Wednesday, May 11, 2011

Reduce Your Tax Bill By Accurately Deducting Charitable Gifts

Here in the United States, we are one month past "tax time." It is a dreaded time for us Americans, April 15th. We agonize over it and spend millions, nay billions, of dollars seeking out professional help to file our taxes. As someone who does my own taxes, I keep a folder of the charitable gifts I have given during the year. They result in about a 30% reduction. In other words, for every $100 I give, I am able to deduct about $30 in taxes. I don't give to get that reduction, I give because as the article below says, it is for heartfelt, altruistic reasons. There are certain nonprofits and charities that I am attracted to: those walks, those animals, the charitable activities my friends and family take part in...and that's another whole article on "why people give." But if you do give, you need to be aware of how to "book" that giving come tax time and you need to be aware of it now to get ready for next year. Here, Charity Navigator gives you the guide. Bunnie

Reduce Your Tax Bill By Accurately Deducting Charitable Gifts

People give to charity for many heartfelt, altruistic reasons. But as evident by the surge in online gifts flowing through our site on the last few days of the year (about 10% of annual giving), the tax benefits of giving do impact our decision to support charities. We shouldn’t take issue with donors who are motivated by the tax benefits of giving. In fact, many worthy charities are funded by donors who are able to make larger gifts as a result of the tax deductions they later claim.

But before you prepare your tax return, you should know that the government continues to be concerned with taxpayers inflating the value of their gifts. In recent years, new laws have been passed to curb those who abuse the spirit of such tax breaks. And the IRS continues to scrutinize claims for charitable deductions to make sure taxpayers are entitled to such claims.

To help you maximize the tax benefits of your charitable endeavors and avoid making a false claim, Charity Navigator offers the following tips.

  • Document All Cash Donations
    If you want to claim a charitable deduction for a cash gift, then you must be prepared to verify your claim. In other words, you can no longer deduct the spare change dropped in a charity's collection bucket without the proper documentation. If you are audited, the IRS will only accept one of the following to substantiate a monetary gift: a canceled check, credit card statement, bank statement or a written acknowledgement from the charity (showing the charity's name, the date of the donation and the amount given).

    Donating online at Charity Navigator , through our partnership with Network for Good, helps you fulfill this requirement since all your giving records will be stored in one place enabling you to quickly obtain an annual record of your charitable giving for tax preparation.

  • Monetary Gifts of $250 or more Require Additional Documentation If you contribute $250 or more, then you must prove to the IRS that you (a) made the donation and (b) you didn't receive anything in return for that donation. Therefore you’ll need a receipt from the charity that includes the following information: the charity’s name, the value of your gift, the date you made your donation and a statement verifying that you did not receive any goods or services in return for your gift.

  • Be Careful When Valuing a Donated Vehicle
    Although a new law implemented in 2005 attempted to crack down on taxpayers who were overvaluing donated vehicles, the government reports that many taxpayers still inflate the value of such donations. As a result, the IRS continues to take a close look at such deductions. If you donated a car worth more than $500, then you can only deduct the amount the charity received from the sale of your car. You can use the receipt from the charity to substantiate your claim. Do not attempt to use the fair market value unless one of the following conditions apply: (1) instead of selling the vehicle, the charity keeps and uses it, (2) the charity makes improvements to the car before selling it, (3) your car is sold at a discounted price to a person with a low income, (4) or if the car is worth less than $500.

  • Make Sure Donated Clothing and Household Items Are In Good Condition
    Hopefully, all your donations of clothing and household items last year were in "good used condition or better.” Not only do donations of junk (such as used socks) cost charities a lot of money each year to discard, but the IRS does not permit deductions for such items. The only exception here is for any single clothing or household item worth more than $500. For these items you can claim a deduction, regardless of its condition, so long as you submit a qualified appraisal with your tax return. And speaking of documentation, you’ll want to maintain an itemized receipt from the charity for all gifts less than $500 to substantiate your claims in case of an audit.

Keep in mind that the above rules are predicated on the following conditions.

  • You Itemize
    You must itemize in order to take a charitable deduction. Make sure that if you itemize, your total deductions are greater than the standard deduction. If they're not, stick with the standard deduction.
    • You Donated to a Qualified Charitable Organization
      Just because an organization is exempt from income tax doesn't mean that contributions to the organization are tax deductible. For example, 501(c) (4) organizations, like the Disabled American Veterans or the National Rifle Association of America, are allowed to spend a substantial portion of their revenue on lobbying our government so not every donation to them is tax-deductible. However, all of the organizations rated by Charity Navigator are 501(c) (3) public charities to which all donations are tax deductible.
    • Your Gift Was Made in Time
      If you were among the many donors that gave online on December 31st, then your gift still qualifies for a deduction on your  tax return even though you paid the credit card company in the following year. If you waited until the last minute and paid by check, you gift qualifies so long as the check was mailed on or before December 31.

      There is one new special exception to this rule. Just as Congress did after the South Asian Tsunami and Hurricane Katrina, it passed a special tax exemption to encourage American taxpayers to give generously to Haiti relief efforts. Under this provision, if you made a donation to a qualified charitable organization between January 12 and March 1, 2010, then you have the option of claiming this deduction on your 2009 or 2010 tax return. Keep in mind that you can not claim a deduction for these gifts for both years. Also, the gift must have been a cash donation. This includes donations made by texting, check, credit card or debit card.

      Learn more about the tax implications of charitable giving in the Tips & Resources and FAQ portions of our site.
       Reprinted with the permission of Charity Navigator,, America's leading independent charity evaluator.

    Monday, May 2, 2011

    Protection of Charitable Assets Act: What the New Uniform Law Would Mean for Nonprofits

    We hear a lot in the news media about laws affecting business.  Are existing laws or tax code restricting business?  Encouraging business?  Affecting the ability of business to get the economy growing?  

    According to a 2007 report from Johns Hopkins, nonprofits generate a significant amount of our gross domestic product, or GDP.  "' Private, not-for-profit hospitals, schools, social service agencies, symphonies, environmental groups and many other organizations — accounts on average for 5 percent of the GDP in the countries covered, and exceeds 7 percent in some countries, such as Canada and the United States. By comparison, the utilities industry — including gas, water, and electricity — in these same countries accounts on average for only 2.3 percent of GDP, the construction industry for 5.1 percent, and the financial intermediation industry embracing banks, insurance companies, and financial services firms, for 5.6 percent."  

    For that reason and many others, I find myself becoming weary of lawmakers (many of whom have no idea of what goes into running a nonprofit) formulating regulations that ultimately are harmful to small nonprofits.  

    Here in the U.S. we had a law called Sarbanes-Oxley that was supposed to regulate large business and prevent another mega melt-down like Enron.  But the end result was a series of regulations that none but the largest nonprofits could comply with adequately.

    The IRS has recently begun a crack down on Girl Scout troops, church auxiliaries, garden clubs and a multitude of small nonprofits whose combined assets don't amount to a hill of beans.  

    Now this.

    A proposed new uniform law that seeks to establish reporting requirements for nonprofits with $5,000 or more in assets.  So if you have a couple computers, a copy machine and a few desks, you are now required to file an annual report with the Attorney General of your state?

    Will someone please find out what drugs these regulators are taking?

    This is beyond the pale and has serious consequences for nonprofit entities.  Never mind the amount of money required to enforce such ridiculousness.  

    Thank goodness for the folks at Venable who keep an eye on these things.  Jeff Tenenbaum, Robert Waldman and Alexandra Megaris provide us with a glimpse of what this new law might mean.  Pay special attention and in the meanwhile, I will try to find out how you can weigh in on this knuckle-headed process and report back to you when I do.  Bunnie

    Protection of Charitable Assets Act: What the New Uniform Law Would Mean for Nonprofits

    By Jeffrey S. Tenenbaum, Robert L. Waldman, and Alexandra Megaris 

    Jeff Tenenbaum
    Alexandra Megaris
    Robert Waldman

    The committee tasked with drafting a new uniform law that regulates charities and charitable assets has released the newest version of the proposed law, renamed the Protection of Charitable Assets Act, which is currently under consideration by the drafting committee. If ultimately approved, the uniform act could become law in many states.

    What is a uniform law? The Uniform Law Commission (“ULC”)—the same body that recently drafted and ushered through the Uniform Prudent Management of Institutional Funds Act—is an organization comprised of state commissions on uniform laws from each state, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. Once the ULC determines that a specific area of law should be uniform, it appoints a committee to draft the model legislation. The final uniform law is then submitted to a vote by the entire Commission. Once the ULC approves a proposed Model Act, the states then vote. A majority of the states present, and no less than 20 states, must approve an act before it can be officially adopted as a Uniform or Model Act.

    At that point, a Uniform or Model Act is officially promulgated for consideration by the states. The state legislatures are urged to adopt Uniform Acts exactly as written, to “promote uniformity in the law among the states.” 

    What would the Protection of Charitable Assets Act do? The proposed act would do four main things: 

    (1) define the authority of the state Attorney General over the protection of charitable assets in that state; 

    (2) impose a registration requirement; 

    (3) oblige charities with assets above a minimum amount to file an annual report; and 

    (4) require a charity to notify the state in advance of certain specified “life events.”

    1. Authority of the State Attorney General. The model act authorizes the Attorney General of each state:
    • to enforce the use of charitable assets by a charity for the purposes for which the asset was given;
    • to “act to prevent or remedy” a breach of a legal duty by the charity; and
    • to seek declaratory or injunctive relief to determine that an asset is a charitable asset.
    In addition, the law would give the state Attorney General the power to commence or intervene in an action filed by another party to prevent or obtain damages for a violation of the law. The state Attorneys General would have the ability to initiate investigations and issue administrative subpoenas to charities in order to determine whether charitable assets are being used for the purposes for which the asset was given. While many state Attorneys General already exercise significant regulatory oversight over nonprofit organizations operating in their states, other state Attorneys General take a less active role. The proposed model law, if adopted by the states, would establish uniform standards in this area. 

    2. Registration and Reporting Requirements. The Model Act, as currently drafted, would require each charity that holds or administers charitable assets above $5,000 and that meets one of the following five criteria to register with the state: is organized (e.g., incorporated) under the state’s law, has its principal place of business in the state, holds charitable assets in the state other than assets held for investment purposes, conducts activities in the state, or holds assets that are given for the benefit of a person in the state. The registration provision includes limited exemptions for governmental, political, religious and financial entities and certain individuals holding charitable assets.

    3. Annual Reports. Charities with assets above $5,000 also would be required to file an annual report with the state Attorney General. The report would require basic accounting and financial information and require the charity to attach its IRS filing (e.g., Form 990).

    4. Notice to State Attorney General of Reportable Events. Charities required to register under the proposed statute also would be required to notify the state Attorney General if any of the following events occur:
    • dissolution or termination of the charity;
    • disposition of all or substantially all of its charitable assets;
    • a merger, conversion or domestication; or
    • removal of the charity or of a significant charitable asset from the state.
    This proposed uniform law would impose significant registration and reporting requirements on many charitable organizations across the country, especially on those that operate in multiple states. We will continue to monitor the status of the proposed model statute. A final draft of the statute is expected to be introduced and voted on at the annual meeting of the Uniform Law Commission commissioners in July 2011.

    Mr. Tenenbaum is a partner with Venable and chairs the firm's Nonprofit Organizations Practice Group, as well as its Credit Counseling and Debt Services Industry Practice Group. Mr. Waldman, a tax partner, chairs Venable's Business Division. He also leads Venable's national representation of tax-exempt organizations. Ms. Megaris is an attorney in Venable's Regulatory Practice who works regularly with the firm's nonprofit organization clients. She is resident in Venable's New York office.