Gifts to Charity: Six Facts About Written Acknowledgements

Throughout the year, many taxpayers contribute money or gifts to qualified organizations eligible to receive tax-deductible charitable contributions. Taxpayers who plan to claim a charitable deduction on their tax return must do two things:

• Have a bank record or written communication from a charity for any monetary contributions.

• Get a written acknowledgment from the charity for any single donation of $250 or more.

Here are six things for taxpayers to remember about these donations and written acknowledgements:

1. Taxpayers who make single donations of $250 or more to a charity must have one of the following:

• A separate acknowledgment from the organization for each donation of $250 or more.

• One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.

2. The $250 threshold doesn’t mean a taxpayer adds up separate contributions of less than $250 throughout the year.

• For example, if someone gave a $25 offering to their church each week, they don’t need an acknowledgement from the church, even though their contributions for the year are more than $250.

3. Contributions made by payroll deduction are treated as separate contributions for each pay period.

4. If a taxpayer makes a payment that is partly for goods and services, their deductible contribution is the amount of the payment that is more than the value of those goods and services.

5. A taxpayer must get the acknowledgement on or before the earlier of these two dates:

• The date they file their return for the year in which they make the contribution.

• The due date, including extensions, for filing the return.

6. If the acknowledgment doesn’t show the date of the contribution, the taxpayers must also have a bank record or receipt that does show the date.

If you have additional questions or would like to discuss the topic further, please contact your advisor.

Unclaimed Property Reporting

Unclaimed property reports are due October 31st. All Nevada companies are required to file an unclaimed property report even if they are not holding any property. The most common types of property held are un-cashed payroll checks, accounts payable checks and accounts receivable credit balances. You are required to send a due-diligence notice to those for whom you are holding property of $50.00 or more at least 90 days in advance of turning it over to the state.

New for 2017, the Nevada State Treasurer is no longer offering negative holder reporting without registering for an account, so every entity will now need to sign up for an online account. Please visit the State of Nevada Treasurer’s website or call us at 775.885.8847 for more information, rules and regulations.

Like-Kind Exchanges – General Rules

A like-kind exchange is any exchange (1) of property held for investment or for productive use in your trade or business for (2) like-kind investment property or trade or business property. For these purposes, “like-kind” is very broadly defined. As long as the exchange is real estate (land and/or buildings) for real estate, or personalty (non-real estate) for personalty, it should qualify. However, exchanges of some types of property (for example, inventory or shares of stock), do not qualify. If you are unsure whether the property involved in your exchange is eligible for a tax-free like-kind exchange, please call and we can discuss the matter.

Assuming the exchange qualifies, here’s how the tax rules work:

If it’s a straight asset-for-asset exchange, you will not have to recognize any gain from the exchange. You will take the same “basis” (your cost for tax purposes) in your new property that you had in the old property. Even if you do not have to recognize any gain on the exchange, you still have to report the exchange on Form 8824.

Frequently, however, the properties are not equal in value, so some cash or other (non-like-kind) property is tossed into the deal. This cash or other property is known as “boot.” If boot is involved, you will have to recognize your gain, but only up to the amount of boot you receive in the exchange. In these situations, the basis you get in the like-kind property you receive is equal to the basis you had in the property you gave up reduced by the amount of boot you received but increased by the amount of gain recognized.

Example. Ted exchanges land (investment property) with a basis of $100,000 for a building (investment property) valued at $120,000 plus $15,000 in cash. Ted’s gain on the exchange is $35,000: he received $135,000 in value for an asset with a basis of $100,000. However, since it’s a like-kind exchange, he only has to recognize $15,000 of his gain: the amount of cash (boot) he received. Ted’s basis in his new building will be $100,000: his original basis in the land he gave up ($100,000) plus the $15,000 gain recognized, minus the $15,000 boot received.

Note that no matter how much boot is received, you will never recognize more than your actual (“realized”) gain on the exchange.

If the property you are exchanging is subject to debt from which you are being relieved, the amount of the debt is treated as boot. The theory is that if someone takes over your debt, it’s equivalent to his giving you cash. Of course, if the property you are receiving is also subject to debt, then you are only treated as receiving boot to the extent of your “net debt relief” (the amount by which the debt you become free of exceeds the debt you pick up).

Like-kind exchanges are an excellent tax-deferred way to dispose of investment or trade or business assets. If you have additional questions or would like to discuss the topic further, please contact your advisor.

Nevada Commerce Tax Update and Details

For business entities or individuals registered with the Nevada Secretary of State that received a welcome letter in the mail see below:

• The letter contains the pre-approved Nevada Tax access code needed to register your online account.

-To create your online account, follow the instructions at http://tax.nv.gov/Commerce/NVTaxRegister/.

• A Commerce Tax Additional Information Form will also need to be submitted via mail or email to the Department to finalize registration. This form should be included with the welcome letter, and is also available online.

- To email the form, complete the online version under the “Commerce Tax: Registration Resources” menu at http://tax.nv.gov/comtax/ and click the “submit via e-mail” button on the bottom of the form after completion.

- To mail the form, use the following address:

NEVADA DEPARTMENT OF TAXATION
Attn: Compliance Division
1550 College Parkway, Suite 115
Carson City, NV 89706-7937

• Per communication with the Department of Taxation as of June 28, 2016, welcome letters are still in the process of being sent out.

• Please see the following link for the Department of Taxation’s FAQ on the Welcome Letter, including answers to common questions:

http://tax.nv.gov/Commerce/WelcomeLetter/

For Business entities or individuals not registered with the Nevada Secretary of State or are registered and did not receive a welcome letter in the mail see below:

•If you have a Nevada Business License and did not receive the Welcome Letter, or have lost the letter, you will need to contact the Department at (866) 962-3707.

•If you do not have a Nevada Business License, you will need to complete the Nexus Questionnaire Form linked below to receive your welcome letter.

http://tax.nv.gov/uploadedFiles/taxnvgov/Content/FAQs/COM_nexus_questionnaire.pdf

Nevada Commerce Tax

The Commerce Tax is an annual tax imposed on the Nevada gross revenue of each business entity engaged in business in the state. For purposes of this tax, a business entity also includes any person engaging in business in Nevada, which would include anyone receiving trade or business income, rental income, or farming income within Nevada, whether within a business or personally. The Nevada Commerce Tax filing deadline is August 15th, 2016 for the fiscal year beginning July 1, 2015 and ending on June 30, 2016.

Each business entity subject to the tax must file a return; however, there is no tax liability unless Nevada source gross revenue in the taxable fiscal year exceeds $4,000,000. If you are under the gross revenue threshold, there is a simplified “check the box” method available for completing the return. If gross revenue exceeds $4,000,000, the Nevada source gross revenue must be determined to calculate the amount subject to the Commerce Tax, if any, based on a specific industry code (NAICS code).

The Nevada Department of Taxation has been mailing out welcome letters to businesses with information regarding the filing requirements of the Commerce Tax. This welcome letter contains a pre-approved access code to enroll in the Nevada Tax Center system, where this return can be submitted electronically. The return may also be paper filed.

If you did not receive a welcome letter and are required to submit a return, a nexus questionnaire can be submitted to the Department of Taxation for registration, which is available on the Department’s website. A taxpayer ID will be assigned to you as a result of registration, which is needed to file the Commerce Tax return.

Please contact your advisor with KBCA, LLC at (775) 885-8847 if you have any questions about the Commerce Tax or its applicability to you.

Extension and Modification of Bonus Depreciation and Section 179 Rules

On December 18, 2015, the 2015 Protecting Americans from Tax Hikes (PATH) Act was passed by Congress, which extended, modified or made permanent several depreciation related provisions including:

• Bonus depreciation was extended for an additional five years, through the 2019 tax year. For property placed in service during 2015, 2016 and 2017, the bonus depreciation percentage remains at 50 percent, however for property placed in service in 2018 and 2019 the percentage is reduced to 40 and 30 percent, respectively.

• Beginning in 2016, qualified improvement property replaces qualified leasehold improvement property and includes a broader definition. The new category includes any improvement to an interior portion of a building which is nonresidential real property if the improvement is placed in service after the date the building was first placed in service, but not including any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.

• For qualified improvement property placed in service after December 31, 2015, the 2015 PATH Act treats interior building improvements as qualified property without regard to whether the improvements are property subject to a lease and also removes the requirement that the improvement be placed in service more than three years after the date the building was first placed in service.

• Section 179 expensing is restored and permanently extended at the annual allowable expense limitation of $500,000. The $500,000 limit begins to be phased out once the cost of Section 179 property placed in service during the tax year exceeds $2,000,000.

• For passenger automobiles under 6,000 pounds gross (unloaded) vehicle weight or less and placed in service during the 2016 tax year, the first year depreciation expense deduction is limited to $3,160 or $11,160 if bonus depreciation applies.

• Heavy SUVs, which are built on a truck chassis and are rated at more than 6,000 pounds gross (loaded) vehicle weight, are exempt from the above luxury-auto dollar cap limits. However, the maximum Section 179 deduction that is allowed is limited to $25,000 per SUV, but bonus depreciation is not limited if the SUV qualifies as a new purchase.

• Trucks that are over 6,000 pounds gross (loaded) vehicle weight and have an interior cargo bed length of six feet or longer, are not subject to any annual depreciation limits. However, if the truck has an interior cargo bed length of less than six feet, the maximum Section 179 deduction that is allowed is limited to $25,000, but bonus depreciation is not limited if the truck qualifies as a new purchase.

Please contact your advisor with KBCA, LLC at (775) 885-8847 if you have any questions about the extended modified depreciation rules.

Annual Trust Review

The beginning of the year is a good time to review the terms and provisions of your current trust document or think about establishing a new trust. Some of the key provisions to review on at least an annual basis are the successor trustee and beneficiary provisions of your trust. If there have been life changes to either the successor trustee or beneficiaries in the last year, then an amendment may be necessary.

Additionally, for most married couples, family trust documents have been set up under a classic A/B or A/B/C trust format, whereby the assets of the married couple are split into various trusts upon the first death of either spouse to protect against estate taxes. Due to the current high level of estate tax exemption and a newer concept called portability; a married couple can currently transfer up to $10,900,000 of assets estate tax free without having a complex estate plan in place.

Trusts can also be beneficial to people with any level of assets and can be very simple in nature. If you would like to see that your assets are efficiently distributed in accordance with your final wishes and without court intervention, then a trust is a necessary planning tool. Having a will alone may not be enough to keep your assets from being administered by probate court, which could lead to costly fees and undue delays in the distribution of assets to your beneficiaries.

If you would like to schedule an appointment to discuss any of the issues above, please contact your tax professional at KBCA at (775) 885-8847.

Phone Scams Continue to be a Serious Threat

Aggressive and threatening phone calls by individuals impersonating IRS agents continue to be a serious threat. We have received calls from several clients over the past few months indicating receipt of these types of calls locally.

The IRS has seen a surge of these phone scams in recent months as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games.

If someone calls unexpectedly claiming to be from the IRS with aggressive threats “if you don’t pay immediately,” it’s a scam artist calling. The first IRS contact with taxpayers is usually through the mail and a collection action first notification is never through a phone call.

Scammers are able to alter caller ID numbers to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. They often leave “urgent” callback requests. They prey on the most vulnerable people, such as the elderly.

These individuals try to scare and shock you into providing personal financial information on the spot while you are off guard. Don’t be taken in and don’t engage these people over the phone. Never give out personal information over the phone.

If you have any concerns please don’t hesitate to contact us.