Top Tips on Charitable Contributions

Although 2008 was a tough year Americans still are very charitable. 40-50 billion in “non-cash” donations per year is normal. These are clothing, furniture and other tangible items. If you are making donations or intend to before the end of the year, here are some tips.

1. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.
2. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
3. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received. (Girl Scout cookies are not fully deductible because you received cookies for your contribution. You can only deduct the difference between the fair market value of the cookies and what you paid. A tricky thing to figure.)
4. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the donor’s name, or a payroll deduction record.
5. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
6. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
7. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
8. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.

For more information publication 526 and form 8283 are available online.

Current round of Identity Theft Scams on the Internet.

There are four stages to a situation, unaware, aware, alarm and alert. Just as if you are walking alone in a parking ramp at night, you always need to be aware of your surroundings when on the internet. A common e-mail scam is known as “phishing” this is when you receive an e-mail with an official logo from a bank, credit card company or the IRS asking you to log in to a website to confirm a charge or information.

First, the IRS never sends these e-mails and the other’s most likely will not send them either. Second, review the web address, it will be almost obvious not the same address you normally log in to. They set it up to look like a log in page, collect your username and password to actually get into your account. Ignore these links and contact the actual company (not from any info on the e-mail) to verify if any real information is needed.

Inherited funds/Lotteries/Cash Consignment e-mails are always scams and other e-mails or letters asking to fill out forms and send to the IRS are usually forms you file with companies or financial institutions like W9’s or W-8BEN.

Lastly, I have noticed that e-mails originating outside the US have grammar or phrasing problems as English is not their first language.

Link to IRS information page on scams.

New Car Tax Deduction/Rebate: Is is worth it?

Currently there are two laws concerning new vehicle purchases that are not for Hybrids. The first is a tax deduction (meaning it will lower your taxable income and not refundable), this deduction is for the sales tax paid on new vehicles (under $49,500) bought after 2/17/09 and before 1/1/10. I have seen a news report on TV were the salesman stated that you will get back the sales tax on your tax return. This is false. You can deduct the sales tax off your taxable income so you will only save your tax rate. (example: you pay $1000 in taxes and you have a 10% tax rate you will save $100 not the full $1000). RV's are included, but only the sales tax on the first $49,500 is duductible. Iowa technically doesn't have a sales tax on autos, but the tax you do pay is deductible none the less.

The second is a separate rebate, and is not on your tax return. The car allowance rebate system is the name of the program and has many limitation to get a maximum of $4,500. They include: Vehicle less than 25 years old, get less than 18 mpg, be drivable and have owned it for 1 year (no going to the junk yard for the trade in) & proof of insurance for that one year!

Both programs are getting some coverage but neither of them is a great deal unless you were already in the market for a new car. You see, cars lose their value very quickly and if you simply wait and buy an ’08 now, or a ’09 after the 2010 models are out, you most likely will save more in the discount then these credits will get you, without jumping through the hoops. It might be bad for the auto makers but my advice is for the consumers and clients and their best interests.

Link to sales tax deduction for more details
Link to “Cash for Clunkers” for all the facts.

Remember to bring in your purchase agreement to get the sales tax deduction on your 2009 tax return.