Anytime

Employers – Income Tax Withholding. Ask employees whose withholding allowances will be different in 2018 to fill out a new Form W-4. The 2018 revision of Form W-4 will be available on the IRS website by mid-December.

November 13

Employees who work for tips – If you received $20 or more in tips during October, report them to your employer. You can use Form 4070.

Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the third quarter of 2017. This due date applies only if you deposited the tax for the quarter in full and on time.

November 15

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in October.

• By Leon Clinton
• November 11, 2017

Tax breaks for charitable giving aren’t limited to individuals, your small business can benefit as well. If you own a small to medium size business and are committed to giving back to the community through charitable giving, here’s what you should know.

1. Verify that the Organization is a Qualified Charity.

Once you’ve identified a charity, you’ll need to make sure it is a qualified charitable organization under the IRS. Qualified organizations must meet specific requirements as well as IRS criteria and are often referred to as 501(c)(3) organizations. Note that not all tax-exempt organizations are 501(c)(3) status, however.

There are two ways to verify whether a charity is qualified: use the IRS online search tool or ask the charity to send you a copy of their IRS determination letter confirming their exempt status.

2. Make Sure the Deduction is Eligible

Not all deductions are created equal. In order to take the deduction on a tax return, you need to make sure it qualifies. Charitable giving includes the following: cash donations, sponsorship of local charity events, in-kind contributions such as property such as inventory or equipment.

Lobbying. A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks the loss of its tax-exempt status. As such, you cannot claim a charitable deduction (or business expense) for amounts paid to an organization if both of the following apply.

• The organization conducts lobbying activities on matters of direct financial interest to your business.
• A principal purpose of your contribution is to avoid the rules discussed earlier that prohibit a business deduction for lobbying expenses.

Further, if a tax-exempt organization, other than a section 501(c)(3) organization, provides you with a notice on the part of dues that is allocable to nondeductible lobbying and political expenses, you cannot deduct that part of the dues.

3. Understand the Limitations

Sole proprietors, partners in a partnership, or shareholders in an S-corporation may be able to deduct charitable contributions made by their business on Schedule A (Form 1040). Corporations (other than S-corporations) can deduct charitable contributions on their income tax returns, subject to limitations.

Note: Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the payments are not charitable contributions or gifts and are directly related to your business. Likewise, if the payments are charitable contributions or gifts, you cannot deduct them as business expenses.

Sole Proprietorships

As a sole proprietor (or single-member LLC), you file your business taxes using Schedule C of individual tax form 1040. Your business does not make charitable contributions separately. Charitable contributions are deducted using Schedule A, and you must itemize in order to take the deductions.

Partnerships

Partnerships do not pay income taxes. Rather, the income and expenses (including deductions for charitable contributions) are passed on to the partners on each partner’s individual Schedule K-1. If the partnership makes a charitable contribution, then each partner takes a percentage share of the deduction on his or her personal tax return. For example, if the partnership has four equal partners and donates a total of $2,000 to a qualified charitable organization in 2017, each partner can claim a $500 charitable deductions on his or her 2017 tax return.

Note: A donation of cash or property reduces the value of the partnership. For example, if a partnership donates office equipment to a qualified charity, the office equipment is no longer owned by the partnership, and the total value of the partnership is reduced. Therefore, each partner’s share of the total value of the partnership is reduced accordingly.

S-Corporations

S-Corporations are similar to Partnerships, with each shareholder receiving a Schedule K-1 showing the amount of charitable contribution.

C-Corporations

Unlike sole proprietors, Partnerships and S-corporations, C-Corporations are separate entities from their owners. As such, a corporation can make charitable contributions and take deductions for those contributions.

4. Categorize Donations

Each category of donation has its own criteria with regard to whether it’s deductible and to what extent. For example, mileage and travel expenses related to services performed for the charitable organization are deductible but time spent on volunteering your services is not. Here’s another example: As a board member, your duties may include hosting fundraising events. While the time you spend as a board member is not deductible, expenses related to hosting the fundraiser such as stationery for invitations and telephone costs related to the event are deductible.

Generally, you can deduct up to 50 percent of adjusted gross income. Non-cash donations of more than $500 require completion of Form 8283, which is attached to your tax return. In addition, contributions are only deductible in the tax year in which they’re made.

5. Keep Good Records

The types of records you must keep vary according to the type of donation (cash, non-cash, out of pocket expenses when donating your services) and the importance of keeping good records cannot be overstated.

Ask for–and make sure you receive–a letter from any organizations stating that said organization received a contribution from your business. You should also keep canceled checks, bank and credit card statements, and payroll deduction records as proof or your donation. Further, the IRS requires proof of payment and an acknowledgment letter for donations of $250 or more.

Here are six things to keep in mind about charitable donations and written acknowledgments:

1. Taxpayers who make single donations of $250 or more to a charity must have one of the following:

• A separate acknowledgment from the organization for each donation of $250 or more.
• One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.

2. The $250 threshold doesn’t mean a taxpayer adds up separate contributions of less than $250 throughout the year. For example, if someone gave a $25 offering to his or her church each week, they don’t need an acknowledgment from the church, even though their contributions for the year are more than $250.

3. Contributions made by payroll deduction are treated as separate contributions for each pay period.

4. If a taxpayer makes a payment that is partly for goods and services, their deductible contribution is the amount of the payment that is more than the value of those goods and services.

5. A taxpayer must get the acknowledgment on or before the earlier of these two dates:

• The date they file their return for the year in which they make the contribution.
• The due date, including extensions, for filing the return.

6. If the acknowledgment doesn’t show the date of the contribution, the taxpayers must also have a bank record or receipt that does show the date.

If you’re a small business owner, don’t hesitate to call if you have any questions about charitable donations.

• By Leon Clinton
• November 10, 2017

If you contribute property to a qualified organization, the amount of your charitable contribution is generally the fair market value of the property at the time of the contribution. However, if the property fits into one of the categories discussed here, the amount of your deduction must be decreased. As with many aspects of tax law, the rules are quite complex. If you’re considering a charitable contribution of property, here’s what you need to know:

After discussing how to determine the fair market value of something you donate, we’ll discuss the following categories of charitable gifts of property:

• Contributions subject to special rules
• Property that has decreased in value;
• Property that has increased in value;
• Food Inventory.
• Bargain Sales.

Determining Fair Market Value

Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell and both having reasonable knowledge of all of the relevant facts.

Used Clothing and Household Items

The fair market value of used clothing and used household goods, such as furniture and furnishings, electronics, appliances, linens, and other similar items is typically the price that buyers of used items actually pay clothing stores, such as consignment or thrift shops. Be prepared to support your valuation of other household items, which must be in good used condition unless valued at more than $500 by a qualified appraisal, with photographs, canceled checks, receipts from your purchase of the items, or other evidence.

Cars, Boats, and Aircraft

The FMV of a donated car, boat, or airplane is generally the amount listed in a used vehicle pricing guide for a private party sale, not the dealer retail value, of a similar vehicle. The FMV may be less than that, however, if the vehicle has engine trouble, body damage, high mileage, or any type of excessive wear.

Except for inexpensive small boats, the valuation of boats should be based on an appraisal by a marine surveyor because the physical condition is so critical to the value.

If you donate a qualified vehicle to a qualified organization, and you claim a deduction of more than $500, you can deduct the smaller of the gross proceeds from the sale of the vehicle by the organization or the vehicle’s fair market value on the date of the contribution. If the vehicle’s fair market value was more than your cost or other basis, you might have to reduce the fair market value to figure the deductible amount.

Paintings, Antiques, and Other Objects of Art

Deductions for contributions of paintings, antiques, and other objects of art should be supported by a written appraisal from a qualified and reputable source unless the deduction is $5,000 or less.

1. 1. Art valued at $20,000 or more. If you claim a deduction of $20,000 or more for donations of art, you must attach a complete copy of the signed appraisal to your return. For individual objects valued at $20,000 or more, a photograph of a size and quality fully showing the object, preferably an 8 x 10-inch color photograph or a color transparency no smaller than 4 x 5 inches, must be provided upon request.

1. Art valued at $50,000 or more. If you donate an item of art that has been appraised at $50,000 or more, you can request a Statement of Value for that item from the IRS. You must request the statement before filing the tax return that reports the donation.

Contributions Subject to Special Rules

Special rules apply if you contribute:

• Clothing or household items,
• A car, boat, or airplane,
• Taxidermy property,
• Property subject to a debt,
• A partial interest in property,
• A fractional interest in tangible personal property,
• A qualified conservation contribution,
• A future interest in tangible personal property,
• Inventory from your business, or
• A patent or other intellectual property.

Donating Property That Has Decreased in Value

If you contribute property with a fair market value that is less than your basis in it (generally, less than what you paid for it), your deduction is limited to its fair market value. You cannot claim a deduction for the difference between the property’s basis and its fair market value. Common examples of property that decreases in value include clothing, furniture, appliances, and cars.

Donating Property That Has Increased in Value

If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction. Again, your basis in the property is generally what you paid for it. Different rules apply to figuring your deduction, depending on whether the property is Ordinary income property, Capital gain property, or Ordinary Income Property.

Ordinary Income Property

Property is ordinary income property if its sale at fair market value on the date it was contributed would have resulted in ordinary income or in short-term capital gain. Examples of ordinary income property are inventory, works of art created by the donor, manuscripts prepared by the donor, and capital assets held 1 year or less.

Equipment or other property used in a trade or business is considered ordinary income property to the extent of any gain that would have been treated as ordinary income under the tax law, had the property been sold at its fair market value at the time of contribution.

Capital Gain Property

Property is capital gain property if its sale at fair market value on the date of the contribution would have resulted in a long-term capital gain. Capital gain property includes capital assets held more than 1 year.

Capital assets. Capital assets include most items of property that you own and use for personal purposes or investment. Examples of capital assets are stocks, bonds, jewelry, coin or stamp collections, and cars or furniture used for personal purposes. For purposes of figuring your charitable contribution, capital assets also include certain real property and depreciable property used in your trade or business and, generally, held more than 1 year.

Real property. Real property is land and generally, anything that is built on, growing on, or attached to land.

Depreciable property. Depreciable property is property used in business or held for the production of income and for which a depreciation deduction is allowed.

Ordinary or capital gain income included in gross income. You do not reduce your charitable contribution if you include the ordinary or capital gain income in your gross income in the same year as the contribution. This may happen when you transfer installment or discount obligations or when you assign income to a charitable organization.

Food Inventory

Special rules apply to certain donations of food inventory to a qualified organization. Please call if you would like information about donations of food inventory.

Bargain Sales

A bargain sale of property to a qualified organization (a sale or exchange for less than the property’s fair market value) is partly a charitable contribution and partly a sale or exchange. The part of the bargain sale that is a sale or exchange may result in a taxable gain.

Seek advice from a tax professional.

Stiff penalties may be assessed by the IRS if you overstate the value or adjusted basis of donated property. If you’re considering a charitable contribution of property, don’t hesitate to call the office to speak with a qualified tax professional.

• By Leon Clinton
• November 8, 2017