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How Volunteering Can Earn You a Big Tax Deduction

4 min read

Volunteering Tax DeductionMost people volunteer out of a sense of altruism, duty or purpose – not to get a tax deduction from Uncle Sam. At the same time, if your good deeds could also result in lower taxes, why not? Theoretically, this would free up more time to volunteer or let you make a charitable donation, a win-win for you and the cause you care about.

What Volunteering Expenses Can You Deduct?

As with all tax rules and regulations, the devil is in the details. If you itemize your tax deductions, you might be eligible for some valuable deductions. Any expenses deducted must directly relate to the charity where you volunteer, and you can’t have been reimbursed for them. Lastly, you will need to be taking the itemized deductions and not the standard deduction.

Below, we will look at the specifics of what you can and cannot deduct.

Time Spent Volunteering

Unfortunately, not. Regardless of how much time you spend volunteering, those hours have no economic value in terms of a tax deduction. Now, you may be saying: My time when I serve a client is billed out at $250 per hour. No matter, in this case, the IRS simply does not care. When it comes to donating your time as a volunteer, the only thing you get in return is a warm fuzzy feeling for doing a good thing.

Volunteering Expenses

Often, organizations ask volunteers to provide their own supplies and materials to carry out the work. Think of things like office supplies, for example. In other cases, volunteers will need to provide their own safety gear or a special uniform. All these types of expenses are deductible if you are paying for them out of your pocket and not getting reimbursed.

Cost of Commuting

Driving your own car as part of your volunteer work also can yield a charitable deduction. Under section 170, the IRS provides a standard rate of $0.14 per mile driven in 2022 and 2023. Alternatively, you can deduct the actual costs of fuel (i.e., gas or diesel) and tolls. Once again, it is deductible only if you are not reimbursed for the expenses.

Travel Expenses

Travel expenses related to volunteering also can be deductible. To qualify, the expenses must be directly related to the volunteer work; not have been reimbursed; and be reasonable. The definition of reasonable is of course open to interpretation and relative depending on the circumstances; however, taking a private plane or flying first class is unreasonable in the eyes of the IRS.

You also can deduct the cost of meals needed while volunteering at the full cost (100 percent). The 50 percent business limitations do not apply.

Fundraising Costs

Hosting a fundraising event can cost big bucks. For individuals generous enough to host such an event, it is completely legitimate to deduct your unreimbursed expenses for putting on the event.

Recordkeeping

Like any tax deduction for personal or business reasons, keeping good records is key. Keep track of mileage with a daily logbook, keep receipts, and note what, where, when, who, and why for each volunteer-related expense. This applies to any of the items above, from simple mileage to hosting an entire fundraising event.

Conclusion

Volunteering is a great way to give back to your community or a cause you care about. It also can be a source of additional tax deductions, which will put more money in your pocket to spend or use for charitable purposes as you see fit. If volunteering is part of you and your family’s life, consider the guidelines outlined above and talk to your tax professional about your individual situation.

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Different Ways to Value a Business

4 min read

Different Ways to Value a Business, Business ValuationWhen it comes to valuing a business, there are many ways to examine a company’s profitability. Looking at a business’ liquidation value and its breakup value are two of many approaches to see how a company is functioning and how it might run under different management and economic environments.

Liquidation Value

This type of valuation can be defined as the difference between what tangible assets would sell for at auction minus outstanding liabilities. Typically, intangible assets are not considered in this type of valuation. However, if the intangibles along with the physical assets, are considered for sale and not sold at auction, it would be considered a business’ “going-concern value.” Examples of intangibles include goodwill, brand recognition, patents, etc.

There are many considerations when exploring liquidation value. Generally speaking, the liquidation value is more than the salvage value but less than the book value. When a company is going out of business and assets are auctioned off, proceeds will normally be valued below the asset’s historical cost. Historical cost refers to how assets are reported on the balance sheet. However, if the market assesses assets lower in value compared to business use, it could be lower than book value.

Here is an example of how liquidation value can be calculated. Say a business has liabilities of $1.1 million. Based on the balance sheet, the book (or historical) value of assets is $2 million; and assets have a salvage value of $100,000. If the value of selling the business’ assets via auction is projected to be $0.80 per dollar, it could be expressed as follows:

$1.6 million (assets sold at auction at $0.80 per dollar) – $1.1 million (liabilities) = $500,000 (Liquidation Value)

Breakup Value

Also known as “the sum-of-parts value,” the breakup value determines the worth of a corporation’s individual segments if they were operating independently. Investors might pressure the company to spin off one or more segments into a separate publicly traded company to maximize its value.  

For each operating unit, the first step involves determining the segment’s cash flow, revenue, and earnings. Such valuations can be benchmarked to publicly traded industry peers to determine comparative value of the business segment in question.

Financial ratios, including price-to-earnings (P/E) or price-to-free cash flow, are examples of starting points that analysts use to compare segmented business lines to industry peers to determine if it’s trading at below fair value, fair value or above fair value.

For example, if the P/E ratio of the company being analyzed is lower than its peers, it could mean the company is cheaper or trading below fair value on an earnings basis. Though a more thorough financial analysis and assessment of macroeconomics is recommended, such as interest rates, inflation, etc., analysts could make an educated projection on how future earnings may or may not hold up in the future, compared to the business segment’s snapshot valuation.

Another way to evaluate is via discounted cash flows (DCF). This shows the segment’s future free cash flow projections through a discount rate, generally the weighted average cost of capital (WACC). The formula arrives at the present value of the business segment’s future cash flows. The following DCF example can tell the expected profitability and how to treat it going forward as part of the business:

Assume the company’s WACC is 10 percent; the amount invested is $5 million; it will last three years, and the annual estimated cash flows are as follows:

Cash Flow                Discounted Cash Flow

Year 1: $2 million       $1,818,181.82

Year 2: $4 million       $3,305,785.12

Year 3: $6 million       $4,507,888.81

Compared to the amount invested of $5 million for the business’ selected business segment, the discounted cash flows for the project are $9,631.855.75. This could give an indication of how the business line might do if it’s spun off or how its performance will impact other lines of the business financially.

While valuation is subjective, especially in periods of volatile inflation and interest rate conditions, the more points of valuation analysis that occur, the better the chances that valuations will turn out to be correct.

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The Importance of Global Collaboration in Regulating Emerging Technologies

4 min read

Regulating AIEmerging technologies, such as artificial intelligence, machine learning, data analytics, and biotechnology, greatly transform society and reshape the global economy. However, these technologies also come with a significant challenge regarding ethical and social implications. Global collaboration by governments, regulators, and industry leaders can help ensure that emerging technologies are developed and deployed responsibly.

Challenges of Regulating Emerging Technologies

Emerging technologies have led to complex situations that traditional governments might find difficult to manage. For instance, today’s advanced technologies also come with new forms of crime. This requires law enforcement and public safety organizations to keep up with new and innovative crimes. Today’s governments face challenges that affect the development of effective digital laws.

One of these challenges is the independence of technology from physical state territories. The interconnection of technology devices over the internet has no boundaries. This makes it impossible for any country to regulate all aspects of the technologies. Secondly, all states are not the same, and each enhances its technology-related laws according to its capabilities. While strong economies can afford robust IT infrastructure, other countries do not have the technical capacity.

Other factors that complicate technology regulation include the ability of major technology companies to bypass established regulations. Additionally, states are consumers of technology products and services developed by private corporations. Since they are not innovators, policymakers, and regulators, they do not understand the intricate technology systems that affect the regulatory decisions that must be made.

The above-mentioned are only a few of the challenges that make technology regulation complicated. Still, there is a growing need for digital governance and a digital constitution.

Why Global Collaboration is Crucial in Regulating Emerging Technologies

  1. Address ethical and social issues – significant ethical and societal issues, like data privacy and security, are brought up by emerging technology. However, international cooperation can help ensure coordinated and efficient responses to these issues.
  2. Growing competition for technological dominance – political, societal, and economic rivalries are driving technological dominance. Increased competition for elements of technology supremacy can only result in conflict, obstructing technology’s ethical use.
  3. Technology diffusing globally – in most cases, new technologies are available for adoption anywhere in the world. Thus, international regulatory frameworks must be coordinated to prevent competing or incompatible laws.
  4. Harmonizing standards – global cooperation can assist in harmonizing standards and laws for new technology, making it simpler for businesses to comply and lowering entry barriers for new players.
  5. Promote inclusivity – emerging technologies have the potential to make existing social and economic inequalities even worse. Collaboration on a global scale can ensure that these technologies are usable by everyone and do not reinforce or introduce new forms of exclusion.
  6. Enhance innovation – collaboration across borders can facilitate the exchange of knowledge, ideas, and best practices, leading to more innovation and faster technological advancement.
  7. Avoid existential risks – technology can potentially introduce threats that endanger life globally. Such risks might include nanotechnology weapons and engineered pandemics. However, developing strategic global legal frameworks that identify potential risks can help avoid the proliferation of dangerous and harmful technologies.

Existing Efforts for Global Collaboration in Regulating Emerging Technologies

There are numerous initiatives for international cooperation in regulating emerging technologies. For example, the Global Partnership on Artificial Intelligence (GPAI) brings together governments and business executives from across the world. Its goal is to ensure artificial intelligence (AI) is developed and deployed responsibly in a human-centric manner. GPAI’s main focus is on responsible AI, data governance, the future of work, and innovation and commercialization.  

The Organization for Economic Cooperation and Development (OECD) is another international organization where governments work together to solve common challenges and develop global standards. A good example is their recommendation on responsible innovation in neurotechnology, adopted by the OECD Council in December 2019. Other organizations working toward promoting global collaboration and coordination on emerging technology issues include the World Economic Forum (WEF) and the United Nations.

Unfortunately, there is still a lot of work to be done. Continued global cooperation is crucial to ensure that emerging technologies are created and used to benefit society. Currently, there is no global agreement on technology regulation; instead, regulators take different and sometimes conflicting standpoints.

Conclusion

The pace and impact of emerging technologies are likely to keep increasing. Although these developments improve human experiences, the potential for these technologies to disrupt social, economic, and political systems worldwide means that it is essential for governments, private companies, and civil organizations to work together to ensure that they are developed responsibly.

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Transparency for the Coronavirus, Federal Settlements, Smart Appliances and Public Education

4 min read

Transparency for the Coronavirus, Federal Settlements, Smart Appliances and Public EducationCOVID-19 Origin Act of 2023 (S 619) – This bill would authorize the Office of the Director of National Intelligence (ODNI) to declassify all information relating to the origin of COVID-19 and any correlation with the Wuhan Institute of Virology. The ODNI would be required to redact the report as necessary to protect sources and methods and then submit it to Congress. The bill was introduced on March 1 by Sen. Josh Hawley (R-MO). It passed the Senate on the same day and the House on March 10. It is currently awaiting signature by the president.

Disapproving the action of the District of Columbia Council in approving the Revised Criminal Code Act of 2022 (HJ Res 26) – This resolution nullifies the Revised Criminal Code Act of 2022, which had previously been enacted by the Council of the District of Columbia (DC). The bill modified DC criminal laws by altering sentencing guidelines, reducing maximum penalties, and expanding the right to a jury trial for certain misdemeanor crimes. The resolution was introduced by Rep. Andrew Clyde (R-GA) on Feb. 2. It passed in the House and Senate on March 8 and was enacted by the president on March 20.

Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Department of Labor relating to “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (HJ Res 30) – This resolution was introduced by Rep. Andy Barr (R-KY) on Feb. 7. In December 2022, the Department of Labor established a rule that the fiduciaries of employer-sponsored retirement and other investment benefit plans might take into account environmental, social and governance (ESG) factors of companies where they choose to invest shareholder funds, as well as voting on shareholder resolutions and board nominations. This joint resolution, which was passed in both the House and the Senate on March 1, would nullify that rule. The bill was vetoed by President Biden on March 20.

Settlement Agreement Information Database Act (HR 300) – Introduced by Rep. Judy Chu (D-CA) on Jan. 20, this bipartisan bill would require agencies to submit information related to any settlement or consent decree associated with a violation of civil or criminal law. This includes settlements with individual employees who appeal adverse personnel actions such as firings and suspensions or federal settlement agreements negotiated behind closed doors as a result of enforcement actions. The Office of Management and Budget would be responsible for reviewing and archiving all agreements, as well as determining when confidentiality is necessary to protect the public interest of the United States. The bill was passed unanimously in the House on Jan. 25. Its fate currently resides in the Senate.

Fighting Post-Traumatic Stress Disorder Act of 2023 (S 645) – This bill would require the Attorney General to devise a program for making treatment for post-traumatic stress disorder and acute stress disorder available to public safety officers. The bill was introduced on March 2 by Sen. Chuck Grassley (R-IO). It passed in the Senate on March 2 and is currently under consideration in the House.

Informing Consumers about Smart Devices Act (HR 538) – The passage of this bill would require manufacturers of internet-connected devices, such as smart appliances, which include a camera or microphone, to disclose this fact to consumers. The bill does not apply to devices that a consumer would reasonably expect to include these features (e.g., mobile phones, laptops). The bill was introduced by Rep. John Curtis (R-UT) on Jan. 26 and passed in the House on Feb. 27. It is currently awaiting review in the Senate.

Sunshine Protection Act of 2023 (S 582) – This bipartisan bill would make daylight savings time permanent. It was introduced on March 1 by Sen. Marco Rubio (R-FL) but has yet to be assigned to a committee for review.

Parents Bill of Rights Act (HR 5) – This legislation was introduced in the House by Rep. Julie Letlow (R-LA) on March 1 with 122 Republican co-sponsors. It would require public schools to allow parents to review certain materials and resources (e.g., the curriculum, library books, teachers’ materials used in the classroom) and be informed/grant consent for certain school activities (e.g., school budgets, use of technology in the classroom, attendance for guest speakers in the classroom, mental health treatment, gifted and talented programs). The House Committee on Education and the Workforce have issued a report on the bill, but it has yet to be presented for a vote by House members.

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Multigenerational College Planning with a Family Dynasty 529 Plan

5 min read

College Planning, Family Dynasty 529 PlanThe College Savings 529 plan offers a way for modest-income families to save and invest for college expenses for their children as early as birth up to college age. When invested 529 funds are used to pay for the beneficiary’s qualifying education costs, earnings are distributed tax-free.

However, a lesser-known advantage for wealthier families is that the 529 plan can be used as an effective tax-advantaged tool for funding college expenses for family members over multiple generations. Basically, the 529 enables the investment to continue growing tax-free for years and even decades after the death of the original owner and beneficiary.

Assets from a 529 account may be used to pay for expenses associated with higher education, including tuition, fees, books, room, and board. The 529 also can be used to pay up to $10,000 a year in tuition expenses for K-12 education and a lifetime total of up to $10,000 in student loan repayments.

No Age or Use Restrictions

The two key components to this planning strategy, referred to a Family Dynasty 529 plan, are that the beneficiary can be changed at any time and that there is no time frame during which all assets must be distributed (including no required minimum distributions).

Note that the selection of a 529 beneficiary is rather broad:

  •        Account owner (self)
  •        Spouse
  •        Child
  •        Spouse of a child
  •        Brother, sister, stepbrother, stepsister or their spouse
  •        Mother, father, the ancestor of either or their spouse
  •        Stepfather, stepmother or the spouse of either such person
  •        Nephew, niece or their spouse
  •        Aunt, uncle or their spouse
  •        Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law or their spouse
  •        First cousin

While the 529 can have only one named beneficiary at a time, the beneficiary can be changed at any time (such as once a student graduates), leaving the remaining funds for the next beneficiary.

No Contribution Limit

Unlike federal tax filings, many states offer a limited tax deduction on annual 529 contributions. Note that there is no limit to the amount that can be contributed to a 529 account each year. However, there is a limit to how much can be contributed to each 529 account in total, and that amount differs by state, with the range falling between $235,000 and $529,000. Georgia and Mississippi are the lowest at $235,000, and California features the highest limit at $529,000 (note that a California account can be opened no matter where the owner or beneficiary lives). Moreover, there is no limit to how much invested tax-free 529 assets can grow.

One strategy is to fund a family dynasty 529 with the maximum limit in one lump sum. The idea here is that one lump sum invested for tax-free growth offers the potential to fund college education expenses for a vast number of extended family members over several generations. Each time a beneficiary graduates, a new beneficiary is named. If there are multiple students scheduled to attend college at the same time, multiple 529 accounts can be opened with separate beneficiaries.

Changing Owner for Dynasty Plan to Continue

It is likely that when funding over several generations, the original 529 account owner will pass away. A few plans permit change of ownership only in the event of the death or incapacity of the current owner, but most 529 plans allow the change in ownership at any time, as long as the owner has reached the age of majority for that state’s plan. By periodically changing both owners and beneficiaries of the account, the family dynasty 529 can continue to grow and pay for qualified education expenses indefinitely.

The 529 also may be structured so that the account owner is a trust, which makes it unnecessary to change owners as they pass away. A trust can help protect 529 funds from creditors and may contain language mandating that assets can be used only for higher education – thus eliminating the potential for a beneficiary to drain the account with non-qualified withdrawals.

Potential Gift/GST Tax Consequences

Be aware that some state 529 plans may treat a change in ownership as a distributable event and will issue Form 1099 for tax purposes. Also note that when a new 529 plan beneficiary is one or more generations below the most recent beneficiary, distributed assets beyond the annual gift tax exemption ($17,000 for 2023) may be subject to the gift tax. In this scenario, should excess amounts exceed the lifetime gift tax exemption ($12.92 million for 2023), distributions may be subject to an additional generation-skipping transfer tax (GST).

The Family Dynasty 529 plan is best optimized when started early, such as the birth of the first child, and overfunded to the maximum limit. This allows for the best growth opportunity, wherein college expenses may be funded using tax-free earnings, leaving the principal available to grow for the next student beneficiary. Better yet, parents or grandparents can retain control of the account to ensure it is used only for college funding over multiple generations.