Finance Tax Time

A taxpayer may usually deduct 14 cents per mile for all miles driven on behalf of a charity (Section 170(i)). The primary purpose of the travel must be to contribute to the mission of the charity. In addition, the travel must not provide the taxpayer with any significant amount of personal pleasure, recreation, or vacation (Section 170(j)). Further, a taxpayer may not deduct the miles driven on behalf of a charity, other than a church, if the purpose of the travel is to influence legislation (Section 170(f)(6)).

For example, if a taxpayer drove her personal automobile a total of 500 miles to procure and distribute wheelchairs on behalf of a qualified charitable organization such as LifeNets http://www.lifenets.org/, the taxpayer could deduct $70.00 (500 miles x 14 cents per mile). However, if a scoutmaster took a troop of Boy Scouts to summer camp and spent a week there with them, the scoutmaster may not deduct the miles because the trip to the summer camp has a significant element of personal pleasure, recreation, or vacation.

For miles for miles driven for relief efforts related to Hurricane Katrina after August 25, 2005, through December 31, 2006, a taxpayer may deduct 70 percent of the standard mileage rate in effect for business miles. If a taxpayer receives a reimbursement from a charity for miles driven for relief efforts related to Hurricane Katrina after August 25, 2005, through December 31, 2006, the taxpayer may exclude the reimbursement from gross income up to 100 percent of the standard mileage rate for business miles.

The standard mileage rate for business miles was 40.5 cents per mile from August 25, 2005, through August 31, 2005. The standard mileage rate for business miles increased to 48.5 cents per mile from September 1, 2005, through December 31, 2005. The standard mileage rate for business miles driven in 2006 is 44.5 cents per mile (Rev. Proc. 2005-78).

If a taxpayer does not receive any reimbursement from a charity for miles driven for relief efforts related to Hurricane Katrina, the taxpayer may deduct 29 cents per mile for miles driven from August 25, 2005, through August 31, 2005; 34 cents per mile for miles driven from September 1, 2005, through December 31, 2005; and 32 cents per mile for miles driven in 2006 (Rev. Proc. 2005-78).

If a taxpayer receives reimbursement from a charity for miles driven for relief efforts related to Hurricane Katrina, the taxpayer may exclude from gross income up to 40.5 cents per mile for miles driven from August 25, 2005, through August 31, 2005; 48.5 cents per mile for miles driven from September 1, 2005, through December 31, 2005; and 44.5 cents per mile for miles driven in 2006 (Rev. Proc. 2005-78).

In addition to the standard mileage rate, a taxpayer may deduct the cost of parking fees and tolls incurred while driving an automobile on behalf of a qualified charitable organization (Rev. Proc. 2005-78).

If a taxpayer has any doubt about the status of an organization as a qualified charity, the taxpayer may consult IRS Publication 78 at the IRS Web site: http://www.irs.gov/

A taxpayer claims the deduction for miles driven on behalf of a charity on Schedule A of Form 1040. The deduction for miles driven on behalf of a charity is included with the amounts for cash contributions on the same line of Schedule A of Form 1040.

A taxpayer should have good records such as a mileage log to document the deduction. The burden of proof is on the taxpayer to prove the amount of all deductions claimed.

If the taxpayer’s total itemized deductions do not exceed the standard deduction amount, the taxpayer will usually not receive any benefit from the deduction for miles driven on behalf of a charity.

Alan D. Campbell is a CPA in Arkansas and Florida and is self-employed primarily as an author of tax publications. He earned a Ph.D. in accounting with an emphasis in taxation from the University of North Texas. He is also admitted to practice before the United States Tax Court. He has published numerous articles on tax topics in professional journals. He is the co-author of the book Tax Strategies for the Self-Employed and the revision editor of CCH Financial and Estate Planning Guide, 15th edition. For more tax savings strategies, please see his blog: http://taxsavingsstrategies.blogspot.com

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On June 3, 2005, the IRS released guidance on charitable deductions for donated vehicles. The American Jobs Creation Act (AJCA) radically changed the amount of the deduction taxpayers can claim for their donated car.

Fair Market Value v. Actual Sales Price

When donating a car to charity, a taxpayer traditionally was allowed to deduct the fair market value. The new law changes this valuation to the actual sales price of the vehicle when sold by the charity. The taxpayer is also required to get written and timely acknowledgment from the charity in order to claim the deduction

The AJCA does provide some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of a vehicle–such as regular use to deliver meals on wheels– the donor may deduct the full fair market value. For example, driving a vehicle a total of 10,000 miles over a one-year period to deliver meals is a significant intervening use.

The AJCA also allows a donor to claim a fair market value deduction if the charity makes a material improvement to the vehicle. Under the guidance, a material improvement means major repairs that significantly increase the value of a vehicle, and not mere painting or cleaning.

Interestingly, the IRS has also added an exemption not included in the AJCA. On its own, the IRS has determined that taxpayers can claim a deduction for the fair market value of a donated vehicle if the charity gives or sells the vehicle at a significantly below-market price to a needy individual, as long as the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.

If you intend to assert one of these exemptions, how do you determine the fair market value? Generally, vehicle pricing guidelines and publications differentiate between trade-in, private-party, and dealer retail prices. The IRS consider the fair market value for vehicle donation purposes to be no higher than the private-party price.

The new provisions of the Americans Job Creation Act certainly make it less attractive to donate a car to charity. Using the exemptions, however, you can still create a sizeable deduction while helping others who are less fortunate.

Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.

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The tax code in the United States contains many provisions to promote certain behavior. One area of behavior is the promotion of giving to qualified charities.

Giving To Charities - Tax Deductions and Such

In the rush to get tax returns prepared and filed, many people absentmindedly forget to include deductions for contributions to charities. If you itemize deductions on your tax return, this can be an expensive omission.

Pursuant to relevant provisions of the tax code, you can take significant deductions if you donate money or goods to a qualified charity. A qualified charity is one that is registered with the IRS as a 501c3 entity. The 501 designation refers to the relevant section of the tax code.

Importantly, not all charitable organizations are qualified with the IRS. You can go to the IRS web site and search through a list to see if a particular group is included. If they are not, red flags should go be raised.

Before claiming your deduction for donations, there are a couple of things to keep in mind:

1. Politics - You may feel strongly about certain political ideologies, issues or candidates. You can contribute to the causes, but you can’t deduct the contributions as charitable giving.

2. You can only deduct contributions actually made for the year in question. If you forgot to claim donations on your tax return for the 2004 year, you cannot claim them on a 2005 return. Instead, you should go back and amend the 2004 return.

3. If you make a contribution for a good or service, you can only deduct the amount you contribute which is in excess of the fair market value of the good or service. For instance, many charitable groups will hold auctions to raise money. If your winning bid for a two night hotel stay is $800, you can claim a deduction for the bid amount minus the normal cost. You cannot just write off $800.

4. In general, donations of stock or property should assigned the fair market value, not an arbitrary figure based on your opinion. Big ticket items should be supported with an appraisal.

5. The rules for donating automobiles have changed. The charitable group should have sent you correspondence regarding the amount it was able to sell the vehicle for. This is the amount you can deduct, not the blue book amount previously allowed. If the charity has not sent you anything, call them to get written confirmation. They know it has to be done under new IRS regulations.

Donating to charities is positive moral step. Make sure to claim your deductions to reap savings on your taxes.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on tax and taxes. Visit us to read more tax articles and our new tax credits page.

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