Tis the season. Shopping, parties, decorating and all things holiday. The centerpiece of every good Christmas celebration is the tree. In our latest infographic we take a close look at all of the numbers that go into the grand holiday tradition of the Christmas Tree.
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Ed Note: The Charitable Deduction is a complex thing, and since December is the biggest month for giving, we wanted to help answer your questions about what is deductible and what isn’t. We asked Anna Sandall, an attorney and former Tax Researcher of The Tax Institute, to answer some of our questions on the charitable deduction.
Who qualifies for the charitable deduction?
This is a loaded question! Although lots of factors determine whether or not you may take the charitable deduction, generally, if you donate money or other property to a qualified charitable or religious organization and itemize your deductions, you will be able to deduct your charitable donation.
What if I give money directly to a family that I know is struggling financially?
The IRS only allows you to take a charitable deduction for donations made to qualified charitable organizations. Unfortunately, this means that money you give to individuals or families – no matter how much they may be struggling – is not tax deductible. If you are unsure of whether the organization you donate to is qualified, go to irs.gov to find out.
If I volunteer every week at my local animal shelter, can I deduct the time I spend volunteering?
No, but you may be able to deduct the money you spend on gas to get to the animal shelter. The IRS allows you to deduct some out-of-pocket expenses you incur when you donate services or time to a qualified charity. For 2013, you have the option of deducting actual unreimbursed costs of using your vehicle to get to and from the place you volunteer or 14 cents per mile driven.
I’m thinking about donating clothes and a few household items that I was unable to sell at my garage sale this summer. Can I take a deduction for these non-cash items that I donate?
It depends. Although the IRS generally allows you to deduct the fair market value of non-cash property that you donate, special rules apply to certain types of non-cash property. For instance, for clothing and household items, the IRS says the items must be in “good used condition or better.” The exception to this rule is if the item is worth more than $500 and you include a qualified appraisal with your return. In other words, if you donate a broken chair to Goodwill or a shirt with red wine stains across the front, you will probably not be able to take a deduction.
Are there limits on how much I can deduct?
Your deduction is generally limited to 50% of your adjusted gross income (AGI) but in some cases may be limited to 30% or even 20% of your AGI.
What kind of records should I keep when I make a donation?
The IRS requires you to keep detailed records of your contributions. For cash donations that are less than $250, it is generally sufficient to keep a bank statement, receipt, or other record that shows the name of the organization, date the contribution was made, and the amount of the contribution. For cash contributions of $250 or more, you will also need an acknowledgment of your contribution from the organization. If you donate non-cash property (for instance, clothing or furniture), there are additional requirements. For more information, consult IRS Publication 526 or contact your tax professional.
The holidays can be hard enough on their own, throwing your job into the mix can quickly make things worse. From attending office parties to buying gifts for coworkers and employees, the holidays at work can add enough stress to turn anyone into a Grinch to some degree.
The company holiday party may be one of the few times a year that you are around your coworkers outside of the office. For some it’s an opportunity to network and get to know their coworkers on a more personal level; while for others it’s the most dreaded social event of the year.
Most experts tend to agree that employees should treat a company party more like a work function rather than your typical party. This means it’s always in your best interest to attend, to dress appropriately, and above all others, to not be “that guy” when it comes to the free-flowing drinks. Nobody wants to be sitting in a meeting the morning after the night he told his boss what he really thinks of his management style while sipping his fourth cocktail.
From a tax perspective, if an employer decides to foot the bill for a holiday party, the employer can generally deduct the full cost of providing food and drinks for their employees as a business expense. This is contrary to the normal rule limiting the deduction for meals and entertainment to 50% of the expense. On the other hand, if you’re an employee and your job has a pot-luck style holiday party, you cannot deduct the cost of food or drinks that you bring into share with your coworkers as an employee business expense.
Gifts to Coworkers and From Employers
Another staple of holidays in the office is the gift exchange, whether it’s a White Elephant or Secret Santa exchange it can be a fun event, however it can certainly add stress as you nowhave one more gift to budget for and purchase. Now, in addition to your friends and family, you now have to buy a gift for Susan in accounting. You know Susan, right? She’s the one that when you share an elevator with you act like you’re checking email on your phone, and we all know that there is not cell service in the elevators.
Unfortunately, buying gifts for your coworkers is not deductible as an employee business expense, even if you are required to participate in the exchange. Similarly, buying gifts for your boss is also not deductible. Alternatively, this year suggest that instead of having a gift exchange amongst coworkers, join together to donate the money you would have spent on gifts to a qualified charitable organization. This way you don’t have to worry about figuring out what Susan’s interests are, save time at the stores, and receive a deduction from your taxes.
Gifts you receive from your employer may or may not be taxable to you as additional taxable compensation depending on the circumstances. Traditional holiday gifts, such as a holiday ham, with a low fair market value are deductible by your employer and are not included in your taxable compensation. On the other hand, gifts you receive from your employer of property without a low fair market value, or gifts in the form of cash, gift cards, or gift certificates are taxable to you and should be included in your income and reported as wages on your Form W-2 subject to payroll tax withholding.
The holidays are often the time of year when employers choose to give their employees their yearly bonus. These are of course taxable to the employees as compensation, regardless of how it is paid. Bonuses can throw-off year-end tax planning as it is oftentimes impossible to determine the amount of a bonus until shortly before it is paid. Luckily, the IRS eases the pain by requiring employers to withhold income taxes on bonuses at slightly higher rates than normal; therefore a year-end bonus will not necessarily wipe out that tax refund you were expecting to receive in the spring.
However, because of the higher rate of withholding on bonuses the actual take-home amount of your bonus check may be a lot lower than you may have been expecting. If you were planning on using your bonus to purchase a big-ticket item at Christmas, such as a pool, it may be advisable to tell your family that you will not be able to purchase the item or start construction until you receive your tax refund in the spring. This may also be helpful if your employer decides to surprise you with something much less than your usual cash bonus, for example a three-year membership to the Jelly of the Month Club, which in that case we suggest you see the earlier discussion about being “that guy.”
Share your office party survival tip in our Community.
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