Tag: charity

Are You a Non-Profit? Then Politics are Out of Bounds

Nonprofit organizations exempt from tax under Section 501(c)(3) of the federal tax code — schools, religious groups, hospitals, social service providers, and other public charities — should be careful not to violate the law’s prohibition on political campaign activities.

What’s Prohibited?

Participation or intervention in a political campaign on behalf of, or in opposition to, a candidate for public office is absolutely prohibited, whether it’s done directly or indirectly. This restriction applies across the board to campaigns of candidates running for national, state, or local public office.

Examples of prohibited political campaign activities include:

> Endorsing a candidate

> Donating to a candidate’s campaign

> Allowing a candidate to make a campaign speech at an organization-sponsored event

> Allowing a candidate to use an organization’s assets or facilities if other candidates are not given an equivalent opportunity

> Distributing materials that favor or oppose a candidate (whether the statements are prepared by others or by the organization)

> Posting comments about a candidate on the organization’s website or maintaining a link to only one candidate’s profile on the site

Permissible Activities

An organization may educate voters as long as it’s done in a nonpartisan, unbiased way. For example, organizations may prepare and distribute voter education guides or hold public forums that we have learned across the mba duel degree studies. But all candidates seeking the same office should have an equal opportunity to be represented or participate. Neutrality — in content, wording, questioning, issues for discussion, etc. — is key.

Board members and other leaders of an organization may, of course, hold their own political views. But when they express those views, they should make it abundantly clear they are speaking for themselves, not on behalf of the organization. Leaders should avoid making political statements at organization meetings. Similarly, the organization’s resources or publications should not be used to express political views.

A charity may conduct educational activities regarding public policy issues of importance to its mission, including issues that divide candidates in an election for public office. However, messages that could be construed as political campaign intervention should be avoided.

Failure To Comply

Violating the prohibition on political campaign activities can result in revocation of an organization’s tax-exempt status and the imposition of certain excise taxes.

To learn more about non-profit compliance issues, give us a call today. We look forward to helping your non-profit grow.

 

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Seriously? Sweat Equity is Not Deductible?

The labors of love you pour into your business may have a fair market value on the street, but how do you accurately translate your net worth?

Is it $100 an hour or does it range in the thousands? For the CEOs of some publically traded companies that number is often tens of thousands an hour.

But you won’t be able to calculate the value of your efforts until you have been paid.

What About Charity Donation?

Okay, we know, you’re worth every penny, but when you donate time to charity or you’re looking to deduct the cost of your time spent, it can cause confusion at tax time. For entrepreneurs who assume their sweat equity is deductible, this can result in shock and disappointment.

The Startup Phase

Starting a new business is an exciting time for an entrepreneur. Ideas are taking shape and heart-held dreams are becoming tangible realities. But unless they’re backed by a substantial nest egg or loan, most businesses need time to produce enough cash flow to compensate the owner for development time.

Many business owners spend hours establishing their businesses before they even open the front door (virtual or otherwise). Ensuring their company’s viability doesn’t often happen overnight. Market testing and calculating pricing take time.

What’s the legal answer to this question?

Well, perhaps it can be found in a recently decided court case. The issue? Whether or not a taxpayer can deduct the value of sweat equity, i.e. services for which he/she is unpaid.

In short, a sole proprietorship reported a loss in his business providing services at no charge. The amount was substantial: $29,500. The taxpayer used this loss as a deduction against his income of $234,000 earned that year (2014). While he had not spent any actual money out of pocket, he argued that research was needed to succeed in his business; yes, sweat equity.

The court ruled against the taxpayer in this case because, in order to take a deduction, one must pay or otherwise incur an expense to be eligible to deduct it. The labor itself is not within the meaning of Code Section 162.

Donating Time to Charity

What about taxpayers or business owners who donate their time to a charitable cause? We’ve already determined their time has value. Certainly, the court must allow for this type of deduction, right?

Well, no, not this one. Donations of services are not deductible charitable contributions. However, if business owners or taxpayers donate the value of their work in cash so the organization can hire someone else to do the work, it then becomes a tax-deductible donation.

Donated labor is not deductible even to nonprofits because, in the normal earning cycle of a business, the net value of the services donated is zero.

For example, consider service on a nonprofit board. If you charge for the work, you would earn according to your pay scale. However, in donating your services you are not paid.

Now, there’s a way around it.

If the organization pays you for your service and you then donate it, you would be reporting it as income. You would owe and pay taxes on the money earned and then be able to deduct your cash donation. By not receiving the income, you avoid reporting the fees in additional revenue for the year, and you’ll also forego the charitable deduction. Either way, the result is the same.

While your personal valuation of sweat equity you put into your business may result in Fortune 500 positioning, it won’t help you reduce your tax bill.

More questions, feel free to give us a call. As a Certified Tax Coach, we can assist you.

 

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Know what Documentation you Need for Your Charitable Donations

To claim a deduction for a charitable donation, you must have certain documentation. The current tax law requirements are summarized in the table below.

 

Additional Tips

 

Here are some other points to keep in mind.

 

Multiple contributions. If you make multiple contributions of less than $250 to the same charity during the year, you generally should treat each contribution separately in determining the amount of the contribution and the supporting records you should have.

 

Donations of clothing and household items. To be deductible, these donations must be in “good used” condition or better unless you are claiming a deduction of over $500 and include a qualified appraisal of the item with your return. If you can’t get a receipt from the charity because you left items at a charity’s unattended drop site, note the charity’s name, the contribution date, and a description of the items you donated and keep it on file. Also, note the donated items’ fair market values and how you determined the values.

 

Text message donations. If you donate money by sending a text message — to a disaster relief charity, for example — the donation will be routed through the cell phone company you use. The company forwards the amount you donate to the charity, and the charge appears on your bill. Therefore, the telephone bill showing the date and amount of your donation to the organization will serve as the proof you need to substantiate your contribution.

 

Contribution        Amount                 Records

Type                    Contributed          Required

 

Monetary              Less than $250      Bank record or written receipt:

(cash, credit                                        • Name of organization

card, check)                                       • Amount of contribution

  • Date of contribution

 

Monetary              $250 or more         Same as for monetary contribution of less than

(cash, credit                                        $250 plus written acknowledgment stating:

card, check)                                       • Contribution amount

  • Whether charity provided goods/services in exchange
  • Description, an estimated value of goods/services provided

 

Monetary              Any amount           Pay stub, Form W-2, or another document from the employer

(payroll                                              that shows amount withheld for payment to charity

deduction)                                          Pledge card showing charity’s name

Written acknowledgment if $250 or more is deducted

from single paycheck

 

Property               Less than $250      Receipt, letter, other written communication from

charity stating:

  • Name of organization
  • Date and location of contribution
  • Property description

(receipt not required when impractical to obtain)

Record of property’s fair market value on the contribution

date and how the value was determined

 

Property               $250-$500             Same as for property donation of less than $250 plus

written acknowledgment must state whether charity provided

goods or services in exchange and, if so, their value

 

Property               $500-$5,000          Written acknowledgment

Form 8283 (filed with tax return) stating:

  • How and when a property was acquired
  • Cost or another adjusted basis of property (unless publicly

traded securities)

 

Property               Over $5,000          Same records as for property donations of $500-$5,000 plus:

  • Qualified appraisal (exceptions apply)
  • Appraisal summary with Form 8283

 

To learn more about donations and taxes, give us a call today. Our staff of professionals is always happy to help.

 

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IRS Requirements for Documentation for Charitable Donations

Recently, the U.S. Tax Court denied a taxpayer’s claimed deductions for over $27,000 of charitable contributions because the taxpayer had failed to properly document them.

 

Individual taxpayers and business owners claiming deductions must be able to substantiate them according to specific rules established by the IRS. Watch out for these common pitfalls.

 

Donations. Cash contributions of less than $250 require a bank record or written receipt indicating the name of the organization and the date and amount of the contribution. For noncash donations, you need a receipt and a record showing the donee’s name and a description of the gift. If the value of any gift equals $250 or more, you also need a contemporaneous written acknowledgment, a statement of whether the charity provided any goods or services in exchange for the gift, and, if so, a description and a good faith estimate of the value. Additional rules apply to contributions of noncash property of more than $500.

 

Hobbies. Deductions for hobby expenses are strictly limited. If you wish to claim the full extent of any expenses, you must be prepared to show that your activity qualifies as a business. The IRS will presume it’s a business if you can show a profit in three of the past five years. If that isn’t the case, then you should be prepared to produce evidence to satisfy a number of more subjective tests to avoid application of the tax law’s “hobby loss” restrictions.

 

Divorce. Alimony payments are tax deductible, but payments for child support are not. Taxpayers should retain their final divorce decree and any agreements for child support and/or separate maintenance in case the IRS questions claimed deductions. Also, retain any agreements regarding who will claim exemptions for dependent children. For capital gains purposes, save cost records for both jointly owned and settlement property.

 

Business expenses for travel, meals, and entertainment, and transportation. Generally, you must retain documentation to establish the amount, time, place, and business purpose for each expenditure. Specific expense categories may have additional requirements.

 

Business use of an automobile. Maintain records for the cost of the car and any improvements; the date you started using it for business; the mileage, destination, and business purpose for each trip; and the total mileage for the year. When you use the actual expense method rather than the IRS standard mileage rate, you also need records of your operating costs, such as gas, oil, repairs, maintenance, and insurance.

 

Home office. Be prepared to produce records that substantiate your claimed expenses and show regular and exclusive business use of that part of the home.

 

To learn more about tax rules and regulations, give us a call today. Our knowledgeable and trained staff is here to help.

 

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Taxes and Charitable Donations – What You Need to Know

Your donation to a tax-exempt organization supports two good causes: the charity’s mission and your wallet (in the form of a charitable tax deduction). Just be careful at tax time.

 

If you receive something of value in return for your donation — dinner, goods or services, tickets to an event, etc. — only the net amount is deductible. Example: If you donate $100 and receive dinner worth $40, the deductible amount is $60.

 

There are some exceptions. You can deduct the full amount if:

 

> The items you received were free, you did not order them, and the cost was no more than $10.60.

 

> Your gift was at least $53 and you received only token items with the charity’s logo (e.g., bookmarks, key chains, calendars, etc.) that cost no more than $10.60.

 

> The benefits received are worth less than 2% of your contribution and no more than $106.

 

Charities are required to acknowledge in writing the value of goods or services provided for contributions of more than $75.

 

To learn more about tax rules and regulations for charitable donations, give us a call today. Our knowledgeable and trained staff is here to help.

 

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The Ins and Out of Donating Stock to a Charity

What could be sweeter than helping out your favorite charity and snagging a tax deduction to boot? But giving cash isn’t your only option. Donating stock or mutual fund shares that have appreciated in value since you acquired them may be a tax-smart move.

When you donate securities you’ve held for longer than one year, you generally can claim an income-tax deduction in the amount of their fair market value. And, since you’re not selling the shares, you won’t have to realize the gain or pay capital gains tax on the appreciation. Although you could donate securities with unrealized short-term gains, your deduction would typically be limited to your cost basis.

Keep in mind that charitable gifts are deductible only if you itemize deductions on your income tax return. Your tax advisor can give you more information.

Give us a call today, so we can help you determine the right course of action for you.

 

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What are Substantiate Charitable Contributions

If you want to take a charitable contribution deduction on your income tax return, you need to substantiate your gifts. You must have the charity’s written acknowledgment for any charitable deduction of $250 or more. A canceled check alone isn’t enough to support your deduction.

It’s your responsibility to obtain the charity’s acknowledgment (receipt), and you need to have it when you file your return. The acknowledgment must include:

– The amount of cash you contributed

– A description of any property you gave

– A statement as to whether the charity provided services or goods (a meal or tickets, for example) as full or partial consideration for your donation, plus a description and good faith value estimate of the services or goods

A charity may acknowledge each gift of $250 or more separately, or it may give you a single statement covering all your gifts. The charity does not have to place a value on the property you donate. That’s still up to you.

Also, a charity must provide you with an acknowledgment for a donation of more than $75 that is partially a contribution and partially in exchange for goods and services from the charity. This acknowledgment must:

– Tell you that your deductible contribution amount is the donation minus the value of the goods or services

– Give you a good faith estimate of the value of the goods or services

IRS regulations on substantiating charitable deductions cover two more contribution types:

– Goods Or Services That Don’t Have Substantial Value

A charity doesn’t have to include token items in its acknowledgment. Examples of these items include posters, mugs, and key rings.

– Payroll Deduction Contributions

Donations that employers make on behalf of employees who have signed payroll deduction authorization cards can be a problem because the charity lacks the individual donor information needed to prepare its acknowledgments. To substantiate these payroll deduction contributions, you can use employer documents that show the amount withheld (payroll stubs, W-2 forms, or other employer reports) plus the charity’s pledge card or other documents with a statement that you received no goods or services in exchange for your contribution.

For more help with individual or business taxes, connect with us today. Our team can help you with all your tax issues, large and small.

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What are the Deductions for Charitable Donations

If your contributions to charity begin and end with check writing, you may be missing out on some satisfying volunteer opportunities — and a few tax deductions. IRS rules allow you a number of tax breaks for contri­butions other than cash that you make to qualified organizations.

 

Deduct Getting There and Back

 

You can deduct the costs of going to and from a location where you volunteer your services. You can also deduct the costs of driving for the organization — for example, to pick up or deliver items. To compute your deduction for charitable driving, use a standard mileage rate of 14 cents per mile or deduct the actual cost of your gas and oil. Either way, parking fees and tolls are also deductible.

 

Recoup Your Expenses

 

Out-of-pocket expenses you pay in giving services to a qualified organization may count as a charitable donation if you’re not reimbursed for them. You cannot deduct your personal expenses, such as child-care costs, even if they are necessary for you to volunteer. You may, however, deduct the costs of buying and cleaning a uniform you’re required to wear while volunteering if it is not suitable for everyday use.

 

No Time To Volunteer?

 

Many charities accept noncash donations. Giving investments that have increased in value can be a smart tax move. Instead of selling the investment and paying capital gains tax, give it to a qualified organization. If you held the investment for more than one year, you generally can deduct its fair market value at the time of the donation. Remember that you’ll need a receipt from the organization to claim a tax deduction and other records also may be required.

 

Some Restrictions

 

Contributions must be made to qualified organizations that meet IRS guidelines. Not sure? The IRS has an online tool (Exempt Organizations Select Check) on its website (www.irs.gov). Or call the IRS at 1-877-829-5500.

 

Things you can’t deduct include contributions to a specific individual; the value of your time or services; personal expenses incurred while volunteering, such as the cost of meals (unless you must be away from home overnight); and appraisal fees to determine the value of donated property.

 

Connect with us today for more information on charitable donations.

 

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Do You Need a Donor Advised Fund?

Are you looking for a different way to give to your favorite charities? If you are, you may want to consider a donor-advised fund.

Donor-advised funds are a popular option because they offer several attractive benefits: relatively modest contribution guidelines, little to no set-up costs, few ongoing responsibilities, name recognition if desired, and the ability to consolidate contributions and thereby make a greater impact.

Fund Basics

With a donor-advised fund, you make a contribution (or series of contributions) to the fund and recommend how you would like your gifts to be disbursed. Generally, the donor’s recommendations will be followed, but the sponsoring organization has the final say as to how the money is actually distributed.

Tax Benefits

As the donor, you can potentially take advantage of these tax breaks:

  • An immediate deduction that reduces your federal taxable income (subject to certain tax law limitations)
  • Avoidance of capital gains taxes on appreciated assets you donate directly to the fund
  • A reduction in the value of your estate, potentially saving future estate taxes

Do Your Research

If you are interested in setting up a donor-advised fund, do your homework. Ask the sponsoring organization what types of assets it will accept. Funds also may have minimum contribution requirements to establish a named fund. Make sure you understand what restrictions apply to grants, what fees are involved, and what services are offered to help donors. And find out whether the fund will continue in perpetuity or end when you die.

To learn more about Donor-advised funds, give us a call today. Our staff of professionals is always happy to help.

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What You Need to Know about Documenting Your Donations

Individual taxpayers may deduct their charitable gifts as an itemized deduction for income-tax purposes. However, the IRS has very specific requirements when it comes to documenting contributions.

The Basics

You cannot deduct any contribution of cash, check, or other monetary gift unless you maintain, as a record of the contribution, a bank record or a written communication from the charity showing its name, plus the date and the amount of the contribution. For noncash donations, you need a receipt and a record showing the charity’s name and a description of the gift.

If the value of any gift equals $250 or more, you also need a contemporaneous written acknowledgement from the charity stating the amount of any donation made by cash (or check); a description of any property other than cash; and a statement of whether the charity provided any goods or services in exchange for the gift and, if so, a description and a good faith estimate of the value.

Noncash Contributions Greater Than $500

The general rules for noncash contributions are the following:

For contributions of $500 to $5,000, the donor must attach a description of the donated property to the tax return

For contributions of $5,000 to $500,000, the donor must attach a “qualified appraisal” to the tax return, along with additional information about the property and the appraisal

For contributions of more than $500,000, the donor must attach a qualified appraisal to the return

Additional rules apply for contributions of motor vehicles, boats, and airplanes if the donation’s claimed value exceeds $500.

Connect with our team today for all the latest and most current tax rules and regulations.