• Tax Implications of Crowdfunding

    17 April 2017
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    When raising money through Internet crowdfunding sites such as GoFundMe, Kickstarter or Indiegogo, it is important to understand the “taxability” of the money raised. Whether the money raised is taxable depends upon the purpose of the fundraising campaign. For example, fees can range from 5 to 9% depending on the site.

    Gifts – When an entity raises funds for its own benefit and the contributions are made out of detached generosity (and not because of any moral or legal duty or the incentive of anticipated economic benefit), the contributions are considered tax-free gifts to the recipient.

    On the other hand, the contributor is subject to the gift tax rules if he or she contributes more than $14,000 to a particular fundraising effort that benefits one individual; the contributor is then liable to file a gift tax return. Unfortunately, regardless of the need, gifts to individuals are never tax deductible.

    The “gift tax trap” occurs when an individual establishes a crowdfunding account to help someone else in need (whom we’ll call the beneficiary) and takes possession of the funds before passing the money on to the beneficiary. Because the fundraiser takes possession of the funds, the contributions are treated as a tax-free gift to the fundraiser. However, when the fundraiser passes the money on to the beneficiary, the money then is treated as a gift from the fundraiser to the beneficiary; if the amount is over $14,000, the fundraiser is required to file a gift tax return and to reduce his or her lifetime gift and estate tax exemption. Some crowdfunding sites allow the fundraiser to designate a beneficiary so that the beneficiary has direct access to the funds.

    Charitable Gifts – Even if the funds are being raised for a qualified charity, the contributors cannot deduct the donations as charitable contributions without proper documentation. Taxpayers cannot deduct cash contributions, regardless of the amount, unless they can document the contributions in one of the following ways:

    • Contribution Less Than $250: To claim a deduction for a contribution of less than $250, the taxpayer must have a cancelled check, a bank or credit card statement, or a letter from the qualified organization; this proof must show the name of the organization, the date of the contribution, and the amount of the contribution.
    • Cash contributions of $250 or More – To claim a deduction for a contribution of $250 or more, the taxpayer must have a written acknowledgment of the contribution from the qualified organization; this acknowledgment must include the following details:
      • The amount of cash contributed;
      • Whether the qualified organization gave the taxpayer goods or services (other than certain token items and membership benefits) as a result of the contribution, along with a description and good-faith estimate of the value of those goods or services (other than intangible religious benefits); and
      • A statement that the only benefit received was an intangible religious benefit, if that was the case.

    Thus, if the contributor is to claim a charitable deduction for the cash donation, some means of providing the contributor with a receipt must be established.

    Business Ventures – When raising money for business projects, two issues must be contended with: the taxability of the money raised and the Security and Exchange Commission (SEC) regulations that come into play if the contributor is given an ownership interest in the venture.

    • No Business Interest Given – This applies when the fundraiser only provides nominal gifts, such as products from the business, coffee cups, or T-shirts; the money raised is taxable to the fundraiser.
    • Business Interest Provided – This applies when the fundraiser provides the contributor with partial business ownership in the form of stock or a partnership interest; the money raised is treated as a capital contribution and is not taxable to the fundraiser. (The amount contributed becomes the contributor’s tax basis in the investment.) When the fundraiser is selling business ownership, the resulting sales must comply with SEC regulations, which generally require any such offering to be registered with the SEC. However, the SEC regulations were modified in 2012 to carve out a special exemption for crowdfunding:
      • Fundraising Maximum – The maximum amount a business can raise without registering its offering with the SEC in a 12-month period is $1 million. Non-U.S. companies, businesses without a business plan, firms that report under the Exchange Act, certain investment companies, and companies that have failed to meet their reporting responsibilities may not participate.
    • Contributor Maximum – The amount an individual can invest through crowdfunding in any 12-month period is limited:
      • If the individual’s annual income or net worth is less than $100,000, his or her equity investment through crowdfunding is limited to the greater of $2,000 or 5% of the investor’s annual net worth.
      • If the individual’s annual income or net worth is at least $100,000, his or her investment via crowdfunding is limited to 10% of the investor’s net worth or annual income, whichever is less, up to an aggregate limit of $100,000.

    If you have questions about crowdfunding-related tax issues, please give Dagley & Co. a call.

     

     

     

     

     

     

     

     

     

     

     

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  • Don’t Be Scammed By Fake Charities

    20 March 2017
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    Each year, the IRS publishes its list of the “dirty dozen” tax scams. This list is a variety of common scams that taxpayers may encounter anytime. Don’t fall prey!

    Urgent appeals for aid – whether in person, over the phone, by mail, via e-mail, on a website, or through a social networking site – may not be on the up-and-up. Fraudsters pop up after natural disasters such as earthquakes and floods to try to coax people into making donations that will go into the fraudsters’ pockets – not to help victims of the disaster.

    Unfortunately, legitimate charities face competition from fraudsters, so if you are thinking about giving to a charity with which you are not familiar, do your research so that you can avoid the swindlers who are trying to take advantage of your generosity. Here are tips to help make sure that your charitable contributions actually go to the cause that you support:

    • Donate to charities that you know and trust. Be alert for charities that seem to have sprung up overnight in connection with current events.
    • Ask if a caller is a paid fundraiser, who he/she works for, and what percentages of your donation go to the charity and to the fundraiser. If you don’t get clear answers – or if you don’t like the answers you get – consider donating to a different organization.
    • Don’t give out personal or financial information — such as your credit card or bank account number – unless you know for sure that the charity is reputable.
    • Never send cash. You can’t be sure that the organization will receive your donation, and you won’t have a record for tax purposes.
    • Never wire money to someone who claims to be from a charity. Scammers often request donations to be wired because wiring money is like sending cash: Once you send it, you can’t get it back.
    • If a donation request comes from a charity that claims to help a local community group (for example, police or firefighters), ask members of that group if they have heard of the charity and if it is actually providing financial support.
    • Check out the charity’s reputation using the Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Navigator, or Charity Watch.

    Remember that, to deduct a charitable contribution on your tax return, the donation must be to a legitimate charity. Contributions may only be deducted if they are to religious, charitable, scientific, educational, literary, or other institutions that are incorporated or recognized as organizations by the IRS. Sometimes, these organizations are referred to as 501(c)(3) organizations (after the code section that allows them to be tax-exempt). Gifts to federal, state, or local government, qualifying veterans’ or fraternal organizations, and certain nonprofit cemetery companies also may be deductible. Gifts to other kinds of nonprofits, such as business leagues, social clubs, and homeowner’s associations, as well as gifts to individuals, cannot be deducted.

    To claim a cash contribution, you must be able to document that contribution with a bank record, receipt, or a written communication from the qualified organization; this record must include the name of the qualified organization, the date of the contribution, and the amount of the contribution. Valid types of bank records include canceled checks, bank or credit union statements, and credit card statements. In addition, to deduct a contribution of $250 or more, you must have certain payroll deduction records or an acknowledgment of your contribution from the qualified organization.

    Be aware that, to claim a charitable contribution, you must also itemize your deductions. It may also be beneficial for you to group your deductions in a single year and then to skip deductions in the next year. Please contact Dagley & Co. if you have questions related to the tax benefits associated with charitable giving for your particular tax situation.

     

     

     

     

     

     

     

     

     

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  • Tips for Holiday Charity Giving

    31 October 2016
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    The holiday season is quickly approaching. With this, means charity donations. Little do some people know, it is also the time of year when scammers show up in force, pretending to be legitimate charities in hopes of swindling you. Even though this next few months will be busy, do not overlook the documentation needed to verify your generosity for tax purposes. Check out these tips for charitable giving:

    Documentation – To claim a charitable deduction, you must itemize your deductions; if you don’t, there is no need to keep any records of your donations. There are two types of charitable gifts: monetary and property.

    Monetary donations include those made by cash, check, credit card, or other means. This type of contribution is only deductible if the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. In addition, if the contribution is $250 or more, the donor must also get an acknowledgment from the charity for each deductible donation. Keep in mind that dropping cash in a holiday donation kettle without any documentation is not deductible.

    Non-cash holiday contributions to organizations such as Toys for Tots and to seasonal food drives by recognized charities are also deductible. The deductible amount is the fair market value (FMV) of the items at the time of the donation, and you must document your donation with a detailed list of what was given and the name of the charity receiving the gift. Where the FMV of your gifts is $250 or more, you must also obtain an acknowledgment from the charity for each deductible donation. When gifts of property are $500 or more, there are additional record keeping requirements, so please call for details if you plan to make gifts of this value.

    Watch Out for Charity Scams – To avoid scammers getting your charitable donations, make sure you are contributing to a legitimate charity and not to a bunch of crooks who work overtime during the holidays to trick you out of money.

    Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations.

    When in doubt, you should take a few extra minutes to ensure your gifts are going to legitimate charities. IRS.gov has a search feature—Exempt Organizations Select Check—that allows you to find legitimate, qualified charities to which donations may be tax deductible.

    Disaster Scams – In the wake of significant natural disasters, such as Hurricane Matthew, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists use a variety of tactics including contacting people by telephone or email to solicit money or financial information, and they may even set up phony websites that claim to solicit funds on behalf of disaster victims.

    Watch Out for ID Thieves – Don’t give out personal financial information such as your Social Security number or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. Using a credit card to make legitimate donations is quite common, but please be very careful when you are speaking with someone who called you; don’t give out your credit card number unless you are certain the caller represents a legal charity.

    Don’t be a victim! Make sure you are donating to recognized charities. If you have questions, please give us a call at (202) 417-6640.

     

     

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  • Tips For Holiday Charitable Giving

    30 December 2015
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    During the holidays, many charities solicit gifts of money or property. This is partially because people are in the giving mood, but also because they know this is the last month for people and businesses to give – affecting their current tax year before a new year begins. Our article here includes tips for documenting your charitable gifts so that you can claim a deduction on your tax return. You may also want to read our article for advice for how not to be scammed by criminals trying to trick you into sending charitable donations to them.

    To claim a charitable deduction you must itemize your deductions; if you don’t, there is no need to keep any records. In addition, only contributions to qualified charities are deductible. Of course, we all know that the Red Cross, Salvation Army, and Cancer Society are legitimate, qualified charities, but what about small or local charities? To make sure a charity is qualified, use the IRS Select Check tool. You can always deduct gifts to churches, synagogues, temples, mosques, and government agencies—even if the Select Check tool does not list them in its database.

    The documentation requirements for cash and non-cash contributions are different. A donor may not claim a deduction for a cash, check, or other monetary gift unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. In addition, if the contribution is $250 or more, the donor must also get an acknowledgment from the charity for each deductible donation.

    When contributions are made via payroll deductions, a pay stub, Form W-2 or other verifying document should be maintained as verification of the gift. It must show the total amount withheld for charity. In addition, be sure to retain the pledge card showing the name of the charity.

    Non-cash contributions are also deductible. Generally, contributions of this type must be in good condition, and they can include food, art, jewelry, clothing, furniture, furnishings, electronics, appliances, and linens. Items of minimal value (such as underwear and socks) are generally not deductible. The deductible amount is the fair-market value of the items at the time of the donation, and as with cash donations, if the value is $250 or more, you save an acknowledgment from the charity for each deductible donation. Be aware: the door hangers left by many charities after picking up a donation do not meet the acknowledgement criteria; in one court case, taxpayers were denied their charitable deduction because their acknowledgement consisted only of door hangers. When a non-cash contribution is $500 or more, the IRS requires Form 8283 to be included with the return, and when the donation is $5,000 or more, a certified appraisal is generally required.

    Special rules also apply to donations of used vehicles when the deduction claimed exceeds $500. The deductible amount is based upon the charity’s use of the vehicle, and Form 8283 is required. A charity accepting used vehicles as donations is required to provide Form 1098-C (or an equivalent) to properly document the donation.

    There are also special rules for purchasing capital assets for a charity, such as travel, personal vehicle use, entertainment, and placement of students in a home. Please call for information related to these issues.

    Charitable contributions are deductible in the year in which you make them. If you charge a gift to a credit card before the end of the year, it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. In addition, a check will count for 2015 as long as you mail it in 2015.

    If you have questions or concerns about your 2015 charitable donations or about the documentation required to claim deductions for them, please call us at Dagley & Co.

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  • December 2015 Tax Due Dates for Individuals

    8 December 2015
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    Have a merry month – and not a stressful month – with these December tax deadline tips from Dagley & Co! Image via public domain.

    December  – Time for Year-End Tax Planning

    December is the month to take final actions to affect your 2015 taxes. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2015 should get in touch with us at Dagley & Company for a tax planning consultation appointment. In case you need more reasons, do read our special post from Black Friday about why we may be the perfect accounting firm for you!

    December 10 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

    December 31 – Last Day to Make Mandatory IRA Withdrawals

    Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2015. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

    December 31 – Last Day to Pay Deductible Expenses for 2015

    Last day to pay deductible expenses for the 2015 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2015). Taxpayers who are making state estimated payments may find it advantageous to prepay the January state estimated tax payment in December (Please call the office for more information).

    December 31 – Where did the time go?! Last Day of the Year!

    If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

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  • Beware of FAKE Christmas Charities!

    13 November 2015
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    As the end of the year approaches, you will probably be besieged by requests from charitable organizations for contributions. The holiday season is the favorite time of the year for charities to solicit donations.

    But you should be aware that it is also the time of year when scammers show up in force, pretending to be legitimate charities in hopes of deceiving you into giving them your hard-earned money.

    When making a donation, you should take a few extra minutes to ensure your gifts are going to legitimate charities. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.

    Here are some tips to make sure your contributions are going to legitimate charities.

    • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations.
    • Don’t give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. Using a credit card to make legitimate donations is quite common, but please be very careful when you are speaking with someone who called you; don’t give out your credit card number unless you are certain the caller represents a legal charity.
    • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

    Another long-standing type of abuse or fraud involves scams that occur in the wake of significant natural disasters. In the aftermath of major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information and may set up phony websites that claim to solicit funds on behalf disaster victims. Unscrupulous individuals may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims to get tax refunds.

    Scammers may also attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Disaster victims with specific questions about tax relief or disaster-related tax issues may call a special IRS toll-free disaster assistance telephone number (1-866-562-5227) for information.

    Don’t be scammed; make sure you are donating to recognized charities. Deductions to charities that are not legitimate are not tax deductible. If you have questions, please get in touch with us at Dagley & Co.

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  • Are Your Charity Auction Purchases Tax Deductible?

    12 September 2015
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    Have you ever won an item at a charity auction? You may be wondering whether the money you spent on the items purchased constitutes a charitable donation, and we’re happy to answer this tricky charity tax question for you.

    The answer to that question is some, but not all, of what’s paid for the item may be deductible. So if you purchase items at a charity auction, you may claim a charitable contribution deduction for the excess of the purchase price paid for the item over its fair market value you must be able to show, however, that you knew that the value of the item was less than the amount you paid for it.  For example, a charity may publish a catalog, given to each person who attends an auction, providing a good faith estimate of items that will be available for bidding.  Assuming you have no reason to doubt the accuracy of the published estimate, if you pay more than the published value, the difference between the amount you paid and the published value may constitute a charitable contribution deduction.

    In addition, if you provide goods for charities to sell at an auction/fundraiser, you may wonder if you are entitled to claim a fair market value charitable deduction for your contribution of appreciated property to the charity that will later be sold.  Under these circumstances, the law limits your charitable deduction to your tax basis in the contributed property and does not permit you to claim a fair market value charitable deduction for the contribution.  Specifically, the Treasury Regulations (Sec 170) provide that if a donor contributes tangible personal property to a charity that is put to an unrelated use, the donor’s contribution is limited to the donor’s tax basis in the contributed property.  The term unrelated use means a use that is unrelated to the charity’s exempt purposes or function. The sale of an item is considered unrelated, even if the sale raises money for the charity to use in its programs.

    Please contact us at Dagley & Co. for additional information on charitable tax deductions.

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  • December 2014 Individual Tax Due Dates

    2 December 2014
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    We’ve compiled a list of some of the necessary tax deadlines for individuals. Since it’s the end of the year, it’s especially important that you tie up all loose ends on time. If you are worried that you may miss these deadlines, contact us, Dagley & Co., for help. (Find our phone number at the bottom of this webpage.)

    December – Time for Year-End Tax Planning

    December is the month to take final actions that can affect your tax result for 2014. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2014 should call for a tax planning consultation appointment. If you feel overwhelmed, consider hiring a professional like our founder, Dan Dagley, to make sure everything is done smoothly.

    December 10 – Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

    December 31 – Last Day to Make Mandatory IRA Withdrawals

    Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2014. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

    December 31 – Last Day to Pay Deductible Expenses for 2014

    Last day to pay deductible expenses for the 2014 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2014). Taxpayers who are making state estimated payments may find it advantageous to prepay the January state estimated tax payment in December (Please call the office for more information).

    December 31 – Caution! Last Day of the Year

    If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

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  • Giving To Charity This Season? Double Check Where It’s Going

    4 November 2014
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    ‘Tis almost the time of year for gift giving: friends, family, and of course, charitable giving. Before you write those charity checks, though, you should also be aware that there are fraudsters out there who solicit on behalf of bogus charities or who aren’t entirely honest about how a so-called charity will use your contribution.

    Solicitations for aid that you get in person, by phone or mail, by e-mail, on websites or on social networking sites may not be who they say they are. Fraudsters also pop up whenever there are natural disasters such as earthquakes, floods, etc., trying to coax you into making a donation that will go into their pockets, not to help victims of the disaster.

    Unfortunately, legitimate charities face competition from fraudsters. If you are thinking about giving to a charity with which you are not familiar, do your research to avoid swindlers who try to take advantage of your generosity.

    Here are tips to help make sure that your charitable contributions actually go to the cause you support:

    • Donate to charities you know and trust. Be alert for charities that seem to have sprung up overnight in connection with current events.
    • Ask if a caller is a paid fundraiser, who he/she works for, and what percentage of your donation goes to the charity and to the fundraiser. If you don’t get a clear answer – or if you don’t like the answer you get – consider donating to a different organization.
    • Don’t give out personal or financial information – including your credit card or bank account number – unless you know for sure that the charity is reputable.
    • Never send cash: you can’t be sure the organization will receive your donation, and you won’t have a record for tax purposes.
    • Never wire money to someone who claims to be a charity. Scammers often request donations to be wired because wiring money is like sending cash: once you send it, you can’t get it back.
    • If a donation request comes from a group claiming to help your local community (for example, local police or firefighters), ask the local agency if they have heard of the group and are getting financial support therefrom.
    • Check out the charity with the Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Navigator, Charity Watch, or GuideStar.

    One of the upsides of being able to give to a cause you care about is having the ability to deduct that charitable contribution on your tax return. In order to do this, it must be a legitimate charity. Contributions to religious, charitable, scientific, educational, literary, and other institutions that are incorporated or recognized as organizations by the IRS may be deducted. Sometimes these organizations are referred to as 501(c)(3) organizations after the code section that allows them to be tax-exempt. Gifts to state and local government, the federal government, qualifying veterans and fraternal organizations, and certain nonprofit cemetery companies also may be deductible. Gifts to other kinds of nonprofits, such as business leagues, social clubs and homeowner’s associations, as well as to individuals, cannot be deducted.

    To claim a cash contribution, you must be able to document the contribution with a bank record that includes the name of the qualified organization, the date of the contribution, and the amount of the contribution or a receipt (or a letter or other written communication) from the qualified organization that shows the same information. Bank records may include a canceled check, a bank or credit union statement, or a credit card statement. In addition, to deduct a contribution of $250 or more, you must have an acknowledgment of your contribution from the qualified organization or certain payroll deduction records.

    Be aware that, to claim a charitable contribution, you must also itemize your deductions. It may also be beneficial for you to bunch your deductions in one year and skip the next. Please contact Dagley & Co. if you have questions related to charitable giving tax benefits associated with your particular tax situation.

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  • Volunteering? There Are Tax Breaks For That!

    17 October 2014
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    We’re heading into a season of giving, and knowing all the facts just might prompt you to give more to your favorite cause. If you volunteer your time for a charity, you may qualify for some tax breaks. Although no tax deduction is allowed for the value of services performed for a charity, there are deductions permitted for out-of-pocket costs incurred while performing the services. The normal deduction limits and substantiation rules also apply. The following are some examples:

    • Away-from-home travel expenses while performing services for a charity, including out-of-pocket round-trip travel cost, taxi fares, and other costs of transportation between the airport or station and hotel, plus lodging and meals at 100%. Note that these expenses are only deductible if there is no significant element of personal pleasure associated with the travel, or if your services for a charity do not involve lobbying activities.
    • The cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor. However, the cost of your own entertainment or meal is not deductible.
    • If you use your car while performing services for a charitable organization, you may deduct your actual unreimbursed expenses directly attributable to the services, such as gas and oil costs, or you may deduct a flat 14 cents per mile for the charitable use of your car. You may also deduct parking fees and tolls.
    • Deduct the cost of the uniform you wear when doing volunteer work for the charity, as long as the uniform has no general utility. The cost of cleaning the uniform can also be deducted.

    There are some misconceptions as to what constitutes a charitable deduction and the following are frequently encountered issues:

    • No deduction is allowed for the depreciation of a capital asset as a charitable deduction. This includes vehicles, computers, etc.

    Example: Larua volunteers as a member of the sheriff’s mounted search and rescue team. As part of volunteering, Laura is required to provide a horse. Laura is not allowed to deduct the cost of purchasing or to depreciate her horse. She can, however, deduct uniforms, travel, and other out-of-pocket expenses associated with the volunteer work.

    However, a taxpayer may deduct the cost of maintaining a personally owned asset to the extent its use relates to providing services for a charity. Thus, for example, a taxpayer was allowed to deduct the fuel, maintenance and repair costs (but not depreciation or the fair rental value) of piloting his plane in connection with volunteer activities for the Civil Air Patrol. Similarly, a taxpayer, such as Lauren in our example, who participated in a mounted posse that was a civilian reserve unit of the county sheriff’s office, could deduct the cost of maintaining a horse (shoeing and stabling).

    • A taxpayer who buys an asset and uses it while performing volunteer services for a charity can’t deduct its cost if he retains ownership of it. That’s true even if the asset is used exclusively for charitable purposes.

    No charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution with a written acknowledgment from the charitable organization. To verify your contribution:

    • Get written documentation from the charity about the nature of your volunteering activity and the need for related expenses to be paid. For example, if you travel out of town as a volunteer, request a letter from the charity explaining why you’re needed at the out-of-town location.
    • You should submit a statement of expenses if you are paying out of pocket for substantial amounts and, preferably, a copy of the receipts to the charity, then arrange for the charity to acknowledge the amount of the contribution in writing.
    • Maintain detailed records of your out-of-pocket expenses—receipts plus a written record of the time, place, amount, and charitable purpose of the expense.

    For additional details related to expenses incurred as a charity volunteer, please contact Dagley & Co.

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