- June 17th, 2013
- John Dillard
- Income Tax Preparation of Corporate & Personal Income Taxes, Virtual CFO, Business/Tax Consulting, Financial Planning, Business Loans & Money Management
The tax recording for and the claiming of itemized deductions on your personal income tax return has been a “hot-bed” of consternation for both taxpayers and the IRS alike. Often one of the deductions that the IRS will evaluate when auditing a return, it is prudent as with all areas of tax law to understand the nuances and to record them appropriately Form 8283: Noncash Charitable Contributions. I believe that much of the confusion that exists is a taxpayers misunderstanding of the law.
Tax Filing Requirements for Contributions
-Scope. Tax law allows you to claim deductions below a certain threshold to claim these items on Schedule A as an itemized expense on your personal return. This threshold is updated and adjusted from time to time by the IRS, but a present this amount is set at $250. If you give property contributions to charities in excess of this amount, then you are required to also complete Form 8283, as an attachment to your personal return. When preparing Form 8283 claiming Non-cash property contributions to charities of over $5000 you are required to have a signed and dated receipt from the charitable organization detailing items that you donated, by item, with the respective value for each item as a part of the tax return. It is not sufficient to have solely a total for the items given.
-Donee Information. Generally the information listed would be the name and address of the organization, a description of the donated property, the date of the contribution, the date the items donated were originally acquired and how (purchased, gift, will, etc.), the taxpayers basis (generally original purchase price), the fair market value of the items donated and the method that us used in determining the valuation of the donated items.
-Valuation. This is perhaps the most misunderstood portion of the law surrounding claiming a deduction for Non-cash/property contributions to charities. If you donate general household items such as clothing, books, appliances, furniture etc. they are required by IRS Rules & Regulations to be valued at what they are presently worth. For example, if you bought a bedroom suit, for which you might have paid many thousands of dollars, its fair market value, if you were to re-sell it would be only a fraction of the original purchase price. Valuations of household items and furnishings, when donated to a charity should be listed at what you would be able to sale an item for at a flea market or at a thrift store. The property contribution claimed on your income tax return should not be the list price at a flea market/thrift store but what you believe the item would actually sell for, which is the best indication of value. This is when a willing buyer and a willing seller agree to a mutually agreed on price; thus fair market value. All individual items over $500 donated are required to have an appraisal to substantiate the deduction. The Valuation Guide for Goodwill Donors as listed on Goodwill Industries on their web site at http://www.goodwill.org/wp-content/uploads/2010/12/Donation_Valuation_Guide.pdf
Appreciated Assets. If you have an appreciating asset, it is often a wise tax-planning tool to consider giving these appreciated assets to the IRS. If you do so, then you are able to legally avoid paying a gain on the sale of the assets. For example, is some years ago you purchased a piece of land for $100,000 and through the years it has appreciated in value bringing its market value to $300,000 you can donate the land to a 501(c)/charitable organization and claim as a tax deduction the full value, or $300,000, on your personal return. Although the actual amount you can receive benefit, as an itemized deduction, is limited to 50% of your AGI/Adjusted Gross Income, you can forward any excess forward to future years, in accordance with IRS tax law. Then if the charitable organization can then in turn, sale the property themselves and use the proceeds as they wish within the confines of their 501(c). This is a great advantage for all, as you are able to claim a tax deduction for the full $300,000, the charitable organization receives the benefit or the proceeds/use of the asset. Also, the taxpayer would be able to legally avoid paying either short or long term capital gains (depending on the term/length of your holding period/how long your owned the asset). For example, if they had held the land for over a year and would be subject to paying capital gains rates of 15% on the sale of the land, if you sold it yourself. Accordingly, you would owe $30,000 on the sale ($300,000 sales price less tax basis in land of $100,000 times the 15% tax rate). If in turn you gave the after tax proceeds to a non-profit you would gain a tax deduction of only $270,000 ($300,000 sales price less the $30,000 of taxes owed).
Tax law, surrounding the claiming of Noncash Charitable Contributions is in a constant state of flux. Being aware of the rules and regulations at the time of a substantive donation is essential to claiming, receiving and assuring the full tax benefit of any items property contributions donated to a charity.
John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry. To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.