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Category Archives: DEDUCTIONS
By Stacie Clifford Kitts, CPA
Golly, I am so busy that I haven’t been paying attention to the latest announcements.
I am trying to catch up beginning with this one. Revenue Procedure 2010-24 – update on direct expensing of certain depreciable assets. For those of you who are not CPA’s, accountants, or tax preparers in general, direct expensing means that you can take an immediate deduction for tax purposes the cost of certain assets that you would otherwise need to capitalize and depreciate over a number of years. This is important information in the planning process when you are considering cash flow and income tax requirements.
.. the HIRE Act changes the $125,000 amount and the $500,000 amount to $250,000 and $800,000, respectively, for taxable years beginning in 2010.
Section 201 of the Act also provides that these amounts will not be adjusted for inflation for taxable years beginning in 2010.
A complete copy of the Revenue Procedure is provided below.
Rev. Proc. 2010-24
SECTION 1. PURPOSE
This revenue procedure modifies the inflation adjusted amounts in Rev. Proc. 2009-50, 2009-45 I.R.B. 617, that apply to taxpayers who elect to expense certain
depreciable assets under § 179 of the Internal Revenue Code. This modification reflects statutory changes enacted subsequent to the publication of Rev. Proc. 2009-50.
SECTION 2. BACKGROUND
Prior to the enactment of the Hiring Incentives to Restore Employment Act of 2010, Pub. L. No.111-147, 124 Stat. 71 (2010) (the HIRE Act), § 179(b)(1) prescribed a
$125,000 limitation (the $125,000 amount) on the aggregate cost of § 179 property that could be treated as an expense for taxable years beginning after 2006 and before 2011.
For those same taxable years, § 179(b)(2) provided that the $125,000 amount is reduced by the amount by which the cost of § 179 property placed in service during the
taxable year exceeds $500,000 (the $500,000 amount). Both the $125,000 amount and the $500,000 amount were adjusted for inflation annually under § 179(b)(5). For
taxable years beginning in 2010, section 3.20 of Rev. Proc. 2009-50 provides that the $125,000 amount and the $500,000 amount, adjusted for inflation, are $134,000 and
Section 102 of the Economic Stimulus Act of 2008, Pub. L. No.110-185, 122 Stat. 613 (2008), changed the $125,000 amount and the $500,000 amount to $250,000 and
$800,000, respectively, for taxable years beginning in 2008 and 2009, and also provided that these amounts will not be adjusted for inflation.
Similarly, § 201 of the HIRE Act changes the $125,000 amount and the $500,000 amount to $250,000 and $800,000, respectively, for taxable years beginning in 2010.
Section 201 of the Act also provides that these amounts will not be adjusted for inflation for taxable years beginning in 2010.
SECTION 3. APPLICATION
To reflect the statutory changes made to § 179 by § 201 of the HIRE Act, section 3.20 of Rev. Proc. 2009-50 is modified to read as follows:
.20 Election to Expense Certain Depreciable Assets. For taxable years beginning in 2010, under § 179(b)(1) the aggregate cost of any § 179 property a
taxpayer may elect to treat as an expense cannot exceed $250,000. Under § 179(b)(2), the $250,000 limitation is reduced (but not below zero) by the amount by which the cost
of § 179 property placed in service during the 2010 taxable year exceeds $800,000.
SECTION 4. EFFECT ON OTHER DOCUMENTS
Section 3.20 of Rev. Proc. 2009-50 is modified and superseded.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for taxable years beginning in 2010.
SECTION 6. DRAFTING INFORMATION
The principal author of this revenue procedure is Patrick M. Clinton of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information
regarding this revenue procedure contact Patrick M. Clinton on (202) 622-4930 (not a toll-free call).
Did you pay someone to care for a child, spouse, or dependent last year? If so, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are the top 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses.
- The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
- The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
- You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.
- The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
- Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
- The qualifying person must have lived with you for more than half of 2009. However, see Publication 503, Child and Dependent Care Expenses, regarding exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.
- The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
- For 2009, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
- The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
- If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information, see Publication 926, Household Employer’s Tax Guide.
Beginning with 2009 tax returns, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers, has been eliminated. Form 1040A filers will now use Form 2441, Child and Dependent Care Expenses. For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free forms and publications from IRS.gov or order them by calling 800-TAX-FORM (800-829-3676).
Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. If you have a choice, you can use the method that gives you the lowest tax.
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing.
The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2009, they are:
- $5,700 for Single
- $11,400 for Married Filing Jointly
- $8,350 for Head of Household
- $5,700 for Married Filing Separately
- $11,400 for Qualifying Widow(er)
Some taxpayers have different standard deductions The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for state and local real estate taxes or state or local excise tax on a new vehicle, and whether you have a net disaster loss from a federally declared disaster. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.
Limited itemized deductions Your itemized deductions may be limited if your adjusted gross income is more than $166,800 or $83,400 if you are married filing separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses of personal use and income producing property, gambling losses and investment interest expenses.
Married Filing Separately When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.
Some taxpayers are not eligible for the standard deduction They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.
Forms to use The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. If you qualify for the higher standard deduction for real estate taxes, new motor vehicle taxes, or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.
These forms and instructions may be downloaded from the IRS.gov Web site or ordered by calling 800-TAX-FORM (800-829-3676).
The IRS wants taxpayers who pay state or local real estate taxes but don’t qualify to itemize their tax deductions, to know that they may qualify for an increased standard deduction. This is the last year that the higher standard deduction for real estate taxes is available.
Here are six things you need to know about the higher standard deduction for real estate taxes:
- The additional deduction amount is equal to the amount of real estate taxes paid, or $500 for single filers or $1,000 for joint filers, whichever is less.
- The taxes must be imposed on you.
- You must have paid the taxes during your tax year.
- The taxes must be levied for general public welfare on the assessed value of the real property and charged uniformly on all property under the jurisdiction of the taxing authority. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks and sewer lines. These taxes usually cannot be deducted.
- Real estate taxes paid on foreign or business property do not qualify for the increased standard deduction.
- You must file a Form 1040 or 1040A and attach Schedule L, Standard Deduction for Certain Filers, to claim the increased deduction. When claiming the higher standard deduction for real estate taxes, be sure to check the box on line 40b of Form 1040 or line 24b of Form 1040A.
For more information, see Form 1040 or 1040A Instructions and Schedule L instructions. The forms and instructions can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).
Revenue Procedure 2010-18 provides the depreciation deduction limitations for owners of passenger automobiles first placed in service, and amounts to be included in income by lessees of passenger automobiles first leased, during calendar year 2010. This revenue procedure includes tables detailing these depreciation limitations and lessee inclusion amounts that reflect the automobile price inflation adjustments required by § 280F(d)(7) of the Internal Revenue Code.
Revenue Procedure 2010-18 will be published in Internal Revenue Bulletin 2010-9 on March 1, 2010.
Today I received this question from a reader about flipping houses.
Although I’m in Missouri, there appears to be a great deal of buying of foreclosures and selling at a profit in California. The question I’ve seen asked but not answered is, “Is that a capital gains investment or a business interprise requiring the payment of self-employment tax?”
I am retired at age 65. I have long been interested in real estate and recently purchased a house as an investment/retirement activity at a foreclosure sale. To my surprise, I quickly found a buyer for it this month with a profit of about $15,000. (Our “normal” yearly income from pensions and social security is about $60,000.) I would like to continue buying, repairing and selling 2 or 3 properties a year as a profitable retirement “hobby”, but after learning that there is a risk that the IRS may consider my “flipping” a business activity that includes self-employment taxes, I am reluctant to continue.
Are you aware of any guidance from the IRS to better define this issue. Under what circumstances does the IRS decide an investment becomes a business activity?
Thanks for your input, Larry
Here is my reply
This is a complicated area. If you are engaged in this type of activity, you should hire a qualified tax professional to assist you with your tax questions.
As far as a general discussion, here are some things to consider.
Generally, flipping houses falls under a business with ordinary income aspects that would subject you to self-employment taxes. The houses that are flipped are considered inventory, which would not get capital gains treatment. What you are looking at here is really a facts and circumstances test with regard to the activity.
Whether you pay self-employment taxes is dependent on many factors such as the business entity that you will be operating from. Some entities might require that you get a W2 which will require payroll taxes be withheld. In addition, the business entity will be required to pay the appropriate employer portion of the payroll taxes. Other entities will require you to pay self-employment taxes on your income and still others may allow you to pass-through some of the income without any self-employment or payroll tax issues.
You should be aware that profitable hobbies are subject to income tax where losses from a hobby do not get you a tax deduction.
If you are looking for the rules on the tax treatment of a particular transaction, I encourage you to speak with your tax advisor before you enter into it.
I also found this interesting and helpful article by Kay Bell writen for Bankrate looks like it was picked up by Yahoo. Check it out if you want more information. Tax Consequences of Flipping Real Estate
If you bought a new vehicle in 2009, you may be entitled to a special tax deduction for the sales and excise taxes on your purchase.
Here are eight important facts the Internal Revenue Service wants you to know about this deduction:
- State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
- Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.
- To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.
- Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
- Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.
- This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.
- The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
- Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.
For more information about these rules and other eligibility requirements visit IRS.gov/recovery.
- The American Recovery and Reinvestment Act of 2009: Information Center
As you get ready to prepare your 2009 tax return, the Internal Revenue Service wants to make sure you have all the details about tax law changes that may impact your tax return.
Here are the top five changes that may show up on your 2009 return.
1. The American Recovery and Reinvestment Act
ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation.
2. IRA Deduction Expanded
You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.
3. Standard Deduction Increased for Most Taxpayers
The 2009 basic standard deductions all increased. They are:
- $11,400 for married couples filing a joint return and qualifying widows and widowers
- $5,700 for singles and married individuals filing separate returns
- $8,350 for heads of household
Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.
4. 2009 Standard Mileage Rates
The standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:
- 55 cents per mile
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
- 24 cents per mile
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.
5. Kiddie Tax Change
The amount of taxable investment income a child can have without it being subject to tax at the parent’s rate has increased to $1,900 for 2009.
For more information about these and other changes for tax year 2009, visit IRS.gov.
- FS-2010-4, 2009 Tax Law Changes Provide Saving Opportunities for Nearly Everyone
- The American Recovery and Reinvestment Act of 2009: Information center
- 1040 Central
- Form 1040 instructions (PDF 941K)
IRS YouTube Videos:
- Tax Filing Season 2010 English | Spanish | ASL
- Earned Income Tax Credit English | Spanish | ASL
- Education Credits – Parents English| ASL
- Education Tax Credit-Claim it-Students English | Spanish | ASL
- Energy Tax Credits Claim It English | Spanish | ASL
- Haiti Earthquake Donations English | Spanish | ASL
- Making Work Pay – Claim It English | ASL
- New Homebuyer Credit-Claim It English | Spanish
- New Homebuyer Credit-Military English
- Split Refunds-Savings Bonds English | Spanish
- Unemployment Compensation English | Spanish
- Vehicle Tax Deduction – Claim It English | Spanish | ASL
Washington — The Internal Revenue Service issued guidance that designates the earthquake in Haiti in January 2010 as a qualified disaster for federal tax purposes. The guidance allows recipients of qualified disaster relief payments to exclude those payments from income on their tax returns. Also, the guidance allows employer-sponsored private foundations to assist victims in areas affected by the January 2010 earthquake in Haiti without affecting their tax-exempt status.
Charities usually fall into one of two categories — public charities or private foundations. Under the tax law, a private foundation that is employer-sponsored may make qualified disaster relief payments to employees affected by a qualified disaster. These payments generally include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.
Qualified disasters include Presidentially declared disasters and any other event that the Secretary of the Treasury determines to be catastrophic. The IRS has determined that the earthquake in Haiti that occurred this month is an event of catastrophic nature for purposes of the federal tax law.
The IRS will presume that qualified disaster relief payments made by a private foundation to employees and their family members in areas affected by the earthquake in Haiti to be consistent with the foundation’s charitable purposes.
When you prepare to file your tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here are five important facts the IRS wants you to know about dependents and exemptions before you file your 2009 tax return.
- If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.
- Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.
- If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
- Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
- Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.
For more information on exemptions, dependents and whether or not you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
- IRS Publication 501, Exemptions, Standard Deduction, and Filing Information
WASHINGTON — The Internal Revenue Service today announced the 2010 inflation adjustments to the excise taxes on air transportation.
Excise taxes apply to the domestic segments of taxable air transportation and to the use of international air facilities. The Fiscal Year 2010 Federal Aviation Administration Extension Act, Part II, signed into law on Dec. 16, 2009, extends these excise taxes to air transportation that begins or is paid for no later than March 31, 2010.
These excise taxes are adjusted annually for inflation:
For 2010, the excise tax on the domestic segment of taxable air transportation is $3.70, up from $3.60 in 2009.
The excise tax for 2010 for international flights that begin or end in the United States is unchanged at $16.10.
The tax on use of international air facilities also applies at a reduced rate to departures of interstate flights that begin or end in Alaska or Hawaii. For 2010, the international air facilities tax on these flights is $8.10, up from $8.00 in 2009.
By Stacie Clifford Kitts, CPA
Do you have an employer provided automobile? If so, here are some things to know.
The law provides that the personal use of an employer-provided automobile represents additional compensation to an employee. This compensation is also known as a taxable fringe benefit.
Many employees are surprised to learn that when you use a business vehicle to commute to and from work or for any other personal use, you are generating additional taxable income that will be included on your W2.
No, sorry you did not get an unexpected raise. This portion of our tax code is just another example of how nothing in life is free. Not even an innocent trip to the park, or maybe that parent teacher conference – at least not if you got there in the company car.
Anyway, since this additional income along with the appropriate payroll taxes is determined annually by your employer, it is important that you carefully document your business versus personal use of the vehicle. After all, there is no need to pay more tax than is necessary. At a minimum, you should maintain a daily log that shows the miles you have driven, the business purpose for your trip, and where you were going.
You may also want to discuss the need for additional income tax withholding with your CPA or qualified tax preparer to make sure there are no tax surprises during tax filing time.
Now, the calculation of the income element for your visit to that parent teacher conference or other personal trips can be based on a couple of methods. Your employer may choose any one of the following to calculate your taxable personal use:
Your employer will multiply the total miles you used the vehicle for personal use by the standard mileage rate.
In order to use this method certain requirements must be met. You can check out the details of this method in Publication 15-B Employer’s Tax Guide to Fringe Benefits.
Lease Value Rule
If your employer uses this method, your employer will determine the percentage of personal use by dividing the total miles driven by the amount of personal miles driven. The resulting personal use percentage will then be multiplied by the vehicles “lease value.” The IRS provides the Annual Lease Value table that will be used in this calculation. Additional calculation information can be found at Publication 15-B.
If your employer provides a vehicle for the purposes of commuting such as a commuter vanpool, the taxable benefit is calculated by “multiplying each one-way commute by $1.50.”
One final note for S corporation shareholders who receive a W2 and who have a company vehicle, if at any time during the year you owned more than 2% of the outstanding stock of your S-Corp you are treated like a partner and not an employee in regards to the application of these rules. Check with your CPA or tax preparer for more information.
[Stacie says: this is an IRS reminder about charitable giving. As noted below, only persons who itemize deductions on schedule A are eligible to take a charitable deduction. And – donations made to a qualified organization are deductible in the year donated. Here’s a summary of what you need to remember:
- 1) IRA Owners for this year only (unless extended) if you are 70 1/2 or older you can tansfer tax free up to $100,000 to charity. See below for more information.
2) If you donated clothes or household items, they must be in good or better condition. If the amount is over $500, attach a completed Form 8283 to the return.
3) If you donate cash you need a receipt, a cancelled check, bank confirmation of the donation, or written acknowledgement from the charity for your donation to be deductible. Remember giving cash to the Santa on the corner will not be deductible unless he is associated with a qualified charity and you pay with check or get written acknowledgement from the charity.
4) If you donate a car to charity, remember that the deductible portion is generally limited to the amount the charity gets from the sale of the vehicle. Remember to get a copy of Form 1098-C from the charity.]
WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.
Some of these changes include the following:
Special Charitable Contributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2009, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2009 count for 2009. This is true even if the credit card bill isn’t paid until 2010. Also, checks count for 2009 as long as they are mailed in 2009 and clear, shortly thereafter.
Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2009 Form 1040 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
By Stacie Clifford Kitts, CPA
I just want to go briefly back to one point that was missed during my extensive commentary about the Vanity Tax.
You may have read a couple of posts I have written regarding my disapproval of this tax commonly known as the cosmetic surgery tax which is included in the Patient Protection and Affordable Care Act (HR 3590).
If you want to catch up, here are the links to the previous posts:
You might also recall that Mary O’Keeffe over at Bed buffaloes in your tax code wrote some good responses to my posts and even answered some of the questions posed in my ramblings.
The gist of my angst over this tax issue really arises from my query as to why it is that Cosmetic surgery won the tax lottery.
As I pointed out in previous posts:
The Patient Protection and Affordable Care Act has declared VANITY as the eighth
deadly sin punishable by the imposition of a 5%excise tax.
The bill, which apprises to seek affordable healthcare also imposes an additional tax on those people wishing to improve their appearance or self-esteem via cosmetic
So again, I ask, why did cosmetic surgery win the tax lottery, why not the treatment of acne? After all dermatologists went to medical school too, their education was also subsidized. The answer is clear, because taxing little pimple faced teenagers for their acne treatment would tick people off. It doesn’t matter that this procedure is also elective and even vanity driven. However, people who elect to have cosmetic surgery are perceived as vain, spoiled, overindulged, and sinful.
Mary also ponders on this question and in her post More on taxing cosmetic surgery, subsidies, and tax simplification She makes this observation.
Our existing tax code already makes a distinction between its treatment of
cosmetic surgery (which is not tax-deductible on Schedule A, nor is it eligible
for tax-excluded flexible spending account use) and treatment of acne (which is,
I believe, eligible for both tax breaks.) But you haven’t complained about that
distinction in existing tax law?
Well here is where I complain, thanks for the reminder:
Absent some brilliant legal argument regarding why acne treatments should or should not qualify for a tax deduction let me just put this out there where it belongs.
The distinction Mary mentions that includes acne treatments, as deductible vs. the non-deducibility of elective cosmetic procedures is in my opinion a clear example of the TAX THE OTHER GUY SYNDROME.
Consider this, the reshaping of one’s enormous nose may to have found its way to the tax-deductible pages of some legislation had that “problem” been a common issue for lawmakers. Had their children been unfortunate enough to be saddled with some enormous honker, then we might be talking about THE ENORMOUS NOSE REDUCTION ACT.
Why then can we deduct the cost of acne treatments?
The answer is as plain as the nose on my face, because our lawmakers and their children know the embarrassment and social stigma associated with acne. Acne is a universal and relatable vanity issue. Acne simply represents the “average guy.”
And what does the average guy do, he says, tax the other guy!
So then, what happens?
Well, we get the Patient Protection and Affordable Care Act which shoves its fist between the couch cushions of the OTHER GUY in search of loose change.