816-741-7882
Professional services with a personal touch.

Charitable Giving Planning

03/25/2017

Do's and Don'ts of Deducting Charitable Donations

So, you donated six bags of clothes to Goodwill and gave your used washer and dryer to the Salvation Army.  Now you hope to claim the donations as a deduction. There are a few things to know before your tax preparer reports your Gifts to Charity on your federal income tax return.

Please Give Jar picFirst, donations must be made to a qualified charity in order to be deductible.  Gifts to individuals, political organizations or candidates are not deductible.  A qualified charity that is designated as a non-profit organization or a 501(c)(3) must not benefit or have as a focus any private shareholder or individual.  Qualified charities must also be up-to-date on their information reports to the IRS that show that their profits are being used for their tax-exempt purposes. To check the status of a charity the IRS now provides a one-stop online tool called Exempt Organizations Select Check (EO Select Check).

In order to deduct a charitable contribution, you must first itemize deductions on Form 1040, Schedule A - Itemized Deductions.  It is important to have documentation that shows the dollar amount of all claimed qualified donations and the specific organization to which the donation was made.  Noncash contributions should have information or may even need an appraisal that reflects the fair market value of the donation at the time it was given.

If you happened to get something in return for your donation, the value of what you received must be subtracted from the claimed donation amount.  You may only deduct the amount that exceeds the fair market value of the benefit received.  Many taxpayers miss this point.  For example, let’s say you participated in a silent auction fundraiser and you “won” with the highest bid, and the item you received was worth more than the amount you paid for it.  You may only deduct the difference between what you paid for the item and the fair market value of the item.  This includes benefits you received like merchandise, meals, and tickets to events or goods and services.

If you donate property instead of cash, the deductible amount is limited to the donated item’s fair market value or the price a seller would receive if the property sold on the open market.  Many taxpayers struggle with determining the value of things like used clothing and household items.  The IRS requires that the items be in good condition or better, and has an online resource to help taxpayers determine the fair market value of items.  Technically each item, including a pair of socks, is supposed to be identified on a worksheet along with its value in order to calculate the actual value of a donation.  Many taxpayers simply take their chances and submit only a receipt from a recognized charitable organization that lists the date and a general description of what is donated, such as “2 boxes of clothing”.  If a taxpayer is audited, they must provide proof for each donation.  Cars, boats and other types of property donations are subject to additional rules.

Whether you donate cash or goods, if the amount of any specific donation is $250 or more, you must submit a written statement from the charity confirming the details.  That statement must report the same donation amount that you’re claiming, and a description of any property that was given.  It must also state whether any goods or services were received in exchange for the donation.

If you make total noncash charitable contributions that exceed $500 for the year, you’ll need to fill out another form, Form 8283, that requires more details and more proof of value.  The type of records that a taxpayer must keep depends upon the amount and type of donation.

Here are examples of charitable contributions:

  • Money or property given to churches, synagogues and other religious organizations
  • Gifts to nonprofit schools and hospitals
  • Gifts to qualified charities such as The Salvation Army, Boy Scouts or Girl Scouts of America, CARE and Goodwill Industries
  • Donations to War Veterans groups
  • Out-of-pocket expenses when you serve a qualified organization as a volunteer

Here are items that are NOT deductible as charitable contributions:

  • The value of your time or services
  • The value of blood given to a blood bank (yes, it has been tried)
  • Cost of raffle, bingo, or lottery tickets
  • Dues, fees or bills paid to country clubs, lodges or fraternal orders
  • Money or property to groups that lobby for law changes
  • Donations to candidates for public office or political groups

If you have any questions about deducting charitable donations from your federal income tax, please contact one of our tax preparation experts at McRuer CPAs for more information.

Find out more about deducting Medical and Dental Expenses in our blog.

02/18/2014

IRAs Need Updated Designated Beneficiary Forms

Individual Retirement Accounts have been around long enough now that many Americans are learning what happens when they inherit an IRA. It’s not always good news.  If the owner has not filed an up-to-date beneficiary form, the heir of the estate risks losing a major portion of the IRA value to taxes and fees. IRA-nest-egg

The Employee Benefit Research Institute (EBRI) reports the average IRA value is close to $94,000. The EBRI also says there are nearly 15 million IRA accounts held by more than 11 million people.  With total assets of more than $1 trillion, it’s important to make certain that, should the owner die, the IRA doesn’t lose its value upon transfer to a new owner.

Advisors warn that many IRA owners mistakenly believe because they have a will, the person(s) they list as their heir(s) will automatically receive the IRA to use as a savings tool or turn into cash in whatever manner they wish.  Yet, without a specific and up-to-date IRA beneficiary designation form for each IRA, the beneficiary may be forced to empty the account right away risking taxes and penalties; and may even be bumped into a higher income tax bracket.   Some states require the accounts to go through probate court when there is no beneficiary form.

IRA owners should fill out what is a very simple beneficiary form separate from their will.  That way, when the owner dies, the designated beneficiary is able to determine the best distribution strategy over his or her lifetime.  A new beneficiary form is needed any time an IRA account is changed or updated, or the account is moved to a new custodian.

Typically, IRA beneficiaries must take distributions during their lifetime.  Inherited traditional IRAs require taxes to be paid on distributions.  Rollover, SEP, and SIMPLE IRAs are treated the same way. Beneficiaries are not required to pay taxes on distributions from an inherited Roth IRA.

Generally, surviving spouses have several choices including even disclaiming up to 100% of the IRA assets, which, besides avoiding extra taxable income, enables their children to inherit the IRA assets.  But, if the spouse decides to take a lump sum distribution, or begins distributions on a traditional IRA, taxes must be paid.

Non-spouse beneficiaries have fewer choices.  Among them, including taking the lump sum amount and paying a large share in federal taxes; disclaiming all or part of the assets for up to 9 months after the previous owner’s death; or begin taking taxable distributions from the account.

If you inherit an IRA, you cannot roll it over into your own IRA. You must also make certain it is re-titled as an inherited IRA.  If you move the IRA to a new custodian, make certain it is made as a “trustee-to-trustee” transfer or it will be considered as a taxable total distribution, thereby, ending the account as an IRA.  There are deadlines for your actions and you can even face the dreaded 50% penalty if you don’t make a required withdrawal in time.

To ensure you leave as much of your IRA asset as possible to whom you choose, or if you inherit an IRA, consult your financial advisor for the best steps to take to lessen the taxes and maximize the advantages of these retirement accounts.

If you have any questions about your financial savings plans, beneficiaries and the tax consequences of your choices, please contact us at McRuer CPAs.

01/28/2013

Tax-Free IRA Transfers

IRA owners age 70½ or older have just a few more days to make tax-free transfers to eligible charities and have them count for tax-year 2012. Give to Charities

The IRS reports eligible IRA owners have until Thursday, January 31st, to make a direct transfer, or alternatively, if they received IRA distributions during December 2012, to contribute, in cash, part or all of the amounts received to an eligible charity.

The recently approved American Taxpayer Relief Act of 2012 has extended for 2012 and 2013 the provision authorizing qualified charitable distributions (QCDs).  Each year, the IRA owner can exclude from gross income up to $100,000 of these QCDs.  First available in 2006, this provision had expired at the end of 2011, but now has been given two more tax years.

10/10/2012

What To Do with the Money of the Rich

Eleven more billionaires have signed Bill Gates and Warren Buffet’s Giving Pledge, promising publically to give away half their wealth before they die.

Manoj Bhargava, founder of 5-Hour Energy drink; Reed Hastings, Chief Executive Officer of Netflix; Gordon Moore, co-founder of Intel Corporation; and Mark Zuckerberg, founder of Facebook all are onboard to influence and attempt to increase charitable giving while they still have a voice in the distribution of their wealth.

Richie-rich


Other wealthy chief executive officers have declined because they are awaiting proof that the Giving Pledge is bringing additional money to causes benefitting the neediest people – as opposed to trusts for the children of the wealthy.

Marc Benioff, founder of Salesforce.com, declined to sign the pledge and donated $100 million to a children’s hospital of his choice. German shipping billionaire, Peter Kramer, questions the power of the super-wealthy shaping issues of public concern such as education and prefers a democratic dialogue that includes government over a private committee. 

Since Gates and Buffet started the effort in 2010, total estimated charitable giving has increased four percent and giving by foundations increased 1.8 percent.*

 

*SOURCE;  Giving USA Foundation.

RSS Feed

Welcome from Scott McRuer
& the McRuer CPAs Team

Scott McRuer
Learn more about Scott

Follow Scott and his team on your favorite social media

Facebook LinkedIn YouTube