Tag: Charities

IRS Dirty Dozen – Fake Charities

Every year, the IRS compiles a list of tax-related scams called the Dirty Dozen. I’ll highlight the scams over the next couple of weeks. One of the Dirty Dozen this year is fake charities. The IRS commissioner reports:

Fake charities set up by scam artists to steal your money or personal information are a recurring problem. Taxpayers should take the time to research organizations before giving their hard-earned money.

The IRS offers these tips if you make charitable contributions.

  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. Legitimate charities will provide their Employer Identification Numbers (EIN), if requested, which can be used to verify their legitimacy through EO Select Check. It is advisable to double check using a charity’s EIN.
  • Don’t give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution. Scam artists may use this information to steal identities and money from victims. Donors often use credit cards to make donations. Be cautious when disclosing credit card numbers. Confirm that those soliciting a donation are calling from a legitimate charity.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

The IRS also notes that many people are defrauded by fake charities following disasters.

The scams work several ways. The most common is to persuade unsuspecting individuals to donate to bogus charities. Another is to use the appeal as a way to collect personal information that can be used for identity theft.

Please do not be dissuaded from continuing to contribute to worthy causes. However, be aware of the potential for fraud and be vigilant. There are resources to help you make good decisions about charitable contributions under the Resources tab on www.elycpa.com.

 

Charities and Thank You Notes

I’ve been looking over thank you notes that some charitable organizations have sent out. These notes serve several purposes. The most obvious is to say, “Thank you!” Aside from simple courtesy, saying thank you also helps strengthen the relationship between the donor and the organization.

Another important reason for the note is that it serves as a receipt. Donors, especially those that make larger gifts, need to have documentation for tax purposes. Sadly, many charities seem to think that this is the only reason for sending thank you notes. This has two unfortunate consequences. The first is that they only send thank you notes to large donors. But wait! Remember simple courtesy? Remember strengthening relationships with donors? Charities that only send thank you notes for donations above a certain threshold are sending an implied message to those that made smaller contributions that their efforts did not warrant a thank you. When deciding where to make their donations in the future, those donors will look to the organizations that acknowledged the gift.

The second unfortunate consequence is that the letters are lousy. If you are going to take the time to write a letter, don’t just say, “Thanks for the hundred bucks. Here’s your receipt.” Take the time to write a sincere letter that says why the contribution matters and how it will be used. Use that letter to strengthen your relationship with the donor.

I found a great blog post on the GuideStar Blog that does an excellent job of explaining donor thank you letters. The writer, Claire Axelrad, J.D., CFRE reviews nine common mistakes in thanking donors. Read the post and see if your not-for-profit is making any of those mistakes.

Did you donate to a worthy cause last year? Things you should know.

Many people are very generous. If you are someone who graciously gives time or money to charitable organizations, there are a few things that you should know. These things are especially important as you begin getting your documents ready to get started on your 2016 tax return.

One of the most common questions about charities that CPAs and tax preparers find themselves answering during tax season is, “How much can I deduct?” The easy answer is that for taxpayers that itemize, contributions up to 50 percent of adjusted gross income (AGI) are generally deductible. There are some contributions that are limited to 30 or 20 percent of AGI. Your CPA can help you figure this out. The unasked question concerns whether significant donations increase audit risk. Sorry. There is no magic number.

One common assumption is that any worthy cause is a tax-deductible charity. This is not the case. The only deductions that are deductible are those organizations covered under section 170(c) of the Internal Revenue Code. Many of the popular social media funding campaigns do not qualify as charities for tax purposes. You can check to see if an organization is eligible by using the IRS Exempt Organization Select Check tool. Keep in mind that there may be eligible organizations that are not listed in the database.

What’s deductible?

Most people understand that cash contributions are deductible. Confusion arises when donors receive something of value as a result of a contribution. The general rule to know what is deductible is to start with the amount of the contribution and deduct the value of anything received in return. For example, if a donor contributes $250 and in exchange attends a dinner worth $50, then the contribution is $250 less $50 or $200. There are exceptions when the things received in exchange for a donation are very small or “de minimis.”

Donations of goods are also confusing. It is generally the responsibility of the donor to ascertain the value of goods donated. It is not sufficient to simply claim that something is worth a certain amount. There must be a basis for the statement such as an appraisal or a catalog value. Documentation requirements are more stringent as the value of goods increase. For example, the value of clothing and miscellaneous household items donated to a charitable organization may not require as much documentation as an automobile, land, artwork, jewelry, or collectibles. There are special rules for accounting for the value of appreciated property.

One often overlooked item is mileage. If you drive as part of your efforts on behalf of a charity, you may be eligible to deduct mileage.

Documentation

Another important consideration is documentation. When preparing tax documents, it is always a good idea to document, and charitable contributions are no exception. Many charitable organization routinely send receipts to donors regardless of the amount of the donation. If you need a receipt from a charitable organization, do not hesitate to ask for one. If you donated goods, you will want to have documentation for the value claimed.

Resources

It is always a good idea to consult with a professional, particularly if your situation is complicated. Even so, it is also a good idea to have some understanding of the various rules affecting contributions. The IRS has several publications that go into great detail about all aspects of charitable giving.