Tax man creeping closer

Tax man creeping closer

December 28th, 2013 by Ellis Smith in Business Around the Region

How to save:

* Gifts to charities -- donations to qualified charities must be dated no later than Dec. 31 in order to be deducted on your 2013 tax return. You must itemize deductions and you must have proper documentation for each donation, no matter how large or small it is, to take the charitable contributions deduction. A donation charged to a credit card by Dec. 31 is deductible for 2013 even if you don't pay the credit card bill until 2014.

* Tax-free IRA distribution -- Filers who are are 70 and a half or older can have up to $100,000 transferred directly to a qualified charity. This transfer can serve as the filer's required minimum yearly IRA distribution, is tax-free to the filer and benefits the charity. But this tax benefit is set to expire after Dec. 31, 2013.

* Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2013. The saver's credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. People have until April 15, 2014, to set up and contribute to a new IRA for 2013 or to add money to an existing IRA for 2013, but elective contributions to a 401(k) plan or similar workplace program must be made by Dec. 31, 2013.

Source: Internal Revenue Service

There are two certainties for nonprofit that rely on charitable to fund their operations: Christmas and taxes.

But with Christmas over and the end of 2013 just a few days away, charitable givers are catching their second wind, making a flurry of tax-deductible contributions before the Tuesday deadline.

"Many taxpayers wait until December so that they can determine their total income for the year and can best judge how much they can and should give as charitable donations," said Kate Abernathy, public information officer for the Tennessee Department of Commerce and Insurance.

Time is running out for those who want to make the most of 2013's tax saving opportunities, warned Dan Boone, a spokesman for the U.S. Internal Revenue Service.

"Taxpayers need to act now when it comes to making donations to charities and contributions to workplace retirement plans," Boone said.

These types of last-minute gifts are crucial to organizations like the Salvation Army, which depend on December donations to fund their operations for much of the year, said Kimberly George, director of marketing and development for the Salvation Army of Greater Chattanooga.

"We have been told by experts that 30 percent of our online giving comes in the last 24 hours of the year," George said. "We stop ringing bells on Dec. 24th, we do see a few days of rest around Christmas, then the year-end donations start coming in typically the on the 27th through 31st."

Givers are especially anxious to offload stock market gains made during the 2013 market run-up, hoping to avoid a possible 23.8 percent capital gains tax on any appreciation in their investments.

"If you were to sell the security and give the cash proceeds to the organization, you'd first have to pay taxes from the proceeds," said Kimberly Bales, principal in charge of the Chattanooga tax department at Joseph Decosimo and Co.

But by donating the securities directly to a 501(c)(3) tax exempt organization without cashing them in first, an investor can avoid paying the tax on the stock, and the organization can reap the full benefit of the investment instead of losing part of it to the IRS.

"So, the charity gets more money," she said.

The value of the investment is written up as a cash gift for taxpayers who itemize their deductions, and can be deducted from a person's 2013 tax bill -- so long as it's made by Dec. 31.

Though not everyone invests in the stock market, there are other ways to save on taxes and support worthy causes at the same time, Bales said.

"It's a good time of year to clean out your house right now, because you can donate household items and clothing," she said. "It's like a bonus for cleaning up your house."

The key is to itemize everything and get a receipt, she said, because donations over $250 will not be accepted by the IRS without a paper trail.

For consumers on the fence about whether to give, it's always better to give now than to give later, said Randall Herbert, partner at Henderson, Hutcherson and McCullough.

With interest rates low, saving the money and paying higher taxes is generally a bad move, he said. On the other hands, reducing a tax bill and supporting charity provides a direct and immediate benefit for both sides, he said.

"You have people who are doing their tax planning right now and are saying, 'If I was going to do something, I need to do it now," he said.

Though there are no tax hikes or rule changes planned for 2014 that would make it a worse year for those trying to protect their income from the tax man, anything can happen, he said.

"If you wait to give until January, there's a whole year that's going to go by before I can take that deduction," Herbert said.

Contact staff writer Ellis Smith at or 423-757-6315.