UPDATE FROM THE OFFICES OF CAROL McATEE & ASSOCIATES, CPAS, St. Petersburg, Florida

Carol McAtee & Associates, CPAS

                      Charitable Donations and Year-end Tax Planning

With another hopefully happy, healthy and prosperous year for you and yours drawing to an end, and with everyone getting busy with school and holiday obligations, we thought now would be a good time to review the topic of charitable donations, both cash and non-cash, as well as volunteer work and how they fit and should be considered with your year-end tax planning strategies.

Not all charities are qualified charitable organizations. Examples of qualified charities include churches, Boy Scouts, Red Cross, United Way, nonprofit schools and colleges, and government agencies if funds are used solely for public purposes. Some nonqualified organizations are country clubs, civic leagues, social clubs, chamber of commerce or homeowner’s associations.

If you are not sure if any of the organizations you have or are considering contributing to are qualified charities, the IRS website has a complete listing of approved charitable (501(c) (3)) organizations.

Non-cash donations:

Many court cases have been won by the IRS regarding the recordkeeping requirements for the donation of non-cash items. No deduction is allowed for a charitable contribution of clothing or household items unless the clothing or household item is in good used condition or better. The IRS is allowed by regulation to deny a deduction for any contribution of clothing or a household item that has minimal monetary value.

To help substantiate a deduction for the fair market value of used items donated to charity, make a list of the items donated, along with the following information:

• name and address of charity,
• date items were donated to the charity,
• description of each item donated,
• how the property was acquired (purchase, gift, inheritance),
• fair market value of each item at the time they were donated,
• date each donated item was originally purchased or acquired, and
• cost or other basis of each item donated.

If the information on when the items were acquired or the basis of the items is not available then note the reason on your worksheet.

While websites such as the Salvation Army or Goodwill may provide guidance on the fair market value of items donated, their worksheets will not suffice as substantiation in an audit situation. Receiving a blank receipt from a Goodwill drop off center is not sufficient record keeping.  It is recommended that your worksheet be prepared before heading out to the drop off center and have your document signed as proof of the donation. It is also recommended that pictures of large items such as televisions, computers, electronics or furniture be retained as part of your tax records.

If you use a drop off box, such as those found in community centers, which has no attendant a complete record of your donation is still required with the information listed above.

For contributions of noncash items that exceed $5,000, a written appraisal of the item is required to accompany the tax return. This must be performed by a qualified appraiser. The IRS has established the following requirements:

• A Qualified Appraiser has earned a professional designation from a recognized or professional appraiser organization for demonstrated competency in valuing the type of property being appraised, or has met certain minimum education and experience requirements;
• the appraiser regularly prepares appraisals for which he or she is paid;
• the appraiser demonstrates verifiable education and experience in valuing the type of property being appraised; and
• the appraiser has not been prohibited from practicing before the IRS at any time duringthe 3-year period ending on the date of the appraisal.

The appraisal should be completed no more than 60 days prior to the donation or any time after, as long as it is completed before the tax return is due. The cost of the appraisal may be deductible on Schedule A of the Form 1040, under Miscellaneous Deductions which are subject to a 2% threshold.

Cash donations:

The recordkeeping requirements for cash donations depend on the amount of the donation. The documentation for cash donations is critical as this is an area that is regularly audited by the IRS.

The receipt for any donation must be received contemporaneously, meaning it must be obtained from the charity prior to the filing of the income tax return. The courts have consistently supported the IRS disallowance of any deduction for charitable donations that does not have the proper, timely substantiation.

For cash contributions up to $250, one of the following is needed:

1. Bank record with organization’s name, date, and amount of contribution. Bank records may include canceled check, bank statement, or credit card statement.
2. Receipt showing organization’s name, date, and amount of contribution.
3. Payroll deduction record.

For cash contributions in excess of $250, the following is needed:

1. Same as less than $250, plus
2. Written acknowledgement from the charitable organization or payroll deduction record. The acknowledgement must (a) show the date and amount of the contribution, (b) state whether any goods or services other than intangible religious benefits were provided by the charitable organization (including a good faith estimate of the value), and (c) a statement that the only benefit the taxpayer received was an intangible religious benefit, if that was the case.

 
Volunteer work:

Unfortunately, for tax purposes your volunteer time has no value. While your volunteer efforts may be desperately needed by the organization it is not a tax deduction. However, the costs you

incur in your volunteer work may by deductible. Report out-of-pocket expenses as cash contributions. These expenses may include:

• Auto expenses: Deductible out-of-pocket expenses include the cost of using the taxpayer’s auto in providing services for a charitable organization. Deduct the actual cost of gas and oil or the standard mileage rate. Add parking and tolls to amount claimed for either standard mileage rate or actual expenses. The standard mileage rate for charitable deductions is 14¢ per mile for 2015.
• Travel expenses: The cost of travel, such as air, rail, and bus transportation, as well as meals and lodging, are deductible while away from home doing volunteer work if there is no significant element of personal pleasure, recreation, or vacation in the travel. The deduction will not be denied simply because the taxpayer enjoys doing the volunteer work. However, if the taxpayer has only nominal duties for the charity, or if for significant parts of the trip the taxpayer does not have duties to perform, the travel expenses are not deductible.
• Conventions: Travel expenses to attend a convention of a qualified organization are deductible only if the taxpayer is a chosen representative. Expenses to attend a church convention, for example, are not deductible if the taxpayer attends as a member of the church rather than as a chosen representative.
• Uniforms: The cost and upkeep of uniforms not suitable for everyday use are deductible if required to be worn while performing volunteer work.

Donating a vehicle:

The donation of a vehicle to a charitable organization comes with its own set of rules and limitations. The charitable organization must provide Form 1098C, Contributions of Motor

Vehicles, Boats, and Airplanes, which must be attached to your income tax return.

• Written Acknowledgement: Obtain written acknowledgement from the organization, which includes details on the use or disposition of the vehicle by the organization. A copy of the written acknowledgement must be attached to the tax return.

• Deduction Limits: A deduction for used items donated to a charity is generally equal to the fair market value of the item at the time of the donation. In the case of vehicles, the deduction may be less than fair market value under the gross proceeds deduction limit.
1. If the organization sells the donated vehicle without a significant intervening use or material improvement by the donee organization, then the deduction is limited to the gross proceeds received from the sale.
2.  If the organization sells the donated vehicle after significant intervening use or material improvement to the vehicle, the deduction is limited to the fair market value of the vehicle
3. If the organization sells the vehicle at significantly below fair market value, the gross proceeds limitation will not apply if it was a gratuitous transfer to a needy individual in line with the purpose of the charity to provide transportation to the poor.
4. If the organization retains the vehicle for its own charitable purposes, the deduction is limited to the fair market value of the vehicle.

This is a brief overview of the rules involving charitable giving. Contact us if you have any questions regarding donations or documentation needed at tax preparation time.

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.