Money Blue Book

After much online speculation and rampant rumors about the economic stimulus payment date, the Internal Revenue Service (IRS) has finally cleared up the confusion and released the official economic stimulus tax rebate payment schedule. You can read the IRS timetable announcement on its website (view IRS news release).

The IRS has announced that it will begin sending more than 130 million economic stimulus tax rebate payments starting May 2, 2008. Those who chose to receive their 2007 tax refund payments via direct deposit will get priority in receiving their stimulus tax rebates. Those who chose to receive their tax refund payments via regular postal service will receive their tax rebate checks in mid May, after the initial wave of tax rebate payments have been sent to those who chose the quicker direct deposit option.

Tax Rebate Receiving Order Will be Based On Social Security Number

The order that the tax rebate checks will be sent out will be according to the last 2 digits of the Social Security Number (SSN) used when you filed your federal tax return. Please examine the stimulus payment chart below to determine when you will be receiving your tax rebate. As the IRS noted on its announcement, because the order will be based on the numerical order of Social Security Numbers rather than by name or household, there is a high possibility that neighbors, family members, and friends may not receive their tax rebate checks at the same time.

The Official Economic Stimulus Tax Rebate Payment Schedule - (for Federal Tax Returns Received and Processed by April 15, 2008):

How To Make Sure You Get Your Tax Rebate Check

If you want to get your tax rebate check sooner, you should make sure to elect the direct deposit option if you haven’t already done so. Secondly, you should make sure you file your 2007 federal tax return by the April 15, 2008 deadline. If for whatever reason your tax return is filed after April 15, you should receive your economic stimulus payment about two weeks after receiving your tax refund. For those requesting filing extensions, if you want to receive your tax rebate by the end of this year, you must file your tax return by October 15, 2008. To accommodate people whose tax returns are processed after April 15, the IRS has indicated that it will continue sending weekly payments even after the end of the above schedule.

As I indicated in my 2008 Tax Stimulus Rebate commentary article, if you are already in bankruptcy or have tax liens for delinquent or outstanding debts such as – unpaid student loans, child support, or tax obligations, all or part of your economic stimulus payment may be withheld or intercepted. The IRS has indicated that it will send a letter to the taxpayer explaining the tax rebate offset, if any.

How Much Will My Economic Stimulus Payment Check Be?

Explanations and detailed answers to your tax rebate questions can be obtained by viewing the official IRS publications and announcements on the matter. Here are some links to official IRS answers to tax rebate questions, where most of the commonly asked questions are addressed. The more complicated and issue-filled tax rebate questions relating to Chapter 7 and Chapter 13 bankruptcy filings have been winding up as comments on my tax rebate article. I will continue answering them to the best of my ability based on my legal experience and knowledge on the matter. However, while my comments may be construed as general background information, they should not be blindly followed as definitive legal advice. Remember to always perform your own due diligence and research.

When I was little I always wondered why my parents bothered to rummage through our closets, cabinets, shoe racks, and sock drawers for assorted clothing every few years. I would see my mom folding and stacking old and outdated clothes that I never wore anymore into black garbage bags and deliver them to the Salvation Army or Goodwill. It wasn’t until I started working and earning income that I finally realized why it made sense to take the time to compile old apparel and send them to local charities. Other than the usual altruistic factors, the biggest reason is to take full advantage of the IRS itemized charitable tax deduction for qualified clothing donations.

Not that we all shouldn’t be donating to charities out of the kindness of our hearts, but Uncle Sam has provided us an attractive incentive in the form of tax breaks for charitable contributions. Most people are keenly aware that they get a tax deductible write off when they tithe or donate money to a charitable organization like their local church. But some seem to forget that the deduction also applies to noncash donations like clothing, shoes, and furniture, so long as they are in reasonably good condition. Of course, like with all good perks there are ground rules in place to prevent abusive taxpayers from going crazy and taking unfair liberty with the charitable deduction. Without these regulations, you would probably have people assigning all sorts of outrageous valuations on the items they donate ($25 for a used T-shirt complete with holes, for example).

The Charitable Tax Deduction Is Useful Only If You Itemize

The calculation of one’s annual tax return usually entails adding up all the income and gains for the year, and then deducting expenses and losses to come up with the final taxable income balance. The IRS provides two primary deduction methods – the simpler standard deduction, which is a flat set amount, and the itemized method, which requires the taxpayer to manually report each individual deduction that he or she qualifies for. The charitable deduction is one of many that falls in the itemized category. The taxpayer has to choose whether to take the standard deduction or to itemize. However, until the total sum of all itemized deductions exceed the standard, it doesn’t make sense to itemize. Unless you already carry a hefty home mortgage with itemizable mortgage interest, it probably makes more sense to itemize every other year, and bulk up your donations in those years. When you itemize, charitable contributions should be a key part of your tax reduction plan.

Five Steps To Donating Your Clothes And Getting That Tax Deduction, Without Being Audited

When donating clothes for the tax deduction, the worst thing you can do is to drastically overestimate the donated clothing value and trigger an alarm bell. Triggering a red flag will send the IRS man running to your home to request receipts and proof of your donation. Because charitable donation is one of those tax items frequently abused by taxpayers, the IRS closely scrutinizes such claims. Thus you want to make sure you go by the book:

1) Gather All Your Unwanted Clothes and Organize Them – Most usable articles of clothing, including shirts, jackets, coats, shoes, dresses, socks, neckties, suits, and even underwear may be donated to local thrift shops and charitable institutions. For underwear and socks however, it’s important to be aware that the IRS now requires all articles of donated used clothing to be in good used condition or better. It’s probably a better idea to avoid worn socks and underwear. While it’s true what they say – that beggars can’t be choosers, we should still try to respect the dignity of those individuals receiving them. If you want to donate those particular items, I suggest buying a new cheap pair for donation.

2) Make A Detailed Record Of Your Donated Items – While it is likely no questions of your donation will ever arise, it is still important to keep a detailed list of your donation in case questions arise or you get audited on the matter. Try to keep a spreadsheet chart or list of all articles donated, recording information such as the number of clothing articles, the estimated dates of purchase, condition at the time of donation, the assessed fair market value of each item, and perhaps even substantiation of how you calculated and arrived at the particular valuation. Some people also recommend taking digital photographs of each item. I recommend taking photos, especially for those items whose valuation may be a bit high and out of the norm.

3) Assign An Appropriate Fair Market Value For Each Clothing Item – The donation valuation process is generally subjective and you are responsible for assigning the proper value for your charitable donations. There is no exact IRS formula or chart as the agency relies on subjective approximations. However, if you wish to donate more than a total of $500 worth of clothing or other goods to charities, you must complete Section A of Form 8283 Non Cash Charitable Contributions, and include it with your federal tax return. A formal donation appraisal by a qualified appraiser is not needed unless you are making a contribution of non-cash property worth more than $5,000. A qualified appraiser is someone authorized to complete Part III, Declaration of Appraiser, of Section B, which must also be included with the tax return in that event.

The IRS permits taxpayers to only deduct the fair market value of the donated clothing and household good. Fair market value is the reasonable price that an ordinary buyer would pay for the item in a regular market situation such as at a flea market, on eBay, or at a thrift shop. Fair market value is not the original purchase cost but the second hand used price that could be obtained in an otherwise efficient market.

There are various used clothing charts and valuation tables on the internet to help determine worth. Both The Salvation Army and Goodwill Industries provide assorted valuation guides on their web sites, which may be used as templates for approximating fair market value. You should keep in mind that the donated value is frequently much less than the original purchase price. If you want additional clarification, please take at look at the official IRS publications on the subject:

• Publication 561, Determining the Value of Donated Property – Useful if you want to examine a few valuation scenarios.
• Publication 526, Charitable Contributions – Addresses the entire subject of charitable donations and provides a useful background.

4) Deliver Your Donated Clothing To The Charity – Most people donate clothing and other household products through charitable organizations such as their local church, or through Goodwill and the Salvation Army. I recommend visiting their websites to locate one of their many thrift shop locations nationwide where you can bring your bags of donated clothing to. There is no need to make a reservation or appointment. Just deliver your bags of clothing and your categorized list of items. Be sure you have properly compiled your list of donation items before bringing the items to the site. Don’t expect the charity to sort the items and do the work for you on the spot.

Usually, the way it works is you drop off your items at the donation site and a staff member provides you with a receipt upon request. Although you are not obligated to obtain a written receipt from the charity if the total value of the donated clothing is under $250, you should still always request one for record keeping purposes. Sometimes, but not always, they’ll make a note on the receipt for you about exactly what was dropped off, but the description is usually very general – such as “3 bags of clothing”. Other times, they will simply hand you a blank receipt for you to fill out.

Some charitable thrift shop centers allow you to mail your clothing donations in, or even provide large clothing donation boxes where you can leave your clothes. Just be sure to include a self-addressed, stamped envelope so the center can send you a receipt later. Shipping costs are tax deductible as well.

5) Claim the Value Of Your Clothing Donation As A Charitable Deduction On Your Tax Return – Since you went through all the trouble of donating your used clothing, be sure to take the appropriate deduction on your tax return when you file. To claim the charitable tax deduction, you will need to report the value of your donated clothes on Schedule A of Form 1040 as an itemized deduction. The total value of your charitable deductions cannot be more than 50 percent of your adjusted gross income in any single year. However, donations exceeding the 50 percent limit can be carried forward to future years.

As with most things in life, I recommend that you plan ahead before making large clothing donations. If you don’t usually carry significant itemizable expenses such as home mortgage interest and taxes, you should save up your donations until you have a sizable amount before making the contribution. While charitable giving is always a worthy cause, it doesn’t mean you shouldn’t try to fully maximize the tax advantages the government provides.

Reward credit card and cash back rebates are great because you get to earn money and receive what is essentially a discount for making ordinary everyday purchases. Today I decided to review my credit card accounts and convert some of my accumulated reward points into usable cash back and retail gift cards. For my versatile Fidelity Investment Reward Card, which earns me 1.5% back on all purchases, I converted 5000 World Points into a $75 deposit towards my linked Fidelity trading account. I also redeemed 40,000 of my total balance of 46,155 Citi Thank You points into four wonderful $100 retail gift cards. I chose to receive high value rewards with the best ThankYou redemption value, and picked out gift cards from Marshalls, Macy’s, and Gap. Looks like I’ll be going bargain clothing shopping again in the near future in about 1-3 weeks when they arrive.

Am I Supposed To Report Credit Card Rewards and Cash Rebates On My Tax Return?

My reward redemption routine is a ritual that happens at least once every year. Over the years, I’ve earned quite a tidy sum of credit card rewards comprised of cash back, rebate points, airline miles, and gift cards. But I’ve never listed the earnings as taxable income on my federal income tax return or reported a single cent of my rebate earnings to the Internal Revenue Service (IRS). I simply haven’t given it much thought until recently. For the last few years I’ve probably pulled in at least $3,000 worth of personal credit card reward earnings, whether it be through credit card sign up bonuses or through regular cash back rewards that earn up to 5%. But recently I’ve been thinking – these rebates, rewards, and gift cards I’ve been earning and redeeming do add up to quite a substantial sum. Am I under some obligation to report them as income? After all, the credit card earnings do as a practical matter increase my overall wealth, albeit subtly. Or are they considered income exempt from taxation?

When it comes to earning credit card rewards, although I regularly exceed the $600 reward income threshold, I’ve never received a 1099-MISC for my card rebates. My understanding is that the credit card company would have been obligated to send me a 1099-MISC form if the cash back rewards were deemed taxable. Of course, for that to somehow happen, the credit card company would need to treat me as an independent contractor and the credit card rebates as some type of income in the ordinary course of trade or business.

Reviewing the IRS’ Likely Position On The Taxation Of Cash Back Credit Card Rebates and Rewards

As was addressed in a past Wall Street Journal article, the IRS has not offered definitive legal or tax guidance on whether credit card rewards or rebates are subject to federal income tax. However, in an often referenced IRS private ruling letter on the matter, the IRS did indicate that the individual seeking the ruling did not have to include certain credit card rebate rewards as taxable income on his federal tax return. (PLR 200228001). While it should be duly noted that an IRS private letter ruling statement only applies to the requesting taxpayer’s specific set of facts and should not be regarded as precedent or legally binding for everyone else, such release of information by the IRS does shed light and give us an insight into how the IRS views such issues. These written statements can help us meter the agency’s approach on a particular tax issue.

Tax professionals and advisers on the matter have generally taken the view that credit card rebates are not considered taxable income that needs to be reported – seeing them as more of a reduction in purchase price than anything else. Their assessment is more likely in tune with the position the IRS would likely take as well. Although not precisely addressing the issue of credit cards rewards, in IRS Publication 17, the agency indicated that the cash rebate an individual receives from a dealer or a manufacturer of an item purchased is not considered taxable income, but the individual must reduce the purchase item’s basis by the amount of the rebate.

Again, while not perfectly on point, this statement at least suggests that your credit card reward earnings are likely not taxable because they are more akin to an incentive discount or financial inducement to buy certain products with after tax dollars than anything else. The same way receiving a retail coupon from a product manufacturer would not be regarded as taxable income, cash and reward points in the form of gift cards redeemed using credit card earnings would not be either.

Of course, if a business entity earns rewards using company credit cards that it redeems and shares with its employees, the taxability question may be different. While the rewards received by the business is likely to be viewed as non-taxable, once the rewards are passed onto the employees, their character is likely to change. At that point they likely become more of an income distribution in the course of business. The fair market value of such distributions would likely have to be reported as taxable income by the employees and employer as such increases in wealth need to be declared.

Updated – The IRS has released the official 2008 Economic Stimulus Payment Schedule.

Also, read about the prospects and chances of an Obama stimulus check for 2009.

Based on the substantial traffic and comments I’ve been receiving for the article I wrote explaining and breaking down the details of the 2008 Stimulus Rebate Package, it’s clear that everyone in the United States is concerned about their rebate checks. Everybody wants to know how large their own tax rebate check will be and when they can expect to receive it.

There are many questions to be answered and I’ve been trying my best to respond to them all. While most questions have been straightforward, others have been slightly more complicated with issues relating to Chapter 7 and 13 bankruptcy filings, or issues relating to wage garnishment and student loan liens. But I will continue to do my best to answer your flurry of tax rebate comments and e-mails.

Visit The IRS Website For The Official Source Of Tax Rebate News and Updates

While I can’t necessarily state that all answers that I provide are definitive, I do try my best to answer accurately based on research and reasonable information. One thing I have noticed is the vast amount of misinformation and speculation that is available on the internet. There seems to be much conjecture and rumors surrounding the tax rebate, particularly as it relates to timetable and the order that the checks will be sent out. I wish to remind readers that the only definitive source for tax rebate news and updates is the official IRS Economic Stimulus Payments Information Center (official website). There, they’ve done a pretty decent job of addressing the seemingly endless stream of tax rebate inquiries, even providing answers to popular tax rebate questions (Tax Rebate FAQ). The IRS tax rebate website provides stimulus check payment hypotheticals and answers questions pertaining to Social Security recipients and veterans living on disability. They post updates regularly and understandably so. Here’s a quick link to some of the official tax rebate questions and answers for various filing scenarios:

1. Single without children
2. Head of Household, with children
3. Married, with children
4. Married, without children
5. Married Filing Separately, with or without children

Here’s the official information release for recipients of alternative types of income:

1. Recipients of Social Security Retirement Income or Disability
2. Recipients of VA Benefits, Disability, or Survivor Benefits

If you still have unanswered questions, please continue to post comment questions to my original Bush Tax Rebate article. I will try my best to diligently answer each one as best as I can. Keep in mind that while I do have a legal and financial background, you will be best served asking your own tax professional or hired attorney the more substantive tax and legal questions, particularly when it relates to more delicate legal issues surrounding bankruptcy and liens. My informal opinions should only be viewed and regarded as general background information rather than seen as authoritative financial advice.