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How much proof is enough,
when
contributing used clothing to charity?
 You
may have done some spring (or fall) cleaning and found that
you have a lot of clothes that you no longer wear or want, and
would like to donate to charity.
Used clothing that you want to donate to charity and take a
charitable deduction for, however, is subject to a few rules
and requirements.
Under IRS guidelines, clothing, furniture, and other household
items must be in good used condition or better, to be
deductible. Shirts with stains or pants with frayed hems just
won't cut it. Furthermore, if the item(s) of used clothing are
not in good used condition or better, and you wish to deduct
more than $500 for a single piece of clothing, the IRS
requires a professional appraisal.
For donations of less than $250, you must obtain a receipt
from the charity, reflecting the donor's name, date and
location of the contribution, and a reasonably detailed
description of the donation.
It is your responsibility to obtain this written
acknowledgement of your donation.
Used clothing contributions worth more than $500
If you are deducting more than $500 with respect to one piece
of used clothing you donate, you must file Form 8283, Noncash
Charitable Contributions, with the IRS. For donated items of
used clothing worth more than $500 each, you must attach a
qualified appraisal report is to your tax return. The Form
8283 asks you to include information such as the date you
acquired the item(s) and how you acquired the item(s) (for
example, were the clothes a holiday gift or did you buy the
items at the store).
Determining the fair market value of used clothing
You may also need to include the method you used to determine
the value of the used clothing. According to the IRS, the
valuation of used clothing does not necessarily lend itself to
the use of fixed formulas or methods. Typically, the value of
used clothing that you donate, is going to be much less than
you when first paid for the item. A rule of thumb, is that for
items such as used clothing, fair market value is generally
the price at which buyers of used items pay for used clothing
in consignment or thrift stores, such as the Salvation Army.
To substantiate your deduction, ask for a receipt from the
donor that attests to the fact that the clothing you donated
with in good, used condition, or better. Moreover, you may
want to take pictures of the clothing. If you need have
questions about valuing and substantiating your charitable
donations, please contact our office.
Using Fringe
Benefits as an Income Substitute
During the Economic Downturn?
Many businesses are foregoing salary increases this year
because of the economic downturn. How does a business find and
retain employees, as well as keep up morale, in the face of
this reality? The combined use of fringe benefits and the tax
law can help. Some attractive fringe benefits may be provided
tax-free to employees and at little cost to employers.
De minimis fringe benefits
A de minimis fringe benefit is any property or service whose
value is so small or minimal that accounting for it would be
administratively impracticable. Such benefits are excluded
from an employee's gross income. Examples of de minimis fringe
benefits include:
Occasional overtime meals and meal money. To qualify as
a tax-free de minimis fringe benefit, the meal or meal money
must be provided to your employees so that they can extend
their normal workday, thereby enabling them to work overtime.
Such meals and meal money can only be provided occasionally.
This means that they generally cannot be provided routinely,
when overtime work is a common occurrence or are contractually
mandated for overtime work. Occasional snacks may also qualify
as a de minimis fringe benefit but if the snacks are provided
daily, they would not qualify.
Occasional transportation. Transportation costs can
also qualify as de minimis fringe benefits. Taxi-fare for an
employee to return home after working late, for example, may
be a de minimis fringe benefit. The transportation must be
occasional.
Holiday gifts. Traditional holiday gifts, such as a
Thanksgiving turkey, with a low fair market value can
generally qualify as a de minimis fringe benefit. However,
cash or a cash equivalent such as a gift certificate in lieu
of the property, do not qualify. In fact, cash and cash
equivalent fringe benefits, no matter how little, are never
excludable as a de minimis fringe benefit, except for
occasional meal money or transportation fare.
E-filing. Electronically filing an employee's tax
return, but not paying for someone to prepare the return, may
qualify as a de minimus fringe benefit.
Telephone calls. An employer may treat the cost of
local telephone calls made by employees as a de minimis fringe
benefit.
Working condition fringe benefits
A working condition fringe benefit is any type of property or
service provided to your employees to the extent that the cost
of such property or services would have been deductible by the
employee as a trade or business expense, depreciation
expenses, or as if the employee paid for the property/services
himself or herself. Working condition fringe benefits have
special tax rules for employers and employees.
Vehicles. If an employer-provided vehicle is used 100
percent for business and the use is substantiated, use of the
vehicle is considered a working condition fringe benefit. The
value of use of the vehicle is not included in the employee's
wages. However, when an employer-provided vehicle is used by
the employee for both personal and business purposes, an
allocation between the two types must be made. The portion
allocable to the employee's personal use is generally taxable
to the employee as a fringe benefit. The portion allocable to
business use is generally considered a working condition
fringe benefit and is excludable from the employee's income.
No additional cost services
If an employer-provided service does not cause the employer to
incur any substantial additional costs, it may qualify as a
"no additional cost service" and be excludible from the
employee's income. The service must be offered to customers in
the employer's ordinary course of business. Some of the most
common examples are airline, rail and bus tickets and hotel
and motel rooms provided at a reduced rate or at no cost to
employees. This benefit can be offered to retired employees as
well as active employees. There are special rules for
highly-compensated employees.
If you are considering alternatives to salary compensation,
and would like to know what your options are, please contact
our office. We can discuss the tax benefits and drawbacks of
providing your employees with various types of fringe
benefits.
2011
Year-End Tax Planning for Businesses:
Bonus Depreciation,
Expensing and more
Many tax benefits for business will either expire at the end
of 2011 or become less valuable after 2011. Two of the most
important benefits are bonus depreciation and Code Sec. 179
expensing. Both apply to investments in tangible property that
can be depreciated. Other sunsetting opportunities might also
be considered.
Bonus depreciation
Bonus depreciation is 100 percent for 2011. A business can
write-off, in the first year, the entire cost of its
investment in new depreciable property. Under current law,
bonus depreciation will decrease to 50 percent in 2012 and
will terminate after 2012. (These deadlines are extended one
year for certain transportation property and property with a
longer production period). President Obama has proposed to
extend 100 percent bonus depreciation through 2012. Normally,
this would have a good chance of being approved, but with the
focus on deficit reduction and the linking of tax benefits to
tax increases, it is not at all clear what will happen.
So, if a business has income in 2011 and plans to invest in
depreciable property, it is worthwhile to consider making that
investment in 2011, while the available write-off is at its
highest. Under normal depreciation rules, a business will
still be able to claim accelerated write-offs, but this may be
50 percent or less of the cost of the property, with the
balance written-off over several years, instead of all in one
year.
Planning for bonus depreciation is important because the
property must satisfy placed-in-service and acquisition date
requirements. Property is placed in service when it is in a
condition or state of readiness on a regular ongoing basis for
a specifically assigned function in a trade or business. The
acquisition date rules may vary. For 2011, property is
acquired when the taxpayer incurs or pays its cost. This could
occur when the property is delivered, but it could also be
when title to the property passes. For 2012, property is
acquired when the taxpayer takes physical possession of the
property.
Code Sec. 179 expensing
Code Sec. 179 expensing (first-year writeoff) has been around
for awhile, but at higher amounts more recently. While there
is no limit on bonus depreciation, expensing is limited to a
statutory amount. For 2011, this amount is $500,000. It is
scheduled to drop to $125,000 in 2012 and to $25,000 after
2012 (adjusted for inflation). Moreover, the cap is reduced
for the amount of total investment in Code Sec. 179 property.
The phaseout threshold is $2 million for 2011, dropping to
$500,000 for 2012 and $200,000 for 2013 and subsequent years.
For businesses who want to invest in depreciable property, the
payoff is definitely greater in 2011. Taxpayers taking
advantage of expensing should write off assets that would
otherwise have the longest recovery periods.
Other 2011 benefits
Some other important benefits expire at the end of 2011 or
become less valuable. A significant benefit in 2011 is the 100
percent exclusion for small business stock. After 2012, the
normal exclusion rate will drop to 50 percent, although it has
been 75 percent in recent years. The exclusion is based on the
year the stock is acquired; the stock must be held for five
years before sold and satisfy other requirements.
Another important benefit is the 20 percent research credit.
The credit has been extended one year at a time for a long
period, so it is likely to be extended again. Nevertheless,
until Congress acts, there is some uncertainty for research
expenses incurred after 2011.
Conclusion
To maximize the benefits of 2011 year-end tax planning, a
business must be proactive in determining what upcoming
capital investments might be accelerated into this year and
what investments become cost effective because of the
immediate tax benefits that they offer. Some business-related
tax benefits will be less valuable after 2011; for others, it
is not clear what Congress and the administration will do in
terms of surprising taxpayers with a year-end tax bill. Please
contact this office if you have any questions over how
year-end tax strategies that begin now and continue through
December can help maximize tax benefits for your business.
To read
this & my other articles online,
click here or go to
www.RebellaCPA.com and click on the Newsletter section.
 As
always you can call me at 714-619-0667 if you have any
questions about investing, retirement or any other tax &
accounting related issues.
Regards, Monica Rebella, CPA
President, Rebella Accountancy |
