Noncash Charitable Contributions

Picking up where we left off in our last blog, lets summarize charitable contributions of the noncash variety. These contributions can take many forms, but the record keeping for each is the same. If the tax man comes knocking on your door, you will want to have the following on file to substantiate your charitable contribution and related deductions:

1. Name of charitable organization
2. Date and location of contribution
3. Reasonably detailed description of contributed property
4. Fair market value (FMV) and the method used to value property
5. Cost or other basis

In addition to the above guidelines for record keeping, there are also important dollar figure break points that will determine what sort of documentation is required as follows:

• Less than $250: A receipt is not required where it is not practical to obtain one. An example would be at an unattended Goodwill drop location.
• $250 to $500: You must obtain written acknowledgement from the charity that contains the name and address of the organization, date and location of donation, and a description of the property.
• $501 to $5,000: The same requirements as above. Additionally, records must show how the donated property was acquired, the date acquired, and the adjusted cost basis of the donated property.
• More than $5,000: The same requirements as above. Additionally, most donations of property valued over $5,000 require an appraisal.
• Form 8283: If noncash contributions exceed $500 (in aggregate), then Form 8283 must be filed with your 1040 in order to properly claim these deductions

One common donation that falls into the noncash category is that of an automobile. The deduction amount available to the taxpayer depends on the how the vehicle is used by the charity set to receive the donation. No matter how the vehicle is eventually used, the taxpayer cannot claim any deduction above $500 for a donated vehicle unless Form 1098-C is filed. Form 1098-C must be provided within 30 days of the donation and the taxpayer must attach Copy B of this form to their 1040. How much can be deducted for the donation of a vehicle?

• The Donated Vehicle is Sold: If the charitable organization takes the donated vehicle and sells it without using it for charitable purposes, then the deduction to the taxpayer is limited to the gross proceeds realized from the sale of the vehicle. In this case, the fair market value of the donated vehicle is inconsequential. The gross sale proceeds amount is reported on line 4c of the Form 1098-C.
• The Donated Vehicle is Transferred to a Needy Individual: If the charitable organization donates or sells the vehicle for under FMV to a needy individual , then the gross proceeds rule does not apply. In this case, the FMV as of the date of the contribution can be used as the deduction amount.
• The Donated Vehicle is Used by the Charity: If the donated vehicle is used by charity, then it can be deducted at the FMV as of the date of contribution.

The above details will help you with your record keeping for noncash charitable contributions. We hope that as you plan your charitable contributions for the remainder of the year, you will keep these guidelines in mind and have your records in order. At the end of the day, the tax deduction is not the most important part of giving to charity, but it is a part that can help your tax position is you are charitably inclined. Labor Day weekend is right around the corner, so stay safe and enjoy your Holiday.

info@mcarthurco.com
704.544.8429

Charitable Contributions

If you itemize deductions on your Federal tax return, you probably have some measure of Charitable Contribution deductions on Schedule A of your 1040. This is one of the most commonly questioned areas by our clients: Can I deduct this? As you move through the remainder of the year, please keep in mind the following as you plan your charitable giving.

• Limits: The total amount of your deductions for charitable contributions cannot exceed 50% of the taxpayer’s Adjusted Gross Income. Additionally, special 20% and 30% rates apply to certain types of charitable contributions. Any contributions exceeding the 50% AGI limit in a given year can be carried over to each of the five succeeding years.
• Cash is King: Cash is the simplest way to make a charitable contribution. However, it is not the only method that can be used. A variety of other options are available to you. Briefly, a few of those options are Credit Card contributions, Tangible personal property, Stock donations, Real Estate, and many others. We will discuss some of these unique options in our next blog.
• Charitable Travel: Transportation expenses can be added to any monetary or property charitable contributions made; either actual expenses or 14 cents a mile is the deductible amount. Additionally, meals and lodging as related to the charitable travel are deductible.
• Records Requirements: Regardless of the amount, to deduct a contribution of cash, check or other monetary gift, a written record must be maintained. This written record can be in the form of a bank record, payroll deduction or written communication from the charitable organization. A new trend is charitable donations via text and for this sort of donation a copy of the phone bill will suffice.
• What’s Not Deductible? The list is long here, but I will highlight some of the major areas that confuse clients as they total their charitable contributions for the year. Money or property given to the following are NOT deductible contributions:


 Civic leagues, sports clubs, labor unions, chambers of commerce
 Foreign organizations (with minor exceptions)
 Lobbyist groups, political groups or candidates
 Cost of raffle, bingo or lottery tickets
 If your contributions entitle you to entrance/participation in a charity related event, you can deduct only the amount that exceeds the FMV of the benefit received. For example, you purchase tickets for a charity ball that cost $500 and the FMV of the tickets are $200. Only $300 ($500-$200) can be deducted.
 Value of time or services

Join us for our next blog as we will talk more specifically about non cash contributions: what form they can take and any special rules that may apply.



info@mcarthurco.com

704.544.8429

Tax Planning

During these dog days of Summer, the last thing on many people’s minds is taxes and tax planning. However, as we move into August and have the 4th quarter in sight, it just might be the appropriate time for you to sit down with your tax advisor and take a look at where you stand through the midpoint of the year. You might be asking yourself why, or do I really need to take the time to do this? For many of you, the answer would be no. If your taxes are covered by withholding and your financial position remains unchanged, then this planning is probably unnecessary. However, there is a large segment out there who can benefit from this planning in order to avoid any tax season surprises and have the ability to maximize their 2010 tax position.

If you have any of the following characteristics, you might want to sit down with your tax advisor and take inventory of where you stand for the year:
• Business Owners
• Individuals paying estimated taxes
• Substantial increase or decrease in taxable income including wages, interest, dividends, business profits, etc
• Substantial increase or decrease in itemized deductions
• Recent move to an assisted living home
• Receiving a Severance package
• Distribution of IRA or Pension Funds that are new to you
• Started a new home business
• Large capital gains/losses
• Considering a Roth IRA conversion

The above are just a few of many reasons to sit down with your tax advisor. The key is to take time to think about your financial and tax position now while there is still time in the year to make the adjustments necessary to help you avoid tax seasons surprises and plan accordingly.

info@mcarthurco.com
704.544.8429