Dear Readers —
Quick — What’s the difference between the $30 ham or turkey you received from your thankful (and thoughtful) employer around the holidays last year and the $30 gift certificate you received this year? One’s taxable. The other isn’t.
In general, all employer-provided benefits (including wages) are considered "income." But there’s an exception for some things because they have such a nominal value that accounting for them is more trouble than it’s worth. These so-called "de minimis" benefits are freebies as far as taxes go. Your employer can deduct the cost of providing them, but the value of the benefit doesn’t have to be reported by each individual who receives it. That holiday ham, for instance.
On the other hand, according to an IRS spokesperson, "if your employer gives you cash, a gift certificate, or something that could easily be exchanged for cash" then this will be included in your taxable income.
It boils down to this: if you receive a gift card you can use at the supermarket to buy your own turkey, this amount will be included on your W-2. Your employer will also have to deduct FICA and all the other usual taxes. However, if you receive an actual turkey, this is not considered "income" and there are no tax consequences.
While it’s always nice to be the recipient of a gift, this is also typically the time of year we think of giving to others who are less fortunate. The key is to give wisely. And remember that you only get a tax deduction for your charitable gifts if you itemize. If you file the 1040 EZ or 1040A form, you receive no tax benefit for your generosity.
Time is running out for one type of charitable donation in particular. Starting next year, the rules for deducting the donation of a vehicle (or boat or airplane, if you’re so inclined) will change.
Here’s the difference: Through the end of this year, if you donate your used car to a local shelter for battered women (or other charity) you get a tax deduction for the fair market value of the vehicle. If you would get $4,200 for it in an "arm’s length" (think: objective third-party) transaction, you can deduct this full amount.
Naturally, in case you’re audited, you should keep a record of the car — make, model, years, mileage, etc. Also wouldn’t hurt to have a photo to show its condition.
Starting Jan. 1, the amount you get to deduct depends upon what the charity does with your car. If the charity turns it over to a dealer who auctions the car for $3,600, then that’s all you’re allowed to deduct. By law, the charity has to send you an acknowledgment of this transaction within 30 days.
On the other hand, if the charity keeps the car and either "significantly uses or materially uses" it-such as giving it to a battered woman with three kids, or using it to do other work for the charity itself — then you get to deduct the full market value of the vehicle. Again, you should receive certification within 30 days.
The bottom line is, if you have been thinking about donating a motor vehicle, boat, or airplane to a charity, sooner is better than later in terms of the tax deduction you receive.
And keep in mind, if you donate more than a total of $500 to charities in a single year John Battaglia, Director of the Private Client’s Advisors Group at Deloitte Tax, LLP says you have to file IRS Form 8283 with your income tax return. If the amount is less than $500, you can list your contributions on Schedule A.
If any single item is worth more than $5,000, you need a "qualified appraisal," according to Battaglia. In addition, both you and the appraiser have to fill out and sign Form 8283.
An exception, says Battaglia, is if you’re donating securities such as stocks, bonds, or mutual funds. These don’t need to be appraised because they are priced in the market and it’s easy to verify the value on the date you made the contribution.
A wealth of information about the requirements for taking a charitable deduction can be found on the IRS website: www.irs.gov. A great source for tips about giving wisely is: Guidestar.org. Guidestar acts as a central clearing house of sorts for more than 910,000 non-profit organizations. Since you can only take a tax deduction for a gift to a bona fide charity — a "501(c)(3)" in tax-speak — it makes sense to verify the actual tax status of any group you’re considering for a donation.
Ever wonder how much of your donation goes to the actual "mission" of an organization (e.g. helping people, protecting animals, safeguarding the environment) versus administrative expenses? A quick search at guidestar.com will tell you. (First click on "For Donors" in the left hand margin, then enter the name of the charity you want to information about in the "search" box.)
This time of year, when we’re bombarded by requests from all sorts of charities- with seemingly equal urgent causes-and it’s easy to feel over-whelmed. Should you concentrate on one organization or give a little to each? GuideStar publishes a list of things every donor should consider before writing a check. Step Number One is "Clarify your Values." Knowing and prioritizing the causes you feel most strongly about makes it easier to decide which charities deserve you donation. For more tips, click on "Being a Good Giver Takes More Than Just Heart."
Now here’s something from the bottom of my heart: thank you for being thought-full, engaged, interesting, and intelligent readers! Knowing you’re "out there" makes me smile when I sit down to write this column every week.
All the best,
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