer may want to undergo a housecleaning of documents, receipts and papers that he or she may have stored over the years in the event of an IRS audit. Year to year, fears of an audit for claims for tax deductions, allowances and credits may have led to the accumulation of a number of tax related documents—many of which may no longer need to be kept.
A new year may find a number of individuals with the pressing urge to take stock, clean house and become a bit more organized. With such a desire to declutter, a taxpayer may want to undergo a housecleaning of documents, receipts and papers that he or she may have stored over the years in the event of an IRS audit. Year to year, fears of an audit for claims for tax deductions, allowances and credits may have led to the accumulation of a number of tax related documents—many of which may no longer need to be kept.
However, it is of extreme importance for tax records to support the income, deductions and credits claimed on returns. Therefore, taxpayers must keep such records in the event the IRS inquires about a return or amended return.
Return-related documents
Generally, the IRS recommended that a taxpayer keep copies of tax returns and supporting documents at least three years. However, the IRS noted, there are some documents that should be kept for up to seven years, for those instances where a taxpayer needs to file an amended return or if questions may arise. As a rule of thumb, taxpayers should keep real estate related records for up to seven years following the disposition of property.
Health care related documents
Although health care information statements should be kept with other tax records, taxpayers are to remember that such statements do not need to be sent to the IRS as proof of health coverage. Records that taxpayers are strongly encouraged to keep include records of employer-provided coverage, premiums paid, advance payments of the premium tax credit received and the type of coverage held. As with other tax records, the IRS recommended that taxpayers keep such information for three years from the time of filing the associated tax return.
Last year’s return
Taxpayers are encouraged to keep a copy of last year’s return. The IRS, in efforts to thwart tax related identity theft and refund fraud, continues to make changes to authenticate and protect taxpayer identity in online return-related interactions. Beginning in 2017, some taxpayers who e-file will need to enter either the prior-year adjusted gross income or the prior-year self-select PIN and date of birth—information associated with the prior year’s return—to authenticate their identity.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of January 2017.
January 5
Employers. Semi-weekly depositors must deposit employment taxes for Dec 28–Dec 30.
January 6
Employers. Semi-weekly depositors must deposit employment taxes for Dec 31 and Jan 1–Jan 3.
January 10
Employees who work for tips. Employees who received $20 or more in tips during December must report them to their employer using Form 4070.
January 11
Employers. Semi-weekly depositors must deposit employment taxes for Jan 4–Jan 6.
January 13
Employers. Semi-weekly depositors must deposit employment taxes for Jan 7–Jan 10.
January 17
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in December 2016.
Individuals. Make payment of estimated tax for 2016 using Form 1040-ES if there was insufficient or no tax withholding. Alternatively, file Form 1040 and pay tax liability by January 31, 2017.
Farmers and fishermen. Make payment for estimated tax for 2016 using Form 1040-ES.
Employers. Semi-weekly depositors must deposit employment taxes for Dec 10–Dec 13.
January 19
Employers. Semi-weekly depositors must deposit employment taxes for Jan 11–Jan 13.
January 23
Employers. Semi-weekly depositors must deposit employment taxes for Jan 14–Jan 17.
January 25
Employers. Semi-weekly depositors must deposit employment taxes for Jan 18–Jan 20.
January 27
Employers. Semi-weekly depositors must deposit employment taxes for Jan 21–Jan 24.
January 31
Employers. Provide employees with copies of their Form W-2 for 2016.
Health coverage reporting. Applicable large employers must provide Form 1095-C to full-time employees.
Employers. File Form 941 for fourth quarter of 2016 and deposit or pay any undeposited tax. Pay tax liability in full with timely filed return if less than $2,500. If the tax for the quarter was deposited timely, properly, and in full, deadline to file Form 941 is February 10.
Certain small employers. File form 944 to report social security and Medicare taxes and withheld income tax for 2016. Deposit any undeposited tax if tax liability is $2,500 or more for 2016 but less than $2,500 for the fourth quarter. If the tax for the year was deposited timely, properly, and in full, deadline to file Form 944 is February 10.
Farm employers. File form 943 to report social security and Medicare taxes and withheld income tax for 2016. Deposit any undeposited tax if tax liability is $2,500 or more for 2016 but less than $2,500 for the fourth quarter. If the tax for the year was deposited timely, properly, and in full, deadline to file Form 943 is February 10.
Individuals. File Form 1040 and pay tax liability if the last installment of estimated tax was not paid by January 17, 2017.
Businesses. Provide annual information statements to recipients of certain payments made in 2016 on the appropriate information return.
Payers of nonemployee compensation. File Form 1099-MISC for nonemployee compensation paid in 2016.
Payers of gambling winnings. Provide Form W-2G to gambling winners for reportable gambling winnings or withheld income tax from gambling winnings.
Nonpayroll taxes. File Form 945 to report income tax withheld for 2016 on nonpayroll items and deposit or pay any undeposited tax. Pay tax liability in full with timely filed return if less than $2,500. If the tax is deposited timely, properly, and in full, deadline to file Form 945 is February 10.
Federal unemployment tax. File Form 940 to report federal unemployment tax for and deposit or pay any undeposited tax. If undeposited tax is $500 or less, either pay with return or deposit it. If more than $500, deposit it. If the tax is deposited timely, properly, and in full, deadline to file Form 940Ju is February 10.
February 1
Employers. Semi-weekly depositors must deposit employment taxes for Jan 25–Jan 27.
February 3
Employers. Semi-weekly depositors must deposit employment taxes for Jan 28–Jan 31.
For many individuals, volunteering for a charitable organization is a very emotionally rewarding experience. In some cases, your volunteer activities may also qualify for certain federal tax breaks. Although individuals cannot deduct the value of their labor on behalf of a charitable organization, they may be eligible for other tax-related benefits.
For many individuals, volunteering for a charitable organization is a very emotionally rewarding experience. In some cases, your volunteer activities may also qualify for certain federal tax breaks. Although individuals cannot deduct the value of their labor on behalf of a charitable organization, they may be eligible for other tax-related benefits.
Before claiming any charity-related tax benefit, whether for a donation or volunteer activity, you must determine if the charity is a "qualified organization." Under the tax rules, most charitable organizations, other than churches, must apply to the IRS to become a qualified organization. If you are uncertain about an organization's status as a qualified organization, you can ask the charity. The IRS has a toll-free number (1-877-829-5500) for questions from taxpayers about charities and also maintains an online tool at www.irs.gov/charities.
Time or services
An individual may spend 10, 20, 30 or more hours a week volunteering for a charitable organization. Precisely because the individual is a volunteer, he or she receives no remuneration for his or her time or services and cannot deduct the value of his or her time or services spent on activities for the charitable organization. Unpaid volunteer work is not tax deductible.
Vehicle expenses
Vehicle expenses associated with volunteer activity should not be overlooked. For example, many individuals use their personal vehicles to transport others to medical treatment or to deliver food to shut-ins. Taxpayers can deduct as a charitable contribution qualified unreimbursed out-of-pocket expenses, such as the cost of gas and oil, directly related to the use of their vehicle in giving services to a charitable organization. However, certain expenses, such as registration fees, or the costs of tires or insurance, are not deductible. Alternatively, taxpayers can use a standard mileage rate of 14 cents per mile to calculate the amount of their contribution. Do not confuse the charitable mileage rate, which is set by statute, with business mileage rate (56.5 cents per mile for 2013), which generally changes from year to year. Parking fees and tolls are deductible whether the taxpayer uses the actual expense method or the standard mileage rate.
Uniforms
Some volunteers are required to wear a uniform, such as a jacket that identifies the wearer as a volunteer for the charitable organization, while engaged in activity for the charity. In this case, the tax rules generally allow taxpayers to deduct the cost and upkeep of uniforms that are not suitable for everyday use and that the taxpayer must wear while performing donated services for a charitable organization.
Hosting a foreign student
Qualifying expenses for a foreign student who lives in the taxpayer's home as part of a program of the organization to provide educational opportunities for the student may be deductible. The student must not be a relative, such as a child or stepchild, or dependent of the taxpayer and also must be a full-time student in secondary school or any lower grade at a school in the U.S. Among the expenses that may be deductible are the costs of food and certain transportation spent on behalf of the student. The cost of lodging is not deductible. If you are planning to host a foreign-exchange student, please contact our office and we can explore the possible tax benefits.
Travel
Volunteers may be asked to travel on behalf of the charitable organization, for example, to attend a convention or meeting. Generally, qualified unreimbursed expenses may be deductible subject to complicated rules. Very broadly speaking, there must not be a significant element of personal pleasure, recreation, or vacation in the travel. Special rules apply if the charitable organization pays a daily travel allowance to the volunteer. There are also special rules for attendance at a church meeting or convention and the capacity in which the volunteer attends the church meeting or convention. If you plan to travel as part of your volunteer activity for a charitable organization, please contact our office and we can review your plans in greater detail.
If you have any questions, please contact our office.
There are two important energy tax credits that can benefit homeowners in 2010: (1) the nonbusiness energy property credit and (2) the residential energy efficient property credit. Collectively, they are known as the "home energy tax credits." With the home energy tax credits, you can not only lower your utility bill by making energy-saving improvements to your home, but you can lower your tax bill in 2010 as well. Eligible taxpayers can claim the credits regardless of whether or not they itemize their deductions on Schedule A. Your costs for making these energy improvements are treated as paid when the installation of the item is completed.
Nonbusiness energy property credit
The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) extended the nonbusiness energy credit for 2009 and 2010. The nonbusiness property credit equals 30 percent of a homeowner's expenses on eligible energy-saving improvements, up to $1,500 for both the 2009 and 2010 tax years. Qualifying expenses include costs of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass, asphalt roofs, as well as costs associated with the installation of these items. The costs of energy-efficient windows, skylights, and doors, and qualifying insulation also qualify for the credit. However, the costs of installing these items do not qualify. Since the credit amounts are combined for both 2009 and 2010, if you made energy improvements in 2009 to which you claimed part of the expenses, you must take that into consideration when claiming the credit in 2010 for qualified expenses. The credit applies only to your principal residence, and special rules apply to condo owners.
Residential energy efficient property credit
The credit rate for the residential energy property credit equals 30 percent of the cost of all qualifying improvements. The residential energy efficient property credit can be claimed for solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit. No cap exists on the amount of the credit available, except in the case of fuel cell property.
Caution. As in the case of the nonbusiness energy property credit, not all energy-efficient improvements qualify for this tax credit. As such, you should check the manufacturer's tax credit certification statement before purchasing or installing any energy-efficient property. We can help you determine your eligibility based on a certification statement.
Reporting
Both energy credits are claimed by eligible homeowners when they file their 2010 federal income tax return. While you do not get an immediate check from Uncle Sam since you claim it on your 2010 return filed in 2011, you might be able to lower your estimated tax payments or withholding immediately to enjoy the benefits of the credit earlier.
Both the nonbusiness energy property credit and the residential energy property credit are claimed and figured on Form 5695, Residential Energy Credits. Since these are credits, not deductions, they increase a taxpayer's refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. Use Form 5695, Residential Energy Credits, to figure and claim these credits. Certain other credits you claim for the 2010 tax year, if any, will affect your computation of the home energy credits.