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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How to Determine the Value of Your Property Before You Donate

The tax deduction available for making a charitable donation of property may be no more than the fair market value of the property on the date of the gift. Fair market value is the price that a willing buyer and seller would agree to when neither is required to act and both have a reasonable knowledge of the relevant facts.

The IRS lists several factors that may be considered in determining fair market value.*

Cost or selling price can be an accurate measure of fair market value when the transaction and the donation dates are close and there has been no change that would affect the item’s value.

Sales of comparable properties may be useful for determining value where the properties sold and the property donated are similar and the sales occurred reasonably close in time to the date of the donation.

Replacement cost may be a good indicator of value in some situations, provided that depreciation is subtracted from the cost to reflect the property’s physical condition and obsolescence.

Expert opinion is relevant to the extent the expert has the appropriate education and experience and has thoroughly analyzed the transaction.

* IRS Publication 561, Determining the Value of Donated Property

Who Qualifies as an Appraiser?

Generally, where a charitable deduction of more than $5,000 is claimed for donated property, the IRS requires a qualified appraisal by a qualified appraiser. A qualified appraiser is someone who:

Has earned an appraisal designation from a recognized professional organization or has met certain education and experience requirements

Regularly prepares appraisals for a fee

Is not an “excluded individual,” such as the donor, the donee, or a party to the transaction in which the donor acquired the property being appraised (Other exclusions apply.)

The qualified appraisal must be signed and dated and can be made no earlier than 60 days before the valued property is donated.

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

 

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How to Determine the Tax Value of Artwork

Making a donation of artwork to a museum, educational institution, or other qualifying charitable organization can give you an opportunity to share your collection with others and provide you with a charitable income-tax deduction. If such a contribution is among your charitable goals, your first step generally should be to obtain a written appraisal from a qualified source to support your claim.

 

What Constitutes a Qualified Appraisal?

 

A qualified appraisal is one that’s made by a qualified appraiser and dated no earlier than 60 days before the date you donate the artwork. Very generally, a qualified appraiser is one who has the education and experience to value the type of property being appraised and who regularly prepares appraisals for a fee.

 

Typically, the appraisal should include the following:*

 

  • A sufficiently detailed description of the artwork (e.g., size, subject matter, medium, name of artist)

 

  • The authenticity and condition of the artwork

 

  • Any donor restrictions (or the terms of any other agreement) on the disposition or use of the artwork by the charitable organization

 

  • The appraised fair market value of the artwork

 

  • The specific basis for the valuation

 

  • The date (or expected date) of the contribution

 

Claiming the Deduction

 

The IRS has certain requirements that must be met in order to claim the deduction for donated artwork. For donations of artwork valued at $20,000 or more, you must attach a complete copy of the signed appraisal to your tax return and be prepared to provide a conforming photograph of the artwork if requested by the IRS. If the artwork has been appraised at $50,000 or more, you can request a Statement of Value for the item from the IRS before filing your return. A copy of the qualified appraisal and a check or money order for $5,700 (for up to three items) must be submitted with your request.

 

Call us today for more tips on how to ensure you’re getting the most tax benefit out of your donations.

 

 

* This is not an exhaustive list.

 

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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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Are There Deductions for Mortgage Loan Points?

Are There Deductions for Mortgage Loan Points

 

You just bought a house and paid one “point” on your home loan and also you just remodeled with the best plumber https://alldrainserviceplumbing.com/24-hour-emergency-plumber/. A point, which is the interest lenders charge up front, is 1% of the mortgage loan amount. If you itemize your income tax deductions, points are deductible. For the best deal, this mortgage branch opportunity has changed everything. You can check out BranchRight.com.

What is a personal loan? A personal loan is money you can borrow from a financial institution like a bank, credit union, or online lender. Once approved for a loan, you’ll make monthly payments to pay it back in full, plus interest. FHA loans are available for single family and multifamily homes with mortgage broker. The loan terms and interest rates vary based on the lender and your credit report, click here to learn more about online payday loansMoreira Team is here to help you make the refinancing process easier. Our qualified mortgage lenders will assist you every step of the process to ensure you make the right choice based on your needs and budget.

 

First Time Around

Points paid for a mortgage on a primary residence are generally deductible in the year they are paid — if certain conditions are met. Check the personal loans from baltimoresun.com to find the best deal for you and your mortgage arrangement. For example, your mortgage must be secured by the home being purchased, the points must not exceed the number generally charged in your area, and the points must be paid from separate funds, not rolled into the mortgage.

 

Second Time Around

If you refinance and use some of the new mortgages with the help or personal Money lenders to make home improvements, as long as payment is separate, points paid on the portion of the loan that finances the improvements can also be deducted in the year they are paid.

 

To learn more about tax rules and regulations, visit 2ndchanceauto.com to get expert advisory in your loan for the new car or  house. Our knowledgeable and trained staff is here to help.

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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 to Know at Tax Time when You’ve Made a Charitable Donation

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. In 2016, 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.

…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).

Five Strategies for Tax-Efficient Investing

As just about every investor knows, it’s not what your investments earn, but what they earn after taxes that counts. After factoring in federal income and capital gains taxes, the alternative minimum tax, and any applicable state and local taxes, your investments’ returns in any given year may be reduced by 40% or more.

As explained in this Investors Underground review, day traders can learn a lot by collaborating with each other.

For example, if you earned an average 6% rate of return annually on an investment taxed at 24%, your after-tax rate of return would be 4.56%. A $50,000 investment earning 8% annually would be worth $89,542 after 10 years; at 4.56%, it would be worth only $78,095. Reducing your tax liability is key to building the value of your assets, especially if you are in one of the higher income tax brackets. Here are five ways to potentially help lower your tax bill.1

Invest in Tax-Deferred and Tax-Free Accounts

According to Webtaxonline tax-deferred accounts include company-sponsored retirement savings accounts such as traditional 401(k) and 403(b) plans, traditional individual retirement accounts (IRAs), and annuities. Contributions to these accounts may be made on a pretax basis (i.e., the contributions may be tax deductible) or on an after-tax basis (i.e., the contributions are not tax deductible). More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to non-qualified annuities, Roth IRAs, and Roth-style employer-sponsored savings plans are not tax deductible. Earnings that accumulate in Roth accounts can be withdrawn tax free if you have held the account for at least five years and meet the requirements for a qualified distribution, but since this take work, is better to use some accounts payable solution which help automatizing the process way more.

Pitfalls to avoid: Withdrawals prior to age 59½ from a qualified retirement plan, IRA, Roth IRA, or annuity may be subject not only to ordinary income tax but also to an additional 10% federal tax. In addition, early withdrawals from annuities may be subject to additional penalties charged by the issuing insurance company. Also, if you have significant investments, in addition to money you contribute to your retirement plans, consider your overall portfolio when deciding which investments to select for your tax-deferred accounts. If your effective tax rate — that is, the average percentage of income taxes you pay for the year — is higher than 12%, you’ll want to evaluate whether investments that earn most of their returns in the form of long-term capital gains might be better held outside of a tax-deferred account. That’s because withdrawals from tax-deferred accounts generally will be taxed at your ordinary income tax rate, which may be higher than your long-term capital gains tax rate (see “Income vs. Capital Gains”).

Income vs. Capital Gains

Generally, interest income is taxed as ordinary income in the year received, and qualified dividends are taxed at a top rate of 20%. (Note that an additional 3.8% tax on investment income also may apply to both interest income and qualified (or non-qualified) dividends.) A capital gain or loss — the difference between the cost basis of a security and its current price — is not taxed until the gain or loss is realized. For individual stocks and bonds, you realize the gain or loss when the security is sold. However, with mutual funds, you may have received taxable capital gains distributions on shares you own. Investments you (or the fund manager) have held 12 months or less are considered short term, and those capital gains are taxed at the same rates as ordinary income. For investments held more than 12 months (considered long term), capital gains are taxed at no more than 20%, although an additional 3.8% tax on investment income may apply. The actual rate will depend on your tax bracket and how long you have owned the investment.

Consider Government and Municipal Bonds

Interest on U.S. government issues is subject to federal taxes but is exempt from state taxes. Municipal bond income is generally exempt from federal taxes, and municipal bonds issued in-state may be free of state and local taxes as well. An investor in the 32% federal income tax bracket would have to earn 7.35% on a taxable bond, before state taxes, to equal the tax-exempt return of 5% offered by a municipal bond. Sold prior to maturity or bought through a bond fund, government and municipal bonds are subject to market fluctuations and may be worth less than the original cost upon redemption.

Pitfalls to avoid: If you live in a state with high state income tax rates, be sure to compare the true taxable-equivalent yield of government issues, corporate bonds, and in-state municipal issues. Many calculations of taxable-equivalent yield do not take into account the state tax exemption on government issues. Because interest income (but not capital gains) on municipal bonds is already exempt from federal taxes, there’s generally no need to keep them in tax-deferred accounts. Finally, income derived from certain types of municipal bond issues, known as private activity bonds, may be a tax-preference item subject to the federal alternative minimum tax.

Look for Tax-Efficient Investments

Tax-managed or tax-efficient investment accounts and mutual funds are managed in ways that may help reduce their taxable distributions, and here you can find the best and most professional Accountants in the finance business. Investment managers may employ a combination of tactics, such as minimizing portfolio turnover, investing in stocks that do not pay dividends, and selectively selling stocks that have become less attractive at a loss to counterbalance taxable gains elsewhere in the portfolio. In years when returns on the broader market are flat or negative, investors tend to become more aware of capital gains generated by portfolio turnover, since the resulting tax liability can offset any gain or exacerbate a negative return on the investment.

Pitfalls to avoid: Taxes are an important consideration in selecting investments but should not be the primary concern. A portfolio manager must balance the tax consequences of selling a position that will generate a capital gain versus the relative market opportunity lost by holding a less-than-attractive investment. Some mutual funds that have low turnover also inherently carry an above-average level of undistributed capital gains. When you buy these shares, you effectively buy this undistributed tax liability.

Put Losses to Work

At times, you may be able to use losses in your investment portfolio to help offset realized gains. It’s a good idea to evaluate your holdings periodically to assess whether an investment still offers the long-term potential you anticipated when you purchased it. Your realized capital losses in a given tax year must first be used to offset realized capital gains. If you have “leftover” capital losses, you can offset up to $3,000 against ordinary income. Any remainder can be carried forward to offset gains or income in future years, subject to certain limitations.

Pitfalls to avoid: A few down periods don’t necessarily mean you should sell simply to realize a loss. Stocks in particular are long-term investments subject to ups and downs. However, if your outlook on an investment has changed, you may be able to use a loss to your advantage.

Keep Good Records

Keep records of purchases, sales, distributions, and dividend reinvestment so that you can properly calculate the basis of shares you own and choose the shares you sell in order to minimize your taxable gain or maximize your deductible loss.

Pitfalls to avoid: If you overlook mutual fund dividends and capital gains distributions that you have reinvested, you may accidentally pay the tax twice — once on the distribution and again on any capital gains (or under-reported loss) — when you eventually sell the shares.

Keeping an eye on how taxes can affect your investments is one of the easiest ways you can enhance your returns over time. For more information about the tax aspects of investing, consult a qualified tax advisor.

Source/Disclaimer:

Example does not include taxes or fees. This information is general in nature and is not meant as tax advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.