The extender bill was signed while I was away, as you have probably figured out already. While the extenders remain awful policy, at least we go into the year-end knowing what the tax law is. We should be grateful for our presents; even a lump of coal can help keep us warm.
Related: Kristine Tidgren, Tax Increase Prevention Act of 2014 Revives Tax Breaks, But Only for 2014; Paul Neiffer, It’s Official.
Tax tips for the giving season. As the business week winds down early on Christmas Eve, many taxpayers find themselves feeling generous to charity. Here are some things to keep in mind as you go about your charitable gifting
Gifts of appreciated long-term capital gain property are often the most tax-efficient. Such gifts, done properly, give you a full fair market value deduction without ever taxing you on the appreciation. If you are not gifting publicly-traded securities, however, appraisal requirements for gifts over $5,000, and just the paperwork that may be involved in transferring ownership, may make it impossible to complete such a gift this year.
Even gifts of traded securities can be hard to pull off this late in the year. You have to get the securities into the donee’s brokerage account by the close of business December 31. I’ve seen attempts to get this done fail more than once. It is especially troublesome in dealing with small or unsophisticated charities, who might not even have a brokerage account available to use.
Congress renewed the IRA break in the extender bill, but it needs to happen by December 31, and there are some restrictions. The IRS explains:
- If you are an IRA owner age 70½ or older you have until Dec. 31 to make a qualified charitable distribution, or QCD.
- A QCD is direct transfer of part or all of your IRA distributions to an eligible charity. You may transfer up to $100,000 per year.
- You may exclude the distributed amounts from your income. You can claim this benefit regardless of whether you itemize your deductions. If you do exclude the QCD from your income, you can’t also deduct it as a charitable contribution on Schedule A if you do itemize.
- You can count your QCDs in determining whether you meet the IRA’s required minimum distribution.
- The provision had expired at the end of 2013. The new law is retroactive for 2014. This means any eligible QCD in 2014 will qualify.
- Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
If you want to give cash, the “mailbox rule” applies. The postmark date controls whether a mailed check is deductible this year. If you don’t care to take chances, a gift by credit card is deductible in the year the credit card is charged, even if the credit card bill isn’t paid until next year.
If you give any charity a gift
over of $250 or more, you need to insist on a written receipt declaring that you received no value for your contribution — or disclosing the amount of any value. No receipt, no deduction.
Of course, your gift has to go to an actual charity to be deductible. The IRS list of qualified Section 501(c)(3) organizations can help you make sure your intended donee qualifies.
If you feel generous, but don’t know what to do, I humbly submit for your consideration a few worthy organizations I donate to:
Salvation Army. They take care of many of the most needy and down-and-out with very little leakage to internal bureaucracy.
Institute for Justice. This organization shut down the IRS preparer regulation power grab, winning a battle all good-thinking people considered hopeless and frivolous. They made the IRS give back the money they stole from the owner of a little restaurant in Arnolds Park, Iowa while forcing a change in their abusive use of their cash account seizure powers. They also support the little guy when the government abuses its eminent domain powers on behalf of the powerful and well-connected.
Tax Foundation. These guys do wonderful work in helping to form better tax policy. While it is difficult to get politicians to make tax policy for everyone, rather than just the well-lobbied, their 2014 successes in North Carolina, Indiana, Michigan and New York show that the good guys win sometimes.
ISU Center for Agricultural Law and Taxation. Roger, Kristine, Kristy and Tiffany do great work helping keep the taxpayers and tax preparers of Iowa in compliance and out of trouble. If you use them, like I do, you should help them out.
William Perez, Qualified Charitable Distributions
Peter Reilly, The Wheels On The Easement Void The Deduction
TaxProf, The IRS Scandal, Day 594. This edition covers the new report by the House Oversight Committee on the scandal.
There is a lot to the report, which I hope to spend more time on. The item that jumps out at me is that 2011 IRS assessments of gift taxes on contributions to 501(c)(4) organizations were no accident, but were instead part of the IRS effort to fight conservative 501(c)(4) organizations. The Wall Street Journal reports:
The then-IRS commissioner, Doug Shulman, denied at the time that the IRS was making a broad effort to assess gift tax on donors to such tax-exempt groups, which are formed under section 501(c)(4) of the tax code. Mr. Shulman said in a May 2011 letter to lawmakers that the audits were initiated by a single IRS employee and were “not part of any broader effort to look at donations” to these organizations.
The new report from GOP lawmakers says that “although the IRS denied any broader attempt to tax gifts to 501(c)(4) groups, “internal documents suggest otherwise.” It notes that in May 2011, an attorney in the IRS chief counsel’s office wrote to his superiors that the “plan is to elevate the issue of asserting gift tax on donors to 501(c)(4) organizations,” and seek a decision from the commissioner and the IRS chief counsel.
It’s clear that Shulman at best didn’t care enough to learn the truth before testifying. At worst he gave false information on purpose. Either answer burnishes his crown as Worst Commissioner Ever.
Related: Can political contributions really be taxable gifts?
Grimm tidings. A Congressman pleads guilty to tax fraud involving a restaurant he owned. From the New York Times:
Michael G. Grimm, the Republican representing New York’s 11th Congressional District, who carried the burden of a 20-count federal indictment to a landslide re-election in November, pleaded guilty on Tuesday to a single felony charge of tax fraud.
Representative Grimm said he had no intention of stepping down. “Absolutely not,” he said.
My limited experience with felons is that they are cursed with grossly excessive self-esteem. That certainly seems to be the case here.
Robert D. Flach brings the Holiday Buzz! Good tax stuff from around the tax blogs just in time for Christmas.
Kay Bell, Christmas tree ‘tax’ delayed again. Effort to end it continues
Jason Dinesen, From the Archives: Tax Court: Vacant House Can Still Qualify as Rental
Robert Goulder, The Vatican Bank, Christmas Cheer, and FATCA (Tax Analysts Blog). “The pontiff is cool with tax transparency.”
Tony Nitti, IRS To Sell The Right To Collect Darryl Strawberry’s Remaining New York Mets Salary.
Russ Fox, Nominations Due for 2014 Tax Offender of the Year
Amy Frantz, How the Grinch Taxed Your Christmas Candy in Iowa (Caffeinated Thoughts)
Howard Gleckman, The Tax Vox Lump of Coal Awards: The 10 Worst Tax Ideas of 2014 (TaxVox). My list would differ, but there are so many worthy ideas from which to choose.
Career Corner. Be Social, Don’t Skip the Party, and Other Redundant Holiday Party Advice (Adrienne Gonzalez, Going Concern)