Month: October 2023

As the year winds down, many of our clients look toward clothing and household item donations as a means to give back and optimize tax deductions.

Recent cases, such as the one involving Duncan Bass, highlight the importance of understanding and following the IRS regulations concerning these contributions.

Mr. Bass made a staggering 172 trips to Goodwill and the Salvation Army, cleverly keeping each donation receipt below the $250 threshold. Unfortunately, he overlooked the aggregation of similar items and appraisal rules.

But before getting to aggregation and appraisal, what is the $250 rule? If you make a single charitable contribution of $250 or more, you must obtain a written acknowledgment from the charitable organization to substantiate your deduction. This is often called a “contemporaneous written acknowledgment.”

• It must confirm the amount of cash or a description of any property contributed by you.
• It must state whether the charity provided you any goods or services in exchange for the gift. If so, it must provide a description and a good faith estimate of the value of those goods or services.
• It must state that the only benefit you received was an intangible religious benefit, if that was the case.

If you make several smaller gifts to the same charity throughout the year, you need an acknowledgment only if any single gift is $250 or more.

Assigning fair market value. This can be the most challenging aspect. The fair market value isn’t what you paid for an item, but rather what it’s worth now. Several reputable resources, including The Salvation Army and Goodwill, provide donation value guides.

Over $5,000. If you claim a deduction of over $5,000 for a non-cash charitable contribution of one item or a group of similar items, you must obtain a qualified appraisal of such item or group of items and attach it to your tax return.

Key point. Note that a “group of similar items” can trigger the appraisal requirement. That’s what happened to Mr. Bass. His 172 trips were for clothing donations totaling $13,852 and $11,594 for the two years before the court—well over the $5,000 appraisal requirement for the group.

If you want to discuss your charitable giving strategy, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• October 31, 2023

The Augusta rule gets its name from the Masters Golf Tournament, where some members and others who live in the area receive tax-free rent by renting their homes for a week or two. You don’t have to live in Augusta to benefit from this rule.

IRC Section 280A(g), also known as the Augusta rule, states: “Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then—

• no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
• the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.”

Example. Fred rents his home at $3,000 a day for 14 days. Under the Augusta rule, he qualifies for no rental deductions. But he also excludes all the rent, the full $42,000 ($3,000 x 14) from his income.

If you want to discuss the Augusta rule, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• October 27, 2023

Contrary to popular belief, the IRS does not limit business owners to claiming deductions on only one business vehicle.

You might maximize tax benefits by using multiple vehicles for business purposes. This is particularly true when

• you use the vehicles predominantly (more than 50 percent) for business,
• you drive more business miles than your spouse, and
• the vehicles have closely aligned adjusted bases.

The allowability of multiple vehicle use is made clear in both IRS Publication 463 and IRS Form 4562.

Several tax court rulings have upheld your right to claim business deductions on multiple vehicles within the same tax year.

Here’s an example of how you might benefit: An attorney, Mel, utilized his and his wife’s vehicles for business purposes. By strategically alternating between using the two cars for business trips, he increased his deductions by up to $32,460 without spending more money or driving more miles.

If you want me to calculate how this might benefit you, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• October 23, 2023