Claiming Charitable Donation Deductions – What Donors and Charities Need to Know.

Donors:

When making a charitable donation of cash or property of $250 or more, it is the donor’s responsibility to prove entitlement of a deduction.   The charity should provide a contemporaneous written acknowledgement (CWA) of your donation – either at the time of donation or by sending all CWAs at the end of the year – but in the end, the taxpayer bears the burden of proof.  This documentation – a receipt of sorts – must contain three pieces of information.

1. The amount of cash and a description of any property contributed.
2. A statement as to whether the donor received any goods or services in return for the donation.
3. A description and estimate of the value of any goods or services provided to the donor.  

Additionally, CWAs must be submitted to the donor on or before the date of the donor’s tax return for the year the contribution was made is filed, or the due date (including extensions) of the return, whichever is earlier. 

If you make a donation of less than $250 to a charity, you do not need a CWA.   For example, donations of $200 three times during the year would not require a CWA to claim the deduction even though the total contribution to the charity exceeded $250.

Charities:

While the burden of proof lies with the taxpayer, it is in the best interest of the charity to provide donors with all the necessary documentation whether they ask for it or not.  We encourage charities to send valid CWAs to donors throughout the year; however, no later than January of the following year.

Related Article:   Tax Tip: 9 Things the IRS Wants Taxpayers to Know About Charitable Giving

Fuel Tax Updates

Biodiesel Blender’s Credit

The biodiesel blender’s credit is due to expire at the end of 2011, and at this point, no extension will be granted.  Eligible gallons of biodiesel must be blended AND sold in 2011 in order to receive the $1 per gallon federal biodiesel blender’s credit.  Biodiesel purchased and blended in 2011 but not sold until 2012 will not be eligible. 

Illinois Extends State’s Biodiesel Tax Credit Through 2018

The Illinois tax credit, previously due to expire at the end of 2013, has been extended five years through 2018.  The incentive gives complete fuel tax exemption for any blend of biodiesel greater than 10%. 

Tax Free Sales of Gasoline

Gasoline sold for the exclusive use by state, local government or non-profit education organizations are sales which are eligible for a refund of the federal gasoline excise tax.  Gasoline may be sold tax free by an Ultimate Vendor as long as the ultimate purchaser fits one of these three categories.

As a reminder, Ultimate Vendors are not immune to IRS audits, so take a moment to review the claim requirements below. 

According the IRS, the Ultimate Vendor is the appropriate party to claim a refund of taxes as long as the Ultimate Vendor is registered with the IRS.  Each claim must contain:

1. Total number of gallons covered by the claim.
2. The claimant’s registration number.
3. Statement that the claimant has sold the fuel without tax included in the price, repaid the tax to the ultimate buyer, or has written consent of the buyer to seek the claim.
4. An unexpired certificate from the buyer.   Model certificates can be found on the IRS website.  Refer to Model Certificate M or Model Certificate P.  

All information on the certificate must be current, and the certificate expires on the earlier of one year after the date of the certificate or the date a new certificate is given to the registered ultimate vendor. 
More information can be found on the IRS website. 

This Holiday Season Bergan Paulsen Wishes You MORE…

The Who, What, When and Why of a Compilation, Review & Audit

The difference between a compilation, review and audit comes down to the level of assurance your organization is looking for and what outside parties may require from you.  We break each one down for you below.  In addition, we’ve offered additional insight as to why your organization may benefit more from a compilation, review or audit.

Compilation

What:  A CPA (or team of CPAs) will gain an understanding of your business and the accounting practices common in your industry.  The team will then compile financial statements from the information provided by the management of your organization ensuring the statements are free from obvious material errors.  Finally, the team will issue a report stating that the financial statements were compiled but not review or audited.
Who:  Generally small, privately held companies that need help in preparing financial statements.
When:  Compilations can be prepared on a monthly, quarterly or annual basis.
Why:  You may want to consider a compilation if your organization or business has limited capabilities for preparing financial statements.  

Review

What: When a CPA (or team of CPAs) reviews financial statements, he or she will issue a report that provides limited assurance that material changes to the financial statements are not necessary.  Before a review can happen, all financial statements must be compiled by the organization’s management team not the CPA performing the review.  This compilation will allow the CPA to gain more insight into your organization and the industry in which you work.  From there, the CPA will ask questions concerning the accounting practices of your organization and then will analyze financial statements for unusual items and trends.  This procedure will only ensure the financial statements are reasonable.
Who:  Organizations that need to submit financial statements to third parties such as creditors and regulatory agencies.  A review may also be useful for business owners who are not actively engaged in day to day business activities.
When:  Reviews are generally completed annually.
Why:  Some creditors and business owners require only a review with a limited level of assurance of financial statements instead of a full audit. 

Audit

What:  An audit provides the highest level of assurance since financial statements are analyzed with a fine-tooth comb.  An independent CPA will confirm balances with banks and creditors, observe inventory counting and test selected transactions by examining supporting documents.  The CPA will also contact outside sources to verify information to reduce the risk that the statements will be materially inaccurate. The CPA will issue a report with findings and a statement that financial statements are presented fairly.  An auditor approaches an audit with professional skepticism and provides a reasonable level of assurance that the financial statements are free from material errors and fraud.  Who:  Businesses or organizations that need a higher level of assurance to outside entities.
When: Audits are generally completed annually.
Why:  An organization or business will need an audit when a high level of assurance  is required by third party entities and groups. 

For more information, visit our website.  You can also contact any of our CPAs that offer assurance services.

Ag Tax Incentives Boosted for 2011

ARTICLE:  TAX INCENTIVES BOOSTED FOR 2011

Bergan Paulsen Partner Mike Regan recently shared his expertise with Heartland Co-op for their Lifeline newsletter publication.  The article entitled Tax Incentives Boosted for 2011 explores various tax incentives offered for 2011 specifically the Section 179 Expense Deduction, available for both new and used equipment purchases, and Bonus Depreciation, new equipment purchases only. Further, farmers can write off for taxes certain expenses for prepaid supplies and crop inputs, but there are certain requirements that must be met.  Find out more about these incentives and requirements by reading the full article. 

Click here to view the full publication.

State of Iowa Fuel Taxes

Update as of 1/12/2012:  While the Department of Transportation will still need to find nearly $50 million in savings, Legislators are considering a gas tax increase in 2 phases with Branstad’s approval.  The proposal would call for a 4 cent increase in fuel tax in both 2013 and 2014. 

Iowa Governor Terry Branstad has made the decision to not support recommendations made by the Transportation 2020 group.  These changes include an eight to ten cent gas tax increase and an increase in other fees to generate revenue for road repairs during the 2012 legislative session.  Without the support of the Governor on this issue, it is unlikely that enough votes from Senate and House Republicans will be secured to pass the bill.

Instead of an increase in the gas tax, the Governor has asked the Department of Transportation to look for nearly $50 million in savings over the next year, through reduced administrative costs and duplication at all levels of state government.  This would be the equivalent of about two cents of fuel tax revenue.  The Governor acknowledges the need for additional revenue to support repairs for the state's highways, but stated that funding should come from increased efficiency in highway programs before the state increases taxes.  He wants to ensure that current tax revenue received from fuel taxes is being spent appropriately before an increase is implemented.

There are several factors that have led to annual shortfalls in revenue to maintain the road system including:

• Decrease in federal funding;
• The state gas taxes haven't been increased since 1989;
• Vehicles are more fuel efficient today than they were when the gas tax was last increased and consumers are leading towards purchase of these fuel efficient vehicles; and
• An increase in the costs to repair old roads and construct new roads.

Even though it is unlikely to see an increase in fuel taxes during the next legislative session, the issue is will likely be revisited by those in favor of it in the 2013 session

President Signs into Law New Tax Breaks for Hiring Veterans

President Obama has signed into law increased tax credits for hiring certain veterans. The credits are part of the Work Opportunity Credit, which requires that employers certify through state jobs agencies that employees qualify for the credits.

The veteran credits available effective for veterans hired starting November 22:

- A maximum $4,800 credit (40% of the first $12,000 in qualifying wages) for veterans with a service-related disability hired within 12 months of discharge (no change from prior law).

- A maximum credit of $9,600 (40% of the first $24,000 in qualifying wages) for veterans with a service-related disability who have been unemployed for at least six months of the prior 12 months.

- A maximum credit of $5,600 (40% of the first $14,000 in qualifying wages) for non-disabled veterans who have been out of work for at least six months out of the prior 12 months.
 
- A maximum credit of $2,400 (40% of the first $6,000 in qualifying wages) for veterans who have been unemployed at least four weeks, but less than six months, in the past year.

Employers claiming the WOTC have to have the employee certified as qualifying by the state job service before hiring;  they may instead complete a "pre-screening notice (Form 8850) by the date of the employment offer and submit it to the state agency within 28 days after the employee start date. 

While the rest of the WOTC expires at the end of this year (unless it gets extended again), the veterans credits apply for hires through 2012.

Commercial Enterprises in Iowa are Exempt from Paying Sales Tax on Computers

Did you know that “commercial enterprises” in Iowa are exempt from paying sales tax on computers and all devices fastened to it?  We’ve had this tid-bit come up with a few clients recently and thought it might be good information to share with all of our Iowa clients. 

Who is eligible?

Commercial Enterprises include businesses and manufacturers conducting business for profit but excludes professions, occupations, and nonprofit organizations.

More definitions:

• “Profession” means a vocation or employment requiring specialized knowledge and often long and intensive academic preparation. Lawyers and doctors are examples of professions. Professions, including professional corporations, do not qualify for the exemption.
• “Occupation” means an individual who has a particular skill or trade. Farming is considered to be an occupation; therefore, farmers do not qualify for the exemption.

What is eligible?

• “Computer” means stored program processing equipment and all devices fastened to it by means of signal cables or any communication medium that serves the function of a signal cable. A computer is a device having information processing capabilities and includes word processing equipment, testing equipment, and programmed or programmable microprocessors and any other integrated circuit embedded in the machinery or equipment.
• “Devices” means the physical computer assembly and peripherals fastened by a signal cable or other communication medium including, but not limited to, such items as the central processing unit, keyboards, consoles, monitors, display units, memory, disk and tape drives, terminals, printer, plotters, modems, tape readers, card readers, card or tape punchers, document sorters, optical readers, and digitizers.
• For further definitions, please click here.

If you are an organization that qualifies and have purchased technology equipment, it may be worth your time to do some further investigating to see if you qualify.  Feel free to get in touch with one of our team members with further questions.