With the end of the year right upon us, we must start to think about our tax obligations from 2013, and how we claim our charitable donations can result in significant deductions or heartbreaking penalties. Julian Omidi discusses charitable donation deductions, and the different traps we must try to avoid.
In 1942, heavyweight champion Joe Louis enlisted in the United States Army, and spent a majority of World War II fighting in exhibitions for the war effort. He drew from his own resources for years without ever receiving compensation, all the while making celebrity appearances for the benefit of the United States Armed Forces. All told, he fought in 96 bouts and raised nearly $100,000 for the war effort.
His reward? To be hounded by the IRS for the rest of his life because the money he raised for the war was documented as income, not as a charitable donation.
Yes, charitable donation mistakes can not only render tax deductions moot, they can also be very, very expensive. By all means, give generously to charities, and we certainly hope that the spirit with which the money is given is the spirit of kindness and not solely for the purpose of future tax deductions. But, it is extremely important that the donations are documented and filed properly.
One mistake donors make is continuing to claim donations exactly the same way year after year without ever evaluating new tax laws and regulations. Just because you’ve given stock to charity for the past few decades doesn’t mean that the IRS will continue to view it in the same way forever. For example, many people don’t realize that stock held for under a year is considered a “short term” gain, and the donor isn’t allowed to deduct market value the way he/she would with stock held for more than a year. Also, don’t directly donate securities that are of lower value than the tax cost. According to Justin T. Miller, the better strategy would be to sell the low-value securities, donate that money to charity and report the capitol loss.
Another easily avoidable mistake is failing to get a receipt for your donation, which delineates the value of the donation and anything you might have received in return (donations to the National Public Broadcasting Service in exchange for a DVD set, for example). It is critical to get a written acknowledgement of the donation in a timely manner, with the date of issuance clearly printed. If something was given in exchange for the donation, the value of the gift received must be documented.
Speaking of the value of gifts, if a non-monetary gift was made to a charity – a used car, a painting, etc. – it is important to have the value of the item appraised by an IRS qualified appraiser. If you want to make a donation of clothing, furniture or collectibles and intend to have the value deducted, contact a tax professional before the donation to help you through the process to avoid major legal troubles later on.
Lastly, do not try to make charitable deductions for non-qualified institutions. If you’ve given money to panhandlers on the street throughout the year, you can’t claim it.
 Herman, Tom: Giving to Charity? Watch Out for these Tax Traps 12/15/2013 Wall Street Journal http://online.wsj.com/news/articles/SB10001424052702304644104579192032464972384
Nov 21, 2013 Comments Off
Apr 14, 2014 Comments Off
Dec 13, 2013 Comments Off
Dec 06, 2013 Comments Off
Nov 21, 2013 Comments Off