President Barack Obama proposed an expansion of the Earned Income Tax Credit (EITC) in his budget last week. The amendment would double the maximum credit for taxpayers with no qualifying children, raise the qualifying income amount, and lower the eligible age from 25 to 21 years old.
The recommendation targets low-income students and encourages more single adults to enter the workforce. An approximate 5.8 million people would be newly qualified for the EITC, and 7.7 million people would benefit from the increased maximum credit. The proposal intends to help those caught in poverty on a larger scale than current legislation.
Obama also supports a bill for minimum wage to increase from $7.25 to $10.10, in tandem with the EITC expansion. Neither one is likely to pass within the next year, but the discussion of poverty as a legislative issue may bring action into the foreseeable future.
The maximum EITC for 2013 taxes:
To see if you qualify for the EITC, visit:
Read more about it here.
A draft form and instructions for the 2013 Federal Form 990 have been issued by the IRS. There are very minimal changes from the previous year’s form and instructions. There is some clarification in the instructions for reporting short period returns and accounting method changes that are very helpful. A link to the draft form and instructions is here:
The documentation requirements taxpayers must maintain in order to take a charitable contribution deduction on their tax return have been in place for almost 20 years. They are worth repeating however, as two recent tax court cases have upheld the necessity of following these rules and denied contribution deductions to taxpayers who did not have the necessary documentation.
As a review a donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous written acknowledgement of the contribution from the recipient organization. Although it is a donors responsibility to obtain a written acknowledgement, charities should be very mindful of these rules because certainly donor relations are at stake if something goes wrong. IRS publication 1771 outlines these requirements.
In a 2012 case, David and Veronda Durden were denied a tax deduction for contributions made to their church because the original acknowledgement letter received from the Church did not clearly stipulate that no goods or services were provided to the donors in exchange for their donation ( TC Memo 2012-140). To correct this problem, the Church issued a second acknowledgement letter with the required statement but it was rejected by the Court because it was not considered to be contemporaneous.
To be considered contemporaneous, the documentation must be obtained on or before the earlier of:
There are rules outlining necessary steps if a non-cash donation of over $5000 is claimed for what is required to take a deduction for non-cash property (real estate, furniture, computer equipment, clothing etc.). The donor is required to file a Form 8283 with their standard return and it must include the signature of a “qualified appraiser” as to the value assigned to the donated property.
The tax court case of Joseph and Shirley Mohamed (TC memo 2012-152) also ruled against the taxpayers (who had taken a deduction of millions of dollars for donated real estate) because they did not properly comply with the rules regarding Form 8283 and did not obtain a qualified appraisal. This case resulted in a really draconian result for the taxpayer who had clearly donated substantially valuable property to their presumably valid charitable remainder trust, yet were denied the deduction due to improper reporting of the gift as far as completing the requirements of IRS Form 8283.
In both of these cases, the Tax Court has sent a strong message that the substantiation rules DO MATTER and failure to follow them closely will result in the loss of a contribution deduction.
How important are a few words? Ask the taxpayer whose charitable contribution deduction was denied by the IRS. The IRS requires organization to contemporaneously document whether any goods or services were provided in consideration for a contribution. Now is a good time to read through your organization’s gift acknowledgement to see that required wording is included. Aronson LLC is available to assist as needed. For more details of the IRS court case see ECFA.