Five Questions to Ask Your Favorite Charity

It’s very gratifying to make donations to a worthy charity and know you are making a difference in the world. But whenever you make a gift, you also want to be sure that your money will be used wisely. The Alabama Society of CPAs recommends asking these questions before you give.

Who Are You?

The organization may send heartfelt letters about important causes, but be sure you know exactly what kinds of programs it has in place before sending your check. If you’re planning to support a group with a name that sounds familiar, confirm also that you’ve got the right organization, since some names may sound alike. Research done online or in the library can give you the facts you need.

Can I See Your Financial Statements?

The group should be willing to share its Form 990, a tax return filed with the Internal Revenue Service, for the three most recent years. If the organization will not do so or does not have this information, that should raise some red flags about the charity.

How Do You Spend Your Money?

Among other data, the Form 990 will show program expenses, or how the group spends the money it collects. Check to see how much of your donation will actually go to the cause you support and how much will be spent on salaries and other organizational costs. The charity should be spending at least 75 percent of its budget on its charitable programs. Other expenses—such as fundraising and administrative costs—should not be higher than 25 percent.

How Do I Know You Make a Difference?

An organization may work diligently to effect change, but that does not guarantee that its efforts are effective. You will want some reassurance that there is a legitimate need for the programs or services being given and that they are actually being used. If the organization provides after-school programs for inner-city children, for example, how many children are involved on a regular basis? If that number has risen in recent years, has the charity been able to adjust to the new demand? If the number has declined, can the charity explain why? It should be clear that the group has responded to changing circumstances and enhanced its programs over time.

Am I Eligible for a Deduction?

You should be able to deduct your donation if it is made to an organization that has been given tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. If you donate cash, you can deduct the amount of the gift from your taxable income in the tax year in which the donation is made. Retain a cancelled check or receipt from the charity as proof of your donation. (Get a written confirmation from the charity for any cash donations of more than $250, even if you have a canceled check for the gift.) You can also qualify for a deduction of the fair market value of non-cash donations, including clothing and household items in good used condition. The IRS does note that the current value of most used items is well below what they cost new, so be realistic in your estimates of value and get a receipt from the organization stating the value of what you’ve given. Keep in mind, too, that you generally will need a qualified appraisal if you are taking a deduction for donated property worth more than $5,000.

Your Local CPA Can Help

Charity Navigator and the Better Business Bureau Wise Giving Alliance are among the groups that evaluate charitable groups and provide information on making wise giving decisions.

Federal Judge Preserves Tax Deduction in Immigration Ruling- at Least for Now

United States District Judge Sharon Blackburn has enjoined the State of Alabama from denying a tax deduction to employers/businesses for wages paid to illegal aliens. Section 16 of HB56 first states that “no wage … paid to an unauthorized alien shall be allowed as a deductible business expense for any state income or business tax purposes in this state.” Then, Section 16 imposes a penalty of 10 times the amount of the deduction on any employer who knowingly fails to comply. The penalty is payable to the Alabama Department of Revenue. However, on September 28, Judge Blackburn continued a temporary injunction against the state as to Section 16 that she had entered on August 29. Judge Blackburn ruled that Section 16 is preempted by federal law — thus, the judge enjoined the state from enforcing the section. So, wages paid by an employer or business to an illegal alien currently are not prohibited by Alabama’s new immigration law from being deducted. (Other requirements of deductibility must be met.) Of course, this only involves an injunction. A full legal battle over the state’s new law, including Section 16, is just beginning. If the state prevails in that legal battle, Section 16 will take effect, and employers/businesses will be prohibited from taking the deduction (or else face a 10-fold penalty for a willful violation).

Jeff Patterson practiced law inside the Alabama Department of Revenue for more than 13 years. In 2006, he formed his own firm to represent taxpayers. Jeff may be contacted by calling 334.215.4446 or by e-mailing jeffpatterson@jeffpattersonlaw.com.

Congress Considers Sales Tax on Internet Sales

Jeff Patterson practiced law inside the Alabama Department of Revenue for more than 13 years.  In 2006, he formed his own firm to represent taxpayers.  Jeff may be contacted by calling 334.215.4446 or by e-mailing jeffpatterson@jeffpattersonlaw.com.

 In the landmark case of Quill Corp. v North Dakota, the U.S. Supreme Court held that a state could not require an out-of-state seller to collect use tax on mail-order sales into that state, unless the seller had a physical presence within the state.  The Court based its holding on our federal constitution’s Commerce Clause.  (Article I, Section 8, Clause 3)  Of course, in that clause, the framers authorized Congress to “regulate Commerce … among the several States.”  And, the Quill court acknowledged Congress’s authority over the question of taxing interstate commerce, as if to say that states and in-state retailers who want something done about this issue should go to Congress, not the courts.  (The U.S. Supreme Court has not accepted another such case since releasing Quill in 1992.)

 Congress may be answering.  Recently, ten U.S. representatives introduced the “Marketplace Equity Act of 2011″ (H.R. 3179), which would authorize states to require remote sellers to collect and remit sales and use taxes, regardless of the location of the seller.  However, a state’s authority would be contingent upon the state implementing “a simplified system for administration of sales and use tax collection with respect to remote sellers ….”  For example, the state must not attempt to impose the collection requirement upon remote sellers that have gross annual receipts of $1 million or less in the United States or $100,000 or less in that state.  Importantly, the state must provide a single agency with which remote sellers are required to file a single return.  Also, items may not be exempt for remote sellers that are not exempt when sold by other sellers.  And, the act would not affect a state’s ability or inability to subject the remote seller to other taxes, such as income or franchise, or to licensing requirements.

 The prospect of Congress taking action is interesting and worth watching.  But, if H.R. 3179 becomes law, the interaction in Alabama between the state and local taxing jurisdictions may be even more interesting, especially in determining the single filing recipient.

Send a Comment Letter to the Financial Accounting Foundation

The Blue Ribbon Panel on Standard Setting for Private Companies, sponsored by the AICPA, the Financial Accounting Foundation (FAF) and the National Association of State Boards of Accountancy, earlier this year recommended to the FAF that it accept changes and modifications to U.S. GAAP to reflect the private company environment and create a new standard-setting board to implement those changes. The FAF received more than 3,000 letters from constituents expressing support for the Panel’s recommendations prior to issuing a proposal. However, the FAF’s proposal on private company financial reporting (issued Oct. 4) falls substantially short of what is necessary to make GAAP relevant for private companies by not including establishment of a separate authoritative board.

Help AICPA send a comment letter to the FAF that supports historic change in the standard-setting process with an independent board. To send the letter, which is due by January 14, 2012, simply complete the requested fields in the letter template and click send.  Click here for the letter template:  https://apps.aicpa.org/pcfr/.

The following resources are available for more information:

AICPA Statement in Response to FAF’s Proposal
AICPA President & CEO Barry Melancon, CPA, Discusses FAF’s Proposal  (video)
Private company GAAP web page


The Future of Your Estate

Estate planning is a crucial, and frequently overlooked, part of creating a financial plan. A common misconception about estate planning is that only wealthy individuals need to be concerned with it. However, estate planning, regardless of wealth, is the only way to control what happens to your assets should you become disabled or pass away.

This week is National Estate Planning Awareness Week. Here are some tips to get your estate plan in order now and keep it current throughout your lifetime.

  • Gather your personal and financial informationThe first step in forming your estate plan is to collect all of the information that you need to include. Put together a list of full names, addresses and Social Security numbers for you and your family members; your current financial advisers; and your assets and liabilities at current values. Gather retirement plan beneficiaries’ statements, employment benefits statements, life insurance policies, deeds to real property, partnership and business agreements and the last two years of income tax returns. Include divorce papers, premarital agreements, existing estate plan documents and any other such documents.
  • Write out your personal goals. Identify beneficiaries to whom you would like to bestow inheritance and specify how much, what percentage or which specific assets go to each individual or charity. Identify executors and trustees to carry out your wishes after death, or if you should become incapacitated. Designate guardians to raise your minor children in the event something happen to both you and your spouse. If you are not sure about your estate plans, talk them over with a professional financial advisor, like a CPA, who specializes in estate planning. Tell them about any questions, concerns and ideas you may have.
  • Make it official. Due to the complexity and importance of your estate planning documents, it is advised that you have a qualified attorney draft them. Shop around to find the right attorney for you, as you will discuss your personal affairs together. Bring all personal and financial information and goals discussed above when you meet.
  • Maintain your plan. Call your CPA or attorney about updating your plan at least every three years or any time you have major changes in your personal situation. Be sure to keep your key financial paperwork readily accessible for those who will be dealing with your affairs if something happens to you.

For more information, visit the National Association of Estate Planners and Councils website, and check out tomorrow’s FREE webcast.

Visit www.feedthepig.org for more money-saving tips.

ADOR Rule Change Means Certain Alabama Residents Will Pay More Income Tax

Beginning in 1989, Alabama residents who received multi-state income from pass-through entities such as S corporations or partnerships were authorized to report only the Alabama portion of that income on their Alabama income tax returns.  This authorization came in the form of regulations – collectively known as the “Gross Income Rule” – adopted by the Alabama Department of Revenue.  Of course, the Gross-Income Rule conflicted with Alabama’s income-tax statute that requires Alabama residents to report income from all sources, both within and without Alabama.  (Ala. Code § 40-18-14(4))  Nevertheless, the Gross-Income Rule was just that – a rule of the ADOR – and it was followed by certain resident taxpayers to their benefit.  Since the mid-2000s, the ADOR has attempted to eliminate the benefits of the Gross Income Rule, but to no avail.  For example, a 2004 attempt to amend the rule was rejected by the legislature’s Joint Committee on Administrative Regulation Review, and that committee’s rejection was sustained by the legislature and approved by then-Governor Riley in 2005.  In September 2011, however, the Department amended the three regulations at issue to require the reporting of all income to Alabama, regardless of the state in which the income was earned.  See Ala. Admin. Code 810-3-14-.01; 810-3-28-.01; and 810-3-162-.01.  The amendments apply to the entire 2011 year, despite the fact that the amendments did not become effective until September 7, 2011.  Interestingly, the ADOR states that it will not rely on these amendments for years after 2011.  Instead, the ADOR plans on issuing new regulatory language addressing these issues.  If history is any indicator, the famous saying by Mark Twain may be appropriate here:  “The reports of the Gross Income Rule’s death have been greatly exaggerated.”

Jeff Patterson practiced law inside the Alabama Department of Revenue for more than 13 years.  In 2006, he formed his own firm to represent taxpayers.  Jeff may be contacted by calling 334.215.4446 or by e-mailing jeffpatterson@jeffpattersonlaw.com.

Federal Judge Preserves Tax Deduction in Immigration Ruling – At Least for Now

 

 

Jeff Patterson practiced law inside the Alabama Department of Revenue for more than 13 years.  In 2006, he formed his own firm to represent taxpayers.  Jeff may be contacted by calling 334.215.4446 or by e-mailing jeffpatterson@jeffpattersonlaw.com.

United States District Judge Sharon Blackburn has enjoined the State of Alabama from denying a tax deduction to employers/businesses for wages paid to illegal aliens.  Section 16 of HB56 first states that “no wage … paid to an unauthorized alien shall be allowed as a deductible business expense for any state income or business tax purposes in this state.”  Then, Section 16 imposes a penalty of 10 times the amount of the deduction on any employer who knowingly fails to comply.  The penalty is payable to the Alabama Department of Revenue.  However, on September 28, Judge Blackburn continued a temporary injunction against the state as to Section 16 that she had entered on August 29.  Judge Blackburn ruled that Section 16 is preempted by federal law — thus, the judge enjoined the state from enforcing the section.  So, wages paid by an employer or business to an illegal alien currently are not prohibited by Alabama’s new immigration law from being deducted.  (Other requirements of deductibility must be met.)  Of course, this only involves an injunction.  A full legal battle over the state’s new law, including Section 16, is just beginning.  If the state prevails in that legal battle, Section 16 will take effect, and employers/businesses will be prohibited from taking the deduction (or else face a 10-fold penalty for a willful violation).

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