e- NEWSLETTER

October/November 2005

Jessica M. Kirsch
Editor-in-Chief

Tax Relief

TAX RELIEF FOR VICTIMS OF HURRICANE KATRINA

By Kerry M. Lavelle

    In Internal Revenue Bulletin IR 2005 – 84, the IRS announced special relief for taxpayers in the area, now a “disaster area”, struck by Hurricane Katrina. The disaster area includes individuals living in 33 Louisiana parishes, 37 counties in Mississippi, 3 counties in Alabama, and 3 counties in Florida (effected parishes and counties are attached). The taxpayers living in this disaster area whose 1040 tax returns are out on an extension will have until October 31, 2005 to file tax returns and make payments. The IRS will abate interest on any late filing or any late penalties that would otherwise apply.

    Note that this relief includes the September 15th due date for estimated taxes for calendar year corporate tax returns with automatic extensions.

    Moreover, individuals living in the “disaster area” qualify for the federal tax deposit penalty waiver period for employment tax deposits from August 29th through September 23, 2005. It is anticipated for the hardest hit areas, that the IRS anticipates extending these deadlines even further as the clean-up continues.

    Taxpayers also need to be aware of the IRS’s detailed information made available for disaster relief.
For example, Publication 547 (all publications are available at the IRS and the IRS website) provides details on how to figure, calculate, and claim a disaster loss. Publication 2194 is the disaster loss kit for individuals and Publication 2194B is the disaster loss kit for businesses.

    Lastly, the IRS provides Publication 3833 in which it explains how the public can use charitable organizations to help victims of disaster, and how new organizations may obtain tax-exempt status – all critical information whether living in the devastated disaster zone, or looking to assist those in need can be found in this Publication .

    Note that the tax law helps victims of the disasters in many different ways. For example, if a taxpayer suffers a disaster or a loss, they can take a deduction in the tax year in which the disaster occurs, or can elect to deduct the loss in the immediately preceding tax year.

    If you know anyone who would need tax assistance in the effected area you can call the IRS toll free disaster hotline at 1-866-562-5227, or contact Kerry Lavelle at klavelle@lavellelaw.com.

    DISASTER AREAS ELIGIBLE FOR TAX RELIEF

    Louisiana: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Bienville, Bossier, Caddo, Caldwell, Calcasieu, Cameron, Catahoula, Claiborne, Concordia, Desoto, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant, Iberia, Iberville, Jackson, Jefferson, Jefferson Davis, Lafayette, Lafourche, LaSalle, Lincoln, Livingston, Madison, Morehouse, Natchitoches, Orleans, Ouachita, Pointe Coupee, Plaquemines, Rapides, Red River, Richland, Sabine, St. Bernard, St. Charles, St. Helena, St. James, St. John, St. Landry, St. Mary, St. Martin, St. Tammany, Tangipahoa, Tensas, Terrebonne, Union, Vermilion, Vernon, Washington, Webster, West Baton Rouge, West Carroll, West Feliciana, and Winn.

    Mississippi: Adams, Amite, Attala, Chickasaw, Choctaw, Claiborne, Clarke, Clay, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Itawamba, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lee, Lincoln, Lowndes, Madison, Marion, Monroe, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Webster, Wilkinson, and Winston.

    Alabama: Baldwin, Clarke, Choctaw, Mobile, Sumter, and Washington

    Florida: Broward, Miami-Dade, and Monroe.
 

Taxation Law

GASOLINE & FUEL PRICES ARE A BIT TAXING LATELY
By Cameron R. Monti

    Are gasoline prices feeling a bit taxing lately? Well, believe it or not the Uncle Sam is trying to help the situation. On September 9, 2005, the Internal Revenue Service (IRS) and U.S. Department of Treasury announced an increase to the optional standard mileage allowance rates the final four (4) months of 2005. The rate has been increase to 48.5 cents per mile for all business miles driven between September 1 and December 31, 2005. This is an increase of 8 cents from the 40.5 cent rate in effect for the January through August of 2005, as set forth in Revenue Procedure 2004-64.

    The IRS normally updates the mileage rates once a year in the fall for the proceeding calendar year. The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of the extra burden of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

    In addition, did you know that if you are the original (first) owner of a qualifying hybrid vehicle — one that combines an electric motor with a gasoline-powered engine — you may be eligible to claim a one-time tax deduction on your federal income tax return. Under the Working Families Tax Relief Act of 2004, the deduction amount is limited to $2,000 for vehicles first put into use in 2004 and 2005. The deduction will be limited to $500 for vehicles placed in service in 2006, and no deduction will be allowed after that year.

                     For example, certain Toyota and Honda models qualify for the deduction:
                            Toyota Prius — Model Years 2001 through 2005
                            Honda Insight — Model Years 2000 through 2005
                            Honda Civic Hybrid — Model Years 2003 and 2005
                            Honda Accord Hybrid — Model Year 2005
                            Ford Escape Hybrid — Model Year 2005

    Note that the deduction must be taken for the year in which the vehicle was first used (regardless of model year). For a fuel-efficient vehicle first put into use earlier than 2004 but for which the deduction was not yet taken, a taxpayer may claim the deduction on the amended tax return, using Form 1040X, Amended U.S. Individual Income Tax Return. Taxpayers may amend a previously-filed tax return to claim a refund within three (3) years after the date they filed the original return or within two (2) years after the date the tax was paid, whichever is later.

    This benefit is taken as an adjustment to income. You do not have to itemize deductions on your tax return to claim it, however, you do have to use Form 1040. For more information, take a glance at IRA Publication 535, or if you have any questions about these tax savings tidbits relating to gasoline, please e-mail Cameron Monti at cmonti@lavellelaw.com.
 

Taxation Law

PRIMER ON EMPLOYMENT TAXES

By Theodore M. McGinn

    Any one embarking on starting their own business has to consider all potential expenses that they will occur to determine if the business will ultimately be profitable. One expense that is often over looked in the business is employment tax liabilities. If the business will have employees, it is responsible for federal, state, and local taxes. Employment taxes include social security, medicare taxes, and federal unemployment tax. In addition, the business is also required to withhold the income tax of the individual employees.

    Social security and medicare taxes are taxes that are levied to enable the Federal Government to provide benefits to workers under the Federal Insurance Contributions Act. These taxes are sometimes known as FICA taxes. An employer is required to withhold an employees portion of their such FICA tax. In addition, the employer is required to match the amount of such withholding.

    Any business if required to report such employment tax withholding and or payments on form 941, Employees Quarterly Federal Tax Return. Such return is filed quarterly with the Internal Revenue Service (IRS). In addition, the State of Illinois requires a similar return to be filed quarterly. In addition, the business is required to file form 940, Federal Unemployment Tax Return on an annual basis.

    In addition to the return requirements the business is also obligated to make deposits of the employment taxes with the IRS and/or the Department of Revenue ongoing throughout the year. Some employers are monthly depositors, others weekly. The type of depositor will depend upon the amount of employment tax that is incurred on a quarterly basis. In addition, some employers are required to make their deposits using an Electronic Federal Tax Deposit System. It is useful to contract with a payroll company to assist with the tax return preparation and/or deposit requirements to insure that your company is compliant.
  
    There are many expenses that have to be considered when embarking upon your own business. The failure to consider all expenses often leads to an unsuccessful business. One expense that should not be over looked are the employment tax liabilities that the business will undoubtably incur. If you have any questions please email Ted McGinn at tmcginn@lavellelaw.com.
 

Tax Relief

THE TIMES THEY WILL BE A CHANGING
By Timothy Hughes

    The recently enacted Energy Policy Act of 2005 (HR 6) will change the date when we move our clocks an hour forward in the Spring from the first Sunday in April 2007 up to the second Sunday in March 2007. Under the Act, daylight saving time will last until the first Sunday in November 2007 instead of the last Sunday in October 2007. The change in the dates is part of an energy conservation plan.
                                                                       

IRS Provides Information On Qualified Charities For Those Wishing To Make Donations To Assist Victims Of Hurricane Katrina
    Qualified charities can be found through a search feature on the IRS Web site "Hurricane Katrina: Information on Charitable Giving, Tax-Relief Issues" at http://www.irs.gov/newsroom/article/0,,id=147085,00.html. According to IRS, some organizations, such as churches and governments, may be qualified even though they are not listed. Disaster-relief information also can be found at http://www.FirstGov.gov . Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations, may be useful for those who want to make contributions or who want to form a new charity.
 

Substantiating charitable contributions by individuals. When contributing to a qualified charity you need to substantiate your charitable contributions to comply with the tax laws. While all contributions must be substantiated, contributions of $250 or more require a written receipt from the charity. If you donate property valued at more than $500, additional requirements apply.
                                                               

Contributions of less than $250. For charitable contributions of less than $250 in cash, you must keep one of the following:
        ● a cancelled check, credit card receipt, or electronic funds transfer receipt;
        ● a letter from the charity acknowledging receipt of the contribution and its date and amount; or
        ● another reliable written record showing the name of the charity and the date and amount of the contribution.
        ● If the contribution was of property rather than cash, you must keep a receipt from the charitable organization showing:
        ● the contribution date;
        ● the charity's name;
        ● the location of the contribution; and
        ● a detailed description of the property (but not its value).

    A receipt is not required if it is impractical to get one, such as where property is left at the charity's unattended drop site. In that case, for each item of donated property, you must keep reliable written records that contain the above information, plus the value of the property.

Record keeping for contributions for which you receive goods or services. If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70. But your contribution is fully deductible if:
   

        ● you received free, unordered items from the charity that cost no more than $8.20 in total;
        ● you gave at least $41.00 and received only token items (bookmarks, key chains, calendars, etc.) that bear the charity's name or logo and cost no more than $8.20 in total; or
        ● the benefits that you received are worth no more than 2% of your contribution and no more than $82.
 

    If you made a contribution of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.

Contributions of $250 or more. For charitable contributions of $250 or more, a cancelled check is not enough. Instead, you need a written receipt from the charity that includes:

        ● the amount of cash contributed and a description (but not the value) of any property other than cash contributed;
        ● whether the donee organization provided any goods or services in return for the contribution; and
        ● a description and good-faith estimate of the value of those goods or services.

    If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn't reduce the charitable deduction available.

    If you make separate contributions of less than $250, you won't be subject to the requirement to get a written receipt, even if the sum of the contributions to the same charity total $250 or more in a year. Also, if you have contributions withheld from your wages, the deduction from each payment of wages is treated as a separate contribution for purposes of the $250 threshold. However, IRS is supposed to issue “anti-abuse” rules (which haven't been published yet) aimed at preventing taxpayers from avoiding the written receipt requirement by, for example, writing several checks on one day to the same donee for a total of $250 or more.

    Cash contribution made through payroll deductions. A contribution that you make by withholding from your wages may be substantiated by a pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld for the purpose of a payment to a charity. You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it does not provide goods or services in return for contributions made by payroll deduction.

    The deduction from each wage payment of wages is treated as a separate contribution for purposes of the $250 threshold.

    Substantiating contributions of services. Although you can not deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.

    As discussed above, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn't know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate of the value of those goods or services.

Contributions of property with a value greater than $500. If you contribute property worth more than $500, you must maintain written records that include:
        ● the information described above for contributions of property over $250;        

        ● how you acquired the property (purchase, gift, inheritance);        

        ● the  date you acquired the property; and
        ● the cost or other basis of property (other than publicly-traded securities) held for less than 12 months before the donation, and, if the information is              available, of property held for 12 months or more before the donation.

Contributions of property with a value greater than $5,000. If you contribute property of an item or group of similar items exceeding $5,000, you must keep written records that include:

        ● the information described above for contributions of property over $500;
        ● a qualified appraisal made no more than 60 days before the appraised property's contribution;
        ● an appraisal summary, which must also be attached to your tax return;
        ● the cost basis of the property; and
        ● the date you acquired the property.

    A qualified appraisal is not required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) non-publicly-traded stock for which the claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available.
A qualified appraisal is required for gifts of art valued at $20,000 or more. Please call me (312) 332-7556 or email me at thughes@lavellelaw.com.

Real Estate

TITLE AGENT DISCLOSURES; WHAT YOU SHOULD KNOW

By Lauren E. Schaaf

    When you enter a contract to sell a parcel of real estate, the first thing your attorney should do is order a title report. A title report shows the legal description, tax identification number and any outstanding liens, encumbrances, or other recordings against the property. This title report is prepared by a title insurance company (“title company”). The title company provides title insurance to ensure that you, as the seller, are passing clean title to the purchaser. One of the title company’s duties is to ensure that any parties with liens against the property are paid and that the liens are cleared before the sale is effectuated. Down the line, should the purchaser be sued by a party claiming superior rights of the purchaser on the property, the title insurance company will defend the lawsuit.

    Most real estate attorneys have agency agreements with the title companies they use. These agreements state that in exchange for a percentage of the title company’s fee, the attorney will review the past recordings against the property, compare them to the information in the title report prepared by the title company, and correct any mistakes contained in the title report.

    There is a new law that recently went into effect stating that title companies are now responsible for disclosing the fact that there is an agency relationship between the title company and the attorney. Beginning September 15, 2005, all HUD-1 (closing) statements distributed by any title company must show the name of the licensed title insurance company and the name of the entity or individual receiving the payment for the agency work. The title commitment will also show the name of the licensed title insurance company and the name and mailing address of the registered agent.

    The nature of the real estate closing itself will not change. The nature of the relationship between the attorney and the title insurance company will not change. The law only affects the disclosure requirements by requiring the publication of the existence of the relationship via the HUD-1 and title commitment. The amount of the fee being paid to the attorney will not be disclosed. Although the title company’s fee is based on the sale price of the real estate, and is shown on the HUD-1, neither the title company nor the attorney are required to show the client how the fee is calculated or how much is paid to the attorney.

    Have you ever had a real estate closing and felt you did not understand what was happening? Are you a first-time home buyer and intimidated by the home buying process? If you have any questions regarding the real estate purchasing or selling process, Lavelle Legal Services, Ltd. will provide you with more than just a body to show up at the closing. We will provide you with an attorney who will make sure you understand what is occurring. If you have any questions call or email Lauren Schaaf at (847) 705-9563; lschaaf@lavellelaw.com.

For past e-newsletter articles of interest, please visit the Lavelle Legal Services, Ltd. website at:         http://www.lavellelaw.com/newsletters/newsletter.htm.

 

This newsletter is a publication of Lavelle Legal Services, Ltd. We attempt to highlight and discuss areas of general legal interest that may lead to planning opportunities. Nothing contained in this Newsletter should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein.