Virtual Cathy Blog
Saturday, February 03, 2007
Tax Info for 2007
Donating stuff?: If you wouldn't wear it, don't expect a deduction
Chicago Sun-Times, Dec 18, 2006 by Susan Tompor
Here's a tax tip for the industrious among us who are determined to de-clutter the house and make room for guests this holiday season:
Do not expect to clean up on your 2006 federal income tax return by taking a huge deduction after you donate all that junk. The tax rules have changed.
Tighter rules for contributions of clothing and household items took effect this summer, as part of the Pension Protection Act of 2006. (See below)
So if you've given away anything after Aug. 17, you cannot take a deduction for a charitable contribution of clothing or household goods, unless the items are viewed as being in "good used condition or better."
Clunky wording, yes. But these are tax rules. What does "good used condition or better" mean?
"They don't define what that means," said Herbert Hoffman, tax director for BDO Seidman in Troy, Mich. Not yet anyway. The Internal Revenue Service is expected to give more guidelines later, as we get closer to tax season.
In general, though, we can take an educated guess here, and say that you do not have a legitimate tax deduction if you're donating bags of old pants, ratty sweaters and stinky shoes. If it's junk that you'd never wear -- and junk that no one else would wear, either -- do not expect to cut your tax bill by donating it to a charity.
"Don't unload your garbage, and take a charitable deduction," Hoffman said.
It could get a little tricky figuring out what qualifies.
"I don't think anyone would want to go out and try to get an appraisal for this stuff," joked Mark Luscombe, analyst for tax publisher CCH in north suburban Riverwoods.
He does advise taxpayers to keep even more pristine records of these donations, and take pictures of clothing or household items before donating them to document how good something looks.
Typically, you can deduct the fair market value at the time you gave the item. Or Hoffman suggests basing the deduction on what the item might sell for at a secondhand store.
If you bought a $50 shirt, he said, you couldn't take a $50 deduction once you wear that shirt and then donate it.
A man's shirt might have a value of $2.50 to $12, according to the Salvation Army Valuation Guide at www.satruck.com.
If you plan to donate old underwear or old socks and take a deduction, think twice. The IRS might deny a deduction for any item that has minimum monetary value, such as socks or underwear.
There are some exceptions on the good used or better rule.
If a single item is valued at more than $500, a deduction might be allowed for that item even if it's not in good used condition or better. But the taxpayer must include a qualified appraisal with the tax return. You'd also need to file Form 8283.
The rules changed because the federal government saw signs of abuse, as taxpayers rewarded themselves with fat deductions for used items. Taxpayers deducted about $9 billion for charitable donations of clothing and household goods on their 2003 returns.
CASH CRACKDOWN:
Cash donations -- even small ones -- to religious organizations and other charities such as the Salvation Army kettles -- also will become more difficult to claim as a deduction beginning in 2007.
The IRS is going to require a receipt for cash contributions next year and afterward, if you want to deduct those donations on your federal tax returns.
So consider writing checks instead of putting $10 or $20 in cash in the collection plate at church.
Some religious organizations offer a way to have donations automatically deducted from your checking account. That would also provide records for the IRS.
Source: Gannett News Service
WHAT'S IT WORTH?
The Salvation Army's online Valuation Guide can give you a good indication at www.satruck.com
Copyright CHICAGO SUN-TIMES 2006Provided by ProQuest Information and Learning Company. All rights Reserved.
Stricter Rules on Charitable Donations: http://taxes.about.com/b/a/257331.htm
The Pension Protection Act toughens the tax laws for charitable donations. Under the new law, taxpayers must keep records of all cash donations. Individuals must show a receipt from the charity, a canceled check, or credit card statement to prove their donation. No tax deduction will be allowed if the taxpayer cannot provide any supporting documentation. Taxpayers will not need to mail in the receipts with their tax return. Instead, taxpayers will need to keep receipts and other documentation with their copy of the return in the event of an IRS audit.
The new law also toughens the rules for non-cash donations. Donated items, such as cars, clothing, and household goods, must be in good condition. "The new law does not define 'good condition,'" according to CCH. No tax deduction is allowed for items in less than good condition. Kay Bell provides this word of warning, "Perhaps the IRS will, at least for a while in this new requirement's initial stages, start pulling more returns that list donated property and asking filers to confirm the worth of their gifts."
Rules for Claiming the Charitable Donation Deduction:
http://taxes.about.com/od/2005taxes/qt/charitabledonat.htm
Your gift of cash or property must meet certain criteria in order to be tax-deductible.
You must actually donate cash or property. A pledge or promise to donate is not deductible until you actually pay.
You must donate to a qualified 501(c)(3) tax-exempt organization. Charities will let you know if they have received their 501(c)(3) tax-exempt status.
Sponsored Links
Find Fair Market ValuesSave on Taxes, get a larger refund with common donations to charities.CharityDeductions.com
Charitable Tax DeductionCharitable Tax Deduction Directory Find Charitable Tax Deductions FastWealthyGeek.com
Income Tax DeductionsKeep track of your tax deductions and instantly see your tax savings.www.turbotax.com
Some organizations are not required to obtain 501(c)(3) status from the IRS. These include churches and other religious organizations.
You must be able to itemize. Giving to charity is a great tax planning strategy, but it only works for people who are eligible to itemize their deductions.
You must meet recordkeeping requirements. This includes saving canceled checks, acknowledgement letters from the charity, and appraisals for donated property.
Non-Cash Donations of Property
Donations of property (other than cash) are subject to strict recordkeeping and substantiation rules. You must be able to substantiate the fair market value of the goods or property you donated, plus keep any written acknowledgements you receive from the charity.
Fair Market Value of Donated PropertyYou must make an assessment of the fair market value of the property you donate.
Non-Cash Donations Totalling More Than $500You must attach IRS Form 8283 if your total non-cash donations exceeds $500.
Car Donations: Must Have Written AcknowledgementIf you donate a car, truck, boat, airplane, or other vehicle, and the vehicle is worth more than $500, you must received a written acknowledgement from the non-profit before you can claim a tax deduction.
Non-Cash Donations over $5,000: Must Have Written AppraisalIf you donate property worth more than $5,000, you must obtain a written appraisal of the property's fair market value.
Limits on the Charitable Donation Deduction
Your charitable donation tax deduction may be limited. There are limits specific to charitable donations, and there are general limits on itemized deductions.
50%, 30%, and 20% Limits on Charitable Donations
Generally, you can deduct cash donations in full up to 50% of your adjusted gross income.
Generally, you can deduct property donations in full up to 30% of your adjusted gross income.
Generally, you can deduct donations of appreciated capital gains assets in full up to 20% of your adjusted gross income.
Charitable donations in excess of these limits can be carried over to the following tax year. The excess donations can be carried over for a maximum of five years.
100% Limit for Charitable Donations
Only for 2005, you can deduct charitable donations in full up to 100% of your adjusted gross income. To qualify for the 100% limitation, you must donate cash between August 28, 2005, and December 31, 2005. These special cash donations are reported on Schedule A, Line 15b.
posted by The Office Grapevine at 11:11 PM
0 Comments: