Congress has belatedly reinstated the rules for tax year 2012, which allow individuals to make transfers from their IRA to a qualified charity (QCD).  The upside:  The distribution is not taxable.  And, of course, the corresponding down side:  The charitable contribution is not deductible.  So how in the world is this going to work since we are now in 2013 and retirees have already taken their 2012 RMDs?  Well, that's where the magic of the "special rules" comes in.  The first "special rule" allows a distribution made to an IRA owner in December of 2012 to be treated as a qualified charitable distribution when all or part of the distribution is transferred in "cash" to a qualifying charity by January 31, 2013.  This is basically a "do-over" for anyone who was waiting for the prior years' QCD rules to get extended.  Another "special rule" states that a taxpayer can elect to have any QCD taken in January 2013, be treated as though made on December 31, 2012.  This might be a good strategy if you forgot to take your 2012 RMD.  So, if you'd like to take advantage of either of these strategies, act today, as the curtain is about to fall on this opportunity.

For more details on this opportunity, you can go to the IRS website or read this article from Forefield Advisor

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L.K. Benson & Co. will be revising our tax procedures for 2013 by offering online access to various documents. We will be introducing a Portal so that we can securely deliver and receive documents, both tax and non-tax related. This will provide 24/7 access to your documents from anywhere with an Internet connection

Portals are being used more and more every day. In fact‚ if you do your banking or investing online‚ you’re using a portal. Portals are a convenient online storage space in which files can be effortlessly uploaded‚ downloaded‚ stored and shared in a safe and secure environment.

Portals give you instant access to your files, including tax organizers, tax returns, financial statements and source documents. You will be able to access and review completed returns, then print and sign the e-filing release. If you are applying for a loan or need documents for legal purposes, you can quickly and easily download your prior years’ tax returns and source documents to the Portal so you’ll have full access to them at any time.

With Portal, you will be able to:

• Access vital documents 24/7 via a secure online repository.
• Organize documents in electronic cabinets and folders, which mirror the way paper documents are stored.
• Easily upload documents of all sizes without using an FTP server.
• Designate files as read-only or read/write for easier access and greater security.
• Check out documents while updating so other users can’t access the previous version.
• Maintain previous file versions in document history.
• Search, filter and display documents by file type, title, creator, keyword and more.
• Share PDF files, Web pages, hyperlinks, Microsoft® Excel® spreadsheets, Microsoft® Visio® diagrams, Microsoft® Word documents, PowerPoint® presentations and financial software data files, to name a few.
• Upload QuickBooks® files to Portal, eliminating the need to exchange DVDs.

The first phase of this transition will involve your tax organizer.  We will be releasing it in mid-January, closer to when 2012 tax documents are published.  You will have the option to set up a secure Portal to receive the organizer.  (We can still mail it if you prefer that method.)  Specific details will be forthcoming after the first of the year.

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Obviously, the first course of action is to minimize the risk that your identity could be stolen by doing the simple things, such as:

• Lock drawers and cabinets containing sensitive information.
• Do not carry flash drives around, as they are easily lost or stolen.
• Install and update your anti-virus, spam and malware programs.
• Use and change passwords regularly – on accounts, phones, laptops, etc.
• Shred, shred, shred – especially any documents that have account numbers or social security numbers. (For a reminder of how long to keep certain documents, refer back to this article.)
• Do not respond to e-mails from the IRS, as they do not use e-mail or social media to contact taxpayers.
• Never give out your social security number online.

Now, what do you do if the unthinkable happens and you become a victim of tax identity theft?  (You probably won't even know it until you receive a notice from the IRS.)

• Call the number on the notice or contact the IRS Identity Protection Specialized Unit at 800-908-4490.
• Complete the IRS Identity Theft Affidavit, Form 14039.
• Notify credit bureaus, SSA, credit card companies, banks and the local police.

The IRS has additional information on their web-site www.IRS.gov/identitytheft and www.IRS.gov/phishing. 

As always, feel free to contact us if you have any questions.

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For a charitable contribution to be deductible, the IRS Code requires that a monetary contribution of $250 or more must be substantiated by ALL of the following:

1. A contemporaneous written acknowledgement. This means it must be obtained before the due date of the tax return (including extensions) or the date the return is filed, whichever comes first.
2. The acknowledgement must indicate the amount paid by the taxpayer. (Pretty much of a "no-brainer" on this one.)
3. The acknowledgement must indicate whether the organization provided any goods or services in exchange for the contribution.  And if so, a good faith estimate of such goods and services must be supplied.  (Think bull roast ticket or any contribution involving a meal.)  

Again, the receipt must contain all three of these elements, or you run the risk that your charitable deduction will be denied by the IRS under audit.  In a recent court case, the United States Tax Court disallowed a deduction because a church forgot to include part 3 in their letter to taxpayers, even though they did include parts 1 and 2!  We recommend that you check all your charitable receipts, particularly the large ones, to make sure that they contain the required language. 

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In the coming weeks, we will be contacting you with our list of information required in order to complete your tax return.  As we all need incentives to complete unpleasant projects, keep in mind that the longer the tax prep process drags on, the more expensive it ultimately becomes, not only through possible underpayment interest and penalties, but through additional fees involved in the "nagging" process.  Let's end this tax season before the next one is upon us.

If you want your organizer e-mailed this year, please send an e mail to Peggy: peggy@lkbenson.com, from the e-mail address you would like us to use.  We will be mailing organizers the first week of January, so let us know as soon as possible if you want your organizer via e-mail. If we don’t hear from you by Monday, December 19th we will mail it as we have in the past.

Also, a friendly reminder:  please check the banking information that we have on file for you as you gather your tax information.  We want to make sure that we have the correct account and routing numbers for electronic tax payments as well as tax deposits.  Please do not assume that we have your current information.  Send us a copy of a check from the account that you wish to use.  If you don't tell us, we won't know. 

And yes, there's still time to request a year-end tax projection.  Contact us for questions on how to get started.

To download a Word version of this article, click here.

This past June, Brian won a constitutional challenge against the Maryland State Comptroller.  A circuit court judge overturned the comptroller's practice of allowing the credit to only be applied against state income tax, but not local (county) tax.  So what does this mean to you?  If you have paid income tax to states other than Maryland since 2008, an amended return might be in order to claim a protective refund.  Generally speaking, the tax rate for the other state must be greater than the MD state rate, and ideally greater than the state and local rates combined, to make amending worth your while.  Of course the Maryland Comptroller will most likely appeal the decision so we will continue to monitor the case as it develops.  Please contact us if you're interested in exploring whether amending makes sense for you.  

To download a Word version of this article, click here.