Briefly Noted

    Deductible Insurance for Charitable Donations: Follow the Tax Rules

    Americans are extremely generous with their donations. Recent changes in the tax law, however, do affect which deductions you are allowed to claim. The Pennsylvania Institute of Certified Public Accountants (PICPA) offers some suggestions for complying with the new rules.

    • Get It in Writing: You can only claim a charitable donation if you itemize on your tax return. In general, you are allowed to deduct your contributions of cash, checks, or other monetary gifts to a qualified tax-exempt organization. Under new rules, when you donate cash, you will need documentation. Documentation can be a receipt from the charity, a cancelled check, or a bank, credit union, or credit card statement showing the donation. The record must include the organization’s name, the amount of the contribution, and the date of the donation. If you donate through a payroll deduction, you will need documentation from your company showing how much was withheld, along with a pledge card that gives the name of the charity.

    • Take Pictures: All non-monetary items donated to a charity should be in good, useable condition, and the IRS now requires taxpayers to prove this. CPAs advise that you photograph your donated items and make notes about their condition.

    • Confirm the Value: In some cases, a receipt from a charity may not be sufficient to get a deduction. If you claim more than a $5,000 deduction for items other than readily valued property, the property must be appraised.

    • Check the Group’s Qualifications: You can only deduct donations made to groups that the IRS considers to be “qualified.” In general, that means that the group must be a religious, charitable, educational, or other philanthropic organization approved by the IRS to receive deductible contributions.

    Volume Control: Advisor Suggests Media Should Tone It Down

    Brent R. Brodeski, managing director and financial advisor with Savant Capital Management, Inc., a leading U.S. fee-only financial planning firm, wants the financial media to “take a deep breath” in their current market reporting.

    “I urge members of the news media and other commentators–-both traditional outlets and on-line news sources and bloggers–-to step back from the brink in over-hyping investor concerns about the state of the economy and the markets.

    “It is one thing when bad news is digested for investors for what it is. But is entirely another thing when investors are barraged around the clock with what bad news there is and left with impression that a financial melt-down is nearly upon us.

    “In reality, the current financial situation is not as dire as current media and on-line reports imply. Investors need to take a breath and make a level-headed assessment of the situation, but it would be most helpful if the news media put a damper on what almost seems to be a cheering on of the worst possible outcome.”

    Investors Lose Ground in Securities Arbitration

    Individual investors who are compelled to rely on industry-run securities arbitration to resolve their claims against stockbrokers are winning fewer cases and recovering less money in the process, according to a major study of 14,000 NASD and New York Stock Exchange (NYSE) securities arbitration cases from 1995–2004. The study shows that individual investors fare particularly poorly if they have major claims and/or are customers of large brokerage firms.

    Entitled “Mandatory Arbitration of Securities Disputes: A Statistical Analysis of How Claimants Fare,” the new report from Edward S. O’Neal, Ph.D., and Daniel R. Solin reaches these major conclusions:

    • The raw win rate for investors in arbitration has dropped from a high of 59% in 1999 to 44% in 2004.

    • The win rate at the three largest brokerage firms that do business with the largest numbers of investors was an even lower 39%.

    • Award percentages stabilized at about 50% during 2002–2004, after reaching a high of 68% in 1998.

    • Investors in arbitration were awarded 22 cents on the dollar in 2004 (as a percentage the amount claimed) versus 38 cents on the dollar in 1998.

    • The larger the award and the brokerage firm involved, the smaller the recovery.

    • Award requests increased significantly over the entire period, while average awards remained nearly constant.

    • The average request in 2004 was $540,000 compared to $168,000 in 1998; the average award in 2004 was $59,000, compared to $56,000 in 1998.

    Edward S. O’Neal was a faculty member with the Babcock Graduate School of Management, Wake Forest University, when the study was compiled and now is a principal with Securities Litigation and Consulting Group, Inc. Daniel R. Solin is a securities arbitration attorney and senior vice president of Index Funds Advisors, Inc.

    Source: Securities Litigation and Consulting Group.