Attention, Philanthropists: Your Tax Exemption Is at Risk

I found this Wall Street Journal article thought provoking. Leave a comment and let me know what you think.

If you are involved with a small charity or not-for-profit organization, take note: Only about six weeks are left for such groups to make an important tax filing—or risk losing their tax exemption.

Mark Matcho
Hundreds of thousands of small tax-exempt organizations must file a new form, called 990N, with the Internal Revenue Service by Oct. 15. The requirement applies to nearly all groups with annual gross receipts under $25,000.

The form—the IRS calls it an “e-postcard return”—is simple and must be filed online. It involves answering eight basic questions that give the organization’s name, address, principal officer and tax year, among other things.

There is a prominent link on the IRS home page (www.irs.gov), and the agency has even posted a YouTube video on the subject.

IRS Commissioner Douglas Shulman has been working to get the word out. “Please make sure your group files this simple form by Oct. 15,” he says. “The last thing we want is for worthy nonprofits to lose their tax exemption.”

Revoking Status
Mr. Shulman’s urgent plea has its roots in a 2006 tax change, when Congress asked the IRS to update its list of tax-exempt groups and track small groups in a way it hadn’t before. If a group doesn’t file the 990N form for three consecutive years, its tax-free status is automatically revoked.

The original deadline for most small charities to file was this past May 17, but IRS officials have extended it to Oct. 15. In late July, they posted a list on the IRS website of 320,000 charities at risk of losing their exemption.

The list contains an astonishing array of groups—everything from the Alabama Square Dance Callers Association to the Wyoming Yellowstone Grizzly Foundation—and even includes two IRS employee organizations.

Agency officials are quick to point out that some groups on the list may be defunct or operating under other names. Or, as with dozens of chapters of the large conservation group Ducks Unlimited, they may actually be part of one large group filing.

Some experts are concerned, however, that the list actually excludes a large number of groups in danger of losing their status. Often these are so small—under $5,000 in annual gross receipts—that they have never before needed to have any contact with the IRS.

“I’ve helped many small community groups, from cancer-awareness walks to snowmobile clubs, that had no idea they were subject to the new rules,” says Eve Borenstein, a nonprofit attorney in Minneapolis.

After the Oct. 15 deadline passes, the IRS will compile a list of organizations that have lost their exemption and publish it next year. Until a group receives a formal notice of revocation, donors can deduct allowable contributions.

***
Good news for generous credit-card holders who receive cash-rewards incentives: The IRS has recently ruled it is possible to take deductions for cash rewards given directly to a tax-exempt group.

“This is a win/win for donors,” says Melissa Labant, a tax expert with the American Institute of CPAs, since they can take a donation without claiming income. The cash reward qualifies as a rebate, which in tax terms is a reduction in the price of items purchased with the card.

The IRS recently published its position in Private Letter Ruling 201027015. Technically, such rulings apply only to one taxpayer, but experts consider them a good indicator of IRS thinking.

Donation Programs
Credit-card issuers who have donation programs for cash rewards are pleased with the ruling. A spokesman for Discover Financial Services says it now has six charitable partners, including the Red Cross, Make-A-Wish Foundation and World Wildlife Fund, and that its cardholders contributed more than $3 million of cash rewards to Haitian earthquake relief.

Meanwhile, Citizens Financial Group allows holders to use rewards to give in $50 increments to more than 100 tax-exempt groups.

The IRS ruling means there may be a sharp difference between cash-reward cards and “affinity cards” that benefit a university or charity. Holders of affinity cards don’t get deductions for benefits to the group, whereas those who contribute their cash rewards may qualify for them.

There is one caveat: The IRS said it would deny the deduction unless the donor letter confirming the gift strictly met all legal requirements, which include giving the day the contribution is made as well as the year. “The shows what a stickler for detail the IRS has to be when it comes to donations,” Ms. Labant says.

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TRYING TO FIGURE OUT THE HEALTH CARE REFORM

There is no possible way to immediately know the details and evaluate the impact of this bill.  Part of the reason is that we confuse bringing down the price of medical care with bringing down the cost.  Then we confuse medical care with health care.

What we do know is that in 2010 an adult who has a pre-existing medical condition can join a high-risk insurance pool.  Children with pre-existing conditions will now be covered.  Preventive services are now fully covered with no required co-pays or deductibles.  Medicare part D enrollees will get a $250 rebate.  Some small businesses will begin to get tax credits to partially offset employee insurance costs. And the first tax begins – 10% on indoor tanning services.

From time to time (as we figure out more details) we will bring you additional information on this landmark legislation.

(Sources for this information are the House Energy and Commerce Committee, Speaker’s Office, WhiteHouse.gov, Kaiser Health News, and the Congressional Budget office, www.politicsdaily.com)

MEDICARE ENROLLMENT DATES

Retirement used to be in conjunction with Medicare enrollment.  For many it is not for several reasons.

1. You do not qualify for retirement until age 66 or 67.  You do qualify for Medicare at age 65 while you are still covered by an employer’s medical insurance and you don’t want to duplicate coverage (and costs).
2. You prefer to have coverage from Medicare even though you are still working,
3. OR you may be covered by a spousal program.

Regardless of your specific situation, you need to be mindful of at least six Medicare enrollment periods.  They are:

1. Initial enrollment period
2. The general enrollment period
3. The annual election period
4. Special enrollment periods
5. Possibly Medicare Advantage open enrollment
6. Medigap enrollment period (separate from Medicare coverage)

Missing some of these deadlines will result in penalties of 10%, or worse, a gap in coverage.  You need to apply to be enrolled in Part B of Medicare. (Part A is automatic enrollment.)  Then there is enrollment in Part D, which is prescription coverage.  It has its own set of rules and penalties for not enrolling in timely fashion.  Medigap enrollment (to cover the 20% not insured by Medicare) requires another constellation of decisions.

You spend years planning for retirement and getting details in place to be sure you can enjoy your golden years.  In order to be sure you are fully covered for medical concerns you need to know these deadlines.  A personalized review of your specific situation and options will be time well spent and may assist you in avoiding irrevocable penalties.  Call Brooks Financial Planning to schedule a time to get this portion of retirement planning put into place.

Colorado Springs Financial Planner offers pre-retirement planning advice

When it comes time to switch to a pre-retirement portfolio many people have no idea where to start. It doesn’t even help much to speak to your friends because no two 60-year-olds are alike! The perfect portfolio for your neighbor simply may not do a thing for you.

It’s also important to remember that there’s more to pre-retirement planning than your portfolio alone – that’s only one part of it. For example, if you don’t have adequate health insurance all it takes is one bad physical ailment to have your portfolio all but disappear within a week or so.

The first step you must take in preparing for your retirement, no matter what your current situation, is to start building up a cash reserve. Ideally you should have enough cash to see you through at least one year, preferably two, without having to touch your stocks. When I say cash, I really mean any of your safe liquid investments including treasury bills and money market mutual funds.

Remember that you will have your social security and your pension to help tide you over. If you expect $20,000 from social security and $15,000 from your pension and you need to have $50,000 a year in retirement, then you’ll  need to come up with $15,000 for your first year.

Your stocks will grow enough over time to cover you in future years but having a cash reserve will give your portfolio time to grow. If you start trying to put some of your retirement savings into cash now, that would be a great start. It will build up over time.

If you would like to discuss your pre-retirement planning in further detail, contact Colorado Springs Financial Planner Mary Brooks at Brooks Financial Planning today to discuss your options.

Colorado Springs Financial Planner has answers to your financial questions

You’re never entirely finished with your education in personal finances because as you travel through life, your situation is constantly going to be changing. Most of us get our early lessons in finances when we’re trying to save pennies earned from a lemonade stand or fished out of a grandfather’s pocket to buy something we really want.

That lesson about savings is an important lesson to learn, as is the first time you have your own bankbook or your first introduction to compound interest.

Student loans, Education savings plans, down payments, mutual funds, investment portfolios, social security, pension plans…depending on our situation in life you’re going to have different financial concerns.
Right now, like many people you may be wondering about how the current economy is going to affect your investments and your bottom line.

Or maybe you aren’t quite there yet and you’re still wondering whether you should be thinking of setting up education plans for your children or retirement plans for yourself. Maybe you don’t know what a mutual fund is but you want to start putting your money somewhere.

Whatever your situation…whatever your problem, there’s no such thing as a dumb question. I’ve been gathering knowledge in the arena of financial services for more than twenty years and I continue to stay abreast of trends so that I’m always able to answer whatever question you might bring me. I’ve heard it all so don’t feel embarrassed. And if I don’t have an answer for you I won’t stop until I find it.

If you’re seeking a Colorado Springs financial planner, I’d welcome a visit at my office at 34 South Sierra Madre St. If you’re not local to me there’s no reason why we can’t talk. My number is 719-351-0494.