Giving to Charity This Holiday Season? Here’s How to Report it on Your Taxes

Reporting Charitable Deductions
Reporting Charitable Deductions

The end of 2014 is just days away, and if you’re like many Americans, you are planning to give to one or more charitable organizations before the new year dawns. Around 34 percent of all charitable giving is done in the last three months of the year and slightly more than half of that is during the month of December. Giving is up substantially this year over 2013, thanks in large part to the continued national economic recovery.

While the desire to help others is the main reason that most people give to charity, they also enjoy the ability to claim a deduction on their tax return. However, many Americans incorrectly report their charitable giving and do not receive the credits they are entitled to.

The biggest mistake, according to the Internal Revenue Service (IRS), is that people don’t verify that they are giving money or goods to a qualified charitable organization. They also make the mistake of assuming that donations made to individuals, political candidates and political organizations are deductible on their tax return. If you try to claim any of these as charitable donations, the IRS will deny your credit.

How to Claim a Charitable Deduction on Your Tax Return

If you plan to deduct your charitable contributions in 2014, you must use Form 1040 and itemize the deductions on a Schedule A. You may donate cash, tangible goods, services or personal property and write it off on your taxes this year. If you are donating a non-cash item, you should use IRS Publication 561 to determine its value.

In the event that you received merchandise in exchange for your donation, the IRS only allows you to deduct the amount of that item that exceeds fair market value. For example, if you donated money to fund a scholarship and the college gave you season tickets to watch its football team, you must deduct the value of those tickets from your charitable donation.

Stocks, bonds, and other deferred financial contributions are typically deducted at fair market value. This is the amount that the item would sell for if a competent buyer purchased it and the seller presented all relevant facts. In effect this means that all used items that you donate, such as cars and clothing, must be in good used condition in order to claim a tax deduction.

Proof of Donations

If the donation you itemized on Schedule A is worth more than $250, you must have written documentation that contains the name of the organization receiving the gift, the amount of the donation, and the date it changed hands. This communication can be in the form of a bank statement, a pay stub showing a payroll deduction, a letter from the receiver, or a printout of a text message or email.

For donations totaling more than $500 for the year, you need to complete IRS Form 8283 for Non-Cash Charitable Contributions and include it with your return. You should also use Section B of this form for non-cash donations worth more than $5,000 and include a professional appraisal when you submit your return. In most cases, the IRS limits the credits you can claim for charitable giving to 50 percent of your taxable income.

IRS Answered Only 61% Of Calls In 2013

IRS Did Not Answer 4 Out Of Every 10 Calls
IRS Did Not Answer 4 Out Of Every 10 Calls

In a recent report by National Taxpayer Advocate Nina Olsen, the IRS was only able to answer 61% of phone calls made by taxpayers to the agency. Just 10 years ago, the IRS was able to address 87% of calls.  The reasons cited were the increasing complexity of tax questions unable to be answered by automated systems as a result of the overall increasing complexity of the tax code.  This coupled with budget cuts to the agency resulted in nearly 4 out of 10 calls being dropped or unable to be addressed.  As a result, the IRS is requesting an immediate increase in funding:

“The I.R.S. has been chronically underfunded for years now, at the same time it has been required to take on more and more work, including administering benefit programs for some of the most challenging populations,” the report says. “Without adequate funding, the I.R.S. will fail at its mission.”

Furthermore, the report goes on to cite bad “tax moral” continuing to build if this trend is not reversed soon, as well as a need for greater protection of taxpayer data to prevent identity theft as well as assisting taxpayers who are victims of identity theft, doing a better job in cases where the I.R.S. inappropriately bars taxpayers from receiving the earned-income tax credit, and more oversight of paid income tax preparers.

Read the the report here.

Volunteer IRS Sites Prepare 50% of Tax Returns Incorrectly

VITA Sites Still Preparing Tax Returns Incorrectly
VITA Sites Still Preparing Tax Returns Incorrectly

In a follow up to a report by the Treasury Inspector General for Tax Administration (TIGTA), free income tax preparation sites have made no significant gains in increasing the accuracy of the tax returns they prepare. The new report states that Volunteer Income Tax Assistance sites (VITA) who prepare income tax returns for low/moderate-income, elderly, disabled and limited-English-proficient taxpayers are still filing approximately 50% of tax returns incorrectly!

Of the 39 tax returns prepared for auditors during the 2013 filing season, 20 of them (or 51 percent) were prepared correctly, while 19 (or 49 percent) were prepared incorrectly. That represents a two-percentage-point increase over the 49 percent accuracy rate for the same number of returns in the 2012 filing season. The 19 incorrect tax returns resulted from incorrect application of the tax law, insufficient requests for information during the intake and interview process, or lack of adherence to quality review requirements.

While this is a small sample of the 3.3 Million tax returns prepared by over 90,000 volunteers across the country, it is still nonetheless troubling that TIGTA continues to find these types of accuracy related problems 2 years later due to “incorrect application of the tax law, insufficient requests for information during the intake and interview process, or lack of adherence to quality review requirements”.  TIGTA recommends–and the IRS agrees–that all volunteer instructors, return preparers, quality reviewers and site coordinators complete intake/interview and quality review training annually.  I am not sure what is more head scratching: that so many returns are being prepared incorrectly, or that these volunteers have receiving little to no training over the past two years since this problem came to light.

The VITA system is supposed to be helping those that are the neediest as a) they cannot afford professional income tax preparation and b) they need their refunds essentially to live.  In theory this is a vital service that needs to continue.  In practice, how do you motivate volunteers to devote more of their time (and possibly money) for training & licensing to put out a better product, yet receive no compensation? Furthermore, it sort of defeats the purpose of “helping” these taxpayers if their return is prepared incorrectly which potentially opens them up to delayed refunds, audits and penalties/interest. The old adage “you get what you pay for’ apparently applies here.

If you have had your return prepared at a VITA site, please let us know about your experience in the comments section below.  Plus, if you’ve had your return prepared in the past 3 years at a VITA site or any other tax establishment, and would like it checked for accuracy, contact an R&G Brenner professional today for a no obligation consultation, and we will review them for FREE!

Source: Accounting Today

Taxpayers: Protect Yourself From Identity Theft

Protect yourself from Identity Theft

Identity theft has become a huge problem for the IRS.  Last year alone, there were nearly 650,000 cases of Identity Theft reported to the IRS.  Some believe the skyrocketing amount of cases are a direct result that the IRS now requires all tax returns to be filed electronically.  The IRS has implemented “digital safeguards” this year to intercept returns which they deem have a high probability of identity theft, and have deployed a task force of 3,000 agents who’s job it is to investigate Identity Theft.  Unfortunately, many taxpayers who are legitimate “early filers” are bound to get caught up in the web of “digital safeguards” and have their much-needed refunds delayed. And while the Task Force the IRS has deployed to investigate cases is good, it’s effectiveness is limited to after identities are already stolen are returns are filed fraudulently; no real relief to the victims. While this influx of electronic data has clearly exposed the IRS safeguards of personal & private electronic data to be lacking, the are certain steps that the taxpayer can take to help secure their sensitive information:

  1. Avoid sending or receiving W2’s, 1099’s or any other personal tax documentation to or from anyone by e-mail.  Encryption offers some defense, but there are still safer ways to communicate your tax data.  REMEMBER: A single W2 or 1099 contains your name, address, social security number/EIN; all the info that any would be thief needs to file a fraudulent return.  An email server can be anywhere in the world and could be susceptible to attack.  Furthermore, the email accounts of the sender and receiver are susceptible to hackers as well especially since it has been shown that password security for the average user is sorely lacking.  The best alternatives are to a) send everything by mail or b) fax your documentation (however many fax services are increasingly turning to “E-Fax” technology whereby faxes are converted to emails…thats why option a) is still the most secure.)
  2. Do not carry your social security card with you, or supply your SS# to anyone over the phone/internet without confirming who they are and why they need it.  This appears to be a “no brainer”, but many taxpayers carry their Social Security numbers in their wallets/bags along with their driver’s licenses and IDs. Again, a lost wallet gives everything a thief needs to steal identities. Beware of online & phone scams as well asking for your SS#’s.  The IRS will NEVER request sensitive private information over the web/phone unsolicited.
  3. Maintain physical safe-guards to protect your private data.  This is as simple as a locking file drawer or cabinet.
  4. Maintain digital safe-guards.  Sometimes it is impossible to keep all your private information only in paper format.  If you keep data on your computer it is important to have in place: a) strong passwords which are changed frequently b) a firewall; never plug a wire directly into your computer from a your broadband modem c) anti-virus software.
  5. Verify your credit report.  This should be done once every 12-18 months.  Anything out of the ordinary like a steep drop in your rating is a good indicator that your identity may have been compromised.
  6. Optional: Obtain Identity Theft Protection.  If you have ever been a victim of identity theft, buying protection is recommended; who knows who still has your information out there?  If you relay or store a lot of personal data via the web, protection may be a good idea as well.  There are many affordable services that would be well worth the cost if you become a victim of Identity Theft just once.

While there is no “magic bullet” to prevent Identity Theft entirely, following the general rules above will limit your exposure. If you’d like more information on how to safeguard yourself and your family from Identity Theft–or have any tax related inquiries–feel free to contact and R&G Brenner professional here, or call us toll free (888) APRIL-15.