Be careful when filing this year's taxes
By Justin Hunter
Donating to a charitable organization
makes most of us feel good around Christmas
time or during our yearly spring cleaning.
It also helps that these donations are
tax
deductible.
It is fairly well known that when you
file for taxes, you can claim up to donating
a specific amount of goods which most
people just put around the highest amount
regardless of what the value really was.
This is because there was no way you could
get caught unless you were audited (and
claiming $250 probably was not enough
to warrant this action), until this year.
Broderick Perkins’ article, “Document
Value Of Donated Household Goods”
written October 12, 2006 for Realty
Times, explains how a new provision instituted
in this year’s tax forms will constitute
you to be a little more judicious when
deducting charitable donations.
“In 2007, the Internal Revenue Service
will hold you accountable for accurately
documenting the value of donated goods
under a new tax edict tucked away in the
Pension Protection Act of 2006, signed
by President Bush this summer.”
“The broader act is aimed at curing
the ailing defined-benefit pension system
but it includes a host of unrelated provisions,
including one that governs required, accurate
documentation when you claim tax breaks
for gifts, including household
goods trucked off to charitable organizations.”
Currently, the IRS basically believes
you on all claimed tax breaks for donations
of money or goods that you valued at up
to $250. Documentation is required for
larger amounts and this will also lead
to you being audited. But this will all
change by next year.
“Next year, you might want to put
a check in the Salvation Army's Christmas
Kettle and make sure that futon is really
worth $50 -- if you take the deduction.”
Under the new provision, you still will
not have to file receipts, canceled checks
or other documentation of donations, but
you better have solid proof of your claims.
“IRS will keep tabs on you through
a form that's already necessary when you
give goods, IRS Form 8283, ‘Noncash
Charitable Contributions’ which
comes with instructions, both of which
you can download [from the Internet].”
The IRS will also intensify penalties
on falsified values of donated goods.
These penalties will not give tax payers
a year or two to figure out the new system
because it is assumed that they should
have been filing correctly all along.
“The penalty is 20 percent of the
underpayment of tax related to the overstatement
if the value or adjusted basis claimed
on the return is 200 percent or more of
the correct amount, and you underpaid
your tax by more than $5,000 because of
the overstatement.” “The penalty
jumps to 40 percent if the value or adjusted
basis claimed on the return is 400 percent
or more of the correct amount and you
underpaid your tax by more than $5,000
because of the overstatement.”
Now, popular charities such as the Salvation
Army and Goodwill Industries provide suggested
values for a variety of common donated
items, but it is your duty to make sure
you have the correct values.
If you frequently donate goods, you will
want to know how to accurately value your
donations. You can obtain this information
through the “IRS Publication 561
‘Determining The Value Of Donated
Property’ or the IRS Web page with
the same name, both teach you how to value
everything from aircraft and household
goods and to real
estate and stocks.”
It is very important to accurately deduct
your donated goods. You do not want to
find out how serious the IRS is, the hard
way.
