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23 December 2015

virginia beach tax prep givingIt is the Giving Season. That time of year when we open our hearts and our wallets to our families, friends, and communities. A situation brought on by both the holidays and the realization that the tax year is nearly over and we are running out of time to make a tax deductible charitable contribution.

That may sound like I am being cynical, but I am not. There are some very good reasons to wait until this time of year to donate to charity:

  1. I know what the Christmas bills came to and I can balance my books. While I have a ballpark figure of how much I am going to donate in a given year I like to make sure Tade and I didn't overdo it at Christmas before I commit the money. I like the security of knowing the check is going to clear before I send it.
  2. I have a clearer picture of our overall tax situation at the end of the year. With children in college there is some question about who is going on my return and who is filing their own return. Also, as a small business owner my revenue for the year can be a mystery until the very end.I prefer having clarity on my taxsituation before I donate.
  3. Lots of businesses do matching donations this time of year. Always nice to get my favorite charities some extra money by making a donation at a time when someone else will double it.

If you are giving at this time of the year, and I hope you are, make sure you are keeping track of those receipts and thank you letters. Here are the IRS recordkeeping requirements:

  • If you gave a gift of $250 or more you need a letter from the charity stating the amount donated and the value of any benefits you received as a result of your gift. (For example, if you paid $300 to attend a charity dinner you must decrease the amount of your deduction by the value of the meal you received.)
  • Receipts or other written records of the donation (credit card statement, cancelled check) showing the amount donated, the date, and the name of the charity.
  • If you give property in lieu of cash you can deduct the fair market value at the time of the donation. If the property is valued at over $500 you may need to obtain an independent appraisal of the property.

You are not required to include these receipts and other records with your tax return, but you are required to produce them for review if the IRS audits your income tax return.

Donating Appreciated Property

It is often advantageous for taxpayers to donate appreciated property instead of cash. Imagine for a minute that you have some ABC stock worth $2,000. You originally paid $1,000 for the ABC stock, but it has appreciated and is now worth $2,000. You would like to make a $2,000 contribution to your favorite charity. You can donate the stock or you could just give them cash. If you donate the cash you can deduct the $2,000 from your taxes. If you donate the ABC stock you can also deduct the fair market value of the stock - $2,000. However, by donating the stock you also avoid paying the capital gains taxes on the $1,000 of capital gain on the stock when you sell it. For most people the capital gains rate (long term) is 15%. Donating the stock instead of cash saved you an extra $150 in taxes.

It's a great time of year for charitable giving. If you want some assistance figuring out the best way for you to be more effective with your charitable donations, please contact me.

Disclaimer

Information in the Tax Blog is current as of the day it was posted. Tax laws change frequently, and it is likely that as time passes acts of Government will make some of the older blog content out of date.

The information provided is for education purposes only. It is general in nature and may not pertain to the Reader's situation. Every taxpayer's circumstances are unique. Reader's are urged to do some research or talk to a tax professional before acting on any of the information posted in this blog.

Paul D. Allen is a proud member of the National Association of Enrolled Agents, the National Association of Tax Professionals the Financial Planning Association of Hampton Roads, the National Association of Personal Financial Advisors (NAPFA), and The Tidewater Real Estate Investors Group. You can read more about Paul's background here.

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Common Acronyms

ACTC - Additional Child Tax Credit

AGI - Adjusted Gross Income

AMT - Alternative Minimum Tax

APTC - Advanced Premium Tax Credit

AOC - American Opportunity Credit

CTC- Child Tax Credit

EIC - Earned Income Credit

HoH - Head of Household

LLC - Lifetime Learning Credit

MFJ - Married Filing Jointly

MFS - Married Filing Separately

MAGI - Modified Adjusted Gross Income

PIM - Plan of Intended Movement

PTC - Premium Tax Credit

QC - Qualifying Child

QHEE - Qualifying Higher Education Expenses

QR - Qualifying Relative

QW - Qualifying Widow(er)

 

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