Archive for the ‘charitable deduction’ Tag

Donating Your Bald Eagles and Blue Jeans

Originally published in the Pacific Grove Hometown Bulletin

August 1, 2012

If you missed the July 22 issue of the New York Times, you missed a great article about estate tax the IRS is trying to levy on a piece of art that includes a genuine stuffed bald eagle.  The IRS has valued the piece of art at $65 million and wants the heirs of New York art dealer Ileana Sonnabend to pay approximately $29.2 in estate tax.

The rub, however, is that it is illegal to sell the piece of art due to the 1940 Bald and Golden Eagle Protection Act.  The heirs and their appraiser are of course contending the value is $0 since they cannot legally sell it – how can it have value?  The IRS Art Advisory Panel reportedly called it a “stunning work of art” and is contending that it could be sold illegally on the black market and therefore has value.  It sounds to me like our government wants to have it both ways – you cannot sell it but, we are still going to tax you as if you could.  I think our tax policy should promote legal activities!

The end of the article mentions a possible charitable donation instead.  I suppose this could be an option for the heirs.  Unfortunately, the estate tax would not be eliminated, since the heirs would be the donors and not the decedent.  They would also have to be able to absorb a $65 million donation in a six year period against their income.  IRS law allows you to make a charitable contribution up to 50% of your income each year which can be carried over for up to five more years.  After that, you lose the rest permanently.  One strategy for large noncash gifts is to give a partial interest in the item each year and loan the rest to the charitable organization.  This way, you do not lose any of the valuable deductions.

It is important to remember that current IRS law requires an appraisal for donations over $5,000.  This would also include multiple gifts during the year of similar items that add up to over $5,000.  So if you are taking lots of trips with household items and blue jeans, just make sure it does not go over $5,000 during the year.  It is hard to get an appraisal on a pair of jeans you donated eight months ago.  Oh, and be sure to get your charitable gift receipt!

Regarding the bald eagle art – I sure am glad Mrs. Sonnabend did not leave it in her will to me –   sounds more like a white elephant from my perspective!

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

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.

Deducting Services/Goods Your Business Donates

Originally published in the Pacific Grove Hometown Bulletin

February 15, 2012

Every year I inevitably have a few clients that bring in statements from a charity thanking my client’s business for the donation of my client’s services or goods with a fair market value of X dollars.  Of course they want to write it off as a charitable deduction.  The first question I have for them is, “Did you include it in your taxable income, otherwise how many dollars did you actually spend to provide the services or buy the goods donated?”

The answer to the first part is always no!  At that point, if they provided the services themselves, the answer is no deduction.  If they used a hired worker to perform the services – they are already getting a deduction when they deduct the workers’ wage.  For goods or materials donated they will get a deduction when they write off the purchase from the supplier or take inventory.

But why can’t they use the fair market value for the deduction?  The simple answer is you cannot take a deduction for donating theoretical pretax profits!  Compare the woman who donates $100 cash to the man who donates $100 of his time.  Besides the the value of the man’s time being subjective and subject to abuse, the woman’s $100 cash started as approximately $130 of services or $130 of markup on goods, and then she paid $30 of tax, leaving her with $100 to donate.  When she donates it, the taxing authorities give her a deduction to basically rebate her for the $30 in tax she already paid.  The man has not included his $100 in income and has paid no tax, so he has nothing to rebate, and is therefore not entitled to a deduction.

Donations are generally limited to your cost basis in the donation.  However, there are exceptions.  In a future issue, I will discuss why donating appreciated stock is much more effective than donating goods, services, or cash.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

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.