John Bullis has been a certified public accountant for about 40 years and is well acquainted with the constantly changing mysteries of the IRS and income tax.
"One of the biggest changes is a new provision for 2006 and 2007," Bullis said. "For the two years, taxpayers who have attained the age of 70 and a half can make distributions from their IRAs to qualified charities and not include the distributions up to the amount of the donation in their taxable income."
This is helpful to taxpayers who have to take the Required Minimum Distribution. The distribution amount would normally add into their taxable income. If a portion of the distribution is made to a church or a favorite qualified charity it is not taxable income. There are some requirements that should be observed.
• The donation must be made directly to the charity from the IRA. It may not be deposited into your regular account and then given to the charity.
• IRS strongly suggests that the donation not made by writing a check. Instead have the trustee of your IRA make the necessary transaction.
• Documentation in the form of a letter of acknowledgment from the charity should be available to be filed with your return.
"As an example, if the IRA distribution is usually $10,000 but you have sent directly $2,000 to your church, that amount will not be included in your taxable income if you have followed the requirements. Only $8,000 would be taxable.
"Another suggestion, produce yourself, or ask your tax preparer, to provide an organizer with a list of reminder questions. Has something happened in your life that has a potential for tax savings such as medical expenses, education expenses, selling your home, buying a hybrid car, installing alternative energy equipment or making energy-efficient improvements in your home? Be careful to complete the right forms when you use these suggestions.
"Be thorough. Do not fail to report anything that might be helpful."
Always ready with a story, Bullis said, "Once I had an audit of my personal return and I had not claimed all charitable contributions of property and clothing at fair market value. It could have saved me a little on my taxes, and I felt foolish to have made such an error. Make sure the clothing is in good condition and, as you put it in the sack or box, make a list of the items and decide what is the estimated original cost and what you paid for it, but fair market value is what the thrift shop or charity might get from selling it. Be sure to ask for a receipt from the charity.
"Do not give cash. If you are using a church envelope system it is OK, but otherwise it will be disallowed."
This reminded Bullis of another story.
"I knew a minister years ago who always gave cash out-of-pocket for his church contributions. When the IRS questioned him, he had no proof and the deduction was disallowed. He was not happy and he learned a difficult lesson.
"There is the Heroes Earned Retirement Opportunities Act that gives military personnel a tax break. It was signed by President Bush in May of 2006. The law will permit military personnel special benefits.
"The IRS has a number of publications to help. They are not hard to read. I read the pertinent material aloud and often highlight so I am sure of the information. IRS also has a telephone line with 904 topics listed, in your packet, that plays recorded information. IRS also has some manned lines. They are trying to do a better job of giving correct information to help you."
This number, Teletax, is 1-800-829-4477 and became effective Jan. 1, 24/7. The Web site to visit is www.irs.gov.
Although you may choose to prepare your own tax return, use computer software or hire a professional, it is always a good idea to get all the information you can before you begin.
For information, call Bullis at 882-4459.