FAQs
Tax Tips
Tax Tip: How to claim Charitable Deductions and put more money in your pocket
There is a tax strategy which allows you to claim the standard deduction in one year and itemized deduction in the other, thus reducing your taxable income and keeping your out-of-pocket expenditures over the two years unchanged: If you generally donate $10,000 or more per year to charity, consider combining two years’ worth of donations into one calendar year. To space out contributions, donate the amount for Year 1 at the beginning of the calendar year and the amount set aside for Year 2 towards the end of the same calendar year. This will increase your chances of claiming the itemized deduction. Since the 2024 standard deduction for Married Filing Jointly is set at $29,200, by combining two years of $10,000 donations, your donation is now $20,000. Assuming you max out the property tax deduction of $10,000 and have $5,000 of mortgage interest, your total itemized deduction would be $35,000 for the year of combined giving.
You can adjust this strategy to your situation – for example, if your annual donation amount is less, consider combining donations every 3 years.
Alternatively, setting up charitable giving through a donor-advised fund allows another way to claim the deduction, but ensure the charity gets the same contribution amount annually. In this example, the taxpayer contributes the entire $20,000 to the donor-advised fund within the same year for a current tax deduction in Year 1, and then advises the fund to send $10,000 in Year 1 and send $10,000 in Year 2 to the chosen charity. This will allow the charity to receive your donation in a predictable pattern, resulting in minimized follow-ups from the organization.
Tax Tip: Foreign Bank Accounts
Rather than opening up a foreign bank account, consider a bank account at a USA Bank that has headquarters in the country where they want to open it. That way it would still be considered a USA Bank and not a “foreign bank” and will not need to report it on the FBAR (Report of Foreign Bank and Financial Accounts). If they end up deciding to open a bank account in a foreign bank, they just need to remember to let us know so that we can report it. Not reporting it has serious penalties under the IRS.
Tax Tip: Deductible Meals
As a result of the Tax Cuts and Jobs Act, business meals purchased from restaurants were 100% deductible during tax years 2021-2022. In tax year 2023, the 100% deduction is no longer applicable. Business meals will return to 50% deductibility even if purchased from a restaurant. There are some exceptions to this rule. For example, if there is a company-wide party or if the business includes the meals in employee compensation, the meals will be 100% deductible to the business. Although meals with clients are 50% deductible in 2023, it is important to note that entertaining clients with no business purpose will remain non-deductible.
Tax Tip: Do you know the difference between having a business or a hobby?
The main difference at the end of the day is purpose. A business operates with an intent to make a profit; a hobby is undertaken for pleasure or recreation. To treat your endeavor as a business, good record keeping is imperative: maintain a separate bank account, and keep detailed records. Keep in mind if you receive more than $600 for goods and services, you could receive a 1099, which signals a reporting requirement.
Tax Tip: What should you do if you receive an unexpected check from the IRS?
If you receive an unexpected check from the IRS, contact your CPA to discuss it right away. Occasionally, the IRS will issue a refund in error instead of applying an overpayment to the following tax year. This error can apply to ANY taxes paid: personal, corporate, payroll, etc. Even when the refund is issued in error, the IRS can assess penalties and interest on the money if the check was deposited or cashed. If you receive any unexpected refunds, reach out to your CPA for assistance.
Tax Tip: Investing in Hedge Funds
If you are currently investing or considering an investment in Hedge Funds, it is important to distinguish what kind of fund it is for tax purposes. If you invest in a Trader Fund, the expenses incurred to generate trader income and losses are generally unlimited, ordinary, and reduce gross income. Investor Funds typically buy and sell securities that result in capital gains and losses. It is important to know the guidelines that the IRS uses to differentiate between the two. We can offer information regarding factors that the courts consider when determining trader vs. investor status. This status may change year-to-year, so annual consideration is necessary. In addition, investors need to check with fund advisors regarding the kind of fund offered.