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Julie M. Sturgeon: Evaluate your tax situation before year’s end

It’s Your Money

Posted: December 9, 2009 4:24 p.m.
Updated: December 10, 2009 4:55 a.m.
 
There still is time to evaluate your tax situation and get in some last-minute tax deductions.

Although it seems many tax loopholes have been closed, particularly for those in higher tax brackets, one that remains available is that of charitable gifting.

Cash, non-cash items, out-of-pocket volunteer expenses, certain appreciated property and other estate-planning gift options are ways to support your favorite qualified charity. Many nonprofit groups are seriously struggling, so this can be a win-win situation.

Contributions made to a non-qualified charity such as the homeless guy/girl or the cleaning lady are not deductible. Gifts to children or relatives are also not deductible.

If you wish to gift earned income up to $13,000 each, you may do so without creating a taxable event. The gift is per person, so that means a couple may gift up to $26,000 to their children, grandchildren, etc.  

Volunteer expenses
If you are planning to make other contributions, here are a few things to keep in mind.

* Your gift must be made to a qualified charity. Either check the IRS Web site for a list of qualified charities or obtain a letter from the charity stating its status.

* The value of your services is not deductible.

* Out-of-pocket expenses while doing volunteer work for a charity are deductible. Frequently overlooked contributions are those made to schools. Such expenses can be books, supplies, paper, telephone charges, travel and uniforms.

* Automobile expenses may be taken at the standard 14 cents per mile rate.

* Tickets to charitable events are only deductible to the extent the price exceeds the value received. Most charities will give you this information on their year-end statements.

* Proper records must substantiate cash contributions.

* A canceled check or a receipt from the charity must substantiate contributions of $250 or less. Contributions over $250 must have a written acknowledgement from the charity in addition to the canceled check.

* If non-cash contributions exceed $5,000, a qualified appraisal is required. Both the appraiser and the donee organization must sign form 8283.

* Gifts made by credit card in this tax year not paid until a future date are deductible on the current year’s return.

Appreciated property
Under the current tax laws, you are allowed to take a charitable deduction for the full fair market value of the donated property. You can do so without paying tax on the built-in gains.

There are limitations on the types of property qualifying for this special tax treatment.

The best example is stock. You purchased shares of stock at a low cost. Today those shares could be worth more. You know if you were to sell those shares, you would be subject to capital gains tax.

Instead, you donate the shares to a charity, you get the full market value charitable deduction, no capital gains tax and the charity gets a full gift of the stock you donated.

Other options
Making charitable gifts during your lifetime or at your death can help reduce estate taxes.

You can make these gifts either outright or in a charitable trust. Rather than waiting until death, you may want to consider making your gifts now.

Lifetime gifts to qualified charities can provide income gifts and estate tax savings, as well as help further the work of organizations you believe in.

Using a charitable trust to make lifetime gifts can give you a current income-tax deduction in addition to removing assets from your taxable estate.

If you check College of the Canyons’ Foundation Web site, you will see many interesting ideas about gifting options to a local foundation.

Julie M. Sturgeon is a certified public accountant in Valencia specializing in individual and business tax issues. Her column represents her own views and not necessarily those of The Signal. “It’s Your Money” appears Thursdays and rotates between a handful of the valley’s financial professionals.

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