Get Ready for Taxes: Donations May Cut Tax Bills

WASHINGTON — The Internal Revenue Service reminds taxpayers looking to maximize their tax savings before the end of the year to consider charitable giving. Many taxpayers may already be planning on doing so for #GivingTuesday on Nov. 28. Giving money or goods to a tax-exempt charity before Dec. 31 can usually be deducted on that year’s federal income tax return. Taxpayers are urged to consider the following before donating:

Only Donations to Eligible Organizations are Tax-Deductible.

The IRS Select Check tool on IRS.gov is a searchable online database that lists most eligible charitable organizations. Churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in this database.

Itemize to Claim Charitable Donations

Charitable deductions are not available to individuals who choose the standard deduction. Only taxpayers who itemize using Form 1040 Schedule A can claim deductions for charitable contributions. Tax preparation software usually alerts taxpayers to the tax savings options available if itemized deductions exceed the standard deduction. The IRS.gov website can help you answer the question, “Should I itemize?

Get Proof of Monetary Donations

A bank record or a written statement from the charity is needed to prove the amount and date of any donation of money. Money donations can include various forms apart from cash such as check, electronic funds transfer, credit card and payroll deduction. Taxpayers using payroll deductions should retain a pay stub, a Form W-2 wage statement or other proof showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Donating Property

For donations of clothing and other household items the deduction amount is normally limited to the item’s fair market value. Clothing and household items must be in good or better condition to be tax-deductible. 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 their tax return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed. Special rules apply to cars, boats and other types of property donations. The IRS.gov website has information to help you determine the value of donated property.

Note Any Benefit in Return

Donors who get something in return for their donation may have to reduce their deduction. Benefits can include merchandise, meals, tickets to an event or other goods and services. A donation acknowledgment must state whether the organization provided any goods or services in exchange for the gift along with a description and estimated value of those goods or services.

Older IRA Owners Have a Different Way to Give

IRA owners age 70½ or older can transfer up to $100,000 per year to an eligible charity tax-free. The transfer can count as their required minimum distribution for the year. Funds must be transferred directly by the IRA trustee to the eligible charity. For details, see Publication 590-B.

Good Records

The type of records a taxpayer needs to keep depends on the amount and type of the donation. An additional reporting form is required for many property donations and an appraisal is often required for larger donations of property. Visit IRS.gov for more information.

#GivingTuesday

by Debby Winters

Today, November 28, 2017 is #GivingTuesday and the IRS reminds taxpayers looking to maximize their tax savings before the end of the year to consider charitable giving. Many taxpayers may already be planning to do so for #GivingTuesday. Giving money or goods to a tax-exempt charity before December 31 can usually be deducted on that year’s federal income tax return. 

This #GivingTuesday, IRS has tips to find tax-deductible options

  • Donating to disaster recovery efforts or a local shelter?
  • Want to know the special rules to get a tax deduction from donating cars, boats and other property?
  • Cash or non-cash year-end gifts to charity? What to know for a tax deduction on your IRS return.
  • IRA owners over age 70½ – want to know about a different way to give?
  • Hoping for a tax-deduction for your Giving Tuesday donation? Itemize or eFile your return

Taxpayers can use IRS Select Check tool before Donating on Giving Tuesday

Giving Tuesday is an annual event celebrated the week after Thanksgiving to kick off the season of charitable giving. Taxpayers making donations may be able to deduct them on their tax return. As people are deciding where to make their donations, the IRS has a tool that may help.

Exempt Organizations Select Check on IRS.gov is a tool that allows users to search for charities. It provides information about an organization’s federal tax status and filings.

Here are four facts about EO Select Check:

  • Donors can use it to confirm an organization is tax exempt and eligible to receive tax-deductible charitable contributions.
  • Users can find out if an organization had its tax-exempt status revoked. A common reason for this is that the organization did not file its Form 990 or notices annually as required.
  • EO Select Check does not list certain organizations that may be eligible to receive tax-deductible donations. This includes churches, organizations in a group ruling, and governmental entities.
  • An organization’s “doing business as” name is not searchable. Search using an organization’s legal name instead.

Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions? to help determine if a charitable contribution is deductible.

Five Things to Remember about Hobby Income and Expenses

From scrapbooking to glass blowing, many Americans enjoy hobbies that are also a source of income. A taxpayer must report income on their tax return even if it is made from a hobby.

However, the rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies. Here are five things to consider:

  • Determine if the activity is a business or a hobby. If someone has a business, they operate the business to make a profit. In contrast, people engage in a hobby for sport or recreation, not to make a profit. Taxpayers should consider nine factors when determining whether their activity is a business or a hobby, and base their determination on all the facts and circumstances of their activity. For more about ‘not-for-profit’ rules, see Publication 535, Business Expenses.
  • Allowable hobby deductions. Taxpayers can usually deduct ordinary and necessary hobby expenses within certain limits:
    • Ordinary expense is common and accepted for the activity.
    • Necessary expense is appropriate for the activity.
  • Limits on hobby expenses.  Taxpayers can generally only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.
  • How to deduct hobby expenses.  Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See Publication 535 for the rules about how to claim them on Schedule A, Itemized Deductions.
  • Use IRS Free File.  Hobby rules can be complex, and IRS Free Filecan make filing a tax return easier.

A Little Thanksgiving IP

By Debby Winters

Does your Thanksgiving Day routine involving watching the MACY’S THANKSGIVING DAY PARADE? Ever wondered if Macy’s has trademarked that name? Well, wonder no more. They received trademark protection from the USPTO on December 1, 1998 for entertainment services, namely, organizing and conducting a parade. They claimed first use in 1924. That means there is one and only one MACY’S THANKSGIVING DAY PARADE. And since that is true Macy’s generates millions of dollars for that one day parade. They charge approximately $20,000 per float, and their additional revenue for balloons and exclusive broadcasting rights to the parade and the performances that are given right in front of the store.

This year, however, Macy’s is in decline. The original R.H. Macy & Co. was a dry goods emporium that opened in downtown Manhattan not long before the Civil War. What’s now known as Macy’s was once Federated Department Stores Inc., which had acquired many of the department stores that might sound familiar to people born before 1970 or so: Burdines, Bullock’s, I. Magnin & Co., and Lazarus, to name a few. The company bought Macy’s in 1994 and a decade later took its name and rebranded its other department stores with the Macy’s name, too.

In the middle of last year, Macy’s decided to close 100 of its 730 stores, eliminating 3,900 jobs. (After a disappointing 2016 holiday season, Macy’s said it would cut 6,200 more jobs.) About half of the 70 stores it’s shut down this year are within 10 miles of another Macy’s.

There have been struggles with large department stores, but Macy’s is trying to make a comeback and is dedicated to keeping its MACY’S THANKSGIVING DAY PARADE going and going. If they stop having the parade they will be in danger of losing the trademark, because as we all know, with the Trademark Office it is Use It or Lose It!

Happy Thanksgiving!

Individual Taxpayers: Seven Things to Do When an IRS Letter Arrives

The IRS mails millions of letters to taxpayers every year for many reasons. Here are seven simple suggestions on how individuals can handle a letter or notice from the IRS:

  1. Don’t panic. Simply responding will take care of most IRS letters and notices.
  2. Read the entire letter carefully. Most letters deal with a specific issue and provide specific instructions on what to do.
  3. Compare it with the tax return. If a letter indicates a changed or corrected tax return, the taxpayer should review the information and compare it with their original return.
  4. Only reply if necessary. There is usually no need to reply to a letter unless specifically instructed to do so, or to make a payment.
  5. Respond timely. Taxpayers should respond to a letter with which they do not agree. They should mail a letter explaining why they disagree. They should mail their response to the address listed at the bottom of the letter. The taxpayer should include information and documents for the IRS to consider. The taxpayer should allow at least 30 days for a response.
    When a specific date is listed in the letter, there are two main reasons taxpayers should respond by that date:

      • To minimize additional interest and penalty charges.
      • To preserve appeal rights if the taxpayers doesn’t agree.

  6. Don’t call. For most letters, there is no need to call the IRS or make an appointment at a taxpayer assistance center. If a call seems necessary, the taxpayer can use the phone number in the upper right-hand corner of the letter. They should have a copy of the tax return and letter on hand when calling.
  7. Keep the letter. A taxpayer should keep copies of any IRS letters or notices received with their tax records.

Get Ready for Taxes: Save for Retirement Now, Get a Tax Credit Later; Saver’s Credit Helps Low-, Moderate-Income Workers

The Internal Revenue Service reminds low- and moderate-income workers to plan now to earn a credit on their 2017 tax return. A special tax break can help people with modest incomes save for retirement. It’s called the Saver’s Credit and it could mean up to a 50 percent credit for the first $2,000 a taxpayer contributes to a retirement plan.

Also known as the Retirement Savings Contributions Credit, the Saver’s Credit helps offset part of the amount workers voluntarily contribute to a traditional or Roth IRA, a 401(k) or 403 (b) plan, and similar workplace retirement programs.

Taxpayers with an IRA have until April 17, 2018, (the due date of their 2017 tax return) to contribute to the plan and still have it qualify for 2017. However, contributions (elective deferrals) to an employer-sponsored plan must be made by the end of the year to qualify for the credit. Employees who are unable to set aside money for this year may want to schedule their 2018 contributions soon so their employer can begin withholding in January.

The Saver’s Credit can be claimed by:

    • Married couples filing jointly with incomes up to $62,000 in 2017 or $63,000 in 2018
    • Heads of Household with incomes up to $46,500 in 2017 or $47,250 for 2018
    • Singles and married individuals filing separately with incomes up to $31,000 in 2017 or $31,500 in 2018

To qualify for the credit, a person must be:

    • Age 18 or older
    • Not a full-time student
    • Not claimed as a dependent on another person’s tax return

Like other tax credits, the Saver’s Credit can increase a taxpayer’s refund or reduce the amount of tax owed. Though the maximum Saver’s Credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and may be zero for some taxpayers.

The amount of the credit is based on filing status, income, overall tax liability and the amount contributed to a qualifying retirement plan. It may also be impacted by other credits and deductions or reduced by any recent distributions from a retirement plan.

To claim the Saver’s Credit, taxpayers must complete Form 8880and attach it to their tax return. Form 8880 cannot be used withForm 1040EZ.

In tax year 2015, the most recent year for which complete figures are available, Saver’s Credits totaling nearly $1.4 billion were claimed on more than 8.1 million individual income tax returns.

The Saver’s Credit can also add to other tax benefits available to people who contribute to their retirement; for example, most workers can also deduct contributions to a traditional IRA.