Charitable Contributions of Property

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 may 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. 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.

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Education Tax Credits Help You Pay for College

Are you planning to pay for college in 2016? If so, money you paid for higher education can mean tax savings on your tax return when you file next year. If you, your spouse or your dependent took post-high school coursework last year, you may be able to take advantage of education credits that can help you with the cost of higher education. Taking advantage of these education tax credits can mean tax savings on your federal tax return by reducing the amount of tax you owe. Here are some important facts you should know about education tax credits.

American Opportunity Tax Credit:

• You may be able to claim up to $2,500 per eligible student.
• The credit applies to the first four years at an eligible college or vocational school.
• It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
• It is available for students earning a degree or other recognized credential.
• The credit applies to students going to school at least half-time for at least one academic period that started during the tax year.
• Costs that apply to the credit include the cost of tuition, books and required fees and supplies.

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Paying off Debt the Smart Way

Between mortgages, car loans, credit cards, and student loans, most people are in debt. While being debt-free is a worthwhile goal, most people need to focus on managing their debt first since it’s likely to be there for most of their life.

Handled wisely, however, that debt won’t be an albatross around your neck. You don’t need to shell out your hard-earned money because of exorbitant interest rates or always feel like you’re on the verge of bankruptcy. You can pay off debt the smart way, while at the same time, saving money to pay it off even faster.

Assess the Situation

First, assess the depth of your debt. Write it down using pencil and paper or use a spreadsheet like Microsoft Excel. You can also use a bookkeeping program such as Quicken. Include every instance you can think of where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.

Record the day the debt began and when it will end (if possible), the interest rate you’re paying, and what your payments typically are. Next, add it all up–as painful as that might be. Try not to be discouraged! Remember, you’re going to break this down into manageable chunks while finding extra money to help pay it down.

Identify High-Cost Debt

Yes, some debts are more expensive than others. Unless you’re getting payday loans (which you shouldn’t be), the worst offenders are probably your credit cards. Here’s how to deal with them.

• Don’t use them. Don’t cut them up, but put them in a drawer and only access them in an emergency.
• Identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one’s paid off, work on the card with the next highest rate.
• Don’t close existing cards or open any new ones. It won’t help your credit rating, and in fact, will only hurt it.
• Pay on time, absolutely every time. One late payment these days can lower your FICO score.
• Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club you’ve never used? Look for line items you don’t need.
• Call your credit card companies and ask them nicely if they would lower your interest rates. It does work sometimes!

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Five Things you Should Know about the AMT

You may not know about the Alternative Minimum Tax (AMT) because you’ve never had to pay it before. However, your income may have changed and you may be required to pay it when you file your 2016 tax return next year. The AMT is an income tax imposed at nearly a flat rate on an adjusted amount of taxable income above a certain threshold. If you have a higher income, you may be subject to the AMT.

Here are five facts you should know about the AMT:

1. Know when the AMT applies. You may have to pay the AMT if your taxable income, plus certain adjustments, is more than your AMT exemption amount. Your filing status and income define the amount of your exemption. In most cases, if your income is below this amount, you will not owe the AMT.

2. Know exemption amounts. The 2016 AMT exemption amounts are:

• $53,900 if you are Single or Head of Household.
• $83,800 if you are Married Filing Jointly or Qualifying Widow(er).
• $41,900 if you are Married Filing Separately.

You will reduce your AMT exemption if your income is more than a certain amount.

3. Use a qualified tax professional. Keep in mind that the AMT rules are complex. The best way to prepare and file your tax return is to use a qualified tax professional.

4. AMT Assistant Tool. Use the AMT Assistant tool on the IRS website to quickly find out if you will need to pay the tax.

5. Use the right forms. Usually, if you owe the AMT, you must file Form 6251, Alternative Minimum Tax — Individuals. Some taxpayers who owe the AMT can file Form 1040A and use the AMT Worksheet in the instructions.

Wondering if the AMT affects you this year? Give the office a call today and find out.

Tax Tips for Children with Investment Income

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five important points to keep in mind if your child has investment income this year:

1. Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Parent’s Tax Rate. If your child’s total investment income is more than $2,100 then your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.

3. Parent’s Return. You may be able to include your child’s investment income on your tax return if it was more than $1,050 but less than $10,500 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends, for more information.

4. Child’s Return. If your child’s investment income was $10,500 or more in 2016 then the child must file their own return. File Form 8615 with the child’s federal tax return next April.

5. Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960,Net Investment Income Tax, to figure this tax.

Questions?

Please call if you have any questions about your child’s investment income.