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IRA rollovers limited to one per annual period, regardless of how many IRA's you have

The tax court has ruled that taxpayers are limited to one IRA rollover per year, regardless of how many IRA accounts they have. Previously, IRS position was that taxpayer's could have one rollover per year from each IRA account.

A rollover is a withdrawal from an IRA that is deposited into the same or a similar IRA of the taxpayer within 60 days. A rollover is different than a direct transfer. A direct transfer is where an IRA custodian (bank or mutual fund) transfers money directly to another IRA of the taxpayer. The taxpayer never receives the funds. There is no limit on the number of direct transfers.

In the court case, the taxpayer withdrew money from multiple IRA's and within 60 days redeposited the money back into IRA's. The court allowed rollover treatment for the first withdrawal, but not for any subsequent ones.

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NEW YORK—The Internal Revenue Service needs to find ways to better communicate how it is handling technology modernization and transformation, including in areas such as the use of artificial intelligence in its processes, agency Office of Internal Consulting Chief Joseph Zeigler said.

Speaking during a plenary session August 18, 2026, at the IRS Nationwide Tax Forum, Zeigler said it is his “hope that the IRS is going to a better job of telling this story” about how the agency is using technology to help improve its operations and make lives easier for taxpayers and the tax professionals who assist them.

As an example, Zeigler specifically highlighted some of the work the agency is doing with AI.

“When we talk about AI, AI is not meant to replace bodies or people and computers doing the work and there is no human input,” he said. Rather it is about how the IRS “can give our employees tools and resources [and] technology to make them better, more efficient” and improve the quality of their work. “All of those things is what I believe that AI and technology were meant for.”

He continued: “It’s taking our world-class employees and putting them on steroids, giving them the ability to come to the right answer sooner.”

And at the end is the ultimate goal of making the taxpayer experience that much better and more in line with what they expect from their customer interactions with the private sector.

“If we can come to an answer that right the first time, and we can come to it quick, and we can report it to the taxpayer [and say] here’s what’s going on,” he said. “All those things are at our fingertips.”

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The IRS issued guidance in the form of sample forms and proposed rollover procedures to simplify, standardize, and expedite the completion of direct rollovers to or from a retirement plan. The guidance is designed to comply with Section 324 of the SECURE 2.0 Act (P.L. 117-328). Use of the sample forms and proposed rollover procedures is optional.

The IRS indicates that these sample forms are not inftended to be used for rollovers and transfers between IRAs. According to reports made by the Government Accountability Office and the IRS's conversations with IRA stakeholders, IRA-to-IRA transfers are already completed through an electronic transfer system that is considered uniform and efficient.

The guidance includes:

(1) a proposed rollover procedure;
(2) the participant's rollover request form;
(3) the receiving plan's request to the distributing plan;
(4) the distributing plan's rollover certification; and
(5) the receiving plan's rollover acceptance.

The IRS is considering additional guidance to facilitate rollovers. Guidance under consideration includes: (1) eliminating the safe harbor that allows plans to send paper checks to participants to complete a direct rollover; (2) requiring administrators and trustees to complete rollovers via electronic transfers or paper checks sent directly to the receiving plan; and (3) providing for new safe harbors based on the use of sample forms.

Notice 2026-49

IR 2026-91

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The IRS and Treasury have announced their intension to propose regulations relevant to Code Sec. 6433 and the SECURE 2.0 Act of 2022 (P.L. 117-328). For tax years beginning after December 31, 2026, Code Sec. 6433 allows certain low- and moderate-income individual taxpayers who have made qualified retirement savings contributions to receive matching contributions of up to $1,000 as saver’s match contributions.

Background

On April 30, 2026, President Trump issued an executive order to (1) increase public awareness of saver’s match contributions; (2) facilitate participation in eligible retirement savings vehicles; and (3) establish a website that informs about high-quality, low-cost IRAs and taxpayers without an employer-sponsored retirement plan. These taxpayers include independent contractors.

Saver’s Match Contributions vs Saver’s Credit

For tax years beginning after December 31, 2026, Saver’s Match contributions would replace the Saver’s Credit under Code Sec. 25B. This would apply to elective contributions, qualifying retirement plans and IRAs.

However, the Saver’s Credit would continue to be available after December 31, 2026, with respect to contributions made to ABLE accounts under Code Sec. 529A. Saver’s match contributions would be claimed on a new (unpublished) Form 8880-A, Saver’s Match for Qualified Retirement Savings Contributions.

Eligibility

Individual taxpayers who make qualified retirement savings contributions could be eligible for a Saver's Match contribution based on those contributions. The contributions to a new or already-existing IRA after the end of a tax year could be made until the tax filing deadline. The contributions should be designated as being made for the prior tax year.

Tax Status

An eligible individual taxpayer’s saver’s match contribution directly paid by the Treasury to a retirement plan is generally treated as an elective deferral made by the individual taxpayer. The contribution is not taken into account for any elective deferral and catch-up limitations that apply to Code Secs. 401(k), 403(b), or governmental 457(b) plans.

Comments Requested

The Treasury Department and the IRS request comments on the issues addressed on or before October 5, 2026. Comments can be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov.

Notice 2026-48

IR 2026-89

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The Treasury Department and IRS have issued initial guidance on the employer credit under Code Sec. 45S for premiums paid on family and medical leave insurance as provided by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). Beginning in 2026, an employer may elect to determine the credit based on premiums paid or incurred during the tax year with respect to an insurance policy that provide such leave instead of based on wages paid to a qualifying employee during paid family and medical leave. The Treasury intends to issue proposed regulations that include this guidance.

Premium Method for Credit

The credit may be claimed under the premium method beginning in 2026 only to the extent the insurance premium funds a benefit that would be creditable under the wage method. Thus, the premium must be for insurance coverage with respect to leave that is:

paid family and medical leave as defined under the Family Medical Leave Act (FMLA), or required by state local law or paid for by a state or local government,
payable to an individual who is a qualifying employee of the employer at the time the premium is paid or incurred, and
provides a benefit that would constitute wages to the employee.

In the case of a premium paid or incurred for an insurance policy that provides both creditable coverage and noncreditable coverage, the employer must allocate the premium between the creditable coverage and the noncreditable coverage using any reasonable method. For example, a blended premium would be a premium for coverage that provides both qualifying paid family and medical leave and other types of leave, or coverage for qualifying employees and nonqualifying employees.

An employer may calculate the tax credit using both the wage method with respect to certain leave and the premium method with respect to other leave. However, an employer may not use the wage method to claim a credit for wages paid to the extent that the employer claims a credit using the premium method for creditable coverage that funds such benefits (or vice versa).

Notice 2026-28

IR 2026-86

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The IRS updated frequently asked questions (FAQs) for qualified overtime compensation. The FAQs update guidance on (1) the qualified overtime compensation deduction; (2) coverage and exemptions under the Fair Labor Standards Act (FLSA); (3) Form W-2, Form 1099-MISC, and Form 1099-NEC requirements; and more.

Qualified Overtime Compensation Deduction

The deduction is up to $12,500 of qualified overtime compensation earned for the year per individual tax return. It is $25,000 for joint return. The deduction is reduced if a taxpayer’s modified adjusted gross income (MAGI) for the tax year exceeds $150,000, and $300,000 for joint filers.

Coverage and Exemptions Under FLSA

The IRS noted that overtime under the FLSA must be paid to individual taxpayers who are (1) covered by the FLSA; and (2) not exempt from the FLSA’s overtime requirement. Ineligible taxpayers would not receive qualified overtime compensation regardless of other laws or circumstances. Employees who are exempt from the FLSA’s overtime requirement include teachers, academic administration personnel, employees of certain seasonal amusement or recreational establishments and more.

Employee-owners of businesses are not FLSA overtime-eligible employees. An employee who owns at least a bona fide 20-percent equity interest in the enterprise in which they are employed is ineligible.

Reporting Requirements

Starting in tax year 2026, payors and employers are required to separately report qualified overtime compensation on a Form 1099-MISC, Form 1099-NEC or Form W-2. Independent contractors would only report qualified overtime compensation on a Form 1099- MISC or Form 1099-NEC.

FS-2026-13

IR 2026-88

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The Fifth Circuit Court of Appeals held that the original public meaning of "limited partner" in Code Sec. 1402(a)(13) is a partner who plays no significant role in managing or running a business. The court rejected the "passive investor" rule followed by the IRS and the Tax Court in Soroban Capital Partners LP (Dec. 62,310). The Fifth Circuit also withdrew its prior opinion in Sirius Solutions, L.L.L.P. (this was the prior name of the limited liability limited partnership in this litigation).

Background

A limited liability limited partnership operated a business consulting firm, and was owned by several limited partners and one general partner. For the tax years at issue, the limited partnership allocated all of its ordinary business income to its limited partners. Based on the limited partnership tax exception in Code Sec. 1402(a)(13), the limited partnership excluded the limited partners’ distributive shares of partnership income or loss from its calculation of net earnings from self-employment during those years, and reported zero net earnings from self-employment.

The IRS adjusted the limited partnership's net earnings from self-employment, and determined that the distributive share exception in Code Sec. 1402(a)(13) did not apply because none of the limited partnership’s limited partners counted as "limited partners" for purposes of the statutory exception. The Tax Court upheld the adjustments, stating it was bound by Soroban.

Limited Partners and Self Employment Tax

Code Sec. 1402(a)(13) excludes from a partnership's calculation of net earnings from self-employment the distributive share of any item of income or loss of a limited partner, as such, other than guaranteed payments in Code Sec. 707(c) to that partner for services actually rendered to or on behalf of the partnership to the extent that those payments are established to be in the nature of remuneration for those services.

In Soroban, the Tax Court determined that Congress had enacted Code Sec. 1402(a)(13) to exclude earnings from a mere investment, and intended for the phrase "limited partners, as such" to refer to passive investors. Thus, the Tax Court there held that the limited partner exception of Code Sec. 1402(a)(13) did not apply to a partner who is limited in name only, and that determining whether a partner is a limited partner in name only required an inquiry into the limited partner's functions and roles.

No Significant Role in Management

The Fifth Circuit stated that the backdrop against which Congress enacted Code Sec. 1402(a)(13) in 1977 suggested that some participation is allowed, so long as the partners do not exercise control over the business, and that the plain text of the statute points towards this conclusion. The court observed that all relevant sources suggested that when the statute was enacted, the ordinary public meaning of"limited partner" included a partner who did not play a significant role in managing or running the business.

The Fifth Circuit rejected the Tax Court’s Soroban decision, which held that that the term "limited partner" could refer only to passive investors. The court stated that the Tax Court had selected a rule that was divorced from statutory text and that appeared to prohibit even the most minor involvement in corporate affairs. In the Fifth Circuit's view, it would have been understood at the time Congress enacted Code Sec. 1402(a)(13) that a limited partner could not manage the partnership, but perhaps could participate in certain nonmanagerial aspects of the business.

The court also stated that the Soroban decision could not be squared with decades of IRS-approved guidance insisting that what mattered was limited liability alone. The court characterized the IRS's position to be that it could change the meaning of "limited partner" from "limited liability alone" to the "passive investor" standard with no action from Congress to amend the text of Code Sec. 1402(a)(13). Even assuming that the IRS could unilaterally effectuate such changes through tax instructions, the court stated that the IRS's instructions must comport with the original public meaning of the text enacted by Congress.

Withdrawing Sirius Solutions, L.L.L.P., CA-5, 2026-1 ustc ¶50,109, and vacating and remanding an unreported Tax Court opinion.

K Alain, L.L.L.P., CA-5

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The IRS has issued final regulations that clarify when backup withholding applies to payments made in settlement of third party network transactions. The final rules reflect amendments to Code Secs. 6050W and 3406 made by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21), and apply to payments made in calendar years beginning after December 31, 2024.

Under the de minimis payment rule of Code Sec. 6050W(e) for information reporting purposes, a third party settlement organization (TPSO) must report payments made in settlement of third party network transactions to a payee only if the payments exceed $20,000 and 200 transactions in a calendar year. The final regulations align the backup withholding obligations under Code Sec. 3406 with this reporting threshold.

A payment will be considered a reportable payment subject to backup withholding only if both the $20,000 and 200 transaction thresholds are exceeded during the calendar year. The amount subject to backup withholding includes the entire amount of the transaction that causes either threshold to be breached, whichever occurs later, and the amount of any subsequent transactions made to the payee during the same calendar year. Further, if the TPSO made payments in settlement of third party network transactions to the payee in the previous calendar year that were reportable payments under the backup withholding rules, the de minimis exception to backup withholding would not to payments made to that payee in the current calendar year.

Participating Payees

In the preamble to the Treasury Decision, the Treasury Department and the IRS used the opportunity to clarify that de minimis TPSO reporting and the backup withholding thresholds apply with respect to each participating payee, as defined by Code Sec. 6050W(d)(1).

T.D. 10053

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The Financial Crimes Enforcement Network (FinCEN) has issued a final rule that permanently removes the requirement that U.S. companies and U.S. persons must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act. The final rule adopts, with limited changes, an interim final rule issued on March 26, 2025, that narrowed the BOI reporting requirements.

The Corporate Transparency Act (CTA) was enacted in 2021 as part of the broader Anti-Money Laundering Act of 2020. Its reporting requirement had been characterized as an important step in the fight against money laundering, financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption.

In late 2024 and early 2025, however, several federal district courts preliminarily enjoined FinCEN from implementing and enforcing the reporting rule. The Treasury Department announced in March 2025 that it was suspending enforcement of the CTA and its reporting requirements against U.S. citizens, domestic reporting companies, and their beneficial owners, and issued the interim final rule.

BOI Reporting Exemptions

The final rule:

adopts exemptions that make the rollback of beneficial ownership reporting by U.S. companies permanent,
exempts foreign pooled investment vehicles registered in the United States from reporting the BOI of a U.S person in control of the investment vehicle, and
confirms that FinCEN will delete information about any individual that it reasonably believes is a U.S. person (for example, information that is linked to a U.S. passport or U.S. driver's license).

The final rule also makes substantive changes that expand on the relief in the interim final rule, by:

exempting foreign companies from the requirement to report U.S. person “company applicants” (i.e., the individuals who helped those foreign companies register to do business in the United States), and
exempting U.S. persons who have applied for FinCEN Identifiers (FinCEN IDs) from having to update or correct the information they provided to FinCEN when they applied.

Foreign entities that are reporting companies are still required under the final rule to report BOI for foreign individuals.

FinCEN has also issued answers to frequently asked questions on the final rule.

FinCEN Final Rule RIN-1506-AB67

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Individual Retirement Accounts (IRAs) are popular retirement savings vehicles that enable taxpayers to build their nest egg slowly over the years and enjoy tax benefits as well. But what happens to that nest egg when the IRA owner passes away?

The answer to that question depends on who inherits the IRA. Surviving spouses are subject to different rules than other beneficiaries. And if there are multiple beneficiaries (for example if the owner left the IRA assets to several children), the rules can be complicated. But here are the basics:

Spouses

Upon the IRA owner's death, his (or her) surviving spouse may elect to treat the IRA account as his or her own. That means that the surviving spouse could name a beneficiary for the assets, continue to contribute to the IRA, and would also avoid having to take distributions. This might be a good option for surviving spouses who are not yet near retirement age and who wish to avoid the extra 10-percent tax on early distributions from an IRA.

A surviving spouse may also rollover the IRA funds into another plan, such as a qualified employer plan, qualified employee annuity plan (section 403(a) plan), or other deferred compensation plan and take distributions as a beneficiary. Distributions would be determined by the required minimum distribution (RMD) rules based on the surviving spouse's life expectancy.

In the alternative, a spouse could disclaim up to 100 percent of the IRA assets. Some surviving spouses might choose this latter option so that their children could inherit the IRA assets and/or to avoid extra taxable income.

Finally, the surviving spouse could take all of the IRA assets out in one lump-sum. However, lump-sum withdrawals (even from a Roth IRA) can subject a spouse to federal taxes if he or she does not carefully check and meet the requirements.

Non-spousal inherited IRAs

Different rules apply to an individual beneficiary, who is not a surviving spouse. First of all, the beneficiary may not elect to treat the IRA has his or her own. That means the beneficiary cannot continue to make contributions.

The beneficiary may, however, elect to take out the assets in a lump-sum cash distribution. However, this may subject the beneficiary to federal taxes that could take away a significant portion of the assets. Conversely, beneficiaries may also disclaim all or part of the assets in the IRA for up to nine months after the IRA owner's death.

The beneficiary may also take distributions from the account based on the beneficiary's age. If the beneficiary is older than the IRA owner, then the beneficiary may take distributions based on the IRA owner's age.

If there are multiple beneficiaries, the distribution amounts are based on the oldest beneficiary's age. Or, in the alternative, multiple beneficiaries can split the inherited IRA into separate accounts, and the RMD rules will apply separately to each separate account.

The rules applying to inherited IRAs can be straightforward or can get complicated quickly, as you can see. If you have just inherited an IRA and need guidance on what to do next, let us know. Likewise, if you are an IRA owner looking to secure your savings for your loved ones in the future, you can save them time and trouble by designating your beneficiary or beneficiaries now. Please contact our office with any questions.

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In recent years, the IRS has been cracking down on abuses of the tax deduction for donations to charity and contributions of used vehicles have been especially scrutinized. The charitable contribution rules, however, are far from being easy to understand. Many taxpayers genuinely are confused by the rules and unintentionally value their contributions to charity at amounts higher than appropriate.

Vehicle donations

According to the U.S. Department of Transportation (DOT), there are approximately 250 million registered passenger motor vehicles in the United States. The U.S. is the largest passenger vehicle market in the world. Potentially, each one of these vehicles could be a charitable donation and that is why the IRS takes such a sharp look at contributions of used vehicles and claims for tax deductions. The possibility for abuse of the charitable contribution rules is large.

Bona fide charities

Before looking at the tax rules, there is an important starting point. To claim a tax deduction, your contribution must be to a bona fide charitable organization. Only certain categories of exempt organizations are eligible to receive tax-deductible charitable contributions.

Many charitable organizations are so-called “501(c)(3)” organizations (named after the section of the Tax Code that governs charities. The IRS maintains a list of qualified Code Sec. 501(c)(3) organizations. Not all charitable organizations are Code Sec. 501(c)(3)s. Churches, synagogues, temples, and mosques, for example, are not required to file for Code Sec. 501(c)(3) status. Special rules also apply to fraternal organizations, volunteer fire departments and veterans organizations. If you have any questions about a charitable organization, please contact our office.

Tax rules

In past years, many taxpayers would value the amount of their used vehicle donation based on information in a buyer’s guide. Today, the value of your used vehicle donation depends on what the charitable organization does with the vehicle.

In many cases, the charitable organization will sell your used vehicle. If the charity sells the vehicle, your tax deduction is limited to the gross proceeds that the charity receives from the sale. The charitable organization must certify that the vehicle was sold in an arm’s length transaction between unrelated parties and identify the date the vehicle was sold by the charity and the amount of the gross proceeds.

There are exceptions to the rule that your tax deduction is limited to the gross proceeds that the charity receives from the sale of your used vehicle. You may be able to deduct the vehicle’s fair market value if the charity intends to make a significant intervening use of the vehicle, a material improvement to the vehicle, or give or sell the vehicle to a qualified needy individual. If you have any questions about what a charity intends to do with your vehicle, please contact our office.

Written acknowledgment

The charitable organization must give you a written acknowledgment of your used vehicle donation. The rules differ depending on the amount of your donation. If you claim a deduction of more than $500 but not more than $5,000 for your vehicle donation, the written acknowledgment from the charity must:

Identify the charity’s name, the date and location of the donation
Describe the vehicle
Include a statement as to whether the charity provided any goods or services in return for the car other than intangible religious benefits and, if so, a description and good faith estimate of the value of the goods and services
Identify your name and taxpayer identification number
Provide the vehicle identification number

The written acknowledgement generally must be provided to you within 30 days of the sale of the vehicle. Alternatively, the charitable organization may in certain cases, provide you a completed Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, that contains the same information.

The written acknowledgment requirements for claiming a deduction under $500 or over $5,000 are similar to the ones described above but there are some differences. For example, if your deduction is expected to be more than $5,000 and not limited to the gross proceeds from the sale of your used vehicle, you must obtain a written appraisal of the vehicle. Our office can help guide you through the many steps of donating a vehicle valued at more than $5,000.

If you are planning to donate a used vehicle, please contact our office and we can discuss the tax rules in more detail.

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Education tax incentives are often underutilized because the rules are so complex. Some of the incentives are tax credits; other deductions. There are also savings plans for education costs. Making things even more complicated is the on-again, off-again nature of the education tax incentives. Under current law (as of June 2012), several taxpayer-friendly features of the incentives are scheduled to expire.

American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) is an enhanced version of the old Hope credit. The AOTC offers eligible taxpayers a credit of 100 percent of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000. That means the credit reaches a maximum of $2,500.

Four years. The AOTC can be claimed for the first four years of a student’s post-secondary education (including college and university, vocational school and other qualified institutions of learning).

The full AOTC is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). If your modified adjusted gross income is above that amount, the credit begins to phase out. Eligible individuals may receive a refund of 40 percent of the AOTC.

Sunset. The AOTC is scheduled to expire after 2012. At that time, the old Hope credit will return.

Lifetime Learning Credit

The Lifetime Learning Credit is often in the shadow of the AOTC. One reason may be that the Lifetime Learning Credit and the AOTC cannot be claimed in the same year. The Lifetime Learning Credit reaches $2,000 for qualified educational expenses.

Key difference. There is one very valuable difference between the Lifetime Learning Credit and the AOTC. There is no limit on the number of years the Lifetime Learning Credit can be claimed. This requires careful planning. Individuals who are considering graduate school may want to use the AOTC for undergraduate expenses and the Lifetime Learning credit for graduate school expenses.

No sunset. The Lifetime Learning Credit is not scheduled to expire after 2012. It is one of the few tax incentives that have essentially remained unchanged in recent years.

Student Loan Interest Deduction

Individuals who took out loans to finance their post-secondary education may qualify for a deduction. Student loan interest is interest you paid during the year on a qualified student loan. The loan proceeds must have been used for qualified higher education expenses, including tuition and room and board.

Above-the-line. The student loan interest deduction (and the expired higher education deduction discussed below) is an above-the-line deduction. This means you can claim the deduction even if you do not itemize deductions.

Sunsetting features. Under current law, there is no limitation as to the number of months during which interest paid on a student loan is deductible. After December 31, 2012, a 60-month limitation is scheduled to return. The student loan interest deduction is subject to income limits. Under current law, the deduction is reduced when modified adjusted gross income exceeds $60,000 for single individuals ($125,000 for married couples filing a joint return) and is completely eliminated when modified adjusted gross income is $75,000 or more for single individuals ($155,000 for married couples filing a joint return). After December 31, 2012, these income limitations are scheduled to be significantly lower.

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts (ESAs) are similar to IRAs. Contributions are not tax-deductible but the funds grow tax-free until distributed. Distributions are tax-free if they are used for qualified education expenses of the beneficiary.

Not just post-secondary. Under current law, funds in a Coverdell ESA can be used for elementary and secondary school expenses as well as post-secondary education costs. Coverdell ESAs are the only education tax incentive to offer this feature. The AOTC, Lifetime Learning Credits and 529 plans (discussed below) are limited to post-secondary education. However, this special feature of Coverdell ESAs is scheduled to expire after 2012. At that time, Coverdell ESA dollars will only be available for post-secondary expenses.

Contribution limitation. Total contributions to a Coverdell ESA cannot be more than $2,000 in any year for the beneficiary. This rule applies no matter how many Coverdell ESAs are established. However, the $2,000 amount is scheduled to fall to $500 after 2012. Income limitations also apply. If you use the funds in a Coverdell ESA for a non-qualified purpose, there is a 10 percent additional tax.

529 Plans

States and institutions of higher learning can create so-called “529 plans.” Funds in a 529 plan can be used for qualified post-secondary expenses, such as tuition and room and board, of the designated beneficiary. Contributions are not tax-deductible but distributions are tax-free, so long as they pay qualified expenses. There are many 529 plans. Before selecting one, please contact our office. We can help you select the 529 plan that meets your expectations.

No income limitations. 529 plans are similar to Coverdell ESAs with one very important difference. There are no income limitations for contributors.

Higher education deduction

Finally, there is the higher education deduction. This popular deduction allows eligible individuals to claim a deduction for certain higher education costs. The higher education tuition deduction reaches $4,000. That’s the good news....the bad news is that the deduction expired after 2011.

May be renewed. There have been several attempts in Congress to renew the deduction for 2012 but they have failed to pass. Congress could renew the deduction late in 2012 or early in 2013 and make the deduction retroactive to January 1, 2012.

Like other education incentives, the higher education deduction had some restrictions. One of the most important is income. An individual’s modified adjusted gross income could not exceed $80,000 ($160,000 if married filing a joint return).

We have covered a lot of ground discussing these education tax incentives. Please contact our office for more details and to discuss how we can create a plan using some or all of these incentives that delivers the most value.

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Everybody knows that tax deductions aren't allowed without proof in the form of documentation. What records are needed to "prove it" to the IRS vary depending upon the type of deduction that you may want to claim. Some documentation cannot be collected "after the fact," whether it takes place a few months after an expense is incurred or later, when you are audited by the IRS. This article reviews some of those deductions for which the IRS requires you to generate certain records either contemporaneously as the expense is being incurred, or at least no later than when you file your return. We also highlight several deductions for which contemporaneous documentation, although not strictly required, is extremely helpful in making your case before the IRS on an audit.

Everybody knows that tax deductions aren’t allowed without proof in the form of documentation. What records are needed to “prove it” to the IRS vary depending upon the type of deduction that you may want to claim. Some documentation cannot be collected “after the fact,” whether it takes place a few months after an expense is incurred or later, when you are audited by the IRS. This article reviews some of those deductions for which the IRS requires you to generate certain records either contemporaneously as the expense is being incurred, or at least no later than when you file your return. We also highlight several deductions for which contemporaneous documentation, although not strictly required, is extremely helpful in making your case before the IRS on an audit.

Charitable contributions. For cash contributions (including checks and other monetary gifts), the donor must retain a bank record or a written acknowledgment from the charitable organization. A cash contribution of $250 or more must be substantiated with a contemporaneous written acknowledgment from the donee. “Contemporaneous” for this purpose is defined as obtaining an acknowledgment before you file your return. So save those letters from the charity, especially for your larger donations.

Tip records. A taxpayer receiving tips must keep an accurate and contemporaneous record of the tip income. Employees receiving tips must also report the correct amount to their employers. The necessary record can be in the form of a diary, log or worksheet and should be made at or near the time the income is received.

Wagering losses. Gamblers need to substantiate their losses. The IRS usually accepts a regularly maintained diary or similar record (such as summary records and loss schedules) as adequate substantiation, provided it is supplemented by verifiable documentation. The diary should identify the gambling establishment and the date and type of wager, as well as amounts won and lost. Verifiable documentation can include wagering tickets, canceled checks, credit card records, and withdrawal slips from banks.

Vehicle mileage log. A taxpayer can deduct a standard mileage rate for business, charitable or medical use of a vehicle. If the car is also used for personal purposes, the taxpayer should keep a contemporaneous mileage log, especially for business use. If the taxpayer wants to deduct actual expenses for business use of a car also used for personal purposes, the taxpayer has to allocate costs between the business and personal use, based on miles driven for each.

Material participation in business activity. Taxpayers that materially participate in a business generally can deduct business losses against other income. Otherwise, they can only deduct losses against passive income. An individual’s participation in an activity may be established by any reasonable means. Contemporaneous time reports, logs, or similar documents are not required but can be particularly helpful to document material participation. To identify services performed and the hours spent on the services, records may be established using appointment books, calendars, or narrative summaries.

Hobby loss. Taxpayers who do not engage conduct an activity with a sufficient profit motive may be considered to engage in a hobby and will not be able to deduct losses from the activity against other income. Maintaining accurate books and records can itself be an indication of a profit motive. Moreover, the time and activities devoted to a particular business can be essential to demonstrate that the business has a profit motive. Contemporaneous records can be an important indicator.

Travel and entertainment. Expenses for travel and entertainment are subject to strict substantiation requirements. Taxpayers should maintain records of the amount spent, the time and place of the activity, its business purpose, and the business relationship of the person being entertained. Contemporaneous records are particularly helpful.

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