Month: May 2010

Donations of Unreimbursed Expenses

May I deduct as charitable contributions expenses that I incur on behalf of a charitable organization that are not reimbursed?

Per IRS Publication 1771:

If a donor makes a single contribution of $250 or more in the form of unreimbursed expenses, e.g., out-of-pocket transportation expenses incurred in order to perform donated services for an organization, then the donor must obtain a written acknowledgment from the organization containing:

    a description of the services provided by the donor

    a statement of whether or not the organization provided goods or services in return for the contribution

    a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution

    a statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (described earlier in this publication), if that was the case.

In addition, a donor must maintain adequate records of the unreimbursed expenses. See Publication 526, Charitable Contributions, for a description of records that will substantiate a donor’s contribution deductions.
Example of an unreimbursed expense: A chosen representative to an annual convention of a charitable organization purchases an airline ticket to travel to the convention. The organization does not reimburse the delegate for the $500 ticket. The representative should keep a record of the expenditure, such as a copy of the ticket. The representative should obtain from the organization a description of the services that the representative provided and a statement that the representative received no goods or services from the organization.
Publication 1771 also reviews the disclosure requirements of charitable organizations.

Don’t throw good money after bad

Austin Talk Radio Batters Metrorail

Not a real headline but the discussion was a good reminder of how to NOT make a decision to abandon a project.

Investors are notoriously emotionally involved in decisions that they have made.  It is almost impossible to divorce ourselves from the consequences of important decisions that we have made.  This is called  Loss Aversion.

When we have made a decision such as investing $65 million  in a Metrorail or $5000 in WholeFoods and watch the trains operate at a loss or our stock decline by half of its value, our loss aversion and emotions keep us from correctly considering our original investment as a sunk cost.  Sunk costs are non recoverable costs that force us to admit that we have made a bad decision.

Some decisions require that we abandon our prior investment and invest additional funds that will correct the decision.  One example is abandoning a website that is too expense to maintain but that cost $15,000 for a $1000 out of the box website that works great.

Other decisions require that we look at future operations but on a cash flow basis.  If an operation, perhaps a commuter train, is cash flowing, consideration of the original investment is irrelevant to the decision as to whether to continue or stop the train.  The relevant costs to compare with income from the project are the costs that will end if operations are ceased.

Finally, we might need to consider selling assets that we can’t afford to pay for even though we would lose our investment, especially if we can pay off any debt associated with the property.  Continuing to own an asset with operating losses due to mortagage payments that could be sold is also an example of loss aversion.

How much should you give?

Ron Lieber writes in the NYTimes,  April 30, about alternative computations of the amount to give to charity.    He reports the methods in the Bible and in the Koran.  He quotes Brent Kessel who wrote “It’s Not About Money” , and Peter Singer who wrote “The Life You Can Save.”  He quotes letters from Gerard Manley Hopkins, a Jesuit priest,  to Robert Bridges, both 19th century poets,  in which the priest suggests that his friend give alms to the point of personal inconvenience if he wanted to become familiar with the nature of Christian belief.  Lieber concludes with a call for more readily available payroll deductions such as the United Way facilitates.

Read the full article here.