How to substantiate charitable contributions

Traci and I attended a conference last week, where we heard several tax presentations.  We were reminded that the IRS will be enforcing the charitable contribution rules.  So we thought it might be good for all of us to refresh our memories on what is required to comply with the tax law.

While all contributions must be substantiated, contributions of $250 or more require a written receipt from the charity. If you donate property valued at more than $500, additional requirements apply.

General rules. For a contribution of cash, check, or other monetary gift, regardless of amount, you must maintain a bank record or a written communication from the donee organization showing its name, plus the date and amount of the contribution. It’s not sufficient to maintain other written records, such as a log of contributions.

For a contribution of property other than money, you generally must maintain a receipt from the donee organization showing its name, the date and location of the contribution, and a detailed description (but not the value) of the property. You need not obtain a receipt for a property donation, however, if circumstances make obtaining a receipt impracticable. In that case, you must maintain a reliable written record of the contribution. The information required in such a record depends on factors such as the type and value of property contributed.

Stricter substantiation requirements apply in the case of charitable contributions with a value of $250 or more. No charitable deduction is allowed for any contribution of $250 or more unless you substantiate the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization. You must have the receipt in hand by the time you file your return (or by the due date, if earlier) or you won’t be able to claim the deduction.

The acknowledgement must include the amount of cash and a description (but not value) of any property other than cash contributed, whether the donee provided any goods or services in consideration for the contribution, and a good faith estimate of the value of any such goods or services. If you received only “intangible religious benefits,” such as attending religious services, in return for your contribution, the receipt must say so. This type of benefit is considered to have no commercial value and so doesn’t reduce the charitable deduction available.

If you make separate contributions of less than $250, you won’t be subject to the requirement to get a written receipt, even if the sum of the contributions to the same charity total $250 or more in a year. Also, if you have contributions withheld from your wages, the deduction from each payment of wages is treated as a separate contribution for purposes of the $250 threshold.

In general, if the total charitable deduction you claim for non-cash property is more than $500, you must attach a completed Form 8283 (Noncash Charitable Contributions) to your return or the deduction is not allowed. In general, you are required to obtain a qualified appraisal for donated property with a value of more than $5,000, and to attach an appraisal summary to the tax return. A qualified appraisal isn’t required for publicly-traded securities for which market quotations are readily available. A partially completed appraisal summary and the maintenance of certain records are required for (1) nonpublicly-traded stock for which claimed deduction is greater than $5,000 and no more than $10,000, and (2) certain publicly-traded securities for which market quotations are not readily available. A qualified appraisal is required for gifts of art valued at $20,000 or more.

Recordkeeping for contributions for which you receive goods or services. If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received. For example, if you gave $100 and in return received a dinner worth $30, you can deduct $70. But your contribution is fully deductible if:

• you received free, unordered items from the charity that cost no more than $9.10 in 2008 ($8.90 in 2007) in total;
• you gave at least $45.50 in 2008 ($44.50 in 2007) and received only token items (bookmarks, key chains, calendars, etc.) that bear the charity’s name or logo and cost no more than $9.10 in 2008 ($8.90 in 2007) in total; or
• the benefits that you received are worth no more than 2% of your contribution and no more than $91 in 2008 ($89 in 2007).

If you made a contribution of more than $75 for which you received goods or services, the charity must give you a written statement, either when it asks for the donation or when it receives it, that tells you the value of those goods or services. Be sure to keep these statements.

Cash contribution made through payroll deductions. A contribution that you make by withholding from your wages may be substantiated by a pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld for the purpose of a payment to a charity. You can substantiate a single contribution of $250 or more with a pledge card or other document prepared by the charity that includes a statement that it doesn’t provide goods or services in return for contributions made by payroll deduction.

The deduction from each wage payment of wages is treated as a separate contribution for purposes of the $250 threshold.

Substantiating contributions of services. Although you can’t deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services. Keep receipts, canceled checks, and other reliable written records relating to the services and expenses.

As discussed above, a written receipt is required for contributions of $250 or more. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn’t know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate of the value of those goods or services.

Please contact us at http://www.cillierscpa.com if you have any questions about these rules. Together we can make sure that you’ll get all the deductions to which you’re entitled come next filing deadline.

How to estimate yoru charitable contribution deductions

How do you estimate the value of your donations to organizations like Goodwill, Churches and The Salvation Army for your tax return?   If you are like most people, you just kind of pick a number and write it on your receipt when you donate items.

The IRS suggests you shop thrift stores or classified ads or auction sites like eBay to fashion a good guess.   Luckily the Salavation Army has put a value estimator on their website to help you estimate the values of your donations.   We added a link to that site on our website at  http://www.cillierscpa.com/Taxes.html for your reference.

Don’t miss these tax credits

If you qualify for them, credits can help you pay part of the cost of raising a family, going to college, saving for retirement, making energy-saving improvements to your home and getting daycare so you can work or go to school. A deduction lowers the income on which tax is figured, while a credit lowers the tax itself. Take time now to see if you qualify for one of these popular but often overlooked tax credits.  The IRS lists the following on their website:Earned Income Tax Credit (EITC) - The Earned Income Tax Credit (EITC) helps low- and moderate-income workers and working families. Working families with incomes below $39,783 and childless workers with incomes under $14,590 often qualify. Ordinarily, you must have earned income as an employee, independent contractor, farmer or business owner. Some disability retirees are also eligible. Use the EITC Assistant, which will be available in mid-January, to see if you qualify.Child Tax Credit - If you have a dependent child under age 17 you probably qualify for the child tax credit. This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,400 exemption you can claim for each dependent. Don’t confuse the child tax credit with the child care credit. For details on figuring and claiming the child tax credit, see IRS Publication 972. Credit for Child and Dependent Care Expenses - If you pay someone to care for your child so you can work or look for work, you probably qualify for this credit. Normally, your child must be your dependent and under age 13. Though often referred to as the child care credit, this credit is also available if you pay someone to care for a spouse or dependent, regardless of age, who is unable to care for himself or herself. In most cases, you need to obtain the care provider’s social security number or taxpayer identification number and enter it on your return.Form 1040 filers claim the credit for child and dependent care expenses on Form 2441. Form 1040A filers claim it on Schedule 2. Education Credits - The Hope credit and the lifetime learning credit help parents and students pay for post-secondary education. Normally, you can claim tuition and required enrollment fees paid for your own, as well as your dependents’ college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. You can take the lifetime learning credit, even if you’re only taking one course.In some cases, you may do better by claiming the tuition and fees deduction, instead.You cannot take both an education credit and the tuition and fees deduction for the same student in the same year. Special rules, including income limits, apply to each of these tax breaks.Education credits are claimed on Form 8863. For details on these and other education-related tax breaks, see Publication 970. Saver’s Credit - The saver’s credit helps low-and moderate-income workers save for retirement. You probably qualify if your income is below certain limits and you contribute to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2007 are $26,000 for singles and married filing separately, $39,000 for heads of household and $52,000 for joint filers.Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply. You still have time to put money in an IRA and get the saver’s credit on your 2007 return. 2007 IRA contributions can be made until April 15, 2008. Use Form 8880 to claim the saver’s credit. Energy-Saving Tax Credits - You can take a credit based on what you spend on various energy-saving improvements made to your main home. New energy-efficient improvements qualify, including insulation, exterior windows, exterior doors, water heaters, heat pumps, central air conditioners, furnaces and hot water boilers. The overall credit is limited to $500 and further dollar limits apply to specific components –– for example, $200 for windows. If you took the full $500 credit in 2006, you cannot claim the credit in 2007, even if you made qualifying energy-saving improvements.Separately, there is a 30 percent credit for the cost of photovoltaic property, solar water heating property and fuel cell property.These credits are claimed on Form 5695. Tax Credits Can Save You Money - These credits can increase your refund or reduce the tax you owe. Usually, credits can only lower your tax to zero. But some credits, such as the EITC and the child tax credit, can actually exceed your tax. Though some credits are available to people at all income levels, others have income restrictions. These include the EITC, saver’s credit, education credits and child tax credit.If you qualify, you can claim any credit, regardless of whether you itemize your deductions. Any credit can be claimed on Form 1040, sometimes referred to as the long form. Alternatively, except for the energy credits, all the credits outlined in this fact sheet can be claimed on the 1040A short form. The EITC can even be claimed on Form 1040EZ. The instruction booklet for each of these forms has more information about these and other tax credits. For tax advise contact us at http://www.cillierscpa.com

Seven Ways to jump start your taxes

The IRS published the below 7 ways to jump start your tax preparation.   The eraier you file your taxes the sooner you get that refund, so mak ethis year the year that you file yoru taxes as soon as all yoru W-2′ and 1099’s arrived.

Here are seven easy ways to get a good jump on your taxes long before the April deadline is here:

1. Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.
2. Get the right forms. They’re available around the clock on the IRS Web site, IRS.gov.
3. Take your time. Don’t forget to leave room for a coffee break when filling out your tax return as rushing can mean making a mistake.
4. Double-check your math and verify all Social Security numbers. These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS and speed up your refund.
5. E-filing is easy. E-filing catches math errors and provides confirmation your return has been received and gives you a faster refund.
6. Get the fastest refund. When you e-file file early, you receive your refund faster. When you choose direct deposit, you receive your refund sooner than waiting for a check.
7. Don’t panic. If you have a problem or a question, remember the IRS is there to help. Try the IRS Web site at IRS.gov or call the IRS customer service number at 800-829-1040.

Are you concerned that your efforts to get ready early may be affected by the Alternative Minimum Tax legislation passed by Congress in December?  Most individuals will not be impacted, so it is still a good idea to get an early start on your preparations.  Even if you are filing one of five forms affected by the recent legislation, the IRS expects to be ready for your return by February 11. 

For Phoenix are tax services please contact http://www.cillierscpa.com

Year end Tax Planning: AZ Tax Credits

Did you know that the state of Arizona will give you a dollar for  dollar tax credit for donations to public or private schools through the School Choice of Arizona program?  This means that an individual can donate up to $500 or a couple up to $1000 and you will get a 100% credit on your Arizona taxes.  (http://www.azschoolchoice.com/) Also did you know that the state of Arizona will give you a dollar for dollar tax credit for donations charities that provide assistance to the working poor?  This means that an individual can donate up to $200 or a couple up to $400 and you will geta 100% credit on your Arizona taxes. 

One great organzation that we plan on donating to is the Foundation for Blind Children.  Both credits apply and can both be used for up to a $1400 credit for a married couple.  Check them out at http://seeitourway.org/Development/FBCEndofYearGiving.html. 

In order to make this extraordinary impact, you need to make your donation to a qualified institution by December 31.  Make sure you get a receipt showing your donation.   If you need any help with your tax needs please contact us at http://www.cillierscpa.com/Contact.html

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