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Home Page > Business > Ask an Expert > Setting Up Quickbooks Part Three: the Rest of the Taxlines

Setting Up Quickbooks Part Three: the Rest of the Taxlines

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Setting Up Quickbooks Part 3 What to Do with the (rest of the) Tax Lines

By David Roberts

I have to apologize as there are some lines here that would cause an entirely separate article, and yet are not used by 90% of the companies using Quickbooks as their accounting software. I am sorry that these definitions are so brief but should you need clarification please don’t hesitate to email me.

•I. K-1 Tax Lines

The K-1 tax form is a little bit like a mutt form on the tax return. Mainly it concerns the division of profits and expenses in a partnership, trust or corporation so if your company is not a partnership or corporation these particular tax lines won’t apply to you. Some people receive a K-1 because they are part of a group of people who own a trust or portfolio that generates income through the year. That income is split up into the designated percentages amongst those in that group. One example of this would be the trust left to a group of siblings that generates income through the year, the eldest receiving 60% and the one or more siblings receiving an equal share of the remaining portion. Each sibling would receive a 1065B which would then be used to fill in the K-1 form.

Schedule K

•1. Rentals Income – Used when a partnership or corporation earns income from rental property.

•2. Rentals Expenses – Self explanatory but make sure you can break down what your actual expenses are versus what you think you are spending. Ads, Management fees, mileage to go collect rent or inspect problems with the home, all play a part in reducing your income and tax liability.

•3. Portfolio – Interest – CD’s – when a CD is part of an investment it earns a special place on the K1 form apart from interest from the US Treasury which is the next category.

•4. Portfolio – Interest – U.S. Treasury (bonds) etc. Many of these bonds are non-taxable income and many of these non-taxable bonds pay decent interest rates.

•5. Portfolio – Dividends – What would normally be on a 1099 DIV form in the case of a partnership, corporation or trust that owns stock will go on the K1.

•6. Portfolio – Royalties – Income received from copyrights, patents, oil, gas or mineral properties. Check your portfolio to see if your mutual funds are being invested in these type of companies.

•7. Other Income – the all-purpose IRS junk category. Other. If you can’t fit it into one of the other categories, put it here.

Deductions -

•1. Charitable – yes, partnerships, corporations and trusts can donate to worthy causes and receive the same benefits of writing off these donations to offset income and to foster goodwill in their communities.

•2. Other – If you can’t fit a deduction anywhere else, put it here.

Investment Interest

•1. Foreign Tax – Some mutual funds invest globally and thus you end up paying some foreign taxes. Sometimes these foreign taxes are deductible, that is a completely different article I haven’t written as of yet.

•2. Reduction in Available Taxes – another category put on your 1099DIV at the end of the year. Most companies will not use this category, I have been doing this for 9 years and have yet to service a client that uses this category.

•II. Balance Sheet Tax Lines

While a lot of the lines that have been covered can easily go into this income or that expense category, the balance sheet covers the accounts that would be considered assets, liabilities or equity.

•1. Cash – this would be your bank accounts, your cash on hand or petty cash accounts. It would include any account that is immediately available as liquid assets.

•2. Accounts Receivable – If you accept payment on credit terms, all amounts that you are waiting to be paid would be classified as A/R. There are companies out there now who will pay cash for your receivables, which in cases of extreme cash flow restrictions would be an option. The percentage you get however will be significantly reduced and isn’t an option for a lot of smaller business owners.

•3. Allowance for Bad Debts – This is the method I discussed earlier about figuring in advance that .5 – 2% of your A/R will never pay and being able to claim that as such against your A/R.

•4. US Government Obligations – Rare to be used, but if you have back taxes or debts owed to the government on a payment plan or regular payments, use this box.

•5. Tax Exempt Sec. – If the company owns any bonds or tax exempt securities, these are assets that pay out based on the ‘loan’ made to the payor.

•6. Other Current Assets – These are assets that can be easily and quickly converted to cash within a year’s time, CD’s, Bonds, etc.

•7. Loans to Shareholders – Just as it is feasible for a shareholder in a corporation to loan money to the company, it is also feasible for the shareholder(s) to borrow money from the company. Keep in mind that this kind of loan is strictly regulated and is one of the reasons that the Enron executives were more closely scrutinized and prosecuted, because the loans were below market value for excessive amounts that could never have been repaid.

•8. Mortgage Real Estate Loans – If your business involves the collection of loan amounts for real estate purchases, this would be the account to put those payments into.

•9. Other Investments – Are there any other investing activities that your company participates in that generates income either directly or through depreciation or amortization of assets?

•10. Buildings – Your building will be included on the balance sheet as being a positive addition to your assets and their value, the loan for the purchase of the buildings however will be on the liability side. There should be a separate fixed asset account showing the original cost of the building.

•11. Accumulated Depreciation – the yearly amount deducted from the VALUE (not the COST) of the building, vehicle, etc. Accumulated means all the previous year’s accumulated deductions for this asset. This amount if added correctly will appear on the chart of accounts as a negative figure.

•12. Land – Land does not depreciate, however the cost of the land is an asset and should be included in the accounting.

•13. Accumulated Amortization -

•14. Other Assets – Assets that cannot be put into any of these categories. Intangible assets, like goodwill, etc.

Balance Sheet Liabilities

•1. Accounts Payable – These are the accounts you owe that are on credit. This is for products, services or merchandise you purchased on credit.

•2. Short Term Mortgages Payable – In a time of extreme cash flow need, sometimes a business owner will take out a short term mortgage with collateral. Short term means it should be paid within 12 months.

•3. Other Current Liabilities – All liabilities that will be paid off within 12 months.

•4. Loans from Shareholders – When the company is strapped for cash and the owners/shareholders are not the money is put here so that when it is taken out it is done so as a repayment on the loan from the shareholders, with interest, and is not taxable, apart from the interest gained personally to the shareholder.

•5. Long Term Mortgages/Notes – Mortgages on property, notes payable to companies or individuals that don’t expect payment within a years’ time.

•6. Other Liabilities – All liabilities not fitting in other categories go here.

•7. Capital Stock – The number of shares authorized for issuance by a company’s charter, including both common and preferred stock. Generally the value assigned to each share is $1 but that is up to the individual business owner.

•8. Paid In Capital – capital received from investors for stock, also called contributed capital.

•9. Treasury Stock – stock reacquired by a corporation to be retired or resold to the public. Not to be considered when calculating an earnings per share ratio, dividends or for voting purposes.

Numbers 7,8 and 9 are usually meant for companies with the intent to sell their stock or go public. For these categories I would suggest getting guidance from a CPA before attempting to undergo that process yourself.

M-1

The M-1 is a form used for corporations with income or assets over $250,000. It is a comparison to the beginning years balance sheet to the end of year’s balance sheet. The use of Quickbooks makes this preparation easier as the information flows easily from the Quickbooks file to many different types of tax preparation software. (Lacerte, ProSeries, etc) The cost of these tax preparation software is usually prohibitive for a company that doesn’t specialize in tax preparation, so seek out a preparer that uses one of these two systems.

1. Net Income Per Books – the income minus expenses on books flows through to here.

2. Depreciation Per Books – ditto.

3. Expenses on Books not on Return – consult a tax professional before putting any of your accounts into this category!

4. Income on Books not on Return – again, consult a tax professional before using either of these categories.

8825A-E

If your corporation or partnership owns one or more rental real estate properties, the income and expenses are assigned to one of these accounts. The A, B, C etc are for separate rental properties so you can keep track of up to 5 different properties.

Gross Rents – how much rental income did you receive for this property. Advertising – how much did it cost you to advertise this property as being for rent? Auto and Travel – how many times did you travel to the property for maintenance, collection of rent, etc. Cleaning and Maintenance – tenants can sometimes make a mess, how much did the carpet cleaning, painting, etc cost you? Commissions – did you hire someone to help you rent the place? Pay them and deduct it here. Insurance – this would be for property and casualty insurance on the property in case you get sued or someone hurts themselves while living on or exploring your property. Legal and Professional Fees – did you have an attorney draw up the rental paperwork? Interest Expense – generally reported on the 1098 of the property. Repairs – outside of regular cleaning, was anything damaged that needed repairs? Taxes – Real estate taxes, county taxes, etc Utilities – Are you paying utilities to keep up appearances while you are trying to rent the property? Are you paying utilities for the tenant? Wages – do you have someone on staff who is your “property manager”? Split up their wages amongst the properties for accurate bookkeeping! (but pay them with one check. Misc. Expenses – pest control, security, etc would all go here.

Hopefully this article has helped you further your Quickbooks education on tax lines. Remember the old adage, “Garbage in, Garbage Out!” Put in correctly, your reports will be more accurate, and decidedly more helpful to you and your accountant.

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David Steven Roberts -
About the Author:

Homesoon Accounting servicing Kissimmee, St. Cloud, and Southeast Orlando offers help in tax preparation, Quickbooks consultation and fraud prevention management, with ten years experience in helping individuals and small businesses with their tax issues and bookkeeping. Since this is a home based business we don’t have to pay rent on an office for 12 months with a 4 month income, like the national franchise offices do and we pass that savings on to you.

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Ten biggest tax mistakes which we keep on making

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Ten biggest tax mistakes which we keep on making

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Home Page > Finance > Taxes > Ten biggest tax mistakes which we keep on making

Ten biggest tax mistakes which we keep on making

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Standard and recurring tax mistakes!

When you file your income tax return, there is a standard set of mistakes which you are likely to make. They cost you time, stress, and of course money!

It is the experience of IRS that people make the same mistakes again and again. Here is a list of top 10 mistakes

1. Incorrect filing status

Actually you don’t have a choice to file single or married. Your status is decided as on December 31. Anything happening before that date is irrelevant for tax purposes. Based on that, you can file jointly or separately. You can also file as the head of household but then you’ll need to satisfy certain requirements. Just because you consider yourself as the head of the household does not entitle you to file your return under that category!

Making mistake in deciding appropriate status can affect your eligibility in many ways. There are many things including the child tax credit, and many exemptions which are available for dependents. You can lose them if your status was incorrect. Please check out all the instructions in form 1040 to select appropriate filing status.

2. Incorrect social security number

The IRS computers can reject many deductions, exemptions or earned income credits if the social security numbers you enter are incorrect.

If you are preparing your return by hand then you should pay more attention to this aspect. You’ll have to ensure that the figures you write are legible and there is no doubt in interpretation.

3. Incorrect forms and schedules

Remember, you are going to submit to the IRS computer. If you enter details under incorrect schedules, the computer is going to raise a red flag. And then there is a chance of getting audited. So you’ll need to be fair with the computer!

4. Forgetting to sign and putting appropriate date

It is crystal clear that if you don’t sign your have not filed. If you are filing jointly, both of you must sign that joint return. If you are forgetting to do that, you will be subject to all kinds of penalties and interest.

If you do your own return and don’t sign then IRS makes a presumption that the numbers you have written in the return would constitute perjury!

5. Making claims for dependents not eligible

In the past, when IRS started investigating the social security numbers of dependents from the returns, millions of dependents disappeared. People say most of them went back to their doghouses, or to their cages or jumped back in the aquariums!

There are very specific criteria for claiming somebody as a dependent. You’ll need to follow them all before claiming anybody as dependent.

6. Claiming incorrect earned income credit

It is a very common mistake of taxpayer that he/she fails to claim the earned income credit in the appropriate column. Instead of claiming it at No. 6 top it is claimed at No. 7.

And many taxpayers try to claim the credit illegally.

Remember, any play with the earned income credit is seriously viewed by IRS and it is going to be a premier reason for tax audit.

7. Failing to attach the receipts

When you claim a tax deduction, support it with the receipts and vouchers. So you’ll need to collect all the receipts for charitable contributions as well as medical expenses which you are claiming as deductions. The receipts must be showing at least the name, the date and the amount on them! Remember no receipt means no deduction.

The same rule applies for claiming property tax and mortgage deductions.

8. Mistake in reporting details of domestic workers

You need to pay the payroll taxes on the wage of your housecleaner or the caregiver. That’s the law. So if you are paying $1600 or more two in 2008 to your household employee, then you are required to withhold and match the Social Security Tax and Medicaid tax. You are also required to file schedule H for computing and reporting the liability.

You are required to pay unemployment taxes if you pay wages over $1000 in any one calendar quarter to your household employees. You are also required to pay the state employment tax and the disability tax.

9. Mistakes in reporting your income

It’s not correct that you should skip your income just because you don’t have Form W-2 or 1099 with you when preparing the return of income. This is not at all a valid excuse for not paying tax on it. If you don’t report to the IRS, they can audit your receipts and cross check your bank deposits with your reported income and may make an audit query. Under-reported income may lead to a criminal prosecution. Certainly, the consequences are not worth the risk.

10. Mistake of not checking the alternative minimum tax (AMT) liability

The AMT is created to bring high income taxpayers claiming innumerable deductions and credits to wipe out their tax liability. You need to see whether you are coming under the clutches of AMT. If you are unable to check your liability under the AMT, then the entire calculations of your tax would go wrong and you are obviously making false declarations before the IRS.

As per the projections of IRS, the AMT is likely to hit about 20 million families in 2008 who usually earn in the range of $100,000-$200,000. The IRS has kept an AMT estimation calculator on its website and you’ll need to check it out before you file your return

Remember, simple looking mistakes end up with deadly consequences so you need to be very sure about all the correctness of the details before filing your return.

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Chintamani -
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Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.

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IRS Debt Relief

Most citizens in the US comply with the tax authorities on a voluntary basis. They file their tax returns and pay whatever is due in order to keep the country strong and financially stable.
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Property Records Search Online Will Manufacture Valuable Information

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Meade Tax Facilitate’s Glorious Tax Service is in Richmond Hill

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Non-profit Organizations

Posted under Charitable Deductions by on March 21st, 2011 1:51 pm

Non-profit Organizations

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Organizations seeking recognition of exemption from federal income tax includes a church or a convention or association of educational, or organization operated for the benefit of certain state and municipal colleges and universities or a hospital or medical research organization.

Recent legislation contains a number of significant provisions affecting tax-exempt charitable organizations described in section 501(c)(3) of the Internal Revenue Code. These provisions include:

1. New substantiation requirements

2. Public disclosure requirements imposed on the organizations that fail to comply

In general, the new tax law provides that charitable organizations that receive a “quid pro quo contribution” of more than $75 must provide a written disclosure statement to the contributor regarding the deductibility of the contribution. A quid pro quo contribution is defined as a payment made to a charitable organization that is partly in consideration for good or services furnished to the donor by the organization and partly as contribution to the organization.

Exempt churches, their integrated auxiliaries, and conventions or associations of churches are not required to file federal income tax returns or for that matter the usual information return filed by tax-exempt entities, the Form 990, Return of Organization Exempt from Income Tax. However, the organization may have to file federal income tax, if it is generating gross income form an unrelated business of $1,000.

Organizations that are required to file federal income tax, generally must file on or before the 15th day of the 5th month following the end of their annual accounting period.

An organization that conducts gambling activities is required to report gambling winnings if it pays out either $600 or more from a wagering transaction. If the winnings exceed $5,000, then they are subject to regular gambling withholding.

Our firm has extensive experience in the formation of non profit and charitable organizations. We provided assistance to many organizations in tax and legal matters including tax preparation, tax planning, and legal, financial, and accounting advice. If you would like to arrange a meeting to discuss how we may assist you in more detail, please contact our office at your convenience.

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Steven Sears -
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Steven Sears, Attorney and CPA offers Asset Protection and other services in Irvine, CA. For more information, visit: http://www.steven-sears.net

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Learn about Tax Organization Systems for a Home Office

Source: http://www.articlesbase.com/banking-articles/nonprofit-organizations-620709.html

Article Tags:
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The Isle of Man is located in the Irish Sea between Britain, Scotland and Ireland. The official language is English and the official currency is the pound Sterling. It is a democratic self-governing territory within the British Commonwealth. Although this island has never formally been a part of Britain, today Britain is responsible for the island’s defense and its international relations.

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Oct 29, 2008
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The Republic of Costa Rica is located between Panama and Nicaragua. It is considered the most “westernized” nation in Central America. It separates the waters of the Pacific Ocean from the Caribbean Sea. The official language is Spanish, although English is widely spoken, especially in the business area. The official currency is the Colon, which is one of the most stable currencies in Latin America.

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2. yollie 29/06/2009

stephen sears attorney has a book with details on corporations and new business start up. The seminar covers non profit and exempt organizations.

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1. jaima 17/12/2008

non profit can benefit many clients. Steven Sears Attorney in Irvine has the tax and law background to arrange the 501c3 planning. Mike Sears can prepare the tax return,

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Trust Accounting Income

Posted under Charitable Deductions by on March 20th, 2011 1:52 pm

Trust Accounting Income

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Trust Accounting Income

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Trust accounting income is the income and expense items that are used to determine the amount, certain beneficiaries will receive from the trust each year. Generally speaking, it is all revenue less all expenses paid.

First let’s look at the 2 types of trust funds. A trust that must pay out all accounting income earned in the year is a Simple trust. A Complex trust can pay out dividends and principal to beneficiaries, or can just accumulate the accounting income.

Simple trusts cannot pay out principal, they must be changed to a complex trust to do that. This is why these types of trust funds are popular to give to kids or grandkids, it allows cash flow income, but will not dwindle the source. Also, 2 types of beneficiaries are set-up, remainder and income beneficiaries. If the accounting income has not already been cleared, it must all be paid out at the end of the year to “income beneficiaries”. The principal is preserved for the remainder beneficiaries. Simple trusts cannot have any charitable beneficiaries.

Complex trusts have much more freedom and versatility. Accounting income can be paid out or not. Principal can be paid out or not. And also, complex trusts have the option to utilize charitable beneficiaries. However, charitable contributions, for trusts, have many regulations and stipulations. The contributions must be from the gross accounting income and come from the principal amount. Charitable donations can be deductible if they are paid specifically from the current year’s gross accounting income. Keep in mind, this is if the state and local laws allow for these processes.

The items that are calculated into the asset side of accounting income may include dividends, rental income, royalty income, partnership income, tax exempt interest, capital gain, ordinary gain, and other estate income.

The accounting income liability factors that can weigh in on the expense side are investment fees, fiduciary fees, state taxes, federal taxes, real estate taxes, and property taxes. These fees and taxes are usually paid by both the principal and the accounting income. Although, any arrangement can be made for satisfying these expenses. If the fees are paid by the accounting income, it will decrease the cash flow to the income beneficiary, but the income source will remain producing the same dividends.

Hopefully the asset side is larger than the expense side so that there is accounting income left to collect. If it’s not, you need to change accounting services or get a better financial advisor. Since the main objective to having a trust is to gain accounting income and cash flow, it would be counter-productive to have more expenses than income.

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Joe Coffee -
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Joe Coffee is a consultant for the online marketing firm, Web Shepherd. Visit www.AccountingAndYou.com for tips about leading methods of accounting and small business accounting options.

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3 Tax Planning Tips for S Corporations

Posted under Charitable Deductions by on March 19th, 2011 1:52 pm

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Recent IRS statistics say that S corporations represent the most popular form of small business corporation. That’s understandable. S corporations provide some powerful tax savings benefits for small business owners and investors.

Unfortunately, the S corporation’s extra accounting complexity sometimes means that small business owners don’t get all the savings they’re legally entitled to. To make sure that you don’t miss out on savings, be sure to apply the following tips:

Tip #1: Set a Reasonable But Low Salary

S corporation profits get paid out to the business owners either in the form of salary or profits. In other words, an S corp owner typically receives two types of checks from the business: payroll checks representing wages and dividend checks representing a share of the business profits.

The most important thing an S corporation can do to minimize the tax burden shouldered by the owners is pay shareholder-employees a low though reasonable salary. Here’s why: Paying out profit as wages subjects that money to Social Security taxes and Medicare taxes. In comparison, paying out profits as dividends doesn’t subject the money to Social Security and Medicare taxes.

Example: An S corporation that makes, say, $100,000 in profit before paying the shareholder-employee a reasonable wage would pay roughly $15,000 in Social Security and Medicare taxes if the entire $100,000 is paid as shareholder wages. If only $50,000 is paid as wages, however, the corporation reduces the Social Security and Medicare tax bill from $15,000 to $7,500.

Tip #2: Minimize Distributions

When a small business makes the election to have a corporation or limited liability company treated as an S corporation–both corporations and LLCs can be treated as S corps–the IRS warns about setting shareholder-employee wages too law. That warning also alerts the business about what happens when the salary does happen to be set too low: The IRS can re-categorize distributions made to shareholders (what people commonly refer to as dividends) as wages.

Note: Business owners commonly call the distributions of profit paid out to S corporation shareholders “dividends.” However, just to be technical, in the parlance of corporate tax law, dividends typically get paid by regular C corporations–not by S corporations. S corporations (and partnerships, too) make “distributions” of the profit. But back to the tip of minimizing distributions…

The IRS ability to re-categorize distributions as wages means that, to the extent possible, you may as well minimize distributions of profit to shareholders. In other words, don’t distribute money to shareholders simply because you can. For example, if shareholders will save the money (say for working capital purposes or for a new business investment), just save the money inside the S corporation–not outside the corporation.

Example: If a corporation makes a $100,000 profit and pays out half of this money, or $50,000 as wages and the other half or $50,000 as distribution, the IRS may be able to re-categorize some or all of the $50,000 distribution as wages. If the corporation pays only a $30,000 distribution, in the worst-case scenario the IRS can probably only reclassify the $30,000 as wages.

In the end, by minimizing distributions, the S corporation minimizes the money that can theoretically be reclassified as shareholder-employee wages.

Tip #3: Move Deductions to the S Corporation Tax Return

A final easy tip can often be employed by the small business corporation using the Subchapter S rules. You can often move tax deductions from the shareholder’s 1040 tax return to the corporation’s 1120S corporation tax return.

Moving deductions from an individual tax return to the corporation tax return may not save the shareholder-employee and S corporation owner income taxes. Afterall, the deduction represents a deduction on both tax returns. But the benefit of moving a tax deduction to the corporation return is that deduction then naturally reduces the distributions made to shareholders.

Example: Suppose an S corporation makes $100,000 in profits before paying the shareholder-employee wages. Further suppose that the shareholder-employee purchases individual health insurance for his family at an annual cost of $10,000, annually saves $5,000 for retirement and makes $5,000 annual charitable contributions. If these deductions are paid by the corporation rather than by the individual, the shareholder finds himself in the same economic position. But now the S corporation is paying out $80,000 in wages and distributions to the shareholder-employee rather than $100,000.

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Estate Planning in Los Angeles

Posted under Charitable Deductions by on March 18th, 2011 1:51 pm

Estate Planning in Los Angeles

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Tips for Estate Planning

1. Implement a business succession plan. If you are the co-owner of a business, implement a buy-sell agreement with your business partners to ensure that the family of a deceased partner receives a fair price for the business interest while ensuring the continuation of the business itself. If you have a family business, explore techniques to leave the business to those in the family who will operate it, while treating fairly the remaining survivors.

2. Leverage today’s low interest rates to substantially reduce your taxable estate. Today’s historically low interest rates provide a unique opportunity to shift minority positions in your business to the next generation over time through the use of a Grantor Retained Annuity Trust (GRAT) or an Intentionally Defective Irrevocable Trust (IDIT). You can lock in a low interest rate for your retained portion, removing greater portions of the profitable, appreciating business value from your taxable estate.

3. Consider a single member limited liability company (LLC) to hold business, investment or recreational property. Individuals, corporations, partnerships and other LLCs are increasingly placing such property as rental real estate, operating divisions and intellectual property in separate single member LLCs to protect personal and other business assets. For federal tax purposes, the single member LLC is considered a “disregarded entity,” so there is no separate income tax return for this entity, making it a cost-efficient and convenient asset protection tool.

4. Structure life insurance ownership to eliminate the estate tax on its death benefits. While life insurance death benefits are generally not subject to income tax, they are subject to estate tax when the deceased insured owns the policy. If the life insurance is purchased by an irrevocable trust, your survivors can receive such benefits free of both income and estate taxes. If you have an existing policy insuring your life, you may transfer it to an irrevocable trust and achieve the same result as long as you survive more than three years from the date of transfer.

5. Give to charity in a tax-efficient manner. There are a number of ways to structure charitable giving, both during life and upon death, to maximize available deductions for income tax and transfer tax. Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) are popular techniques. Private foundations allow you to leave a legacy of charitable giving while showing your survivors the importance of giving back to the community.

6. Name a trust as the beneficiary of your qualified plan or IRA. By naming a trust, designed to comply with certain IRS regulations, as the beneficiary of your retirement plan accounts, the trust beneficiaries generally can stretch out distributions over a beneficiary’s lifetime. Your survivors can thus obtain the advantages of tax-deferred growth while securing the benefits of holding assets in trust.

7. Create a Generation-Skipping or Dynasty Trust. The estate tax tends to erode wealth at each succeeding generation. By placing highly appreciating assets in a trust designed to provide for the security of your children while avoiding the estate tax in one or more generations, you can leave a legacy of trustee-managed wealth for your family that will last long into the future.

8. Execute and fund a revocable trust as the foundation of your estate plan. After your death, the revocable trust can protect the trust assets from a beneficiary’s creditors, divorce judgments and other lawsuits and provide prudent management of assets for young children and grandchildren. It can address “blended” family situations, allowing you to address the needs of your spouse and those of children from a prior marriage, reduce estate taxes for married couples on their combined estates and avoid probate court involvement in the settlement of the estate. Remember, property that passes by will is always probated.

9. Don’t forget to plan for incapacity. Have a Durable Power of Attorney and a Patient Advocate Designation in place in case you are incapacitated through injury, sickness or old age. If you don’t plan ahead in this respect, the Probate Court will need to appoint someone to manage your affairs and make health-care decisions for you, resulting in critical delay, additional expense and inconvenience for family members during an often stressful time.

10. Don’t procrastinate. Many of the techniques designed to reduce estate taxes work to your advantage over time. In fact, the IRS often scrutinizes estate-reduction techniques when done shortly before death. Interest rates will inevitably rise over time, thereby reducing the effectiveness of certain estate planning tools.

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Haiti Relief Donations Qualify for Immediate Tax Relief

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WASHINGTON — People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

“Americans have opened their hearts to help those affected by the Haiti earthquake,” said IRS Commissioner Doug Shulman.” This new law provides an immediate tax benefit for the many taxpayers who have made generous donations.”

Taxpayers can benefit from their donations, almost immediately, by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

To get a tax benefit, taxpayers must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.

Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.

The IRS reminds donors that contributions to foreign organizations generally are not deductible. IRS Publication 526, Charitable Contributions, provides information on making contributions to charities.

Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

This year’s special Haiti relief provision is modeled on a 2005 law that, in the wake of the Dec. 26, 2004, Indian Ocean tsunami, allowed taxpayers to deduct donations they made during January 2005 as if they made the donations in 2004.

As seen on IRS.gov.

If you would like to speak to a CPA, please contact LBMC at (615) 377-4600 or visit the Financial Services Web page.

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