Recordkeeping Requirements for Charitable Contributions

December 10, 2010 in Potpourri of Tax Topics with 1 Comment

We’ve explored the basics of charitable contributions and which organizations qualify for tax-deduction purposes.  Today, I’ll explore the recordkeeping requirements for documenting your charitable contributions.

Documentation for contributions by cash, check or credit card is straightforward enough.  Maintain receipts or other records that show the amount donated and when.

If you donate more than $250 in cash to an organization at any one time, the organization must provide you with a written confirmation of the donation.

What if you donate property, such as used clothing to Goodwill?  In that case, you should try to obtain a receipt from the organization.

If you donate more than $500 worth of property to charities during the year, you have to file Form 8283 and include more detail to the IRS about who you made the contribution to, what type of property was donated, and how you determined the value of the property. 

If you donate $500 or more of any single item of clothing or household items that are not in “good condition,” you must include a report from a qualified appraiser.

If you claim a deduction for more than $5,000 worth of property donations, you also must include a report from a qualified appraiser.

The rules for donating a car to a charity are even more complex, and will be explored in a future blog post.

If you donate more than $5,000 worth of property, even more detail is required, such as (possibly) a report from an appraiser.

Snipes Reports to Prison

December 9, 2010 in Potpourri of Tax Topics with 0 Comments

Wesley Snipes reported to a federal prison in Pennsylvania today to begin serving his 3-year prison sentence on tax-evasion charges.  Snipes was convicted in 2008 of failing to file tax returns and pay income tax on more than $37 million of income between 1999-2004.  He lost an appeal in July and another appeal in November.  Click here to read more about Snipes reporting to prison.

The IRS is Now on Twitter

December 8, 2010 in Potpourri of Tax Topics with 0 Comments

The IRS announced yesterday that it now has a Twitter account.  From “IRS Special Edition Tax Tip 2010-14″:
The IRS announced yesterday that it now has a Twitter account.  From “IRS Special Edition Tax Tip 2010-14″:

The Internal Revenue Service is using Twitter and other social media tools to share information with taxpayers and the tax professional community.

The IRS Twitter news feed, @IRSnews, provides the latest federal tax news and information for taxpayers. The focus of the IRS Twitter messages will be on easy-to-use information, including tax tips, tax law changes, and important IRS programs such as e-file, the Earned Income Tax Credit and “Where’s My Refund.” Anyone with a Twitter account can follow @IRSnews by going to http://twitter.com/IRSnews.

Another important IRS Twitter feed, @IRStaxpros, is designed for the tax professional community. Follow @IRStaxpros by going to http://twitter.com/IRStaxpros.

The IRS also tweets tax news and information in Spanish at @IRSenEspanol. Follow this Twitter feed by going to http://twitter.com/IRSenEspanol.

The IRS Twitter feeds will work in conjunction with http://www.irs.gov/  and the IRS YouTube channels to bring IRS information direct to taxpayers. Since August of 2009, there have been more than 1 million views of videos on the IRSvideos ( http://www.youtube.com/irsvideo), IRS Multilingual (http://www.youtube.com/user/IRSvideosmultilingua) and IRS American Sign Language (ASL) ( http://www.youtube.com/IRSvideosASL) channels.

What is a Qualified Organization for Charitable Deductions?

December 6, 2010 in Potpourri of Tax Topics with 0 Comments

In a post last week, I explored the basics of charitable contributions, and I mentioned that not all “not-for-profit” organizations are qualified organizations for purposes of getting a tax deduction for a donation.  In general, 501(c)(3) organizations qualify, as do churches.

Officially, the Internal Revenue Code, at Section 170(c), defines a charitable organization as:

  • A state or city, as long as your donation is used exclusively for public purposes.
  • A community chest, corporation, trust, fund or foundation organized for any of the following purposes:  religious, charitable, educational, scientific, literary or the prevention of cruelty to animals.
  • A post or organization for war veterans.
  • Fraternal societies, as long as the gift is used for the same purposes as described under bullet-point 2 (religious, charitable, educational, etc.).
  • Nonprofit cemetary companies or corporations.

When in doubt, ask the organization, ask your tax pro, or consult IRS Publication 78.  Publication 78 is actually an on-line search engine at the IRS website.  Churches always qualify, and are NOT shown in Publication 78.

IRS Announces Mileage Rates for 2011

December 3, 2010 in Small Businesses Taxes with 0 Comments

The IRS has released the mileage rates for 2011.  The regular mileage rate increased by 1 cent; the rate for medical mileage increase by 2.5 cents; and the rate for charitable mileage remains the same as in 2010.

  • Mileage rate for 2011:  51 cents per mile (up 1 cent from 2010)
  • Medical mileage rate:  19 cents per mile (up 2.5 cents from 2010)
  • Charitable mileage rate:  14 cents per mile (same as 2010)

Making Work Pay Credit Expires – Paychecks Will Decrease

December 2, 2010 in Family Taxes with 0 Comments

I haven’t seen much media coverage of the “Making Work Pay Credit,” but this credit expires soon and will cause a lot of people’s paychecks to be smaller in 2011.

The Making Work Pay Credit was part of the 2009 economic “stimulus” package and existed in 2009 and 2010, but is set to expire on December 31st.

The credit amounts to $400 per person for most working adults.  People who receive W-2 wages have received the credit bit-by-bit in each paycheck, in the form of lower withholding. 

If Congress does not renew the Making Work Pay Credit, you’ll notice that your first paycheck of 2011 will be lower.  The decrease will amount to $33.33 per month per person ($400/12).

President Obama has proposed extending the credit into 2011, but lawmakers have not been receptive to the idea.

(UPDATE:  the tax bill signed into law December 17th, 2010, did not extend the Making Work Pay Credit, but it did provide for a reduction in FICA withholding from paychecks in 2011, which will more than offset the expiration Making Work Pay Credit.)

Senate Votes Down 1099 Relief for Businesses

November 30, 2010 in Small Businesses Taxes with 0 Comments

The Senate on Monday night failed to repeal the stricter 1099 reporting requirements that are looming for businesses.  Starting in 2012, businesses will have to issue 1099s to anyone and any company that they purchase more than $600 of ANYTHING from — including purchases of goods, supplies, inventory, etc.  This is a major change from current law, which only requires 1099s to be issued to independent contractors and others who provide services to the business (such as accountants or lawyers).  This change was quietly tucked away in the “health care reform bill” passed earlier this year.

There has been a large amount of backlash from the business community (and rightfully so) about these new requirements. But on Monday night, the Senate twice voted down attempts to repeal the 1099 changes.  What’s odd is, both Republicans and Democrats say they understand the burden this will place on businesses, and both Republicans and Democrats seem to want to do away with the changes.  But yet, they can’t reach a compromise on the issue.  You can read more in this New York Times article.

Basics of Charitable Contributions

November 30, 2010 in Potpourri of Tax Topics with 0 Comments

The end of the year is a good time to make charitable contributions, not only because the holidays are a season of giving, but because there can be tax advantages to giving to charities.

In general, charitable contributions are deductible in the year paid.  If you make a donation with your credit card, you take the deduction in the year the expense was charged to your card, even if you don’t pay the credit card bill until the next year.  For donations made with a check, you can take a deduction in the current year as long as you get the check in the mail before the end of the year, even if the charity doesn’t cash the check until the next year.

Only donations to qualified charities are deductible.  I’ll explore qualified charities in more detail in a future post.

Lawmakers Urge IRS to Allow Breastfeeding Supplies as a Medical Expense

November 30, 2010 in Potpourri of Tax Topics with 1 Comment

Iowa Senator Tom Harkin was among more than 40 Democratic lawmakers in the House and Senate who wrote to the IRS last week, urging the IRS to recognize breastfeeding supplies as a medical expense.  Currently, breastfeeding supplies are not considered a medical expense, so the cost of the supplies is neither deductible, nor eligible for reimbursement from a flex plan or HSA. 

In their letter to the IRS, lawmakers say that the “IRS is at odds with the growing body of medical evidence showing that breastfeeding has proven health benefits for both mothers and babies.”

You can read the letter here, and a news article about it here.

Cell Phone Tax Rules Relaxed

November 24, 2010 in Small Businesses Taxes with 0 Comments

The Small Business Jobs Act of 2010, signed into law in September, removes employer-provided cell phones from the category of “listed property.”  This means employers can take a deduction for the cost of the cell phones without having to collect burdensome documentation of business vs. personal use from employees. 

In the past, employees would be taxed on the value of the personal calls made from employer-provided cell phones.  This change would appear to eliminate this, although the IRS has not released further guidance on the issue.

Removing cell phones from the “listed property” category means that employees can deduct the cost of cell phones used by the employee as an unreimbursed employee expense without the employee having to meet the “condition of employment” and “for the convenience of the employer” tests.  However, the employee will still have to track the amount of time spent on personal vs. business calls, to calculate the deduction.

For self-employed taxpayers, the change means a relaxation in the strict documentation requirements for cell phones.  However, I would recommend that a self-employed person who uses a cell phone for both business and personal purposes still keep a log of their calls.

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