Serving You with Our Free Newsletters

We enjoy sending you information that we hope improves your work as a tax preparer. Our three newsletters, AB Tips, Tax Tips, and Career Tips, are intended to help professionals like you advance in whatever their current position in the financial field. The AB Tips Newsletter is designed to share accounting and bookkeeping tips with subscribers. Intended for individuals with their own accounting practice or for those who would like to start their own practice, we specifically include tips on how to market your services, how to streamline tasks, how to organize your office space, etc. Our Tax Tips Newsletter is for tax preparers or those interested in tax preparation. We provide tax news, information on starting your own business, tips on building your clientele, etc. And finally, we have our Career Tips newsletter, for those who work or would like to work in the accounting field. In this newsletter we include information on getting the right job, advancing in your field, moving into management positions, etc.

As we learn more about your needs, we alter our approach in order to better serve you. We’re adding a few things to the newsletter that we hope you enjoy. Here’s a breakdown of what’s included and how we hope it helps you.

Two articles

Since we began running our free ezines over two years ago, we have included two articles every issue that offer accounting and tax information, tips on running and marketing a small business, career guidelines and promotional pieces. The newsletters provide us with the opportunity to share our products and services with those we believe they best serve. Universal’s programs are top of the line and life-changing; we promote them because we know they help people like you achieve career goals and realize your business dreams.

We also use the newsletter as an opportunity to expose you to our many free resources, including personalized information from our President and CEO, Allen Bostrom in Allen’s Blog, UAC’s accounting and tax forums, the newsletters, and the Universal video tour.

Recently we’ve responded to requests for purely informational pieces as well. Last summer we asked newsletter subscribers to tell us what you wanted to read about. For the past six months we’ve tried to include articles on all suggested topics. Each newsletter contains one, if not two, informational pieces. We continue to welcome your feedback as we write articles intended to help you improve your financial services. Please visit our forums for a chance to give us feedback on past articles and suggestions for future articles.

Press Releases and New Products

We want you to be in the know about everything Universal, so we include all press releases, enrollment offers, and information about new products in our newsletters. From our new interactive testing center to our customized Professional Bookkeeper Program for Canadian residents, we want you to be the first to know what’s happening at Universal Accounting Center.

Quotable Quote

Everyone could use a little inspiration now and then, so we like to include a quotable quote in each issue of our newsletters. Funny quotes, somber quotes, quotes that make you want to get up and accomplish something, we try to include a variety that inspire and uplift.

“The Bottom Line”

And last but certainly not least is an upcoming addition to our newsletters: a video clip we call “The Bottom Line.” In the serious world of financial statements, taxes, and projected profits, the bottom line is that we like what we do and can enjoy a good laugh about our profession. The humorous clip is intended to help lighten your load and improve your day. We hope you look forward to this new feature and share it frequently with coworkers, family, and friends.

We want our newsletter to help you move forward in your goals as a financial professional. So stay tuned as we continue to improve our newsletters so that they can better serve your needs. We appreciate your support.

It’s a problem every business owner wants to have-more success than they know what to do with. So what’s an entrepreneur to do? It sounds like we’re making light of a small problem, but the truth is, a business can crumble under the weight of its own success. If you’ve been experiencing more business than you know what to do with, this article is for you. Don’t allow yourself to get lost in overnight success or an avalanche of clients; take control and manage your success so that you can enjoy the fruits of your labors. Taking the following steps can help you use your achievements to catapult your business to the next level:

1. Stay level-headed
While it’s good to acknowledge your success and celebrate in small ways, you should stay level-headed in order to remain focused on your business. Take the time to evaluate what you’ve done to see this success and what you might do to continue it. Whatever you do now is not the time to go on a cruise or fly off to Europe. As much as you may want to reward yourself for this success, you must take the time to evaluate how you achieved it and what you must do to maintain it.

2. Consider hiring employees
Hiring employees is an obvious step if you find yourself swamped with new clients. When you increase your productivity with a support staff you can keep up with the onslaught of new work without loosing sleep yourself. Just be sure you hire individuals who are competent, who can handle the many tasks you will need to assign without a lot of supervision.

3. Don’t get financially reckless
With all those billable hours on the books you may be tempted to go out and buy yourself that new SUV or look for a new house with a bigger office. Hold on there, chief. You know enough about accounting to realize that just because it’s on the books doesn’t mean it’s in your account; and just because it’s in your account doesn’t mean your should spend it recklessly. Be patient; there will come a time when you can spend a portion to improve your lifestyle and enjoy your leisure time. But squandering it away right now will only put you and your business at risk.

4. Leverage your success
Consider how you might leverage your success in order to move your business to the next level. Can you add complementary services, like accounting, to improve your offerings and better satisfy client needs? Consider how the editors of Chicken Soup for the Soul expanded their offerings to make millions. It’s important to strike while the iron’s hot; take advantage of current success in order to leverage all those new clients who have chosen you over your competition.

5. Invest
Now is the time to take the profit you’re making and use it to generate even more profit. How can you improve your marketing efforts? Is there software you can purchase to make you more efficient? Building a bigger business will require you to put that profitability to work. And because you’re self employed you should also consider boosting your retirement savings and allocating a percentage of your new and improved income to an investment vehicle of your choosing.

While your newfound success may have been just what you were waiting for, you must manage it well in order for it to carry your business to the next level. The most important thing for you to do is to step back and take a moment to reflect on what’s brought you to this point and where you’ll go from here. That will help you to wisely channel your success.

IRS Updates

Be Prepared Come the Filing Deadline

You have approximately three and a half weeks until the filing deadline. As you begin submitting returns it’s important to be aware of key IRS updates released in the past few months. Here are four for you to consider:

When Missing Form 1099

Depending on the types of income your clients receive, some may require 1099 forms when filing their taxes. Those responsible for paying that income are required to send 1099 forms by January 31, 2008. If your clients have yet to receive their 1099 forms they must contact the IRS at 800-829-1040.

There are many forms in the 1099 series, including:

• Form 1099-B, Proceeds From Broker and Barter Exchange Transaction.
• Form 1099-DIV, Dividends and Distribution.
• Form 1099-INT, Interest Incom.
• Form 1099-MISC, Miscellaneous Incom.
• Form 1099-OID, Original Issue Discoun.
• Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
• Form SSA-1099, Social Security Benefit Statemen.

While all 1099 forms are important to keep with your tax records, only those indicating income tax withheld are to be included with a return. For more information go to www.IRS.gov.

If missing a W-2, ask your client to contact the employer to see if a “reissued statement” can be quickly processed. Otherwise, have the client contact the IRS at the number listed above. Notify your client that they are still obligated to file by the deadline even if they do not have the W-2. In such cases, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement.

Inform Clients of Possible Email and Telephone Scams Using the IRS Name

At the beginning of the year the IRS released statements warning taxpayers to be aware of possible email and telephone scams claiming to offer advance payment checks from the IRS. Scams claiming to offer proposed government tax rebates have also begun to surface. The objective of such scams is to secure private financial information from taxpayers in attempts to commit identify theft. The following scams have already been brought to the IRS’s attention:

• Rebate Phone Cal.
• Refund e-Mai.
• Audit e-Mai.
• Changes to Tax Law e-Mai.
• Paper Check Phone Call

Warn your clients not to click on any email links claiming to take them to the IRS’s homepage. Have them check with you before moving on any such claims for rebates or advance payment checks. Also ensure they are using the IRS’s proper URL. Any website claiming to be affiliated with the IRS ending in .com or .org is not an official IRS site. Advise your clients to visit www.IRS.gov.

Recently Married and Recently Divorced Clients

If any of your clients married or divorced in the 2007 tax year it is important to ensure they avoid name complications. The name on their tax return must match the name registered with the Social Security Administration (SSA). A tax refund may be delayed if those names do not match.

Before filing for a refund you must ensure these two records match. Inform clients that they cannot legally change their names unless the SSA has been properly notified, and this includes recently divorced individuals assuming on a previous name.

The SSA records can easily be changed by filing Form SS-5 at the local Social Security office. Generally it takes two weeks for the name-change to be verified. For more information have your clients visit www.socialsecurity.gov or call 800-772-1213.

When Clients Move

Advise your clients to notify the IRS when they move to a new home or business address to ensure refunds or other IRS correspondence will follow them. They can do this in one of the following ways:

• Tax Return. Update the address on the client’s tax return.
• Form 8822. You can use this Change of Address form to submit a name or address change at any time through the year.
• Written Notification. Submit written notification to the IRS to inform them of the address change. To do so, the IRS requires a full name as well as the old and new addresses, the SSN or employer identification number, and the client’s signature.
• Verbal Notification. If you client is contacted by an IRS agent they may be allowed to change their address verbally.

To download Form 8822, Change of Address, visit the IRS Web site, www.IRS.gov, or call 800-TAX-FORM (800-829-3676).

IRA Contributions Can Be Made Until Tax Filing Deadline

Tax Tip 2005-62, March 29, 2005

If you haven’t contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2004, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15, 2005, due date for filing your tax return for 2004, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2004. Otherwise, the trustee may report the contribution as being for 2005, when they get your funds.

Generally, you can contribute up to $3,000 of your earnings for 2004 or up to $3,500 if you are age 50 or older in 2004. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

You may be able to take a tax deduction for the contributions to a traditional IRA, depending on whether you — or your spouse, if filing jointly — are covered by an employer’s pension plan and how much total income you have. You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

You can file your tax return claiming a traditional IRA deduction before the contribution is actually made. However, the contribution must be made by the due date of your return, not including extensions. If you report a contribution to a traditional IRA on your return, but fail to contribute by the deadline, you must file an amended tax return by using Form 1040X, Amended U.S. Individual Income Tax Return. You must add the amount you deducted to your income on the amended return and pay the additional tax accordingly.

Publication 590, Individual Retirement Arrangements (IRAs), has more information. Download Publication 590 or order it by calling toll free 1-800-TAX-FORM (1-800-829-3676). Taxpayers needing this or any other IRS publication should act soon to be sure they have the item in time to meet the April deadline.

Links:

• Publication 590, Individual Retirement Arrangements (PDF 449K)
• Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
• Form 1040X Instructions (PDF 45K)

Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date IRS receives your return. If you file your return electronically, your refund should be issued in about half the time it would take if you filed a paper return — even faster when you choose direct deposit.

You can have a refund check mailed to you, or you may be able to have your refund electronically deposited directly into your bank account. Direct deposit into a bank account is more secure because there is no check to get lost. And it takes the U.S. Treasury less time than issuing a paper check. If you prepare a paper return, fill in the direct deposit information in the “Refund” section of the tax form, making sure that the routing and account numbers are accurate. Incorrect numbers can cause your refund to be misdirected or delayed. Direct deposit is also available if you electronically file your return.

A few words of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.

You may not receive your refund as quickly as you expected. A refund can be delayed for a variety of reasons. For example, a name and Social Security number listed on the tax return may not match the IRS records. You may have failed to sign the return or to include a necessary attachment, such as Form W-2, Wage and Tax Statement. Or you may have made math errors that require extra time for the IRS to correct.

To check the status of an expected refund, use “Where’s My Refund,” an interactive tool available on this Web site. Simple online instructions guide you through a process that checks the status of your refund after you provide identifying information from your tax return. Once the information is processed, results could be one of several responses, including:

• Acknowledgement that a return was received and is in processing,
• The mailing date or direct deposit date of the refund, or
• Notification that the refund has been returned to the IRS because it could not be delivered.

New features on “Where’s My Refund” offer step-by-step instructions allowing taxpayers to trace their lost checks. Individuals now can change or correct their mailing address when their refund checks have been returned to the IRS as undeliverable. When you change your address online the IRS database is updated, and you will be given a date when your refund check should be resent.

The refund trace can be started 28 days after the date the IRS says the refund check was mailed. Married taxpayers who file a joint return must also complete and mail or fax a copy of Form 3911, Taxpayer Statement Regarding Refund. Both spouses must sign the form. Form 3911 is only required when the filing status on the return is married filing jointly.

Another way to check on your refund is to call the IRS toll-free Refund Hotline at 1-800-829-1954. This service is available to individual and joint filers who want to check the status of their current year refund.

If it has been at least four weeks since you filed your tax return, you can also check on the status of your refund by calling the toll-free IRS TeleTax System at 1-800-829-4477. When you call, you will need to provide the first Social Security number shown on the return, your filing status and the amount of the refund. If the IRS has processed your return, the system will tell you the date your refund will be sent. TeleTax refund information is updated each weekend. If you do not get a date for your refund, please wait until the next week before calling back.

For more information on how long it may take the IRS to process your federal tax refund, visit “Frequently Asked Questions.”

Links:

• Where’s My Refund?
• Form 3911, Taxpayer Statement Regarding Refund (PDF 62K)
• Tax Topic 152 — Refunds
• Frequently Asked Questions

IRS Tax Tips

Do You Have a Deductible Home Office? Tax Tip 2005-54, March 17, 2005 Whether you are self-employed or an employee, if you use a portion of your home exclusively and regularly for business purposes, you may be able to take a home office deduction. You can deduct certain expenses if your home office is the principal place where your trade or business is conducted or where you meet and deal with clients or patients in the course of your business. If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it. Your home office will qualify as your principal place of business if you use it exclusively and regularly for the administrative or management activities associated with your trade or business. There must be no other fixed place where you conduct substantial administrative or management activities. If you use both your home and other locations regularly in your business, you must determine which location is your principle place of business, based on the relative importance of the activities performed at each location. If the relative importance factor doesn’t determine your principle place of business, you can also consider the time spent at each location. If you are an employee, you have additional requirements to meet. You cannot take the home office deduction unless the business use of your home is for the convenience of your employer. Also, you cannot take deductions for space you are renting to your employer. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses. Expenses that you can deduct for business use of the home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs. However, you may not deduct expenses for lawn care or those related to rooms not used for business. There are special rules for qualified daycare providers and for persons storing business inventory or product samples. For more information, see IRS Publication 587, Business Use of Your Home. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040. Employees can use the worksheet in Pub. 587 to figure their allowable expenses and claim them as a miscellaneous itemized deduction on Schedule A, Form 1040. To be on the safe side, you may also want to review IRS Publication 4035, Home-Based Business Tax Avoidance Schemes, which describes schemes that claim to offer tax relief but which actually result in illegal tax avoidance. IRS publications and forms are available on this Web site or by calling the IRS at 1-800-TAX-FORM (1-800-829-3676). Links: Publication 587, Business Use of Your Home (PDF 214K) Form 8829, Expenses for Business Use of Your Home (PDF 64K) Form 8829 Instructions (PDF 29K) Schedule C, Profit or Loss from Business (PDF 111K) Schedules A&B, Itemized Deductions and Interest & Dividend Income (PDF 116K) Publication 4035, Home-Based Business Tax Avoidance Schemes (PDF 1704K) Learn Tax Preparation and Planning Learn How The Professional Tax Preparer Certification Prepares You to Start a Successful Tax Preparation and Planning Service

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IRS Notices - What To Do?

It’s a moment any taxpayer dreads. An envelope arrives from the IRS — and it’s not a refund check. But don’t panic. Many IRS letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice provides specific instructions explaining what you should do if action is necessary to satisfy the inquiry. Most notices also give a phone number to call if you need further information.

Most correspondence can be handled without calling or visiting an IRS office, if you follow the instructions in the letter or notice. However, if you have questions, call the telephone number in the upper right-hand corner of the notice, or call the IRS at 1-800-829-1040. Have a copy of your tax return and the correspondence available when you call so your account can be readily accessed.

Before contacting the IRS, review the correspondence and compare it with the information on your return. If you agree with the correction to your account, no reply is necessary unless a payment is due. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write an explanation why you disagree, and include any documents and information you wish the IRS to consider. Mail your information along with the bottom tear-off portion of the notice to the address shown in the upper left-hand corner of the IRS correspondence. Allow at least 30 days for a response.

Sometimes, the IRS sends a second letter or notice requesting additional information or providing additional information to you. Be sure to keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, Understanding the Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax. Both publications are available on IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Links:

• Publication 594, Understanding the Collection Process (PDF 129K)
• Publication 17, Your Federal Income Tax (PDF 2,072K)
• Tax Topic 651, Notices — What to Do

Put Those Files to Bed: Create a Filing System That Works for You

Is there a revolt taking place in your office? Has the paperwork declared a rebellion? Are you quickly being overcome by the unorganized piles? If you answered “yes” to any of these questions than it’s time to organize the chaos by creating a filing system that works for you. Here are five filing tips that will help you put the clutter away so you can focus on your bookkeeping tasks.

1. Organize the piles of paperwork.
The first thing to do is sort the piles. Determine what to save and what to toss. You may be toss-resistant, but once you set a threshold for tossing, the rest is easy. Will you keep receipts from this year only? Will you keep all client-related information? Once you decide what you must keep, throw away the rest.

2. Pick a filing system that works for you.
There are different filing systems and you should pick the one that will work best for you: alphabetical, numerical, or subject-oriented. Your sorted piles may indicate a preference. Perhaps you’ve filed information by client. This could indicate a tendency to access information alphabetically, although some may want to file these numerically by assigning reference numbers to each client.

3. Select complementary hardware.
After you pick a filing system, you should decide what hardware you ’ll need to make it work. Determining what hardware you’ll be using will contribute to the success of your system.

Filing Cabinets. First, look at your piles and decide how hearty your filing system needs to be. Will it all fit into a file drawer in your desk? Or do you need to invest in a two or four-drawer filing cabinet? Remember to factor in room for growth. You don’t want to stuff all your files into one drawer and quickly find files stacking up on your desk because they don’t fit into your new system.

Folders and labels. Will colored files help you better organize and relocate information? Consider whether you want to use colored hanging file folder, colored files or both. Do your files need tabs? If you require tabs, how big do they need to be (1/3, 1/5, 2/5, or 1/2 inch)? And where do you want the tabs? All on the right, left, middle, or should they vary?

Smaller filing systems. There may be some information that just doesn’t fit into your larger filing system. Perhaps you need a small accordion file for your receipts, or a binder with tabs for more complex client-specific records.

4. Put your files in a place that makes sense.
Which files need to be close at hand and which can be kept on the opposite end of your office? Eliminate unnecessary redundancy by using your computer when possible (and create an efiling system that makes sense too. Unorganized computer files can often create cyber clutter that’s just as unsettling as those paper piles).

Use the filing system!
This may sound obvious, but once you create your filing system you ’ve got to use it. Too often we let paperwork build up when putting it away as soon as we’ve stopped using it would save time and energy.

The most important thing about your filing system is that it be catered to your needs. If it’s dazzling and impressive but takes more time to navigate than necessary, then you haven’t created the filing system for you. Take the time to do it right the first time, and you’ll have a system that eliminates chaos and makes room for order. Phew. Now you can get some work done!

Tax Tip 2005-67, April 5, 2005

If you’re trying to beat the tax deadline, there are several options for last-minute help. If you need a form or publication, you can download copies here. If you find you need more time to finish your return, you can get a four-month extension of time to file using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. And if you have trouble paying your tax bill, the IRS has several payment options available.

You can get an automatic extension of time to file by using IRS e-filing options — by phone or personal computer, or through an authorized e-file tax professional — or by paying part or all of any estimated amount of tax due using a credit card. You can pay your tax using a credit card either by phone or over the Internet. You can also get an extension by mailing a paper Form 4868 to the IRS.

The extension will give you extra time to get the paperwork to the IRS, but it does not extend the time you have to pay any tax due. You have to make an accurate estimate of any tax due when you request an extension. You can also send a payment for the expected balance due, but this is not required to get the extension. However, you will owe interest on any amounts not paid by the April 15 deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.

You can file Form 4868 by phone anytime through April 15, 2005. You will need to provide certain information from your 2003 federal tax return. The phone number is 1-888-796-1074. Use Form 4868 as a worksheet to prepare for the call and have a copy of your 2003 tax return available.

The system will give you a confirmation number to signify that the extension request has been accepted. Put this confirmation number on your copy of Form 4868 and keep it for your records. Do not send the form to the IRS. If you apply for an extension using the toll-free telephone number, you can choose to pay any expected balance due by authorizing an automatic withdrawal from a checking or savings account, using the adjusted gross income from your 2003 return to verify your identity.

You can also e-file an extension request by using tax preparation software on your own computer or by going to an authorized e-file tax preparer. Like requesting an extension by phone, computer filers must provide two figures from the prior year’s tax return to verify identity.

If you determine that you need more time to prepare and file your return beyond the initial four-month extension, you may be able to get two more months to file. You can apply either by writing a letter to the IRS or by filing Form 2688, Application for Additional Extension of Time to File U.S. Individual Income Tax Return. You must give the IRS the reason why you need the second extension. Approval is not automatic. You should file this application early so that if it is not approved you will be able to file on time.

If your return is completed but you are unable to pay the tax due, do not request an extension. File your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due and will charge interest and penalties only on the unpaid balance.

If you cannot pay the full tax due with your return, you can ask to make monthly installment payments. You will be charged interest and may be charged a late payment penalty on any tax not paid by April 15, 2005, even if your request to pay in installments is granted. You can request an installment agreement by completing Form 9465, Installment Agreement Request, either when you file your return or when you later get a bill from the IRS. List the proposed monthly payment amount and the date you will make the payment. You can instead choose to conveniently pay through an automatic withdrawal from your bank account each month.

Download IRS forms on this Web site, order them by mail at 1-800-TAX-FORM (1-800-829-3676), or have them faxed to you from IRS Tax Fax. From a fax machine, call 703-368-9694 (not a toll-free number) and enter 13141 for Form 4868, 11958 if you need Form 2688, and 14842 for Form 9465. You can ask for up to three items per call.

Links:

• Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return (PDF 76K)
• Form 2688, Application for Additional Extension of Time to File U.S. Individual Income Tax Return (PDF 71K)
• Form 9465, Installment Agreement Request (PDF 100K)

Charitable Tax Deduction for Property You Don’t Give Away

Make a Donation and Still Keep the Property

If you want to help out your favorite charity, but you simply can’t afford to make a gift, consider this: You can make a gift of what the tax lawyers call a “fractional interest” in your property. Under this setup, you can support a good cause, get a big charitable deduction–and still hold onto your property.

A Practical Example

Example: Pretend you have an art collection worth $100,000. You want to use your collection to help out your pet charity, but you’re reluctant to hand over your prized possessions. You can donate what amounts to a “time share” of your collection. That way, you can continue to enjoy your artworks and get a big tax break to boot.

How The Deduction Works

How does this work? Let’s say you donate a 25% interest in the collection. Result: You get a current tax deduction equal to $25,000–25% of the $100,000 value of the collection. To get the deduction, you have to give the charity the right of possession for 25% of the time (three months per year). But the charity doesn’t have to enforce its right of possession during your lifetime. In fact, the charity may opt for this if you’re going to donate the remaining 75% interest in your will. If that’s the case, you continue to get full enjoyment of your collection, but you still get the charitable tax deduction. Why don’t you lose the deduction if the charity doesn’t take actual possession as it’s entitled to? Because the courts say so [Winokur, 90 T.C. No. 733].

More deductions: Let’s say your collection is appreciating in value each year. You can use this same fractional-interest donation idea to get a series of annual deductions equal to the yearly increase in value.

Let’s say your remaining 75% interest in your collection goes up in value next year from $75,000 to $80,000. You can donate an interest in the collection equal to the $5,000 increase in value, still leaving you with $75,000 worth of artworks. As the collection continues to increase in value, you can donate the increase each year. True, your ownership percentage drops, but you help yourself to a continuing stream of charitable tax deductions. And in the end, charity benefits.

More Tax Tips

Our Tax Site will give you many tips that you can use to lower the tax burden of you or your clients.

Learn More Tax Tips