Non-cash charitable giving

As the year comes to an end you may find yourself looking in the closet, attic, or garage for items that can be donated and taken as a tax deduction.  Below are a few things you may want to keep in mind when donating household items, cash, and volunteered time.  Donations of other items such as artwork, securities, real estate, etc. have different guidelines.  Please consult your tax advisor with questions.

Who can I donate to?

While giving clothing directly to someone in need would be a quick and efficient way to give, unfortunately it would not qualify as a charitable deduction for tax purposes.  These items must be donated to a qualified charitable organization (QCO) approved by the IRS to operate as such.  You can check if an organization is a QCO at this site.

What can I deduct?

Deductible contributions are those made to a QCO and are intended to be used by said organization towards achieving their core objective.  The organization may choose to use the item for their operations or liquidate the item for cash.  Either way, you should be entitled to a deduction.  Donating an item to a qualified organization knowing someone within the organization is planning to set aside the item for personal use does not qualify as a charitable deduction. 

How much can I deduct?

The amount that can be deducted on a taxpayer's return is equal to the fair market value (FMV) of the item.  If the donation is cash, then it's simple – the FMV is the amount of cash given.  For newly purchased items, the FMV is the amount that was paid.  However, if the items are used, it can be difficult to determine the FMV as there is no fixed formula or method for determining FMV of used household items.  However Goodwill Industries International has published a valuation guide of household items.  Please note: deductions for charitable contributions generally cannot exceed 50% of adjusted gross income (AGI) and in some cases, 20% and 30% limitations may apply.  However, contributions in excess of AGI limits can be carried forward for 5 years.

How about contributions with benefits?

Let's say at donor attends an evening fundraiser for a qualified organization that includes a dinner for a cost of $100 per person.  Since a benefit (dinner) was received from the organization, the amount that can be deducted would be $100 minus the value of the meal.  Organizations usually makes this easy by informing the donor of the amount considered to be deductible for tax purposes.  However, if you receive a small token item for participating in a fundraiser, such as a lapel pin or bumper sticker, the contribution does not have to be reduced. 

Can I deduct the time I spend volunteering?

Even though we all know time is money, the IRS will not allow a deduction for time spent volunteering.  However, a deduction of $0.14 per mile is allowed for miles traveled while volunteering for a charity.

What about out-of-pocket expenses while I'm volunteering?

Certain expense paid in connection with volunteering may be deductible.  The key question to ask yourself is "Can I use this item for other, non-charitable activities?"  For example, if a volunteer is required to wear a specific type of uniform (i.e. nurse's scrubs) and they are not able to use the uniform afterwards, the cost of the uniform can be deducted.  However, if a volunteer purchases a commonly used tool to help with a charitable construction project, they should think twice before deducting the cost of the tool (unless you donate the tool) since it has utility beyond the charitable project.  In addition, expenses such as childcare or meals (if local) while volunteering are also not deductible. 

Again, these are guidelines and should not be interpreted as written advice.  Please consult your tax advisor if you have any questions regarding charitable giving.  For a more in-depth explanation of deducting charitable contributions on your tax return, see the IRS guidance here.

Brad Williamson, CPA

Senior Staff Accountant

The cost of doing business will increase by October 15, 2015

If you haven't recently received a new credit or debit card from your bank, you will.  When you get it, pay attention to the holographic-looking computer chip (called an "EMV" chip - see below) on the face of the card.   U.S. banks are migrating to an embedded chip instead of the traditional magnetic strip to capture and process card-present transactions.   Beginning October 15, 2015, the liability for fraudulent card-present transactions will shift from the issuer of the card (Visa, Mastercard, American Express, etc.) to the business or non-profit organization.

Recent high-profile breaches of credit card data (Target, for example) have compelled credit card companies to seek a more secure method of data transfer.   The industry's answer to this issue is the Europay, MasterCard, and Visa (EMV) chip.  The new  technology requires that the credit card remain in the card reader during the entire transaction to allow interaction with the chip, making it much more difficult to steal consumer data.  The new readers will continue to read magnetic strips to accommodate cards that only have a magnetic strip, and cards with the new chip will also have a magnetic strip to accommodate businesses that have not adopted the new readers.

Businesses will have to weigh the cost of the new hardware, software and implementation with the benefit of fraud liability protection.  Whatever the decision, the cost of processing card-present transactions will increase on or before October 15, 2015.

Daria A. Cruzen, CPA

The Trouble with Children (Part 3 of 3): You can be a student, too!

(This is part 3 of a 3-part series of related blogs. Part 1 discussed child related credits; Part 2 discussed tax on children’s income.)

If you have (or are) a college student you may qualify for a Higher Education Tuition Credit. There are two different credits allowed -- depending on whether the student is in the first four years of college or pursuing additional education beyond four years, such as a Master’s degree. Of course, you may not take both credits for the same student in the same year.

The American Opportunity Tax Credit (AOTC, formerly the Hope credit) is allowed up to $2,500 per year for each eligible student. It is computed as 100% of the first $2,000 of qualified educational expenses, and 25% of the next $2,000. Qualified educational expenses generally include tuition, fees, and course materials, but not room and board, books (unless required for enrollment), student health fees or transportation. Expenses are reduced by any scholarships, grants, or employer provided educational assistance received by the student. A qualifying student can be the taxpayer, spouse, or dependent enrolled at least half-time in a degree program at a college or university. There is a 40% refundable portion of this credit. Note that the credit phases out when a single taxpayer’s adjusted gross income exceeds $80,000 ($160,000 for married filing joint) and is eliminated when AGI reaches $90,000 ($180,000 MFJ). Another important point is that the AOTC may not be taken by married taxpayers filing separate returns.

The Lifetime Learning Credit is allowed up to a maximum of $2,000 per taxpayer per year. It is computed as 20% of the first $10,000 of qualified educational expenses for all eligible students. Qualified expenses are the same as for the AOTC above, except materials and textbooks qualify also if they are required to be purchased from the university. Also like the AOTC, a qualifying student can be the taxpayer, spouse, or dependent, however, there is no requirement for at least half-time enrollment or a degree program. This credit is not refundable, and phases out between $55,000 and $65,000 of AGI for single taxpayers, or $110,000-$130,000 for married filing joint. As with the AOTC, taxpayers who are married filing separate returns cannot take this credit.

One item to consider is that if the student is a dependent child, the child can file a separate return and claim the credit themselves. Higher income taxpayers who would reach the AGI phaseout amounts can waive claiming the child as a dependent, allowing the child to file a separate return and claim the education credit, assuming they have enough tax liability for the credit to offset. The child is not eligible for the refundable portion of the AOTC. The child is also not entitled to claim a personal exemption on their own return.

Another consideration is coordination of these credits with educational savings accounts, such as Coverdell accounts, Qualified Tuition Programs, 529 plans, Series EE bonds, or educational IRAs. Please consult your tax advisor to determine the most favorable tax treatment of any qualified educational expenses.

Melissa Gregg

The Trouble with Children (part 2 of 3): I have to pay tax on what?!

(This is Part 2 of a 3-part series of related blogs. Part 1 discussed various tax credits for children and child care expenses.  Part 3 will discuss the credits available for higher education expenses for college students.)

There are important tax issues to consider if your child has earned income, like from an after school or summer job for example, or investment (unearned) income such as interest and dividends. Generally, if a child has earned income in excess of the standard deduction ($6,300 for 2015), unearned income over $1,050, total income exceeding the larger of $1,050 or the standard deduction for that year, or self-employment income of $400 or more, they must file their own return. If any tax has been withheld from their income, whether earned or unearned, they must file a return to get a refund of the tax withheld.

Tax on a child’s income is computed as for any other taxpayer, with limits on the personal exemption (because they are claimed as a dependent by someone else), and a lower standard deduction. Some children with investment income may be taxed on this income at their parents' highest marginal tax rate. This is known as the “kiddie tax”, and applies if the child is required to file a tax return, does not file a joint return for the year, and has investment income of more than $2,100 (for 2015). The child must also be under 18, under 19 and not provide more than half their support from earned income, or under 24, a full-time student, and not provide more than half their support from earned income.

If a child has only unearned income from interest and dividends, the parent may elect to include the child’s income on the parent’s return to avoid the kiddie tax. The election is made on Form 8814 and the child must meet the following requirements:

• Is required to file a return and would be subject to the kiddie tax
• Only has income from interest and dividends
• Income is more than $1,050 and less than $10,500
• Made no estimated tax payments, including overpayments from the prior year, and
• Is not subject to backup withholding

The parents are then taxed on the child’s income in excess of $2,100, plus an additional tax of $105 if the child’s taxable income is more than $1,050, or 10% of taxable income under $1,050.

In short, if your child has earned or unearned income, you should consult your tax advisor to determine your filing requirements and limitations.  

Melissa Gregg

The Trouble with Children (part 1 of 3): Give me some credit(s)

(This is Part 1 of a 3-part series of related blogs.  See part 2 here.)

The trouble with children is that they grow up too fast. I realized this year that my oldest, who will be 17 this summer, will be ineligible for the Child Tax Credit for 2015! Soon he will be off to college, or work, and I will no longer get to claim a dependency exemption for him either! Luckily I have two other deductions – I mean children – that have several more years before they hit “adulthood”.

In all seriousness, there are tax issues that families with children face as those children grow. As I said above, when a child reaches age 17, they no longer qualify for the Child Tax Credit. When a child turns 19, they are considered an adult, and cannot be claimed as a dependent unless they are a full-time student. A college student age 19-23 can still be claimed as a dependent if they otherwise meet the requirements to be a dependent. Individuals who are separated or divorced must also be careful that only one of them claims a child as a dependent for a given year.

The Child Tax Credit mentioned above is available for qualifying dependent children up to age 17. The credit is $1,000 per child, but is phased out as a taxpayer’s adjusted gross income increases. The credit is generally non-refundable , but there is a refundable portion of the credit, called the additional Child Tax Credit, through December 31, 2017. You may want to consult a tax advisor for more information, since the tax code is too complex to explain in a short blog post.

Another issue to consider is the Child & Dependent Care Credit. This non-refundable credit is allowed for only a portion of qualifying childcare expenses paid to allow both the taxpayer and the taxpayer’s spouse to work. Generally, a taxpayer must have earned income and employment-related dependent care expenses, and the child must be a qualifying dependent under age 13. The maximum amount of expenses allowed for the credit is $3,000 per child, up to $6,000 total. Any employer-provided dependent care assistance is subtracted from this amount. The credit amount ranges from 20% to 35% of the net expenses, depending on the taxpayer’s adjusted gross income. Qualifying expenses include payments made to a care provider inside or outside the home, even if it’s a relative (like your mom or sister). This does not include your 18 year old child watching your 5 year old after school, since they are both your dependents. Qualifying expenses do include summer day camps, but not summer school or tutoring programs. Also remember that the credit is for expenses paid so that the taxpayers can work – it generally doesn’t apply if one parent is a stay-at-home mom or dad. As with everything there are exceptions, so be sure to consult your tax advisor to see if you qualify.

Part 2 will explore the requirements for filing if your child has earned and/or unearned income, so stay tuned.

Melissa Gregg

Business writing tips

Whether writing a newsletter or a business proposal, your writing says a lot about your professionalism.  In this day and age of email and texting short hand, proper grammar can set you above all others.  Proofreading important documents can help ensure that current or potential customers will see past words and punctuation and hear your message.  Here are a few proofreading and grammar tips:

1. Spelling – proofread by reading the words in reverse order.  In doing this, your mind doesn’t fill in the gaps of the words; it sees individual words instead of complete thoughts.  This helps to catch spelling errors.
2. Pause – after proofreading a document, set it down and come back to it after a break.  Taking a fresh look at your writing will give you a chance to see things that were overlooked in the heat of the writing.
3. Homonyms and the like:
1. “their” means someone owns something; “they’re” means they are; and “there” refers to directionality
2. “two” is a number; “too” means also; “to” is a preposition usually leading up to a clarification of something
3. “sale” is when something is for sale, or having a sale; “sell” is when you are trying to sell something;  and “sailing” is a leisure sport (unless you’re off the coast of Africa)
4. “your” is another ownership reference; “you’re” means you are
4. Commas and decimals – always double check commas and decimal places in numbers.  As a seller, you would be none too pleased to realize you proposed to sell something for $100.000 instead of $100,000.  While you might be covered legally, professionalism is key.
5. Extra eyes – when in doubt, have someone else proofread your document.  When you are deep into the idea you are trying to express, writing errors can be easily overlooked.  Having someone else look over your writing can catch errors that you are too involved to notice.

Proposals and newsletters can fall flat for any number of reasons.  Don’t let proofreading be one of them.

John Robert Voynich, CPA

Fake IRS telephone call - don't fall for it!

We've seen fake IRS emails for the past few years and have advised how to avoid being victimized by them.  Earlier this year, Brad Williamson posted an entry on this blog that warned of various IRS-related scams.  His post is a really good read and contains a link to a page from the IRS Web site containing information on various types of scams and how to avoid them.

Receiving an e-mail or a call that purports to be from the IRS can be unnerving.  As the individual tax filing deadline approaches and many are rushing to get taxes filed (or extended), the "bad guys" appear to be increasing their efforts to catch you at a vulnerable moment -- perhaps thinking that you won't take the time to check out their story and will just pay up.  We've had reports just this past week of people receiving telephone calls claiming to be from the IRS.  Don't fall for it!

Here is a page on the IRS Web site from last year about these telephone call scams.  It offers a few simple things you can do to make sure that the call is legitimate (TIP: it probably isn't).  Here's an excerpt:

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

It seems that there is no end to people trying to get your info (and ultimately your money).  We think it's best if you keep it for yourself!  Oh, and don't forget about the April 15th tax filing deadline!

Craig Rhinehart

Want a raise?

Asking for a raise is usually not easy, and is sometimes counterproductive.  Think about cutting expenses instead.  If you can resist spending money during the month you have effectively given yourself a raise.  Depending on how much of a raise you want and how hard you are willing to work for it, you can find expenses to forego that will provide you that raise.  

For example, let’s consider aiming for a $1,200 raise.  How much of your cable TV subscription do you really utilize?  If you have an $80 package, could you cut it back to the basic cable $30 package?  A gym membership for $20 per month is not much, but do you actually make use of your membership?  Going out to eat one less time per month could easily save another $30 (at least).  Add these together and you have saved $100 per month -- effectively giving yourself a $1,200 raise per year.  

Looking for more ways to give yourself a raise, here are 40 ways to reduce your monthly spending.

John Robert Voynich, CPA

Are you saving (enough) for retirement?

A recent study shows less than 60% of U.S. workers are saving for retirement. However, the better question may be are you saving enough for retirement? The majority of individuals actually saving have accumulated $25,000 or less. That's not enough for retirement!  This is a problem that has been growing since the shift from company pension plans to employee contribution plans (such as a 401k).

At a minimum, be sure to maximize any matching contributions from your employer. Read more here: The Retirement Savings Crisis

Matt Sellers, CPA

IRS scams: An old movie with new characters

According to the IRS, people are reporting that they received e-mails or calls from IRS agents saying they owed taxes and needed to pay immediately or face hefty consequences including arrest, deportation, or suspension of various licenses.  Others were informed that they had an overdue refund and needed to provide personal information in order to receive it.  Those that simply don’t answer the telephone call are left with an urgent message to call the "agent" back.  At its core, this scam is no different than the emails or calls that request your credit card information or bank account numbers so that you can receive a huge inheritance from that long lost uncle you never met. 

You should know that, according to the IRS website (see link below), an agent will never:

1)  call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill;

2)  demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe;

3)  require you to use a specific payment method for your taxes, such as a prepaid debit card;

4)  ask for credit or debit card numbers over the phone; or

5)  threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

6)  initiate contact via email.

You can visit this IRS.gov page for more information on tax scams and consumer alerts.

Bradley S. Williamson

Retirement plan check-up

Monitoring your employees’ retirement plan is an important fiduciary responsibility.  Year end is a good time to give your retirement plan a check up.  The following FAQ’s may help:

  

A)   Does the plan have a fidelity bond?  Has it been updated for the required coverage?

Each plan must have a fidelity bond, which is different than fiduciary liability insurance.   Coverage must be based on the plan’s net assets as of the beginning of the year, with limits ranging from $1,000 to $500,000 per plan official.

B)   Has the plan complied with the IRS rules and regulations -- for example: updating the plan document for recent law changes and timely depositing employee elective deferrals? 

The IRS provides a checklistfor 401(K) Plans and also one for 403(b) Plans.  These checklists guide employers through common compliance issues.  The IRS also provides “fix-it guides” for correcting common compliance deficiencies.

C)   Does the plan have an audit requirement?

Plans with more than 100 eligible participants as of the beginning of the plan year generally require an audit.

D)  Is the plan required to file a Form 5500?

Plans must generally file a Form 5500—Annual Return/Report of Employee Benefit Plan, with limited exceptions.

E)   Have participants of the plan who are age 70-½ or older been notified regarding the minimum distribution requirement and amount. 

Required minimum distributions (RMD) are generally due by December 31, for those participants who are 70-½ or older.  The plan administrator or the trustee is generally responsible for notifying the participant of the RMD requirement and amount. 

F)   Has the plan administrator received all fee and expense disclosures from contracted service providers (CSP)? 

CSPs are required to disclose in writing the dollar amount of fees received from the plan or the schedule or formula used to determine the fee payment amounts.  The CSP must notify the plan sponsor in writing within 60 days of any changes in the plan fees.

G)  Have the participants been notified of the fees and expenses paid during the year?

The plan sponsor is required annually to provide all participants with written details about investment fees, plan fees, and other fee information.

The above information is general in nature.  Contact your CPA if you need more assistance with your retirement plan check-up.  

Daria Cruzen, CPA, MBA

Manager—Audit Department