A few things have changed with the coming of a new year—below are some tax items to be aware of.

Estate and gift taxes: The basic federal estate-tax exemption increased to $3.5 million from $2 million in 2008. The increase in the basic estate-tax exemption amount to $3.5 million stems from a 2001 law. Transfers from one spouse to the other typically remain tax-free. The lifetime gift-tax exclusion amount remains unchanged at $1 million.

The annual gift-tax exclusion jumped to $13,000, up $1,000 from 2008. This means you can give as much as $13,000 this year to anyone you want without having to worry about taxes or even file any forms. You can give more than that by paying directly for someone else’s tuition or medical expenses—just be sure to pay the institution directly.

Retirement savings: The maximum amount that someone under age 50 can contribute to a 401(k) plan for 2009 rose to $16,500 from $15,500. Those 50 or older can put away an additional $5,500 this year, for a total of $22,000, up from $20,500.

Social Security taxes: The maximum amount of earnings subject to Social Security taxes rose to $106,800, up 4.7% from $102,000 in 2008.

Mileage rates: Taxpayers who use their vehicles for work can deduct their actual costs or rely on the IRS’s optional standard mileage rate. This year, the IRS rate for using your car for business will be 55 cents a mile.

First-Time Homebuyer Credit: Those who bought a principal residence recently or are considering buying one should take note. This credit of up to $7,500 works much like a 15-year interest-free loan.

The Recovery Rebate Credit: Most people already received their full benefit in the form of the 2007 Economic Stimulus Payment. However, a taxpayer may qualify for the Recovery Rebate Credit, if, they did not get an Economic Stimulus Payment, had a child in 2008 or had a change in income level. If you receive this credit, it will be included in your refund and will not be issued as a separate payment.

Mortgage Workouts and Foreclosures: Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million.

Record Keeping: The links below are helpful when deciding how detailed your records need to be.

Record Keeping for individuals
http://www.irs.gov/pub/irs-pdf/p552.pdf
Starting a business and keeping records
http://www.irs.gov/pub/irs-pdf/p583.pdf
Travel, Entertainment, Gift, and Car Expenses
http://www.irs.gov/pub/irs-pdf/p463.pdf

Michael Bartholomew is a CPA and the owner of A Plus Tax and Accounting. He can be reached at mike@aplusbenefits.com.

Summer is upon us and its time to load up the wife and kids and head out on vacation. If you’re anything like most of my clients, you are looking for ways to turn personal expenses into legitimate business expenses—there are many ways to accomplish this when combining personal and business travel. As always when dealing with saving taxes, planning in advance and good record keeping is key.

Mixing Business and Pleasure with Travel

Michael Bartholomew is a CPA at Jensen & Keddington, P.C. in Salt Lake City, UT. He can be reached at (801) 262-4554 or mikeb@jensenkeddington.com.

When it comes to charitable contributions, giving may be better than receiving, but receiving a tax deduction now requires a little more effort, in light of new substantiation rules introduced in the summer of 2006 (but not effective until 2007 for calendar taxpayers). To ensure that you can claim the charitable deductions to which you’re entitled, we want to make you aware of these new recordkeeping rules.

Cash Contributions of Less than $250 in Single Donation. For cash contributions, it’s not unusual to give small amounts without expecting a receipt, such as when you drop a $20 bill into the collection plate at church. These amounts may accumulate to a sizeable sum by year-end. Previously, if the donations were less than $250, you could either keep cancelled checks or reliable records, such as a list that you’ve prepared showing the dates, amounts donated, and charities. Under the new rules, however, it’s no longer sufficient to simply keep good records of these donations when you tally up the amount to claim as charitable contributions. Instead, cash contributions of less than $250 given in a single contribution are only deductible if you keep a bank record (most likely a cancelled check, wire transfer acknowledgement, or credit card record) or written acknowledgement from the charity (donee) showing the name of the donee organization, the date of the contribution, and the amount of the contribution.

If you are likely to itemize deductions on your income tax return and typically make cash contributions of less than $250, you should make donations by check rather than cash, because that will easily satisfy the documentation requirements. Simply keeping good records of the donations will no longer be enough to claim the deduction.

Contributions of Used Clothing and Household Items. If you typically donate used clothing or household items to charities, such as Goodwill, the items must be in “good condition or better” unless the items were worth more than $500 and a qualified appraisal report is attached to your tax return. The IRS has not yet defined what is meant by “good condition or better.” Thus, you might consider keeping a detailed list and photos of contributed items (unless the property is appraised). No new documentation is required, but to protect yourself in case of an IRS audit, you should, at a minimum, document that the donations were in good condition. Furthermore, the use of unattended drop-off sites should be reserved for items of minimal value. It may be difficult to substantiate the contributions without a receipt.

Vehicle Contributions. If you’re planning to donate a car, boat, or plane that’s valued over $500, you have to follow strict substantiation rules in order to claim the contribution deduction. Under these rules, you must receive, and attach to your tax return, a written acknowledgment from the charity within 30 days after the donated vehicle is sold (or within 30 days of the contribution if the charity uses the vehicle significantly in its exempt purpose, makes major improvements to the vehicle, sells it for a significantly discounted price, or gives it to a needy person in furtherance of the charity’s exempt purpose). The information needed in the written acknowledgement from the charity should include the (a) name and taxpayer identification number of the donor and (b) vehicle identification number (or similar number) of the vehicle.

The IRS has just issued new rules that require donors of vehicles valued at more than $500 to attach a special form (Form 1098-C—Contributions of Motor Vehicles, Boats and Airplanes), which is received from the charity and reports the necessary information about the vehicle donation. (The form is optional for vehicle donations of $500 or less.) To claim the deduction for the vehicle valued at more than $500, you should attach Copy B to your tax return.

Property Contributions of More Than $5,000. If you’re planning to contribute property (other than of publicly traded securities) valued at more than $5,000 ($10,000 for closely held stock), please discuss these plans with us as soon as possible. Although the rules for substantiating this type of property haven’t changed, there are now stricter rules for what is considered a “qualified appraisal” and who is considered a “qualified appraiser.” You must have the appraisal done not earlier than 60 days before the donation and received by the due date (including extensions) of your tax return.

To claim the deduction, it’s important to dot all the “i’s” and cross all the “t’s” in following the requirements of a qualified appraisal. Furthermore, stiffer penalties now apply to both appraisers and taxpayers for substantial valuation misstatements.

I hope this information is helpful as you plan for your charitable contributions. It’s important to follow these recordkeeping requirements if you hope to claim the deduction for your donations because the IRS can and will disallow charitable deductions if these requirements aren’t met. If you would like more details about these or any other aspect of the new rules, please don’t hesitate to call.

Michael Bartholomew is a CPA at Jensen & Keddington, P.C. in Salt Lake City, UT. He can be reached at (801) 262-4554 or mikeb@jensenkeddington.com.