Archive for the ‘$5000’ Tag
Back to Basics Part XXIV – Form 8283 – Noncash Charitable Contributions
Filed under: Back to Basics, Charitable Donations | Tags: $5000, 30 percent, 50 percent, appraiser, appreciated securities, Form 8283, household, noncash, Noncash Charitable Contributions
Comments (2) Originally published in the Cedar Street Times
October 2, 2015
The donation of noncash charitable items such as clothing, furniture, toys, books, etc. to thrift shops run by organizations such as Goodwill Industries or The Salvation Army are nearly ubiquitous with people who itemize deductions. We all have stuff we no longer use or enjoy, and in lieu of the effort involved with a garage sale we find it extremely convenient to drop it off or have it picked up, and hopefully get a tax benefit from it as well. Note that as of a few years ago, the IRS requires that the items be in “good” condition or better to get a deduction – so no more deducting your junk!
Noncash donations do not just include household items, but could also include the house itself – real estate! Other examples would be donations of stocks, bonds, vehicles, as well as intangible items such as copyrights or patents. Essentially anything you give to a qualified charitable organization other than money would be a noncash charitable donation. If your aggregate noncash charitable donations for the year are below $500, you can deduct them directly on Schedule A. If they aggregate more than $500, you have to use Form 8283 to report them.
Depending on the type and amount of donation, you may need a qualified appraisal by a licensed appraiser, and you may or may not need to attach it to the tax return. There are also many very specific details about appraisal requirements to review should you be donating a high value item. (My experience has been that licensed appraisers sometime do not even know what the IRS technically requires for certain appraisals.)
For household items, the threshold to require an appraisal is $5,000. Unless you are trendy and have expensive tastes you probably will not have this problem. But people sometimes cleaning out an entire house for a move or after someone passes away could run into this issue. The rub is that it is a cumulative limit through the whole year. So theoretically if you gave away things in the early part of the year, and then do a major clean-out at the end of the year, putting you over the threshold, the IRS would expect you to have an appraisal covering the items you already gave away – good luck!
Knowing this rule, you might plan to split large donations between two tax years instead of giving the items away all at once.
The standard for donation value is generally fair market value at the time of the gift, although there are exceptions to this, especially when you give away things that are worth more than what you paid for them or you are donating depreciable assets. If you give away property, that if sold, would have resulted in ordinary income, such as donating inventory you bought at wholesale or donating self-created works of art, or if you give away a capital asset held for a year or less that would have resulted in a short-term gain, you have to back out the amount that would have been taxable if you had sold it. Essentially you are limited to deducting your adjusted cost basis in the property.
For instance, an artist, cannot paint a painting, donate it, and then take a deduction for the price he or she would have listed it for in a gallery. The deduction is essentially limited to the cost of the canvas and oils, since anything in excess of that would have been ordinary income. Another way to think about this, is that charitable deductions are typically available for donations of after-tax dollars or things purchased with after-tax dollars. The government is essentially rebating you for tax you already paid when you donate to a charity. So if you haven’t ever paid tax on the money, as in the case with the artist, there is no tax to rebate, so no deduction available.
Sometimes you can have your cake and eat it too. If you give away property that would have resulted in a long-term capital gain, you can generally deduct the fair market value in full (such as a piece of jewelry that has appreciated, or appreciated stock held more than a year), but you are subject to a 30 percent limit of your adjusted gross income instead of the normal limitation of 50 percent. Most working-class people are not giving away 30 percent of their adjusted gross incomes every year, so that is a non-issue for most.
However, later in life, people will sometimes give away substantial assets. Since excess charitable contributions can only carry forward for five years, this limit becomes a bigger problem. The IRS allows you to make an election to choose the 50 percent limit instead of the 30 percent limit, but if you do, you give up the ability to deduct it at its fair market value, and are instead limited to the adjusted cost basis. But this can still be useful given the right circumstances. For instance, recently inherited assets that are given away will often have a cost basis similar to the fair market value, so it could be an easy decision to make the election in such a case.
The donation of vehicles was tightened up substantially a few years back after the IRS noticed a huge gap between the aggregate amount of deductions taxpayers were claiming for vehicle donations versus what charities were reporting as received. Now your deduction is limited to the amount the charity actually sells the car for, and you must report specific information from a Form 1098-C which must accompany the tax return. Pretty much the only time you can use a Blue Book price is when the charity uses the vehicle internally, instead of selling it, and you get a certification of this fact.
The Form 8283 is a two page form. Part I of the first page handles most small donations. Part II handles donations when you have attached strings to the donation, such as conditions that must be followed for the donation to be considered complete. Page two handles larger donations which typically require an appraisal. Parts I and II handle the details of the item(s). Part III is a signature block for the appraiser, and Part IV is a signature block for the donee organization.
If you have questions about other schedules or forms in your tax returns, prior articles in our Back to Basics series on personal tax returns are republished on my website at www.tlongcpa.com/blog .
Travis H. Long, CPA, Inc. is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Back to Basics Part XIV – Form 2441 – Child and Dependent Care Expenses
Filed under: Back to Basics | Tags: $3000, $5000, $6000, 13 years, Child and Dependent Care Expenses, childcare, cleaning, clothing, cooking, day camps, daycare, dependent care benefits, Education, Flexible Spending Account, food, Form 2441, Form W-10, FSA, kindergarten, lodging, overnight campts, summer school, tutoring
Leave a comment Originally published in the Cedar Street Times
May 15, 2015
Question: I am the bread winner in our household. My wife is a homemaker and is the primary caregiver for our children, but we still send them to daycare once a week so she can have some uninterrupted time to go shopping, have a quiet lunch, and do some other chores. Can we claim the childcare expenses and get the childcare credit?
Answer: No. One of the requirements for claiming childcare expenses is that it is enabling you to go to work, or actively job search (or you are disabled or a full-time student). If your wife had a part-time job, or a self-employment activity and worked one day a week, then you could claim the childcare for the day you work each week, but you would still not be able to claim the childcare for the non-working day, even though you paid for childcare. This would also be why you cannot claim your Friday night babysitter when you go to dinner and a movie – nobody is working!
This week we are talking about Form 2441 – Child and Dependent Care Expenses. If you would like to catch up on our Back to Basics series on personal tax returns, prior articles are republished on my website at www.tlongcpa.com/blog .
As our Q&A clearly pointed out, the intent of the credit is to allow people to earn more money…which the IRS can then tax. But there are a host of other rules. First of all, who qualifies? If it is for childcare, the child has to be under 13 years old. If the child turns 13 during the year, you can claim expenses up until the day the child turns 13. You can also claim dependent care expenses for a physically or mentally disabled spouse or any other disabled person you can claim as a dependent. You can even claim it for disabled individuals that would be a dependent except their income was too high (there are a few other exceptions as well).
Divorced or legally separated parents can generally only claim the credit if the child lives with them the majority of the nights of the year. Even if you are allowed to claim the child as your dependent per your divorce agreement (such as in alternating year agreements), you still cannot claim the childcare expenses you pay unless the child spends the majority of the nights of the year with you. If your status is Married Filing Separate, you can only claim the credit if you meet the requirements already discussed, plus, you must not have lived with your spouse at any time during the last six months of the year, and you must have paid more than 50 percent of the costs of maintaining your household.
Second, what expenses qualify? Clearly the normal child or dependent care expenses paid to the provider while you work are deductible. You can also deduct the cost of day camps for children during the summer, for instance, but not overnight camps, tutoring, or summer school. You can claim the cost of household expenses such as cleaning and cooking if the individual is also caring for your child and the benefit is partly for your child (such as a nanny that cleans, cooks, and cares for your child). You cannot deduct the cost of education, food, entertainment, lodging, or clothing unless the expenses are incidental to the care provided and not separated out on the care provider’s bill. However, for children younger than kindergarten, you can deduct education expenses as childcare.
Third, how is the credit calculated? The most in childcare expenses that you can claim is $3,000 for one qualifying individual. If you have more than one qualifying individual you can claim up to $6,000. The expenses do not cap out at $3,000 per person either, meaning that if you had only $1,000 of expenses for one child but had $8,000 for the other child, you could still claim $6,000. The credit is then multiplied by a factor of 20 to 35 percent based on your adjusted gross income. If you had over $43,000 in adjusted gross income, which most people do in California, you will be limited to 20 percent. So the 20 percent times $6,000 would be a $1,200 maximum tax credit. Remember that tax credits are much better than tax deductions as they are a dollar for dollar reduction of tax. There are some other limitations as well. For instance, the amount of the credit is limited to the amount of tax you owe (meaning that it is not a refundable credit). Also, the aggregate amount of expenses you can claim are limited to the lower of your earned income or your spouse’s earned income.
Some people get dependent care benefits through their work. For instance an employer may pay the childcare provider directly or actually provide childcare onsite. Or, the employee may make pre-tax contributions from his or her paycheck and put the money into a Flexible Spending Account (FSA) through work to be used for childcare expenses. The amount or value of these items cannot exceed $5,000 each year. Several limitations to this amount are applied on Form 2441. If some of it is disallowed it is added back as an adjustment to wages. There is also the possibility of getting the credit pertaining to the extra $1,000, since $6,000 of expenses are allowable with multiple children, and the dependent care benefits are capped at $5,000.
The Form 2441 itself is a two page document. The first part requires information about the care provider such as name, address, taxpayer identification number and amount paid. Your safest course of action is to provide a Form W-10 to the daycare provider, for the daycare provider to fill out and give back to you. This is a special form just for daycare providers to fill out to provide their correct taxpayer identification information and certification to you. You can then safely rely on that document and not be concerned about the denial of your deduction if you have incorrect information in this regard. Part II of the Form 2441 requires information on the individuals receiving the care and then calculates the tax credit. Part III deals with dependent care benefits and plays into Part II as well.
Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.
Travis H. Long, CPA, Inc. Blog 