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New Crackdown on Charitable
Donations Without Receipts
New Limitation on Deductions for Gifts of Clothing and
Household Items
QuickBooks
2006 Press Release
Energy Bill
Legislation
Hiring Help for the
Summer, by Steve Sahlein
New Crackdown on Cash Donations without Receipts
The new law effectively
ends deductions for out-of-pocket cash donations unless
a receipt is obtained from the recipient organization.
For example, a client who simply drops a $20 bill in the
Sunday collection plate will no longer be able to deduct
it.
Under prior rules, a
deduction for a cash donation had to be substantiated by
one of the following:
- A cancelled
check.
- A receipt (or a
letter or other written communication) from the
recipient organization showing the name of the
recipient, the date of the contribution, and the
amount of the contribution.
- In the absence of
a cancelled check or a receipt, other reliable
written records showing the name of the recipient,
the date of the contribution, and the amount of the
contribution.
So, under (3), clients
who put cash in the Sunday collection plate or in
Christmas kettles outside department stores could claim
a deduction as long as they kept a log or other written
record of their contributions.
The new law bars
this practice by eliminating the third method of
substantiation. Starting with 2007, a deduction for any
cash donation is disallowed unless the donor retains a
bank record or a written communication from the
recipient organization showing the name of the
organization and the date and amount of the donation.
New Limitation on Deductions for Gifts of Clothing and
Household Items
If you
donates property to a charitable
organization, a deduction is generally
allowed for the fair market value of the
property. The President’s Advisory Panel
on Federal Tax Reform and the staff of
the Joint Committee on Taxation both
have concluded that the fair market
value-based deduction for donations of
clothing and household items present
difficult tax administration issues. As
recently reported by the IRS, the amount
claimed as deductions in tax year 2003
for clothing and household items was
more than $9 billion.
Under the
new law, no deduction is allowed for a
charitable donation of clothing or
household items unless the clothing or
household item is in “good” used
condition or better. The IRS is also
given authority to deny by regulation a
deduction for any donation of clothing
or a household item that has minimal
monetary value, such as used socks and
used undergarments
[IRC Sec.
170(f)(16) as amended by Pension
Protection Act].
Household items include
-
furniture,
-
furnishings,
-
electronics, appliances,
-
linens, and
-
other similar items.
Food,
paintings, antiques, and other objects
of art, jewelry and gems, and
collections are excluded from the new
rules. Also excluded are clothing or
household items if the deduction claimed
is more than $500 and the donor files a
qualified appraisal with his or her
return.
The
new rules apply to donations made after
August 17, 2006.
Highlights of the
Energy Policy Act of 2005
-
Offers consumers tax credits
for making energy efficiency improvements in their homes
-
Tax credits are available for
highly efficient central air conditioners, heat pumps, and water
heaters, as well as to upgrade thermostats, install exterior
windows, and stop energy waste
-
Offers tax incentives for new
transmission construction, and by encouraging the development of new
technologies
-
Promotes the use of renewable
energy sources with tax credits for wind, solar, and biomass energy,
including the first-ever tax credit for residential solar energy
systems
-
Provides up to $3,400 per
vehicle in tax credits to consumers for purchase of these cars,
based on their fuel savings potential.
Hiring Help for the Summer!
Before you begin to hire help for the summer,
Steve
Sahlein offers some helpful
advise.
Family-Owned
Firms Employing the Owners’ Children:
If the parent(s) own 100% of
the business as sole proprietor(s), partner(s) or stockholder(s), their
children can work for them regardless of age, hours or time of day. But if the owners regularly
employ other than immediate family, they must pay their children the federal minimum wage. Their children under 16
generally may do clerical, but not “hazardous” work, such as operating lawn mowers, sewing machines, etc., work
where food is cooked or near flammable or hazardous materials.
-
Wages for a
child under 21 are exempt from FUTA.
-
Wages for a child under 18 are
exempt from FICA only if the parents are sole owners or sole
partners.
Withhold FIT from these children, and file W-2s for them
Children
under 18 Not Related to the Owners
The
employer should obtain an age certificate recognized or approved by the
DOL and its state Wage and Hour Division.
In most instances, the DOL will accept a state age certificate, but
employers should check with their state Wage and Hour Division to be sure. These individuals may not perform hazardous work.
Note: Employers must return age certificates to minors upon termination.
Children
Aged 14-15 Not Related to the Owners
If school is not in session (i.e.,
the summer), these children can work up to 8 hours a day, 40 hours a
week. From June 1 to Labor Day, these children can work only between the hours of 7 a.m. and
9 p.m. Exceptions: These limits do not apply to news carriers or children employed exclusively by a parent/sole
proprietor. For agricultural jobs, contact the DOL.
Children
under 14 Not Related to the Owners
There
are no accommodations to allow for non-family employees at this age.
Children in this age range cannot be hired unless they work for a parent who is also the sole proprietor. (Note: For
the parent/business owner to employ a child under 14, the parent must be the sole proprietor, or a partner in a
partnership where the other parent is the only other partner. A corporation, even if closely and exclusively held by the
parent, is not able to hire the corporate owner's underage child.)
Holidays
Under federal law, paying summer or
part-time help for holidays is optional any time of year.
Health, Pension and
Other Benefits
Providing
these to temporary and part-time employees is optional. But if benefits
are not available to temporary and part-time employees, the employer should have a plan document that states
this.
Withhold
FICA from All Summer Workers
The
business must withhold FICA from all summer workers. The exception to
this rule is youngsters who are under 18 employed by a parent/sole proprietor (or employed by a partnership where
the only two partners are the employee's parents).
Obtain a W-4 from all summer employees, even students working part-time,
and withhold FIT unless the person claims to be exempt or has more than 10 exemptions.
Overtime
Pay under Federal Law
An employer must pay overtime for
all hours physically worked over 40 hours in a workweek, but need not
include paid time off such as vacation days when calculating overtime. However, employers
cannot substitute paid non-work hours for work hours to make all hours straight time in order to avoid paying some hours
at straight time and some hours at overtime.
Example: Joan worked 12 hours a day for
the first 4 days of the workweek. On the 5th day, a holiday, Joan
received 8 hours' pay for these non-work hours. Because Joan physically
worked 48 hours, she would be paid 40 hours' pay at straight time plus 8
hours of overtime pay plus 8 (non-work) hours of holiday pay. Joan's
employer cannot offset the 8 hours' overtime against the 8 hours of
holiday pay.
Vacation
Pay for Regular Employees
There is no federal or
state law that requires employers to give employees paid vacation time.
But if an employer decides to give employees paid vacation time, federal law and some state laws
apply. For example, California requires employers to pay unused vacation time to employees who terminate.
Vacation
Pay under Cafeteria Plans
Three special
rules apply to vacation time purchased with pretax dollars under a
cafeteria plan. [IRS Prop. Reg. 1.125-2, Q&A A-5(c); IRS Temp. Reg.
1.125-2T, Q&A-]
- The purchased
vacation time cannot be carried over into another plan year.
- Employees can
cash out vacation days only before the end of the plan year or
before their individual tax year, whichever is earlier. Once the
plan year has ended, they
lose this option.
- Purchased
vacation days may not be used until all the employee's regular,
earned (or accrued) vacation time is used.
Example: Pat has 10 accrued days under
her employer's vacation policy and purchases 5 more days under the
firm's calendar-year cafeteria plan. At the end of the plan year, which
happens to be Dec. 31, Pat intends to use only 13 vacation days.
Therefore, she must cash out the 2 remaining days before the end of her
employer's plan year or her tax year, whichever is earlier, or forfeit
the 2 unused days.
If vacation days were purchased
with pretax dollars, they are income when cashed out, subject to FIT,
FICA, FUTA, and state and local taxes. The IRS allows employers to choose the method of
withholding FIT from these payments, provided that the amount withheld is approximately equal to the amount withheld
under the percentage method of withholding.
Small discrepancies between the wage-bracket and percentage withholding
methods are permissible, provided that the employer's method does not result in consistent underwithholding.
Note: In addition to
these federal rules, be sure to check your state's laws
Steve
Sahlein is the co-president of the
American Institute of Professional Bookkeepers, a 30,000-member
association and certifying body for bookkeepers.
Call today for a FREE consultation, or
request information on-line!
253-351-2966
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We prepare this information as a convenience to
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Grey Business Solutions, employees, and article
contributors harmless in the
incidence of errors or omissions.
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