taxgirl » charitable organizations

IRS Awards Funds: Guess Who Gets Nothing?

Kelly — Thu, 12 Nov 2009 17:11:23 +0000

The IRS announced that it has awarded nearly $8 million in matching grants to support its Volunteer Income Tax Assistance (VITA) program. The funds will be divided between 147 organizations in all 50 states and the District of Columbia.

Richard Byrd, Jr., the Commissioner for the IRS Wage and Investment Operating Division, said of the distributions, “We’re proud to support the VITA program and their volunteer tax preparers who provide an invaluable service to millions of taxpayers.”

VITA, which was created in 1969, is a volunteer program which aids low and moderate income taxpayers. Generally, this means individuals and families with adjusted gross incomes of $49,000 or lower. In 2009, more than 3 million tax returns were prepared at nearly 12,000 locations through VITA and the Tax Counseling for the Elderly programs.

You can see a list of organizations which received funds, including the amounts, here (downloads as a pdf).

Notably absent on the list?

Yep, ACORN. No surprise here.Similar Posts:

Ask the taxgirl: Donating an Engagement Ring

Kelly — Wed, 28 Oct 2009 20:17:02 +0000

Taxpayer asks:

Hi Tax Girl!
I got rid of the husband and now I would love to get rid of the engagement ring. I have thought about donating it to a non-profit animal rescue group for them to auction at one of their charity events. What kind of deduction will I be able to claim and is there any kind of red tape I will have to go through to be able to do this?
Thanks!

Taxgirl says:

Well, good for you!

A couple of things…

The first is that you should check with the non-profit first to make sure that they can use your ring in their auction. Generally, to claim the full charitable deduction, the charitable organization must be able to use (or quickly liquidate) the item. So, you can’t, for example, deduct stock in a closely held corp that’s impossible to redeem or a year’s supplies of steaks to PETA. So, step one: make sure that the charity can use it and will acknowledge the donation.

Step two: get an appraisal. Check out my prior post which references appraisals and fees. Keep in mind that the appraisal should describe the style of the jewelry, the cut and setting of the gem, and whether it’s considerable fashionable. If it’s not in fashion, the appraisal should reference any change in value if the ring is recut or reset.

If the ring is valued at over $5,000, special rules apply (check out Section B of form 8283 which will download as a pdf, if that’s the case).

That said, unlike the wedding dress mentioned in my prior post, jewelry is not considered a “household item.” It’s actually considered a capital gain item and the rules can be a little complicated here since the item is to be sold by the charity. Depending on the length of time you’ve held the ring and its value, there may be some restrictions which apply. For example, which respect to property held for less than one year, the IRS only allows you to claim the purchase price. So, be careful.

The bottom line is that this one can be a little bit tricky depending upon the value of the ring, the appreciation (if any) from the purchase price and the length of time you’ve held the ring. I absolutely recommend checking with a tax pro for the specifics (remember that the cost of the tax pro’s services is also deductible).

Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.

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Ask the taxgirl: Wedding Dress Donations

Kelly — Wed, 28 Oct 2009 18:13:15 +0000

Taxpayer asks:

Hi Taxgirl,

Like many women this year, I got married and now I would like to donate my dress to charity. What do I need to do for tax purposes? I paid 1000 for it new and only wore it once. It is in good condition. Do I need it appraised? I still have the receipts. If I send it to a charity, can I deduct the mailing cost? And can I deduct the cost of drycleaning it before I send it to the charity? Also, the charity resells the dresses at an auction/fundraiser and charges a $40 “processing” fee to help cover their expenses. Is this deductible?

Thanks for answering this question, I bet a lot of brides will appreciate your answer!

The new Mrs’s

Taxgirl says:

What a great idea!

Generally, you can deduct the fair market value of property donated to a qualified charitable organization. When it comes to clothing, the clothing must be in good used condition or better – it sounds like your dress is nearly perfect.

Usually, the fair market value of used clothing is considerably less than the original price. Usually, you’ll opt for the “thrift store” value of the clothing – what you’d pay for the same item in a thrift store or on consignment.

In this case, however, you will need a written acknowledgment from the charity and, quite possibly, an appraisal. I’m not sure what the value of the dress would be, but assuming that it’s over $500, you’ll want a written determination of the value of the dress (an appraisal will do).

You can’t deduct the cost of dry cleaning the dress but I will say that I’d do that prior to an appraisal. The better an item looks, the higher it’s likely going to be valued. I’ve found this to be true with respect to a lot of artwork. Once cleaned or repaired, the value went up substantially.

Unfortunately, the fees for the appraisal are not deductible as a charitable contribution. But you can claim them as a miscellaneous itemized deduction on Schedule A; they will be subject to the 2% rule.

I think there *might* be an argument on the postage front as an out-of-pocket expense but, personally, it’s not an argument that I’d love to make considering the relatively small benefit. Out-of-pocket expenses as charitable deductions are generally associated with volunteer time (when you can’t take a deduction for the time) or when you incur fees for the convenience of the charitable organization (i.e. you buy postage on your own dime for mailers). In this instance, technically the postage is for your convenience. I’d ask your tax pro for their opinion but if it were me, I’d be inclined to say no to this one.

With respect to the “processing fee”, I think it depends on the description and exact purpose of the fee. I’d check with the charity directly for that one.

I think it’s wonderful that you’re going to do something charitable with your dress rather than stuff it into a closet. Good luck!

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Comment for the Cure

Kelly — Mon, 19 Oct 2009 10:34:16 +0000

It’s October, which means that it’s Breast Cancer Awareness month. Last year, on the blog, I promised to donate a dollar for every unique comment on my cancer post.

This year, I’m doing it again.

I saw, on twitter, and elsewhere criticisms of similar campaigns, asking why it’s necessary to ask for comments: why not just donate?

To be clear, I do donate. I give my dollars and my time to the work of various cancer and breast cancer organizations. In fact, I’m running again in May, as Team Captain, for Komen’s Race for the Cure in honor of my grandmother (you can make a tax deductible contribution here).

This is a cause that I am passionate about. And I do *get* the criticisms about making it a spectacle. But here’s why I do it: I want to make a spectacle. I want to cause a commotion. I want you to think about cancer.

Last year, I was particularly struck by this an article written by Karen Heller of the Inquirer, critical of the whole Pink for October campaign. I wrote her a letter in response, which I’m posting here (edited for brevity):

I read your column each week and often agree with your observations about children, commercialism and culture. However, this week, I feel compelled to write to you because I think you missed the mark in your article on breast cancer.

My grandmother died of breast cancer. You’re right in saying that it is not a pretty disease. My grandmother’s cancer spread to her lungs. I watched her die. Literally. My mother and I were with my grandmother in her house when she took her last breath. It was a horrible, terrible way to die.

…

You are not the first person that I have heard criticize the "pinking" of October. I’ve heard it a lot, and I respectfully disagree. Is it commercial? Of course it is. This is, after all, America, and if a capitalist can find a way to make a buck no matter what the occasion, he or she will. It has become "cool" to wear Lance Armstrong Foundation bracelets and AIDS ribbons. At the end of the day, does that take away from the good that it does? I don’t think so. …I don’t think that you can be too aware. And, despite your statements in your column, I do think it promotes awareness.

Every time that I see my pink ribbon, I think about my grandmother… And then I think about the fact that more than 200,000 women will be diagnosed with breast cancer this year alone. They are grandmothers, mothers, sisters, daughters, family friends… As a woman and as a mother of three children, how can I not promote awareness of a detectable, and often curable, disease that affects women in such huge numbers?

So, at the end of the day, while I agree with you that there’s a whole lot of pink going on, I don’t think that’s a bad thing. Awareness might mean that one more woman gets a mammogram, or asks the doctor what that lump is. And it might save a life. Isn’t that worth a little pink now and again?

With that in mind, here’s my little bit of pink on the blog today. Like last year, for October, in honor of my grandmother, I’m making a donation to Susan G. Komen For the Cure. I’ll donate $1 for every unique comment (meaning, not spam) on this post. You can just say hi, ask me a tax question, chat about tax policy or leave the name of someone close to you that was diagnosed with breast cancer – heck, you can even tell me how much you love the Phillies! (Actually, after the game last night, you can especially tell me how much you love the Phillies!)

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Accountants Sue Charity for Firing

Kelly — Sun, 18 Oct 2009 13:10:54 +0000

Stephanie Dean and Stefani Hovarter (yeah, I know!) have filed a lawsuit against Feed The Children for wrongful dismissal. Dean and Hovarter claim that they were fired after pointing out to the charity that more than $1 million was owed to the State of Oklahoma.

The tax allegedly owed is in the form of use tax. Use taxes are roughly the equivalent of sales tax and are owed when sales tax is not paid. Dean and Hovarter noticed the discrepancy for the time period January 1, 2002 to June 30, 2009, and alerted officials at the charity. They also advised that there may be similar amounts due in other states. The pair then alleged that Christy Tharp, CFO for Feed the Children, was aware of the problem and chose not to report it, instead hoping that the statute of limitations would run.

On September 17, the accountants notified the Tax Commission of the discrepancy. After the disclosures, Dean and Hovarter were fired on September 29. They filed suit 2 weeks later, seeking lost wages, emotional distress and punitive damages.

Feed The Children has not offered any comment.

My two cents on the suit? Unless there’s a written contract that says otherwise (and I don’t know that there isn’t), Dean and Hovarter may be out of luck. In the US, for the most part, employment laws are favorable to employers. Most employees are considered “at will” which means I can fire my employees for wearing yellow to work if I wanted. However, there’s one big exception that might apply: if their actions fall under one of the whistleblower statutes, there might be some additional protection. I have not seen the actual text of the lawsuit, so I’m not sure if they’re playing that card or not… I’ll let you know when I find out.Similar Posts:

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Ask the taxgirl: Reporting Dicey Income

Kelly — Fri, 09 Oct 2009 19:04:43 +0000

Taxpayer asks:

I have a difficult situation. I won a lot of money in my church’s 50/50. I know I have to report it as income but when I asked for written information from my church, they asked me not to report it. They say they aren’t legally allowed to run a 50/50 and if I report it, I’ll get them in trouble and they could have to close. I don’t want to get anyone in trouble but I don’t want to cheat on my taxes. What do I do?

Taxgirl says:

You’re absolutely right that you need to report the income. So good on you.

As to the church, this kind of thing happens all of the time. Many organizations are barred by state law from conducting “games of chance” and other random lottery type fundraisers. And the 50/50 is just that: everyone pays into a pot and a random winner takes 50% and the church or other organization takes the remainder. It’s a win-win for the church or other organization because it requires no upfront cash, no real efforts beyond promotion. There’s just that little detail of whether it’s allowable…

The good news in your case is that you don’t have to have a form from the church in order to report the income. Just report it on Line 21 as other income. The IRS asks you to describe the type and amount – it doesn’t actually require you to name the source.

All of that said, it’s not beyond the realm of possibility that you could be asked, at audit, to provide the source of the funds. In that event, do it. The church is clearly aware that what they’re doing is wrong and they’ve made the decision to do it anyway. That’s not on you, it’s on them: any of the fall out resulting from the 50/50 is the result of their calculated risk. And so long as it’s working for them, they’ve decided to keep doing it. Again, not your problem.

So go, enjoy your winnings. Don’t waste another moment worrying about it.

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Ask the taxgirl: Pastors and Deductions

Kelly — Tue, 06 Oct 2009 12:21:00 +0000

Taxpayer asks:

I read this article today and it seemed very aggressive, bordering on overly aggressive. Can you comment?

http://www.startchurch.com/blog/view/name/can-pastors-deduct-tithes-as-business-expenses

The tithe situation here just seems too good to be true. Next, my understanding that pastors are considered self-employed only for purposes related to the SE tax, not for deducting expenses. Therefore the home office must be for the employer’s convenience, not the employees. Can a pastor with a church office make a case for his home office being at his employer’s convenience?

Taxgirl says:

My readers send me a number of links and I am often asked to comment on posts like the one in your question. I tend not to post links publicly if there’s not value in them – especially if I’m being baited or if I feel like my response would just be critical.

But this is a pretty interesting question and I get the feeling that you’re actually looking for an answer and not just a critique. So I’m going to oblige.

The long and short of it is that I agree with many of your points. The IRS does assign a kind of “dual” status for ministers (and in fact all clergy but I’m going to refer to ministers in this post) but it’s not as easy-breezy as the author implies. Ministers may be considered self-employed for the purposes of FICA but that doesn’t confer special treatment by allowing them to otherwise classify their relationship with the church. If a minister receives wages from the church and has established an employee-employer relationship, the IRS will expect that expenses and benefits be reported as such. This means that business and professional expenses would be deducted on Schedule A, not Schedule C. Those expenses are subject to the normal reporting requirements.

A minister who clearly has independent status (such as a traveling minister who serves many churches) or who also performs “a la carte” independent services (such as officiating at weddings not connected with his ministerial duties at the church) may receive one or more forms 1099 and may file a Schedule C. But otherwise, wages are reported on a form W-2 and the regular rules apply.

So now let’s get to the tithe as a business expense. On its face, I would agree that a tithe could meet the criteria as “ordinary and necessary.” It is, in fact, common and accepted in many religions to tithe. And by qualifying it in a contract, it could be viewed as helpful and appropriate for your trade or business. But it would not qualify as a business expense reportable on Schedule C for ministers classed as employees.

Quite frankly, even if it did qualify, I think it’s a case of the tax tail wagging the dog. No matter how you characterize, it’s still a 10% cut in salary if you’re required by contract to pay it out to the church. A SE savings doesn’t make up for a required outlay as a condition of employment. Is it worth it to tie yourself to a condition of employment? Not to mention the whole lack of warm fuzzies I get at the idea that my pastor would be required to give money back to the church. Is that just a case of robbing Peter to pay… Peter?

However, believe it or not, creating an employment contract that requires you to turn over a portion of your salary to a charitable organization could actually qualify the tithe as a charitable donation. Even though there’s clearly an expectation of something in return (in this case, a job) the IRS has specifically addressed this very situation and determined that it may be allowable. It’s also worth noting that while there’s an upper limit to the amount of charitable deductions that you can take, there is no threshold to meet as with unreimbursed employee expenses.

With respect to the home office, I agree with your comments about the commute. To qualify for the home office deduction, the home office must be:

regularly and exclusively used for business activity; and
your principal place of business.

I think it’s a tough argument to make for many ministers that a home office qualifies as the “principal” place of business. Generally, a church is the place where most of the work takes place.

Additionally, a home office is, as you correctly point out, for the convenience of the employer, not the employee. I know of few churches which do not have suitable space available for ministers. If the space is available, the employee may not opt to work from home (as a choice) and claim a home office deduction. This isn’t restricted to churches – that’s the rule.

You can’t deduct the cost of commuting to your place of work. If your home office is for your convenience – and not for the convenience of the church – traveling to the church would be considered a commute and therefore wouldn’t qualify as a business expense.

And again, the restrictions relating to home office and commuting are for the minister as an employee, not as an independent contractor. You can’t act as though you’re an independent contractor when you’re an employee, minister or not.

If you’re interested in finding out more, check out Weber v. Commissioner, 103 T.C. 378 (1994), aff’d 60 F.3d 1104 (4th Cir. 1995). This is more or less the case as far as the IRS is concerned on the tax treatment of ministers. In that case, which the IRS won, a Methodist minister claimed to be self-employed for the purpose of income tax and Social Security. The case, which was upheld on appeal, found that the employee test for income tax purposes is the same for ministers as regular folks, regardless of Social Security status.

I hope that clears up any confusion. Thanks for writing in!

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IRS Cuts Ties with ACORN

Kelly — Thu, 24 Sep 2009 11:52:21 +0000

The IRS announced on Wednesday that it is cutting ties with ACORN after disastrous video footage was released showing ACORN workers offering inappropriate and flawed tax advice. The IRS will no longer include ACORN in its VITA (volunteer income tax assistance) program:

“The IRS has partnered with hundreds of community and volunteer organizations, including ACORN, to provide free tax assistance to low- and moderate-income Americans. It is absolutely critical that taxpayers have trust in our Volunteer Income Tax Assistance program partners. In light of recent events, the IRS has decided to terminate its relationship with ACORN.”

For its part, ACORN had also (wisely) decided not to continue its tax program. The group’s president, Bertha Lewis, claims that a letter advising of this fact was mailed to the IRS on Monday.Similar Posts:

ACORN Loses Federal Funding

Kelly — Fri, 18 Sep 2009 02:26:09 +0000

Just days after offering some “interesting” tax advice on film, ACORN was hit with a House bill that would deny federal funds to the group. Rep. Eric Cantor (R-VA) explained:

ACORN has violated serious federal laws, and today the House voted to ensure that taxpayer dollars would no longer be used to fund this corrupt organization.

The group touts itself as an advocate for low- and moderate-income people on fair wage, education and housing issues.

Earlier in the week, the Senate voted to block HUD funding to the group as part of an amendment to a larger bill. However, at least one Senator took issue with the vote: Sen. Dianne Feinstein (D-CA) felt that the vote was merely ceremonial since the attached bill didn’t include any funding for ACORN in the first place. She said, “All of this is really, I guess, to show people.”

Sen. Feinstein was clearly in the minority with respect to opposing the bill. Both her colleagues in the Senate and those in the House voted overwhelmingly in support of withholding ACORN funding.

Of course, don’t expect the ban to take effect immediately. The bills are not retroactive and would apply to future funding, likely beginning in 2010. The funding could be significant: over the last 15 years, the group has received an estimated $53 million in federal aid.

ACORN’s chief executive officer, Bertha Lewis, noted that ACORN primarily relies on funding from private, not government sources, and indicated that the organization would continue to operate. Despite such optimism, concessions, including reduced hiring, are expected. And ACORN’s woes may not stop there – the FBI has made noise that it may be considering an investigation after the “tax tape” was made public.

I tried to see what kind of response ACORN would offer to the public but their web site was down for the evening (despite repeated attempts to access it). Funding woes already?Similar Posts:

Ask the taxgirl: School Fundraisers

Kelly — Thu, 17 Sep 2009 21:02:12 +0000

Taxpayer asks:

Two weeks into the school season and my son has already brought home his first fundraising catalog. They have asked each child in the class to try and sell $150 of merchandise, mostly gift wrap and cookie tins. I don’t have the time or inclination to sell this crap. Can I buy it all and write it off somehow?

Taxgirl says:

Oh, I completely understand where you’re coming from. Even before my kids were in school, I was buying stuff from the neighbors’ kids… It was how we came to have several pounds of frozen jalapeno soft pretzels in our freezer (yes, it was as gross as it sounds).

The bad news is that buying stuff from fundraising catalogs – even if it’s your own kid’s fundraiser – is not deductible in most cases. To the extent that you’re paying fair consideration for goods (meaning you’re paying the fair market value of the item), you can’t take a deduction of any sort. The good news is, you have some options.

One option is to buy the stuff for use at the office or for your own business. We’ve been known to buy fundraising items for client gifts, etc. One year, we bought lots of cookies for just that purpose. Since it was paid for by the office and used for a business purpose, it was deductible as a business expense. The business purpose is important – you can’t buy up all of the gift wrap, stash it in a closet and call it a legitimate expense. It needs to be “ordinary and necessary” to qualify. Use some common sense here. Don’t try to be so cute that you land yourself in trouble. It must be legitimate: Trust me, there’s no way to make jalapeno soft pretzels an ordinary and necessary part of running a law office.

That option works great when you run your own business – but what about everyone else? Here’s another idea: don’t buy the stuff and write a check instead. Many of the fundraising efforts don’t give very much money to the schools, clubs, etc. I figured this out when I was reading a letter that came home with my daughter that noted that the school got to keep something like 20% of the sales. 20%! That means if she sold the $100 of stuff that they wanted her to sell, her school got to keep a measly $20. So, instead of buying $100 myself – or bothering my co-workers and neighbors into buying stuff they didn’t need – I wrote a check directly to the school. It was quick and painless. The school was ahead of where they would have been if she had sold the stuff, I didn’t have to cart home hundreds of pounds of pizza kits or whatever she was selling and I had the benefit of a charitable deduction on my tax return. So long as the school or club is a qualifying charitable organization, donations to the the school or club are tax deductible.

You don’t have to buy yet another smelly candle (unless, of course, you enjoy smelly candles). Cut yourself a break and just write a check instead. It’s fast, it’s easy, it’s tax deductible – and it won’t make your husband sneeze for a week.

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