Not all post-DOMA changes lead to more benefits

Lisa Keen for the Keen News Service writes: There was a flurry of activity among federal agencies this month to issue regulations concerning how they are complying with the U.S. Supreme Court decision striking down the key provision of the Defense of Marriage Act (DOMA). All of them were aimed at making sure same-sex marriage couples were treated equally, but not all of them resulted in a positive gain.

On Monday, the U.S. Treasury and the Internal Revenue Service issued a notice that governs how employees with same-sex spouses may sign up their spouses for health coverage and avoid paying taxes on the benefit, as straight married couples have been able to do. Previously, under DOMA, employers could not allow employees with same-sex spouses to elect coverage for that spouse on a “pre-tax basis.”

Also on Monday, the U.S. Social Security Administration announced it is now processing and paying claims for benefits of “some” surviving spouses’ of same-sex marriages.

“In addition,” said SSA Acting Commissioner Carolyn Colvin, “we are able to pay some one-time lump sum death benefit claims to surviving same-sex spouses.”

According to SSA spokesman William Jarrett, a widow or widower may receive reduced survivors’ benefits as early as age 60, and full survivors’ benefits once they reach the “full retirement age.” Full retirement age for people born between 1945 and 1956 is currently 66. Over time, however, that will increase. The full retirement age for people born in 1962 or later will be 67.

“If you’re surviving spouse is disabled, benefits can begin as early as age 50,” said Jarrett. “Your widow or widower can receive benefits at any age if she or he takes care of your child who is receiving Social Security benefits and younger than age 16 or disabled.”

Interestingly, a SSA press release quoted Commissioner Colvin as urging, “If you believe you may be eligible for Social Security, I encourage you to apply now to protect against the loss of any potential benefits.”

Asked what might cause a “loss of any potential benefits,” Jarrett said, “We don’t want an individual to delay filing an application because he or she is uncertain of the rules. A person is typically protected back to the date the application is originally filed.” SSA’s press release said it is developging “additional policy and processing instructions” in the coming weeks.

“If you are in a same-sex marriage or other legal same-sex relationship, even if you live in a state that prohibits same-sex marriage,” says the SSA website, “we encourage you to apply right away.”

But not all compliance changes in the post-DOMA aftermath improve circumstances for same-sex couples. For instance, the U.S. Department of Education on Friday announced a new policy related to eligibility for federal student loans. Under DOMA, the Department of Education could not seek information about a student’s same-sex spouse and what income that person might contribute to the student’s financial picture. Nor could they look at the contribution of a non-biological parent either married to or living with the student’s biological parent. In many cases, that probably helped a student seeking federal needs-based student aid.

A December 13 press release from the DOE says it will now consider a student loan applicant married if he or she “was legally married in any jurisdiction that recognizes the marriage, regardless of whether the marriage is between a couple of the same sex or opposite sex, and regardless of where the student or couple lives or the student is attending school.”

Students who need financial aid for their college education can apply through the Free Applications for Federal Student Assistance, or FAFSA, under the Department of Education. The program gives out over $150 billion each year in grants, loans, and work-study funds to help pay for college education for more than 15 million students. In fact, it is the largest provider of student financial aid in the country. About 22 million students apply each year.

Information provided on the FAFSA form is used to determine how much a student and his or her family can be expected to contribute to school costs and how much he or she might be eligible to receive from the federal needs-based student aid.

Where, under DOMA, the FAFSA would not collect data on same-sex spouses or parents in same-sex marriages, now it will. And this is the part of the post-DOMA change DOE’s press release focused on.

“We must continue to ensure that every single American is treated equally in the eyes of the law, and this important guidance for students is another step forward in that effort,” said U.S. Secretary of Education Arne Duncan in the press release. “As students fill out their FAFSA this coming year, I’m thrilled they’ll be able to do so in a way that is more fair and just.”

The new FAFSA forms will be gay friendlier. They refer to parents not as “Mother” and “Father,” but as “Parent 1” and “Parent 2.” They provide an option for applicants to describe their parents’ relationship status as “unmarried and both parents living together.”

- See more at: http://www.keennewsservice.com/2013/12/16/not-all-post-doma-changes-lead-to-more-benefits/#sthash.bg70A7Za.dpuf

QuickBooks® Syncs American Express Data / American Express App Will Soon Sync With QuickBooks

Scott Cytron for Intuit writes: In November, Intuit® announced a new partnership with American Express. Because American Express and Intuit have a strong track record of service and innovation for small businesses, this partnership is good for accountants and their clients who use QuickBooks®.

American Express has built an app on Intuit’s open platform that enables small business customers to take pictures of their receipts on their mobile device, match them up to their QuickBooks chart of accounts and import them into QuickBooks. The new product, ReceiptMatch with QuickBooks, will close the gap between small business clients’ card swipe and their expense being entered and tagged into QuickBooks.

ReceiptMatch with QuickBooks is free to OPEN small business Card Members – and it will be available in early 2014.

This is an example of Intuit’s vision to enable “no data entry” for its customers and marks the beginning of a partnership that will benefit small business owners for years to come.

Marjorie Adams for AQB writes: According to PC World (view article), the start of 2014 will bring an exciting new tech improvement for small businesses using QuickBooks. A partnership between Intuit and American Express’s small business sector is developing an app upgrade that brings together American Express and QuickBooks.

The American Express app will soon allow users to take photographs of their receipts with their smart phones, and can tag it into QuickBooks and sync the tag to your American Express statements as well. In QuickBooks, it will tag the receipt “based on what kind of expense it is, the job it will be billed to, and the employee who made the purchase”.

American Express OPEN, the small business sector of AmEx, developed their ReceiptMatch app to help small businesses simplify expense tracking. (http://online.wsj.com/article/PR-CO-20130422-911169.html). The mobile app is currently available for free for all American Express OPEN card members. This new collaboration with Intuit and QuickBooks simplifies business for anyone using the two, and it’s an exciting new update.

Check out www.OPEN.com to explore American Express’ OPEN, and look forward to the release of the QuickBooks upgrade to the app in early 2014.

2 Tips for Tax Efficient Profit Taking

Brick By Brick Investing writes: Minimizing capital gains is foremost in the minds of many investors with taxable accounts when December 31st approaches. This is particularly true for short term capital gains on assets held less than a year. While profit taking stems from many reasons, there are common strategies that help offset or minimize your taxable burden.

Here are some tax efficient strategies to consider:

Tax Loss Harvesting:

When short term capital gains are realized, you can apply up to $3,000 in losses from other investments against ordinary income for that year. Any remaining balance of losses can be carried forward to future years. Investment managers such as Elliott Broidy and smaller investors alike can benefit from tax strategic selling. Profit taking and tax loss harvesting may have similar motives. These can include changes in the underlying security and portfolio rebalancing, among several others. Aside from reducing the impact of capital gains, harvesting losses helps investors evaluate if current portfolios match their existing income tax brackets, time horizons and other considerations. Harvesting tax losses also gives financial incentive for parting with lackluster holdings you may be emotionally attached to.

Specific Identification Method:

Some investors sell portions of their holdings to take profits for various reasons. When doing so, the IRS assumes FIFO (First in First Out) when you sell securities.However, this may not have the most favorable cost basis, meaning these shares were purchased at a relatively low price and have more embedded capital gains. By identifying specific shares bought at higher prices, you can minimize taxes and still realize the needed amount for profits. The reasons for profit taking may include tweaking asset allocation, personal use, eliminating debt and meeting other tax liabilities, among others. Investors should determine where the money from their sales will be directed and how much is needed. Knowing the answers to such questions helps specific identification be more effective.

Summary:

Tax efficiency is a crucial and dynamic aspect of an overall investment strategy.Understanding your tax liability is more effective when considered throughout the year, instead of hectic adjustments near December 31st. Methods such as tax loss harvesting and specific identification should be considered on an individual basis.

How Paychex Can Face ADP's and Intuit's Threat

Dan Caplinger for the MotleyFool writes: Paychex (NASDAQ: PAYX  ) will release its quarterly report on Wednesday, and investors have continued to like the payroll-processing company's prospects, bidding the stock to multiyear highs. But in order to keep its earnings growing strongly, Paychex has to navigate a tough competitive environment, dealing with Automatic Data Processing(NASDAQ: ADP  ) and its targeting of high-end large business clients as well as Intuit (NASDAQ: INTU  ) and its pursuit of small-business customers.

Paychex has positioned itself as the go-to solution for small and medium-sized businesses to meet various payroll processing and human resources needs. ADP and Paychex traditionally carved up the overall market by company size, with ADP taking large companies. But now that Intuit is leveraging its exposure to small businesses from its Quickbooks accounting software and its TurboTax tax software, Paychex has to defend its market share from competitors on both sides. How will Paychex's efforts fare? Let's take an early look at what's been happening with Paychex over the past quarter and what we're likely to see in its report.

Stats on Paychex

Analyst EPS Estimate	$0.42
Change From Year-Ago EPS	2.4%
Revenue Estimate	$598.89 million
Change From Year-Ago Revenue	5.2%
Earnings Beats in Past 4 Quarters	2

Source: Yahoo! Finance.

Can Paychex earnings keep growing this quarter?Analysts haven't budged on their views about Paychex earnings recently, keeping their expectations for 5% to 6% growth in fiscal 2014 and roughly 7% growth in fiscal 2015 unchanged. The stock has done reasonably well, though, rising 8% since mid-September.

Paychex's results for its August quarter showed the extent of the challenges the company faces. The payroll processor successfully increased total service revenue by 5%, with HR services outpacing payroll and leading to net-income growth of 6%. Yet expenses also increased 4%, and some of the company's revenue from retirement services has benefit greatly from the bull market in stocks and are thus vulnerable to a pullback when it occurs.

But Paychex is working hard to improve efficiency and gain competitive advantages against ADP and Intuit. Its new software-as-a-service platform attempts to give HR administrators a cloud-based environment on which to manage their corporate HR operations, and its Paychex Accounting Online application will go up directly against QuickBooks in providing integrated accounting services to Paychex customers. ADP has given its clients a solid online experience with its Vantage cloud-based package of integrated payroll, benefits, and HR management functions, while Intuit has had great success with QuickBooks and other software-based services like TurboTax. That makes Paychex smart to fight back with user-friendly technology as well.

Interestingly, Paychex might serve a useful function for investors looking to protect themselves against a potential rise in interest rates. Paychex benefits from acting as a temporary depository for businesses' cash before it goes out to employees, and when interest rates are higher, Paychex can earn more income on the money it holds on behalf of its clients.

In the Paychex earnings report, look to see what the company has to say about its ongoing efforts to expand internationally. In its previous report, Paychex noted efforts to expand into South America through a joint venture in Brazil, as well as the acquisition of a payroll provider in Germany. By diversifying its exposure, Paychex might be able to avoid the same downdraft it suffered during the U.S. market meltdown in 2008 if the next bear market turns out not to be a worldwide phenomenon.

6 Great iOS Accounting Apps for Small Businesses

Brett Nuckles writes: If you run a small business, you probably use computer software to create invoices, process payments, and track projects and expenses. But as computers get smaller and more mobile — nearly every business owner has a smartphone in their pocket or a tablet in their bag — why can’t accounting softwarecome along for the ride?

In terms of breadth and quality, Apple’s App Store has the best selection of apps on any mobile platform. That means iPhone and iPad devices are home to a huge selection of finance and accounting apps for mobile bookkeeping.

Accounting apps for iOS can’t do it all; for serious number-crunching, you'll need the benefits of a larger monitor, a full keyboard and deeper features found in desktop software. But for basic expense tracking, mobile apps have distinct advantages. Because they run on your iPhone or iPad, you can log in and access your account from virtually anywhere. And because your account information is stored in the cloud, it’s up-to-date no matter which device you view it from.

Here are six great iOS finance and accounting apps to help you manage your business on the go.

Kashoo (Free with Kashoo subscription, starting at $20/month)

Kashoo is a popular, full-featured accounting app for iPad. It features most of the things you want out of an accounting platform, letting you view and track transactions, create invoices and record payments. The app features collaboration capabilities so you can share your financial data with your business partner or full-time accountant. You can also track receipts and bills by snapping a photo. And Kashoo automatically generates reports at regular intervals to give you insights into the financial health of your small business.

Shoeboxed (Free with Shoeboxed subscription, starting at $10/month)

With Shoeboxed for iOS, keeping your receipts, bills and other financial documents organized is as easy as snapping a photo. Once your document is uploaded via the Shoeboxed app, the important information, such as vendor, date, total and payment type are automatically extracted, creating a fully searchable digital database of your transactions. For small business owners, using Shoeboxed will pay off in a major way when it’s time to file your taxes. The app can save you time; organizing documents by hand is time-consuming. And it can save you money; hiring someone to manage your paper documents is expensive.

InDinero (Free app with InDinero subscription, pricing varies by business)

InDinero is an expense-tracking app tailored specifically for businesses. It works a lot like Mint; just upload your bank account and credit card information, then let InDinero take over to automatically track where your money is going. The app organizes your transactions for you, placing them into categories such as travel, inventory costs or insurance expenses. Then it charts your data to answer pressing financial questions, such as where your money is going and how your current spending compares to revenue. InDinero also alerts you when it spots unusual activity so you can make corrections when spending strays from the norm.

Mint (Free)

Mint is billed as a personal finance app, but it offers useful tools for entrepreneurs and very small businesses to track spending and tweak budgets. Add bank accounts and credit cards, and the app automatically pulls in and categorizes your transactions, and then organizes them in easy-to-read graphs to show you where your money is going. In other words, Mint will keep your finances organized so you can focus on business operations.

QuickBooks for iPhone (Free with a QuickBooks desktop subscription, starting at $13/month)

QuickBooks offers elegant accounting tools to help you track and manage your finances. The iPhone app isn't a fully featured, mobile version of the QuickBooks desktop application; think of it as a mobile companion app with useful tools to help you track sales, send out invoices and review recent payments when you’re away from the office. It requires a QuickBooks subscription, but a free 30-day trial is available.

FreshBooks (Free with a FreshBooks subscription, starting at $20/month)

FreshBooks is a QuickBooks alternative with tight cloud integration and an easy-to-use interface. At its core, FreshBooks is a system to help you record and track your business’s expenses and profits. It has extra functionality, such as the ability to track how much you or your employees work on a project for easier invoice generation.  And like other services, it organizes and charts your expenses to help you make business decisions and file your taxes. The service offers a free 30-day trial; after that, you can continue to use FreshBooks starting at $19.95 per month.

Using Tax Returns to Unearth Hubby's (or Wifey's) Hidden Assets

Julian Block for the HuffingtonPost writes: Divorces can be costly, from paying fees for lawyers or expert witnesses to appraisals of homes, businesses or other assets. The expenses soar when couples take their conflicts to the courts.

Sometimes there's an added expense -- finding hubby's (or wifey's) hidden property. Consider what happens when wives (or husbands) hire private investigators to track down assets concealed by future ex-husbands (or ex-wives). Fees to find those hidden assets can add up to many thousands of dollars, as I can confirm from my work as a tax lawyer and investigator.

One of my more memorable clients was a woman whose divorce proceedings had become horrendously prolonged and contentious. A dozen or so years ago, she shelled out $15,000 just to have a private eye tail her spouse, a medical professional and a serial philanderer. The sleuth discovered a safe deposit box rented by the husband in his aunt's name and crammed with nearly half a million in greenbacks. That $15,000 proved to be savvy spending; unearthing the concealed cash compelled the husband to increase the wife's divorce settlement. Wisely, he wanted to avoid court testimony about cash payments from patients -- information about income unreported on tax returns that the judge might routinely have passed on to the IRS.

(There was no deduction for the $15,000. Generally, the cost of a divorce is nondeductible. There's a limited exception for the part of the expenses specifically allocable to tax advice in connection with a divorce, as well as for legal fees to obtain taxable alimony.)

Not all searches for hidden assets are that dramatic -- or expensive. Fortunately, there's a no- or low-cost source of information for spouses who are compelled to litigate their divorces or for already-divorced spouses who seek to recover overdue payments of alimony or child support. And frequently the means for unearthing this information is tucked away in their file cabinets -- unbeknownst to those seeking the information. This is because still-marrieds and ex-spouses can glean a good part of what they need from the separate schedules submitted with their jointly filed federal tax returns.

Indeed, a treasure trove of names and amounts that could considerably shorten searches for hidden assets can be found in the 1040 forms, as follows.

1. Check the Schedule B: This schedule requires listing the names of mutual funds, brokerage companies, banks and other sources of dividends and interest. At the bottom of Schedule B are questions about the existence of banks and financial accounts in foreign countries or foreign trust transactions. Not everyone will have a Schedule B, however. For those whose interest or dividend income is less than $1,500, the totals for dividend and interest income are listed on the first page of Form 1040. Taxpayers with bank or other financial accounts in foreign countries and those involved in certain foreign trusts have to continue filing Schedule B, regardless of the level of dividends or interest income.

If the dividend and interest amounts aren't listed on a Schedule B, this can make it harder to find out where the investments or bank accounts are. But just listing totals of interest and dividend income reveals that an ex-husband owns assets that generate interest and dividends, at least during the year covered by the return. This, in turn, gives the spouse endeavoring to find hidden assets a starting point for her quest.

2. Check the Schedule D: This schedule discloses capital gains and losses from sales of fund shares, individual stocks and other assets. In other words, if the husband has listed a profit or a loss from a stock sale, that establishes that he has owned -- and unloaded -- that stock. Chances are he owns more.

3. Check the Schedule E: This schedule discloses income or loss from the following sources: rental real estate (including the type and location) and royalties; partnerships and S corporations (S corporations are companies -- taxed much the same way as partnerships are -- that pass profits or losses through to their shareholders, who pay taxes at their own individual rates); and estates and trusts.

So if Schedule E reveals rental income, it might be worthwhile to drop by the property. Ditto when there's partnership or S corporation income -- track down the outfit in question and ascertain whether it continues to generate income for the dear ex-spouse in question.

Five Commonly Overlooked Tax Deductions (click to view)

Over at AOL we see Five Commonly Overlooked Tax Deductions.

2014 Tax Brackets: What You Can Expect to Pay

Selena Maranjian for the MotleyFool.com writes: It's not unusual to see our tax brackets change every few years, and it's just about expected that income levels referenced in them will change from year to year. Thus, to get an idea of what you are likely to pay in taxes, check out the latest 2014 tax brackets:

Tax Rate	Single Filers	Married Filing Jointly	Head of Household
10%	$0-$9,075	$0-$18,150	$0-$12,950
15%	$9,076-$36,900	$18,151-$73,800	$12,951-$49,400
25%	$36,901-$89,350	$73,801-$148,850	$49,401-$127,550
28%	$89,351-$186,350	$148,851-$226,850	$127,551-$206,600
33%	$186,351-$405,100	$226,851-$405,100	$206,601-$405,100
35%	$405,101-$406,750	$405,101-$457-600	$405,101-$432,200
39.6%	$405,751 and above	$457,601 and above	$432,201 and above

Data: IRS.

That's right -- there are seven 2014 tax brackets, up from six brackets in 2012. (Remember, too, that the 2014 tax brackets above represent the taxes you'll pay in 2015 on the income you earned in 2014.)

Marginal vs. effectiveIt's important to understand, as you survey the 2014 tax brackets above, that they can be easily misunderstood. You might assume, for example, that if you're single and have taxable income of $36,900, the top limit of the 15% bracket, you should avoid earning another dollar, as that would kick you into a higher tax bracket and cost you a whole lot more in taxes. That's not the way it works, because the tax rates above are marginal, not effective.

This is how you need to read that table of 2014 tax brackets: Imagine that you're single and you earn $36,901. Here's what happens: Your first $9,075 of income is taxed at 10% ($907.50). Your next bunch of income, from $9,076 to $36,900, is taxed at 15% ($4,173.75). Finally, your last dollar of income gets taxed at 25%, or $0.25. Add them together, and the 2014 tax brackets show you that your total tax bill will be $5,081.50.

Let's see what your effective tax rate is now. Divide $5,081.50 by your taxable income of $36,901 and you'll get 13.8%. That's the overall tax rate you paid. So the extra dollar that pushed you into the 25% bracket clearly did not have much of an effect.

Effective tax rates matter because they reflect what you actually pay in taxes. A marginal tax rate really just reflects how much you'll pay on a certain dollar, or your next dollar, of income. When Warren Buffett criticizes our tax structure, complaining that wealthy folks such as him pay less in taxes than people such as his assistant, he's referring to effective taxes. Many wealthy people collect much of their income in the form of dividends, for example, or long-termcapital gains, and these are generally taxed at lower rates.

As April 15 approaches, keep in mind the difference between marginal and effective tax rates and make smart tax decisions to keep your total bill as small as possible.

5 Expiring Tax Breaks You Should Take Advantage Of While You Still Can

NateMiller284 for SeekingAlpha writes: There are a bunch of important tax breaks that are set to expire at the end of 2013. This means that you still have a few weeks left to take advantage of them.

Okay, yes, Congress could get together and decide to extend these breaks (a few of them get renewed every January) for another year but...politics aside, if you've been watching the news lately you'll know that getting anything through Congress is something of a pipe dream. It is gridlock-a-go-go in there.

Of the tax benefits that are set to expire at the end of this year, here are the five that you are most likely going to be able to use to your advantage:

Mortgage Insurance Premiums

Did you know that the money you pay for your private mortgage insurance is tax deductible? It is. Even better, if you itemize your deductions, you can claim this and still claim your interest deduction. This is an important deduction for newer homeowners who haven't built up their equity yet.

Charitable IRA Distributions

One of the peskier rules of the IRA is that you have to start taking payments from the fund (also called taking distributions) once you reach 70.5 years of age. Yep-even if you are still working or don't have a need to tap into the fund just yet. If you don't take your distributions you can face steep penalties. Even worse, if you have a traditional IRA (instead of a Roth IRA), you have to pay taxes on those distributions. Ouch. This year, though-you can donate those distributions to charity instead of putting them in the bank. Donating your distributions to charity keeps you from having to report them as income. You can also help a charity, which feels good. So it's a win-win!

Sales Tax

Before you get excited, you should know that this deduction is only allowed for people who live in a state that doesn't have a state income tax requirement, like Nevada or Florida. See, if you live in a state that has an income tax (which is most of them), you can often deduct the amount you paid in state taxes on your federal taxes for the next year. People living in no-state-income-tax states can't do that so they are allowed to deduct what they've paid in sales tax over the year. Most of the time your annual income is used to figure out a standard sales tax deduction but if you've made some big ticket purchases, figuring out your deduction can be tricky. You might want to ask an accountant to help you get it right.

Transit Costs

If you have to take the bus to work or pay for parking while on the job and you pay those costs out of your own pocket, you can qualify for a tax deduction. For 2013, you can claim up to $245 a month in public transit costs and $245 a month for parking. These amounts are scheduled to drop to $130 next year.

Green Stuff

Buying an electric car can qualify you for up to $7500 in tax credits, depending on the size of your new car's battery pack. If you've made energy efficient upgrades to your home, you can claim up to $500 in your lifetime. Separately, if you buy energy efficient appliances, you can qualify for up to a $500 tax credit. Before you go out and buy all new appliances, though, make sure that your purchase will qualify for the credit!

NOTE: There is also a debt-relief tax provision that is expiring this year that is a little difficult to explain succinctly. The Wallace and Associates APC blog has a great post that explains the intricacies of it and how it might affect your family.

Every year the tax code changes a little bit, which can make figuring out your 1040 an annual hassle. To reduce your risk of tax migraine, start gathering your paperwork and learning about potential deductions now, while you still have a few months to prepare for filing. Or consider hiring an accountant to take care of things for you!

IRS Offers Tips for Year-End Giving

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:

Special Tax-Free Charitable Distributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income — resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Charitable Contributions of Clothing and Household Items

To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

 Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.  

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.
• Check that the organization is eligible. Only donations to eligible organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2013 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.

• The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
• If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
• And, as always it’s important to keep good records and receipts.

IRS.gov has Additional information on charitable giving including: