Tax and Financial News: Charitable Contributions -Intention Does Not Equal Deduction
How
often have you been called by the Fraternal Order of Widget Makers or the
Benevolent Fund seeking donations for a supposedly charitable purpose? How
many times have you made a commitment on the telephone when you had never
even heard of the organization?
If you are like many people, this has happened to you more than once. An organization is putting on a show to raise money for a local animal shelter - for only $45 you will get a ticket to see your favorite rock band. Not a bad price for a good act. And then you're told that the ticket proceeds (less expenses) will go to fund the shelter's outreach programs and the entire price is tax deductible. What a deal!
At the end of the year, you bring your charitable receipts to your friendly CPA and, when the return is completed, you notice there is no deduction for the ticket. You ask why and are told that 1) the ticket did not state the $45 was deductible and 2) you can't take a charitable deduction if you received something of value. You feel like you've been cheated. The truth is you were cheated, but it's too late to do anything about it. Even if you never intended to see the show but just wanted to contribute, you are out of luck.
Here are a few tips to help protect you from the predatory sales practices of so-called charitable organizations.
First and foremost, never buy anything from an organization you are not familiar with. Any organization can claim to be a qualified charitable group and ask for money. In the wake of recent natural disasters, many people claiming to represent a relief organization seeking contributions were only trying to relieve you of your cash.
If you receive a solicitation from an unknown organization, ask first if your donation or ticket purchase is tax deductible. If you are told it is not deductible, at least you'll know that you are dealing with an organization with some scruples. In this case, if you are so inclined, you may agree to a purchase on the condition that you can first check the group out with the local Better Business Bureau. A reputable organization will have no problem with this. A less than reputable organization will balk at the suggestion and you should refuse to do business with them.
If you purchase a ticket to a concert or for a raffle and you are told that the payment qualifies for a charitable deduction, this is simply not true. Tax law clearly states you cannot get a deduction if you receive something of value in return. A portion of the contribution might be deductible - but certainly not all of it.
Let's say that you are asked for a donation and told that the payment is tax deductible. You should still avoid making a snap decision and instead ask the representative about the organization. For example, one national charity always sends information along with an invoice showing the amount you pledged. This gives you the opportunity to check out the organization before parting with your money.
Start by reviewing the material that the organization sends you - you might be able to glean enough information from it to decide whether the group is reputable. If not, take a look at the charity's website, which should provide information about the charity's activities, accomplishments, revenues and expenditures. Funding sources should also be easy to find. As a rule, the higher the percentage of funds used for program services, the better managed the charity is and the more likely they will be to use your donation for its intended purposes.
In order to be tax deductible, a donation must be made to a specific type of organization. If it is not of a type listed as qualifying on the Internal Revenue Service's Publication 526 website, you will not be able to take the deduction. The IRS also provides a website listing all qualifying organizations it has in its database. Please note that churches are not necessarily required to qualify through the IRS and, accordingly, might not be listed on this website.
A final place to check out a charity is at www.give.org, a website operated by the Better Business Bureau and designed to help donors evaluate charitable organizations. In order to receive the Better Business Bureau's certification, a charity must undergo rigorous scrutiny.
In these difficult economic times, more and more charities are seeking ways to enhance their income. Unfortunately, this opens up the opportunity for some to masquerade as qualifying organizations and fleece the general public. Take care when responding to requests for contributions from all organizations, but especially those you do not know. If you have any questions about the deductibility of a donation or the reputation of a charity, give us a call. We will be glad to discuss the situation with you.
General Business News - The Business Plan: Key to Your Success
Last month, we talked about financing your business. Whether you are starting a new venture or expanding current operations, one thing you can be certain of is that you will need cash. The question is: Where you will get that cash? And more importantly, will the money be well spent? While nothing in life is certain, developing an effective business plan can make the uncertain a little more controllable.
A business plan is a roadmap, a step-by-step plan to success. Whether you realize it or not, as an entrepreneur you already have a business plan. Maybe it's on the back of a napkin or traveling the highways of your brain cells, but it is a plan nonetheless. In a perfect world, it is well thought out, well documented and well written. It is also professionally bound and ready for presentation to potential sources of capital, though that is not always the case. This article will show you why you need a written business plan and how one is structured.
Why do you need a written plan? You know what you want to do with your business, so why spend time in front of a computer working on a plan when you could be selling or consulting (or whatever it is your business does)? Can you tell anyone exactly what your business does? What is your mission? How you will achieve that mission? Without a written plan, do you think you will have credibility with lenders, investors and potential high-level employees? Ask a bank for a loan without a business plan and see how far you get. However, this is only a secondary reason to prepare a written business plan - the primary reason is to give your venture every possible chance for success. A great many ideas have withered on the vine once their sponsors found them too expensive to pursue.
The oil field is a perfect example. Before a company drills a well, it puts pen to paper and evaluates the following: 1) its chance of hitting oil or natural gas; 2) how much it will cost to drill and complete the well; 3) how much it will cost to operate the well; 4) and the amount of production it can expect plus its revenue from sales. If the numbers do not provide a sufficient return for the risk taken, the well is not drilled. In essence, oil and gas producers prepare a business plan for each well. If the numbers look good and they have the capital, they drill. If not, they wait.
The same scenario should occur with your business. Once you have assessed the market for your product and how you will tap into it, you need to look at the numbers. If your plan doesn't support a likelihood of acceptable profit, you might need to abandon it or wait awhile. Sometimes, it takes writing it down to guide you when your heart tells you something else. At other times, writing it down will confirm your goals and desires and help you sell your plan to investors or lenders. Either way, the written plan will help you make the decision to either stop or move forward and then help you stay focused on your plan.
Main Ingredients For a Business Plan
Start with a cover page. Include the company name, logo (if you have one), the name of the contact person (usually you) and contact information. You should also include a confidentiality and nondisclosure notice to minimize the chance of someone stealing your ideas or tipping off potential competitors.
The table of contents is next in line. Have you ever looked at the contents page in a catalog to find what you want quickly? Just like you, investors and lenders want to get to the meat of a proposal. While everything included in a business plan is important, some readers are more interested in the numbers and some in strategies. An effective table of contents will provide each reader with a direct path to the information they most want to see.
The executive summary is perhaps the most important page in the plan. In just a few words, your job is to capture the imagination of your target. You need to give the reader a compelling reason to go further and instill a belief that your plan will work. Lose them here and the rest of the plan will just be wasted paper.
Once you have given the reader a broad overview of your proposal, it's time to get into the specifics, starting with a description and history of your company. Is it an established enterprise or a start-up entity? Where did the concept originate? What about the current or proposed facilities? Where will the company operate? This is the section of the plan where you have a chance to familiarize the reader with your business operations and history.
The next logical progression in developing a compelling plan is introducing your products or services. Be certain that you fully explain the concept of your product (if it is new) and why the target customer will utilize it. If the product is established, what makes you think your offering is superior to your competitors? This goes hand-in-hand with the market analysis, one of the most crucial sections. You must prove to yourself and your reader that there is a market for your product or service. Who do you intend to sell to? Do the demographics in your area match your target market? Finally, what is your strategy to reach that target market? Will you use mass advertising or word of mouth? Will you sell through distributors or other parties?
Introducing the management team is also critical. It is the experience and judgment of your team that will determine the success of the company. Don't skimp in fully developing their qualifications.
Once you have established your credibility and demonstrated the need for and viability of your product, you are ready for the numbers. Every business plan needs an analysis of the sales and expenses of the venture. A month-by-month detailed income statement and cash flow analysis is critical in selling your proposal. You should give monthly amounts for the first year of operation, followed by yearly projections for up to three years. Much beyond that and the numbers start to lose credibility.
In presenting your financial analysis, make sure you explain your assumptions. If you have done a good job in the preceding sections, your task here is simply reiterating what has already been said.
Finish your plan with any appendices that further develop a case for your business. Data sources and other supporting material can be included. This will give the reader a better understanding of how you developed your plan without cluttering up the proposal with details.
Business plans are powerful tools both in guiding your business and obtaining capital. If you are starting a new business or expanding your current lines, give us a call. Our experience will help you develop a comprehensive plan to obtain financing, manage your project and reach your dream.
Tip of the Month: New Vehicle Tax Breaks
Money is tight these days, but if you are in the market for a new vehicle, now is the time to buy. Apart from the great discounts available at dealerships with General Motors and Chrysler vehicles in the lot, there could be a nice tax write-off, too. Among the various clauses of the American Recovery and Reinvestment Act of 2009 is a welcome boost for taxpayers: a new federal income tax deduction for state excise and sales taxes on new vehicle purchases. There are limits based on taxpayer income and vehicle prices, but many buyers will qualify for this tax break. Your tax professional can provide full details, but here are the key aspects of the new sales tax deduction.
The vehicle
must be purchased (not leased) after February 16, 2009, and before January
2010.
To qualify,
the purchase must be a new (not used) passenger car or light truck with
a gross vehicle weight rating of 8,500 pounds or less.
New motorcycles
that weigh 8,500 pounds or less are also eligible for the tax break. New
motor homes are eligible, too.
The tax break
is limited to the tax on $45,900 of the purchase price of an eligible vehicle.
The actual tax
savings depends on the sales and excise tax rates in your state and on your
tax rate.
The new tax
deduction is phased out (or eliminated) based on adjusted gross income of
the buyer. The phase-out range for married joint-filers is $250,000 to $260,000;
for single or married taxpayers who file separately, the phase-out range
is $125,000 to $135,000.
The deduction
is available to taxpayers whether they itemize their returns or not. It
is also available to taxpayers who are in the alternative minimum tax bracket.
You could be eligible for further financial incentives under the Car Allowance
Rebate System (CARS) law, which was passed by Congress in June 2009. The
CARS law (sometimes referred to as Cash for Clunkers) is designed to help
consumers purchase a new, more fuel-efficient car or truck when they trade
in a less-fuel efficient car or truck.
The Department of Transportation has a website devoted to the CARS law (www.cars.gov) that provides detailed information and a list of commonly asked questions. In brief, the rebate system applies under the following conditions:
The trade-in
must be 25 years old or less.
The rebate can
only be applied to the purchase or lease of a new vehicle at participating
dealers.
The old vehicle
may be worth up to $4,500 toward the purchase or lease of a new vehicle.
The trade-in
vehicle must have been continuously registered and insured for the full
year prior to the transaction.
Participating
dealers will provide consumers with a list of vehicles where the rebate
may be applied.
Many dealers are sweetening the rebate deal with additional factory incentives.
If you want to take advantage this program or the vehicle tax deduction,
bear in mind that Cash for Clunkers is slated to end in November or when
the funding is gone (whichever happens first), and the new vehicle tax break
is available to qualified buyers only until year-end.
Questions?
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