You’ve probably already received several letters and phone calls from charities asking for donations. Most requests are from legitimate organizations. Some, however, are bogus charities set up by con artists who use the holiday spirit to their financial advantage.
Last year, Americans gave nearly $428 billion to charities, according to Giving USA 2019: The Annual Report on Philanthropy for the Year 2018. That’s a huge incentive for fraud.
If you’re planning to donate, take some time to learn how to spot a charity scam. Here are a few big red flags:
Popup charities. Every legitimate charitable association started sometime, and some are still being formed. But natural disasters, endemics and calamities of every type — from Hurricane Dorian to the Ebola virus — seem to spawn an inordinate share of fake charities. You can avoid these popup scams by donating to charities that you trust, which generally means those with a proven track record. If you’re unsure, check out the organization with the Better Business Bureau, Charity Navigator, GuideStar or similar watchdog group.
Evasive answers to fundraising questions. A legitimate caller should be upfront about their charity, the percentage of funds allocated to administration and marketing, and what target groups will be aided by your donation. Whether you’re giving to provide medical supplies, support research or some other worthy cause, don’t be afraid to ask direct questions and expect direct answers. If the fundraiser seems to hedge their responses or knows little about the supposed cause to which you’re contributing, consider a different charity. Beware of vague claims like “educating the public” or “promoting awareness.”
Urgent email requests. Websites made to mimic legitimate charities have conned many otherwise careful contributors. Emails asking for money on a deadline may originate from the backroom computer of a scam artist. Never divulge your financial information via email. Call the charity directly and find out if it’s registered in your state (if required). Ask for written information. When in doubt, check it out.
Many charitable organizations are seeking your aid to address genuine hardships. Avoid the schemes of unethical scammers, and your donations will provide help where it’s needed most.
If you think you’ve been contacted by a bogus charity, let the Federal Trade Commission know by filing a complaint.
There’s still time to reduce your potential tax obligation and save money this year (and next). Here are some ideas to consider:
Estimate your 2019 and 2020 taxable income. With these estimates you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income this year AND next year.
Fund tax-deferred retirement accounts. An easy way to reduce your taxable income is to fully fund retirement accounts that have tax-deferred status. The most common accounts are 401(k)s, 403(b)s and various IRAs (traditional, SEP and SIMPLE).
Take your required minimum distributions (RMDs). If you are 70½ or older, you need to take required RMDs from your retirement accounts by Dec. 31. Don’t forget to make all RMDs because the fines are hefty if you don’t — 50 percent of the amount you should have withdrawn.
Keep in mind, even if you don’t have RMDs yet, removing a planned amount from your retirement accounts each year may be more tax efficient than waiting until you are required to do so.
Manage your gains and losses. Rebalance your investment portfolio, and take any final investment gains and losses. When you have more losses than gains, up to $3,000 can be used to reduce your ordinary income. With careful planning, you can take advantage of this loss amount each year.
Finalize your gift-giving strategy. Each year you may gift up to $15,000 without tax reporting consequences to as many individuals as you choose. Consider any gift-giving you wish to make up to the annual limit. This could include gifts of cash or property, and investments.
Donate to charities. Consider making end-of-year donations to eligible charities. Donations of property in good or better condition and your charitable mileage are also deductible. Receiving proper documentation that acknowledges your contributions is important to ensure you obtain the full deduction. Have a plan by knowing your total deductions for the year to help you decide how much and when to donate. Pulling some donations planned for 2020 into 2019 may be a good strategy.
Review your automated billing transactions. This is a good time to identify what automatic monthly expenses should be reviewed for reduction or elimination. You may also discover billing for services you thought were canceled. This specific review often catches errors that a simple account reconciliation may be missing.
Organize records now. Start collecting and organizing your tax records to avoid the scramble come tax season.
Develop your own list. Use these ideas as a jumping off point to create your own list of annual review items. It might also include reviewing college savings accounts, beneficiaries, insurance needs, wills, and going through an aging parent’s financial accounts.
Ah, summer. The weather is warm, kids are out of school, and it’s time to think about tax saving opportunities! Here are five ways you can enjoy your normal summertime activities and save on taxes:
Rent out your property tax-free. If you have a cabin, condo, or similar property, consider renting it out for two weeks. The rental income you receive on property rented for less than 15 days per year is not considered taxable income. In addition, you can still deduct your mortgage interest expense and property taxes in full as itemized deductions! Track the rental days closely — going over 14 days means all rent is taxable and rental income rules apply.
Take a tax credit for summer childcare. For many working parents, the summer comes with the added challenge of finding care for their children. Thankfully, the Child and Dependent Care Credit can cover 20-35 percent of qualified childcare expenses for your children under the age of 13. Eligible types of care include day care, nanny fees and day camps (overnight camps and summer school do not qualify).
Hire your kids. If you own a business, hire your kids. If you are a sole proprietor and your child is under age 18, you can pay them to work without withholding or paying Social Security and Medicare tax.
Have a garage sale. In general, the money you make from a yard or garage sale is tax-free because you sell your goods for less than you originally paid for them. Once the sale is over, donate the remaining items to a qualified charity to get a potential charitable donation deduction. Just remember to keep a log of the items you donate and ask for a receipt.
Start a Roth IRA for your children. Roth IRA contributions are limited to the amount of income your child earns, so earned income is key. This can include income from mowing lawns or selling lemonade. Start making contributions as soon as your child makes some money to take advantage of the tax-free earnings available in a Roth IRA.
Taking the time this summer to execute these tips can put extra money in your pocket right away and provide you tax-saving happiness in the future.
As the year draws to a close, there are several tax-saving ideas you should consider. Use this checklist to make sure you don’t miss an opportunity before the year is out.
Retirement distributions and contributions. Make final contributions to your qualified retirement plan, and take any required minimum distributions from your retirement accounts. The penalty for not taking minimum distributions can be high.
Investment management. Rebalance your investment portfolio, and take any final investment gains and losses. Capital losses can be used to net against your capital gains. You can also take up to $3,000 of capital losses in excess of capital gains each year and use it to lower your taxable ordinary income.
Last-minute charitable giving. Make a late-year charitable donation. Even better, make the donation with appreciated stock you’ve owned more than a year. You often can make a larger donation and get a larger deduction without paying capital gains taxes.
Noncash donation opportunity. Gather up non-cash items for donation, document the items, and give those in good condition to your favorite charity. Make sure you get a receipt from the charity, and take a photo of the items donated.
Gifts to dependents and others. You may provide gifts to an individual of up to $14,000 per year in total. Remember that all gifts given (birthdays, holidays, etc.) count toward the annual total.
Organize records now. Start collecting and organizing your end-of-year tax records. Estimate your tax liability and make any required estimated tax payments.
The Internal Revenue Service issued a consumer alert about possible fake charity scams emerging due to the mass-shooting in Orlando, Florida, and encouraged taxpayers to seek out recognized charitable groups.
When making donations to assist victims of this terrible tragedy, there are simple steps taxpayers can take to ensure their hard-earned money goes to legitimate charities. IRS.gov has the tools taxpayers need to quickly and easily check out the status of charitable organizations.
While there has been an enormous wave of support across the country for the victims and families of Orlando, it is common for scam artists to take advantage of this generosity by impersonating charities to get money or private information from well-meaning taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.
The IRS cautions donors to follow these tips:
Be sure to donate to recognized charities.
Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, through which people may find qualified charities; donations to these charities may be tax-deductible.
Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution. Scam artists may use this information to steal a donor’s identity and money.
Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
Consult IRS Publication 526, Charitable Contributions, available on IRS.gov. This free booklet describes the tax rules that apply to making tax-deductible donations. Among other things, it also provides complete details on what records to keep.
Taxpayers suspecting fraud by email should visit IRS.gov and search for the keywords “Report Phishing.”
More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”
Donating to charities you support is a very noble thing. But, if you plan to take a tax deduction for your gift, you must have the proper paperwork. Assembling the correct documentation can be tricky because the requirements vary based on whether the donation is cash and on the value of your gift. For example, if you donate less than $250 in cash, a canceled check, credit card statement or similar record may be sufficient. However, if you give more, you will need a written acknowledgement from the charity. An additional tax form – and possibly an appraisal – may be needed for non-cash donations (depending on their value). Lastly, the organization you donate to must qualify as a charity under IRS rules.