The IRS recently released these guidelines concerning charitable contributions and tax-exempt organizations. The rules are being tightened up for deductions and filings from tax-exempt entities.

Donations and Tax-Exempt Organizations

Taxpayers who make donations to tax-exempt organizations, such as charities and churches, have some new rules to follow regarding the deductibility of their donations. And, tax-exempt organizations themselves are faced with sweeping changes that affect donations as well as filing and record-keeping requirements. Here is some information to help you learn more about how the new rules may affect you:

Q. What do I need to do in order to claim a deduction for money I donate to charity?
A. For any cash contribution – which includes donations made via cash, check, electronic fund transfer or credit card – you must obtain and keep either a written communication from the charity or a bank record (such as a bank statement, cancelled check or credit card statement) that includes the date, the amount of the donation, and the name of the charity.

Q. How about donations of used clothing or household goods? How do I make sure I can claim a deduction when I donate these items?
A. In order to qualify for a tax deduction, the clothing or household goods you donate to a tax-exempt organization must be in good used condition. The exception to this rule is an item for which a deduction of more than $500 is claimed if you submit a qualified appraisal of the item along with your tax return.

Q. When do I need a “qualified appraisal” for an item I donate?
A. For a contribution of property with a claimed value over $5,000, a qualified appraisal is required. Under the new tax laws, a qualified appraisal must be conducted in accordance with generally accepted appraisal standards, by a qualified appraiser who has either earned an appraisal designation from a recognized professional appraisal organization or has minimum education experience. The appraiser must also have experience in appraising the type of property in question.

Q. I am responsible for a small charity run by a handful of volunteers. In past years, we had no federal filing requirement. Has that changed?
A. Yes. Now, all tax-exempt organizations except churches are required to file some version of Form 990 annually. Small charities may only have to file the e-postcard version of this form. Keep in mind that the penalty for non-filing can be serious: a tax-exempt organization that fails to file for three years can have its tax-exempt status revoked.

The other day I saw a guy on a street corner with a guitar and dressed up funny advertising for a major tax preparation chain. He had a sign that said something about getting $50. It was implied that somehow this preparer was going to give you $50 or get you an extra $50 refund on your taxes. Hogwash.

It has always been a bone of contention for me that people think tax preparers decide how much of a refund that you get on your individual returns. Folks, your refund is determined by how much you had deducted from your earnings during the year and how much your various deductions and credits reduce your tax liability. A good preparer can help you find missed deductions and credits you otherwise might miss but he or she cannot determine how much you obtain for a refund.

The Columbian has an article today about the importance of choosing a good preparer. I once represented, in an IRS audit, a very nice couple who went to a tax preparer because a friend told them that the preparer had a tax shelter that would substantially reduce their taxes. Well it turns out that the preparer was identified as someone who was getting people to sign up for a fraudulent tax shelter. The IRS not only went after the preparer, they also went after the clients of the preparer.

My new client ended up having to pay back all the taxes saved, plus interest, plus penalties. Since the IRS takes a couple years to sort out these kind of messes, the penalties and interest ending up doubling the actual amount that would have been owed had the nice couple never used this preparer.

Take the Columbian’s good advice and don’t fall for this:

Does the guy who does your income tax boast that he can get bigger refunds than anyone else?
Does your tax preparer say she’s so good that her fee is based on a percentage of how much she gets you?
If so, you may be cruisin’ for a bruisin’, says the Internal Revenue Service.

If it sounds too good to be true, it is.

By the way, people often go to the national preparer chains thinking their fees are more reasonable. This is not necessarily the case. I would be glad to quote your fee in advance once reviewing your tax materials and you can see for yourself if this is true. And with my services you are getting someone that has been doing this successfully for a very long time. Can you be sure that is the case when you go to a retail tax chain?