Reviewing the Scenario
The scenario is about a company, which was started up as a small firm by Bill and Melinda, but it has expanded and become more profitable recently enabling it to be in position to reach out to its community through charitable organizations such as the Red Cross. They are thus seeking the help of CPA in managing their finances since they have never been in position to earn such large amount of money. Therefore, they need guidance on how to go about with it. Bill and Melinda Goats are willing to make a stock donation of about four thousand shares of their stock in the company to the Red Cross a non-profit organization. They were advised not to sell their stock because they will have to pay the capital gain tax; therefore, to avoid that, they chose to just donate the stock.
Bill and Melinda Goats spent most of their free time volunteering and offering their services for the Red Cross organization and willing to write off their time as a tax deduction. They also donated some items such as clothes and house hold items to Good will industries as they were moving to a new apartment.
1. Deductions made to charitable contributions
2. Volunteering to charitable organizations such as the Red Cross to reduce on deductions.
Bill and Melinda are specifically asking the following questions:
1. What will be the charitable deduction? How to make donations to charitable organizations?
2. Will there be any limitations on getting the full deduction this year?
In regard to the first question, its always advisable to make donations from the income taxes, and for a successful contribution to be deducted, it's a must that it is made known and qualified to organizations that meet IRS rules and regulations. In addition, money should never be paid in cash (Yandle, 2009). Therefore, for them to know what the deductions will be on their contribution, its important that they summarize all the contributions made either by check or other means to the Red Cross, add up time and distance covered while volunteering, sum up prices of goods and services offered to charity while volunteering and make the totals of all these activities to get the amount to be deducted.
Conclusion on question two which is inquiring if their will be any limitations on the charitable contribution. It is advisable for Bill and Melinda to assume that they will get full federal tax deduction on their contribution of stock to the charity; this is because whereas various tax payers are able to deduct the stock to the charity in full, others are limited (Hopkins, 2007). This may be a result of holding the stock for less than ayear.Therefore, because tax laws are changing frequently, individuals are requested to contact the tax preparers to avoid the limitations.
A non- profit organization is a legal and accounting entity, which is carried out for society's benefit rather than for the benefit of one person or a particular group of shareholders. Red Cross organization is one of such organizations, which do not have profit making as their main goal and objective. The main objective of the Red Cross include; social, educational, religious, and other charitable which take the form of clubs, societies, and associations. They aim mostly at spending the organizational funds in away that gives or offers maximum benefit to the members of a community or a society. The main requirement of the non-profit organizations is that they need to make regular annual accounts that accounts for the financial outcome of the organization for submitting to the members and governments for financial assistance.
Another issue for discussion is on how to donate money to a charity organization. For instance, in order to avoid paying capital gain, one can offer money to reduce tax liability by donating appreciated assets, or even by providing stock held for several years directly to the intended charity organization then claim for a deduction for the entire price of the good. This was the advice given to Bill and Melinda concerning their stock.
