As we enter into the fall
season and complete our summer enjoyment, there are two issues facing us
that have tax impact and both, amazingly enough, fall under the topic of
charitable contributions. These two issues are first: cleaning out
the house of old furniture and goods and second: private religious school
The basics: You are entitled
to deduct contributions to qualified organizations. Qualified organizations
include (but are not limited to) religious and civic organizations. Thus,
contributions, whether in cash or goods, to your church or temple or various
health organizations, for example, are deductible. When you donate,
for example, clothing to the Salvation Army, you get to deduct the fair
market value of the item. Fair market value is typically the value
that the clothing will fetch at the thrift shop, which is an amount substantially
less than your
original cost. Still,
as fall rolls around and you clean out your house of old clothing and furniture,
do keep track of what you are giving away. The deduction can be larger
than you first think. Make sure you get a receipt from the organization.
Keep a list of what you
gave away and information
on when you originally acquired it, how you acquired it, and your original
cost, and your estimate of the fair market value. There are some
special tax rules and forms that the office can assist you with if your
deduction is on the larger side. Make sure you chat with the office
before you make the donation.
The second issue is one on
which a court case has just been issued. The Sklar case deals with
whether any portion of religious school tuition is deductible as a charitable
contribution. The taxpayers paid for their children to attend a Jewish
Day School. They did not deduct the tuition for secular studies as,
clearly, there is no tax law that permits that. Rather, they deducted
only the portion of the fees paid for religious education. "...during
the examination of their return, petitioners presented letters from each
school which acknowledged receipt of the amounts paid and stated unequivocally
that the payments were applied toward the tuition of petitioners' children
for their religious and secular education. Each letter also stated
that the school estimated that the total education comprised 55 percent
religious education and 45 percent secular education. According to petitioners,
they calculated their claimed 'religious education' deduction by multiplying
by 55 percent the total tuition payments to the schools."
Unfortunately the court did
not allow this deduction. Said the court: "The law is well settled
that tuition paid for the education of the children of the taxpayer is
a family expense, not a charitable contribution to the educating institution.
A tuition payment to a
parochial school is generally
not considered a charitable contribution because the taxpayer making the
payment receives something of economic value, i.e., educational benefits,
in return. The payment
proceeds primarily from
the incentive of anticipated benefits to the payor beyond the satisfaction
that flows from the performance of a generous act. It is clear in
this case that petitioners' payments to the schools were not made out of
detached and disinterested generosity or out of affection, admiration,
charity, or like impulses. They were intended as payment in the nature
of tuition for petitioners' children, a personal expense. These mandatory
payments were received as payments for tuition by the schools. Therefore,
they do not qualify as charitable contribution deductions."
This case is an important
case, since it addresses a common situation, albeit with a negative ruling.
It would be helpful for you to discuss your entire charitable involvement
as there are strategies and issues worth discussing which go beyond the
scope of this article. Is it good to be charitable? You bet!
Are there tax benefits that go along? Most definitely! But
there are also rules to follow and the office is here to advise you.