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|Revised December 6, 2005 by Tom Umstattd, CPA. Non-cash charitable gifts to charities can add up quick with very little hassle, and great benefit to others. We are always looking for ways to increase our cash flow. My favorite is receiving non-taxable income by cutting my income tax bill, without actually having to “pay” for any extra cash expenses. It seems our homes are filled to the brim with things that we have paid $1,000s for or that we were given & have not used for years. Now, I am not talking about family heirlooms or something that will have a specific future use to us. But the Clutter, Clutter, Clutter! How can we rid ourselves of this great American plague?
One man’s junk is another man’s treasure. There are many folks less blessed than we and would greatly appreciate the stuff in our garages & attics. Or perhaps we have moved, lost or gained weight or lost a beloved family member and still have some of their personal effects that no one else in our family wants. There are countless charities that receive gifts of personal property: boats, cars, clothing, appliances, shoes, toys, household furnishings, you name it, even real estate. Ginger and I have given to the Salvation Army, various churches, private schools, public schools, municipalities, neighborhood organizations, worthy Christian ministries, the Boy Scouts of America, Salvation Army, and others. I personally prefer the Salvation Army due to their Christian ideals, rather than Goodwill. Consult their Valuation Guide for Items Donated to the Salvation Army schedule which lists the average prices charged in their thrift stores. A problem is, when we collect our “junk” we tend to just leave it off at the Salvation Army and do not get with a receipt, not itemize what we gave, and forget all about it at tax time.
It is amazing to me, after 24 years of experience, how many under report their charitable contributions. I usually hear, “I don’t want to get the IRS mad at me,” like the IRS has emotions?! There are 2 emotions inappropriate for making investment decisions: fear and greed; same with determining fair market values. So, what are things worth? As usual, when taking an income tax position, there are some objective criteria to follow, and lots of subjective. Objective criteria are: using published (e.g. Wall Street Journal) trading ranges for common stocks donated, hiring a qualified appraiser for items valued over $5000, or donating the ownership of, for example, real estate, moments before the sale to an unrelated party, then using that sales price as the fair market value. As president, Bill Clinton, setting an example for the rest of us by making public his tax return showing his deduction of $2 per pair of used underwear. However, it is usually not reasonable to hire the expensive, and often over-worked qualified appraisers. When this is the case, we must rely on the ambiguous, subjective and exciting measurement criteria offered to us by common law: the gray area, my favorite color!
Tom’s Top Ten Tips for this type of giving:
And remember, Jesus said, “It is more blessed to give than to receive.”
For more information: See IRS Instructions to Form 8283
Medical Bills Deductions
(under an employee benefit program), by Michael Hengst
We would like to bring to your attention a tax saving plan that is relatively unknown. This plan is for the sole proprietor of a small business or C Corporation. A partnership or S Corporation cannot successfully use this plan for its owners. The plan allows for 100% tax deductibility of health insurance premiums and uninsured medical expenses paid by the business. The deduction can be taken as an employee benefit program deduction, on Form 1040, Schedule C, Line 14 or on Form 1120, Line 25. Internal Revenue Code 105 & 106, along with Revenue Ruling 71-588 make this plan legal. This is not a Medical Savings Account (MSA), which tends to be quite cumbersome, hard to manage, and easily penalized by the IRS. The taxpayer has or sets up a small business and employs his wife or her husband. (For a C Corporation there is no spousal employment requirement.)
The employee/spouse performs duties needed to help operate the business and receives a reasonable salary for services performed. The salary paid to the employee/spouse is included on the couple’s federal individual income tax return. The spouse and dependents (including the employer/spouse) can also receive non-taxable medical reimbursements for qualified medical expenses. The reimbursement received is not included in gross income for the recipient (Code Section 105) and is fully deductible by the business. Although legally these plans do not have to be in writing, it is our opinion that they should be. We have a simple one page form at our office for you. This will help insure the law is properly followed. The plan cannot discriminate in favor of a certain employee(s) over others.
The benefits paid by the business along with the reimbursements make this a 100% tax deduction. Benefits can include: all uninsured medical expenses (deductibles, co-pays, uncovered expenses), Health Insurance, Disability Income, Long Term Care, Cancer Insurance, Term Life Insurance (up to $50,000 per year), Medicare Supplement, Indemnity Hospital, Indemnity Medical, and Vision/Hearing Insurance. The uninsured medical expenses that are not covered by insurance should be for the diagnosis, cure, mitigation, treatment, or prevention of disease.
A physician should prescribe the medications. Also deductible if not covered by the benefits is lodging while away from home while a spouse is in a licensed hospital or in a medical care facility. The lodging is limited to $50 for each night for each individual. A medical expense such as cosmetic surgery is not included unless the surgery is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease. If you feel that you or your business may qualify for this plan, please contact us.
NEW FOR 2003!! According to the IRS’s new Revenue Ruling 2003-102 (9/5/03):
Over-the-Counter Drugs Can Be Covered by Health Care Flexible Spending Accounts. The Treasury Department and the IRS announced over-the-counter drugs can be paid for with pre-tax dollars through health care flexible spending accounts. Treasury and IRS issued guidance clarifying that reimbursements for nonprescription drugs by an employer health plan are excluded from income. Thus, reimbursements by health flexible spending arrangements (FSAs) and other employer health plans for the cost of over-the-counter drugs available without prescription are not subject to tax if properly substantiated by the employee. See: http://www.irs.gov/pub/irs-drop/rr-03-102.pdfNote, that vitamins for “general good health” are not considered as non-taxable or excludable health benefits for these types of plans.
By Michael Hengst,