Faith-Based Accounting

IRS releases Dirty Dozen Tax Schemes

... and charitable organizations make the 2008 list.

The IRS listed the misuse of charitable organizations as one of the 12 most egregious tax scams by taxpayers.  Abuse by donors who try to maintain control over donated assets or income from donated assets is just one example.  Taxpayers are also claiming overvalued property donations for a larger deduction.  Finally, taxpayers are disguising private tuition payments as contributions to charitable or religious organizations.

This information is good to keep in mind.  We all like to think that our donors have the best intentions but the IRS is saying that these scams are happening on a large scale basis.  If you have someone who wants to control how their donation is used, you should know that the donation is considered a donor advised fund and is subject to strict rules. 

Noncash contributions also have certain requirements.  Individuals are required to file a form 8283 for noncash donations over $500.  A form 8282 is generally required to be completed by the charitable organization (aka you) to report dispositions of certain charitable property made within 3 years after the donor contributed the property.  Yes, I did say 3 years.  Certain charitable property is any donated property other than money and publicly traded securities over $5,000.

Remember there are usually exceptions to the rules but I have listed the general rules. 

Click here to see the entire list.

Out-of-Pocket Expenses as Contributions!

Are you looking for additional charitable contributions for your tax return?  You - and so many other church members - very well might find a small bonanza here!

According to federal law, any un-reimbursed out-of-pocket expenses incurred while performing donated services may constitute a charitable contribution. The value of your donated labor or services is not deductible, BUT any un-reimbursed out-of-pocket expenses incurred while performing such donated services may constitute a charitable contribution for federal income tax purposes!

Examples of un-reimbursed out-of-pocket expenses that would relate to members who provide ministry services at your church are: 

• Purchase of literature for religious education classes 
• Building materials for repairing church facilities 
• Transportation and travel expenses for mission trips, youth activities, chaperoning retreats, etc.

If un-reimbursed out-of-pocket expenses amount to more than $250, the church must issue an acknowledgement letter to the volunteer.

Also, Tax regulations stipulate that you “can claim a charitable deduction for travel expenses, necessarily incurred while away from home, performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in such travel. This applies whether the service provider pays the expenses directly or indirectly (i.e. through the church).”  The purpose of this more restrictive rule is to deny a tax deduction to persons who perform only nominal services for the benefit of the church while traveling or who are not required to render services for significant portions of a trip.

Email PSK if you want more info, or if you have other questions along this line.

End-of-Year Contributions

Just got a call that most every church bookkeeper receives most every year.  At issue: how do I figure out in which period to post contributions received at year-end?

Answer: charitable contributions must be applied to the year in which they are delivered.  One exception is when the check is mailed: it is applied to the year the check is mailed (and postmarked!), even if received early the next year.

Remember, this is an issue because the donor wants to claim the contribution as a charitable deduction for income tax purposes.  The donor must relinquish control of the funds before it is technically a contribution.  So if the donor has not mailed it by year-end, no matter what date is on the check, he/she hasn't really given up control.  Or so the IRS says.  AND, the IRS also states that a mailed contribution must have been postmarked on or before December 31st - that proves that control is given up by the end of the year.

See the exact wording of the Dept of Treasury's official interpretation of the Internal Revenue Code on this subject:

http.//edocket.access.gpo.gov/cfr_2007/aprqtr/pdf/26cfr1.170A-1.pdf

Cash Contributions in Excess of $250

In order for a Church member to claim a tax deduction for a cash donation in excess of $250, they must obtain written documentation from the Church acknowledging the gift. The acknowledgment from the Church must include a statement that the Church member didn't receive anything in exchange for this gift except for intangible spiritual benefits.  Canceled checks or bank statements do not constitute sufficient documentation for cash gifts exceeding $250.

The Church member must also be in possession of this documentation before the due date of the tax return that the deduction is being taken on.

These rules do not apply for cash donations that are less than $250 individually but exceed $250 in aggregate.  Canceled checks or bank statements would be adequate for these types of cash donations.  However, PSK recommends giving all members a written receipt for their donations whether or not any single donations exceed $250.

For example, Church Member A donates $100 per month for an entire year.  Although their total donations amount to $1,200, they could take a tax deduction for the donations as long as they have canceled checks or bank statements to substantiate the donations. 

Church Member B makes two $600 donations during the year.  Their donations also amount to $1,200 however Church Member B must have a written receipt from the Church in order to take a tax deduction for their donations.  Again, the receipt must include a statement that no goods or services were received in return for the donation except for intangible spiritual benefits.  Church Member B must also be in possession of the receipt prior to the due date of the tax return in which the deduction is included.

There is another set of rules for non-cash donations.

IRA Rollover Charitable Contribution Provision Extended thru 2009!

The recently signed $700 billion economic bailout bill (H.R. 1424, The Financial Rescue Package), includes a two-year extension of the IRA Rollover provision.

The provision will be made retroactive to January 1, 2008, and will apply to gifts made from that date through December 31, 2009.

The special legislation allows you to make charitable gifts directly ("rolled over") from a traditional or Roth Individual Retirement Account (IRA) without incurring federal income taxes. The following limitations apply:

    - The donor must be age 70 1/2 or older.

    - The cap on annual IRA rollovers is $100,000. 

    - The contribution must be a direct gift to a charity (no planned gifts.)

The exclusion from income applies only to a distribution that is otherwise includible in income. The account the owner is not allowed a deduction for the contribution.

The IRA Rollover was originally included in the Pension Protection Act of 2006.