With my girlfriend wanting to donate a car, my roommate donating old furniture, and minor cash donations, I thought that I’d do a little research into the rules and procedures governing the deduction of donations from your taxes. It’s a little early, considering 2005 tax returns aren’t due for another ten months (tick tock!), but it’s better to know the procedure before crunch time than scrambling last minute.

Eligibility:
In order to deduct charitable donations from your taxes, you basically need to satisfy two conditions:

1. Itemize Your Deductions – Folks taking the standard deduction won’t get a tax benefit for charitable donations.
2. Donate to a Qualified Organization – Normally you can just ask and they’ll tell you, but IRS Publication 78 (it’s been upgraded to a search and is not a PDF) has a list of the common ones.

What You Donate:
The easiest thing you can donate is cash. You deduct the actual cash amount you donate.

The simplest things you can donate is property of some kind – whether it be a car, clothes, furniture, land, or any number of physical item. The general rule is you are able to deduct the fair market value of the item, as governed by the rules of IRS Publication 561 – Determining the Value of Donated Property. The rules for donating cars have changed recently from fair market value being determined by a blue book value to the actual price the car is sold for at auction.

If you donate your time and services, you cannot deduct any of it. You can’t take the fair market value of your service or anything like that, but you can deduct some personal expenses you wouldn’t have incurred had you not donated your services. An example is that you can deduct the cost of transportation to the location you are donating your services but you wouldn’t be permitted to deduct the cost of meals (since you would presumably have eaten regardless of your philanthropic efforts).

When You Donate:
The timing of your donation will affect when you can deduct it. It was easier back before checks and credit cards because you could control when items left your possession. For property, as soon as it leaves your hands you can count it in that year. For cash, the same rule applies as well. For checks and credit cards, you can deduct it the year in which you mail the check or apply the charge – not when the check is actually cashed or when the credit card is paid for.

Deduction Limits:
If you donated less than 20% of your adjusted gross income (AGI), move on, this won’t apply. Otherwise, the rules state that the most you can deduct is 50% of your AGI and, depending on your property, this limit may be capped at 30% and 20%. The rules are pretty extensive and probably don’t affect many people so I won’t go into them, check out pages 9 and 10 of Publication 526 for the rules.

Records:
Since you’ll be reducing how much Uncle Sam gets, they might come ask you about it. For cash donations, if it’s under $250, just keep a receipt of the donation or some other personal record of it. The rules for under $250 are pretty lax since for $20 donation to your church you probably don’t get a receipt. If you donate more than $250, you need to get an acknowledgement from the receiving organization that must meet these criteria: date, donation amount, what you received in return, description and good faith estimate of the value of the donation.

For property donations, the records you must keep are pretty extensive. The rules are basically the same for under $250 (date, location, description of property, and organization) and over $250, except if the property is over $500 but under $5000, you will need to explain: how you received the property, when you received/created it, and your cost basis. If it’s over $5000, then you will need a qualified written appraisal of the property in addition to everything else before it. So to recap, if you donate a $10,000 car you will need to follow the rules for under $250, between $250 and $500, between $500 and $5000, and then the final rule of over $5000 donations. It’s a lot of paperwork!

I hope all this information was helpful and, more importantly, correct. If you notice any inaccuracies or errors, let me know and I’ll fix this post. Thanks!

Helpful IRS Publications:
IRS Publication 526 – Charitable Contributions
IRS Publication 561 – Determining the Value of Donated Property

Ha, I saw this on the front page of CNN Money today. In a “highly unscientific and self-promotional survey,” it looks like Barclay took sixty thousand of their higher earners (greater than about $182,000 a year) and just tallied up their first names. Top name for the guys was David and tops for the girls was Susan. For the top twenty, check out CNN Money. James was ranked twelfth in yet another meaningless list that has no bearing on life.

Every quarter, the FDIC analyzes each state and produces a state profile that summarizes the state of banking and the economy in the state. This is important in these times because a housing boom supported by an increase in income and jobs is one that can be sustained. A housing boom supported by speculators and investors stands a higher likelihood of crashing. Be sure to read your own state along with California, where the housing market is ridiculous, and Texas, which hasn’t been a part of the housing boom, for a comparison.

Much thanks to Calculated Risk for blogging about the FDIC’s reports.

This is brilliant! Days after the Supreme Court’s ruling allowing governments to exercise the power of eminent domain to seize property for economic benefit for the state, it was reported in a press release that Logan Darrow Clements, a businessman in New Hampshire, will attempt to turn Supreme Court Justice David Souter’s, home into a hotel, museum, and restaurant! Justice Souter was one of the five who voted in favor of the City of New London.

(click here to continue reading…)

One of the reasons I joined Costco was because the price of gasoline at a Costco was about a ten cents (or greater) cheaper than the surrounding gas stations when I lived in College Park (the neighboring gas stations were two Exxon’s, a BP/Mobile, and a Gulf). At the time, even with a 5% rebate on gasoline credit card (AT&T Universal Cash Rewards, though here’s the latest list of the best gas credit cards), the difference in price was greater than 5% plus I had the benefit of buying in bulk at Costco for things like 7 lb. tub of nacho cheese. The downside of using Costco was that they only accepted American Express (1% cash back) or debit cards (0% cash back), so I couldn’t double dip and use a higher cash-back card with the cheaper gas, until I ran into a concrete and useful real life example of price competition.

When I moved up to Howard County, the Costco Warehouse still had gas but it also had two Exxon’s right next to it (you can debate the usefulness of two Exxon’s within a mile of each other, but whatever). Due to the proximity, the Exxon’s gas prices were depressed compared to gas stations not in the region. If you strayed more than a mile, you could see “regular” gas prices not affected by the lower Costco price.

Here is where the price competition comes into play: The Exxon gas prices are essentially pegged to be three or four cents higher than Costco’s gas price (based on my experience only, no actual concrete evidence). So I can get Exxon gasoline at a price cheaper than Costco after you factor in the 5% cash-back and current gasoline prices (at $2.00, if you can find it that cheap, you get 10 cents back).

Price competition in a capitalist society in action! I better find a pretty good reason to keep Costco around now… I mean, other than the 7 lb. tubs of nacho cheese.

Welcome to Blueprint for Financial Prosperity and the second Carnival of Personal Finance! Started last week by the esteemed Flexo at Consumerism Commentary, this Carnival is designed to highlight the cream of the crop of articles published by your favorite personal finance bloggers this past week. To hear Flexo’s words and his introduction, read this entry. For a future schedule of the Carnivals and their hosts, read this entry. While this article has been published, we are still taking submissions until midnight tonight (Monday) and add them as they come in, so if you were on vacation this weekend and want to put in your post, let me know. Thanks!

Flexo from Consumerism Commentary, site of the first Carnival of Personal Finance, crosses the wire first with his article on Eminent Domain Rules Officially Changed. It’s been big news these days with the recent 5-4 ruling by the Supreme Court effectively expanding the rules under which eminent domain can be exercised. It’s scary and you should read this article.

FMF at Free Money Finance has written “Yes, You Can Erase 15 Years of Debt in 14 Months” which talks about how someone wiped away $12,000 in debt in a mere fourteen months.

Nickel at FiveCentNickel wants to clue you in on how shipping really works and why you shouldn’t let vendor shipping times scare you. Read more about it in his article, “Online Shipping Upgrades Are A Ripoff,” and I’m inclined to agree because it makes a whole lot of sense.

Ironman at Political Calculations has a good article on Marginal Tax Rates and Investment Choices. He’s created a calculator that gives you actual numbers, specific to you, on how much money you would’ve saved if you went with a tax-exempt investment over a taxable investment based on your marginal tax rate. It’s a very worthwhile read and a very useful tool.

Mike Hillyer of The Wealthy Blogger wants to remind us all what’s important in life in his post titled “Death Is a Wakeup Call.” It puts a little bit of perspective in all of our lives and reminds us of what is important. Wealth is not always measured in dollars and cents.

JLP at AllThingsFinancial has a great post about life insurance, how many of you really know the answer to: How Much Life Insurance Do You Need?

Jon at Smart Money Daily has a great story about two MacDonald’s restaurants in South Africa in his post titled “Succeed By Embracing Reality.” It’s an interesting tale of “thinking outside the box” and it’s relevence in today’s political climate with the arrival of China as a major economic competitor/player.

Smarty at Growing Money writes about how his plans to Ebay His Junk and the his results. If you have some junk lying around, this is good inspiration to go out and turn it into a little spare cash.

Keep them coming!

There’s an incredibly insightful article on the NY Times website (login required, us BugMeNot) about the black market of stolen identities and credit card information. The article talks about two prominent black market forums, both accessible online to anyone who is willing to register for the forums, called Carders Portal (http://carderportal.org/) and the International Association for the Advancement of Criminal Activity (http://iaaca.com/). On these boards you can buy “cobs,” changes of billings, where they change the address to one of your choosing. For $50 you can score a Discover card, for $85 you can get an AMEX…

(click here to continue reading…)

While doing research for my last FSA article, I came upon an article written by Jeff Schnepper that was listing ideas for cutting your 2004 taxes. I skimmed the article, most of which is common knowledge, until I hit upon something called the Schnepper-Malagoli Charitable Tax Grab. You can read the excerpt in full below but essentially you can rent out part of your home tax free (up to 15 days) to a charity (or anyone really), then donate to the charity, and walk away with extra money (and a warm fuzzy feeling) in your pocket as long as there was no pre-arrangement.

Here’s one you don’t have. It’s called the Schnepper-Malagoli Charitable Tax Grab. You can rent your home to anyone during the year — up to 14 days total — and pay zero tax. (Internal Revenue Code Section 280A (g), for those of you who feel compelled to look it up.)

So your church, synagogue or any recognized charity rents your home for a board meeting. They pay you $500. That money is completely tax-free.

Without any compulsion or prearrangement, you also contribute $600 to the charity. If you’re only in the 25% bracket, you save $150 in tax. You also got $500 tax-free from the rental. That’s a total of $650 more in your pocket, less the $600 contribution. You’re up $50 and the charity is up $100. One meeting per month (12 is less than 15) and you’ve “made” $600 and the charity is up $1,200!

Was it intended when Congress drafted the tax code? Clearly, no. Is it completely within the clear wording of the code? Absolutely, yes! Just because it’s a loophole doesn’t mean you can’t legally do it. And, there’s nothing wrong with doing well as you do good.

It’s brilliant, anyone ever heard of it (it has a doozy of a name)?

Flexible Spending Accounts, or FSAs, are “use it or lose it” and, come June 30th, I’m going to lose what remains on my balance since my benefits plan refreshes every July 1st. I wrote something on FSA’s a little while back, called How Does a Flexible Spending Account Work, and now the time has come for me to apply it. We all have a set of expenses we believe are health related, well, the government has added a bunch of expenses you probably didn’t think you can use with an FSA. Additionally, reading this list is probably easier than reading this IRS document
.

Everyone Is Eligible
For the following, everyone is eligible to spend their FSA money on these things.

1. Over The Counter Medications – This is always the backup plan and probably first on your list. If you’re close to needing a refill on that bottle of aspirin or some Loratadine (the anti-histamine in Claritin, except much cheaper). For more on this, straight from the horse’s mouth, read this IRS briefing.
2. First Aid Kits (and their contents) – These are also eligible for FSA cash, but sometimes the contents individually aren’t. For example, an ice compress or an ACE bandage by itself won’t be eligible, but if they’re in a kit then your plan administrator won’t be the wiser.
3. Contact Lens Solution – Obviously, only viable for contact lens wearers but saline solutino lasts forever, so stock up now.
4. Transportation – Did you know you can get money for medical trips? In 2003, you could get 13 cents per mile to and from the doctor’s office.
5. “Alternative” Medicine – Even though some might disparage them, you can also spend the FSA cash on alternative medicines such as acupuncture, chiropractic treatment, Christian Science practitioners and massage (if it treats something specific, doctor’s note required unfortunately).

Doctor’s Note Required
For the following, you’ll need a doctor’s note or other documentation in order to spend FSA money.

1. Vitamins – With a documented deficiency in a particular vitamin, vitamins are eligible for FSA reimbursement.
2. Sunscreen – This isn’t for those who burn easily, but for those who have a doctor who orders them to wear it.

Have any personal favorites or FSA strategies you’d like to share for last minute spenders?

Actually, according to CNNMoney, Columbia, Maryland is the 25th best place to live in the East with a population of under 100,000 (barely). I’m not entirely sure when this was released and I, by nature, am always skeptical of these “Best Of” lists only because the whole “your school is ranked whatever in US News and World Reports” soured me to the idea that any sort of subjective ranking system has any merit whatsoever. But these lists are always fun because the will show you some interesting statistical facts you probably would spend hours trying to find otherwise.

(click here to continue reading…)