Why it may not be deductible!

So you bought a painting at a charitable auction only to be told by your tax preparer it’s not deductible. You even paid the charity directly. You even have a receipt. What gives?

Rather than cite tax code lingo, let’s talk in understandable terms. If you buy something at a charitable auction, it’s only deductible if you pay more than the value of the goods or services you received.

Example 1. A $50 gift certificate to a local favorite restaurant purchased for $40 is not deductible.

Example 2. The same $50 gift certificate purchased for $60 generates a $10 charitable deduction.

Example 3. You purchase a box of fruit to support a local high school band program for $30. The equivalent fruit at your local grocer would cost you $15, so you receive a $15 tax deduction.

How do you support your favorite charity and walk away with a nice tax deduction?
Go for the items that have low intrinsic values but sell for big dollars. I’ve attended charity auctions where progressive dinners held by teachers sold for $500 a couple. This is a win win! The charity receives a great donation and the buyer receives a nice tax deduction. The intrinsic value of the dinner may be only $50, but the buyer receives a $450 tax deduction.

Remember that it’s important that we continue to support charitable causes, and it’s not always about the tax deduction. Understanding these guidelines will help you avoid any tax confusion the next time you attend a charitable auction.

Internal Revenue Service (IRS) rules of practice require me to inform you that any tax advice included in this communication is not intended to be used, and cannot be used, for the purpose of avoiding any tax penalties imposed by the IRS.

Know Your Limits!

2009 ushers in a new wave of financial limits that can impact your bottom line. Every year we get a new set of limits based on the guidelines presented by Congress and the IRS. The important point of understanding these limits is to have the ability to take full advantage of them. If you only contribute 1% of your pay to your 401k, then you probably will not need to know that the 2009 401k limit for an employee under age 50 is $16,500. Remember it is how you use this information that’s important!

Useful 2009 Limits:
401k, 403b and 457 contributions limits - $16,500
Catch up provision for those 50 and older - $5500
IRAs and Roth limits - $5000 (under 50) - $6000 (age 50+)
SIMPLE IRA and SIMPLE 401k - $11,500
Catch up provision for those 50 and over - $2500
Social Security Maximum Earnings - $106,800
Annual Gift Exclusion - $13,000 Federal (TN has 2 donor classes that impact the exclusion….$13,000 for class A donees and $3000 for class B).
Standard Deduction – Single $5700, Married Filing Joint $11,400
Personal Exemption - $3650
Federal Estate Tax Exclusion - $3,500,000

The above list includes most of the commonly used limits that impact the majority of society, but this is certainly not an exhaustive list. Use these limits to your financial gain. Maxing out your retirement options reduces your tax burden, which puts money back into your pocket.

Know you limits and use them wisely!