-+= MAKING THE MATH WORK Charitable deductions decrease your tax bill by lowering the amount of income you’re taxed on. deductions are not credits, you don’t receive a tax break equal to the value of the deduction. instead the amount of your donation is subtracted from your income, so you are in essence taxed less. your tax benefit from the donation can be calculated roughly by multiplying the value of the donation by your high- est marginal tax rate for the top bracket for which you qualify. For example, if you’re single, and your income for 2011 was between $83,601 and $174,400, you’d pay at the 28 percent rate for each dollar above $83,601. so if your earnings totaled around $150,000, and you donated a $30,000 boat, your tax savings would be around $8,400 ($30,000 deduction x 28% = $8,400).
a portion of the market value to the donor
in cash. The cash accepted up front is
deducted from the final selling price of
the vessel when calculating the amount of
the donation and tax write- off. While this
results in a lesser amount given to the charity than a boat donated in full, it provides an
incentive for owners of more valuable boats
to make the donation in the first place —
because their personal-deduction potential
would be maximized. In the case of Hsu’s
Luhrs, Action spent several months and
several thousand dollars refurbishing the
THINKING ABOUT DONATING?
THE TIME IS NOW
The IRS moved in 2005 to close some loopholes in the vehicle-donation process. Before
that, the year of your tax deduction was
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boat, including new paint, and upholstery.
It sold six months after being donated, for
$95,000. Action spent nearly $25,000 on
the refurbishing job, money Hsu simply
couldn’t have spent to get it sold. “I can only
guess that it would still be on the market
today if I hadn’t donated it,” says Hsu.
determined by when you donated your boat.
Now, because the actual selling price determines the amount of your write-off, your
boat must sell before you receive your 1098-
C. A boat donated this year that doesn’t
sell until next year won’t help you with this
year’s taxes; you’ll have to file an extension
or amended return to count it against the
prior tax year. However, within the new
tax rules, there are still other options available to legally maximize your deduction,
especially for high-value boats. If the charity
makes significant intervening use of your
boat after donation, you are entitled to the
fair market value, rather than the amount it
brings at auction. “Significant intervening
use” generally means using the boat as part
of the mission of the charity. So if your local
Sea Scout group was to accept your boat as
a new training vessel, you could deduct the
appraised value. Talk about the options and
tax law with your accountant.
If you’re considering donating your
boat to a nonprofit organization, the sooner
you make the call, the better chance you
have of getting a 2011 tax deduction by
December 31 and helping a charity you care
about sooner rather than later.
october | november 2011
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