From Lenny's Desk
The Sturbridge Taxman's Blog

Clues to help solve your financial and tax puzzles!

Cormier & Rea announce additional office at 483 Summer St, Ste 2000, Arlington, MA

IRS Offers Tips for Year-End Giving

Categories Tax Tips (Fed)

IRS YouTube Videos:

WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:

Special Tax-Free Charitable Distributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income – resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Charitable Contributions of Clothing and Household Items

To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus,      donations charged to a credit card before the end of 2013 count for 2013.      This is true even if the credit card bill isn’t paid until 2014. Also,      checks count for 2013 as long as they are mailed in 2013.
  • Check that the organization is eligible. Only donations      to eligible organizations are tax-deductible. Exempt      Organization Select Check, a searchable online database available on      IRS.gov, lists most organizations that are eligible to receive deductible      contributions. In addition, churches, synagogues, temples, mosques and      government agencies are eligible to receive deductible donations, even if      they are not listed in the database.
  • For individuals, only taxpayers who itemize their      deductions on Form 1040 Schedule A can claim deductions for charitable      contributions. This deduction is not available to individuals who choose      the standard deduction, including anyone who files a short form (Form      1040A or 1040EZ).      A taxpayer will have a tax savings only if the total itemized deductions      (mortgage interest, charitable contributions, state and local taxes, etc.)      exceed the standard deduction. Use the 2013 Form 1040 Schedule A to      determine whether itemizing is better than claiming the standard      deduction.
  • For all donations of property, including clothing and      household items, get from the charity, if possible, a receipt that      includes the name of the charity, date of the contribution, and a      reasonably-detailed description of the donated property. If a donation is      left at a charity’s unattended drop site, keep a written record of the      donation that includes this information, as well as the fair market value      of the property at the time of the donation and the method used to      determine that value. Additional rules apply for a contribution of $250 or      more.
  • The deduction for a car, boat or airplane donated to      charity is usually limited to the gross proceeds from its sale. This rule      applies if the claimed value is more than $500. Form      1098-C or a similar statement, must be provided to the donor by the      organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash      contributions is over $500, a properly-completed Form      8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and      receipts.

IRS.gov has Additional information on charitable giving including:

This message brought to you by: Cormier & Rea, Inc. Sturbridge MA. Providers of Income tax planning and preparation and financial planning. For more information about this or any other issues regarding income tax planning or preparation or financial planning, feel free to contact us. Like Cormier & Rea, Inc. on Facebook for timely updates.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material may have been developed and produced by a third party to provide information on a topic that may be of interest. Any third party content providers are not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Avantax affiliated financial professionals may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state.

Securities offered through Avantax Investment Services℠, Member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services℠. Insurance services offered through an Avantax affiliated insurance agency. 3200 Olympus Blvd, Suite 100, Dallas, TX 75019 (972) 870-6000.

The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management® does not provide or supervise tax or accounting services, Avantax representatives may offer these services through their independent outside business. Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management® or its subsidiaries. Avantax Wealth Management® is not responsible for and does not control, adopt, or endorse any content contained on any third party website.