Important Employer Deadline under the Healthcare Law Is Almost Here

Unless the federal government does a dramatic about-face, the public health insurance exchanges will be up and running October 1 for enrollment in 2014. Many employers are also facing an October 1 deadline that imposes a paperwork burden. By that date under theAffordable Care Act, most employers are required to provide a notice to each employee explaining their options available under the law.

Here are answers to questions employers are asking about the notice requirement.

The Obama administration announced on September 26 that the small business health exchanges, operated by the federal government, will not open for online enrollment until November 1 (rather than October 1). Applications can still be made by mail, phone or fax starting on October 1.

What Information Must Be Included in the Notices?
The written notice must:

1. Inform employees of the existence of the "Health Insurance Marketplace," and include a description of the services it provides and how employees can contact the Marketplace to request assistance.

2. If the employer plan's share of the total allowed cost of benefits provided under the plan is less than 60 percent of such costs, inform the employee that he or she may be eligible for a premium federal tax credit if the employee purchases a qualified health plan through the Marketplace.


2. If the employer plan's share of the total allowed cost of benefits provided under the plan is less than 60 percent of such costs, inform the employee that he or she may be eligible for a premium federal tax credit if the employee purchases a qualified health plan through the Marketplace.

3. Inform the employee that if he or she purchases a qualified health plan through the Marketplace, he or she may lose the employer contribution (if any) to any health benefits plan offered by the employer. In addition, all or a portion of such contribution may be excludable from income for federal income tax purposes.

Which Employers Must Send the Notices?

The notice requirement must be met by employers that are required to comply with the Fair Labor Standards Act (FLSA). In general, the FLSA applies to employers with one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies.

The FLSA also specifically covers the following: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; as well as federal, state and local government agencies.

Is there a Fine if an Employer Doesn't Send the Notices?

According to the Department of Labor (DOL), there is "no fine or penalty under the law" for failing to provide the notices. However, the Affordable Care Act is intertwined with other laws (this particular provision is embedded in the FLSA in a new section, 8A), so it's a good idea to comply to avoid possible legal complications.

Who Should Receive the Notices?

Notices must be given to all employees, whether or not they work full time, and regardless of whether they are currently receiving health benefits. By October 1, you must give these notices to all employees. After October 1, the notices must be given to new hires within two weeks of coming on board.

How Should Employers Send Them?

The notices must "be provided in writing in a manner calculated to be understood by the average employee," the DOL states in Technical Release 2013-02. They can be sent by first-class mail and can also be provided via e-mail, but only if employees access e-mail as an "integral part" of their duties and can access the messages easily.

Is there a Standard Notice Employers Can Use?

The DOL has issued a pair of model notices you can use (but they are not required).

• One is for employers that currently offer health benefits. Here is the link:http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf .
• Another is for employers without plans. Here is the link:http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf .

On Part B of the forms, you will see information employees will need if they plan to purchase coverage on the exchange, assuming they are eligible.

The Part B information is needed by employees who apply to their state's exchange (or the federal version, if no state-run exchange exists). They must complete a required questionnaire to determine their eligibility.
On Part B of the model notice for employers that do currently offer health coverage, there are several blank spaces requesting information about the health plan. Since the law doesn't actually require you to provide the information, and because some of the information may be hard to dig up, some legal advisors say that employers may decide to disregard some or all of Part B, especially if the information is uncertain or likely to change.

Can another Party Send the Notices on Behalf of an Employer?
The DOL stated on its website that an employer can satisfy its obligation to provide notices if another party, such as a third-party administrator or multi-employer plan, sends out notices on its behalf.

Do You Satisfy the "Bronze Standard?"
One question in Part B asks whether your organization provides health benefits that meet the ACA's minimum value test. In other words, does your plan lives up to the standard for a bronze plan? This information is also essential for determining whether you are "playing" or will instead need to "pay" when the delayed requirement takes effect in 2015. It also determines whether employees are eligible to get coverage through the exchange.
In May, the Department of Health and Human Services issued proposed regulations (not yet finalized, but the best guidance available so far) on the subject. Individual states may set some standards of their own.
Here are three safe harbors:

• A plan with a $3,500 integrated medical and drug deductible, 80 percent plan cost sharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing.
• A plan with a $4,500 integrated medical and drug deductible, 70 percent plan cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA.
• A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent plan medical expense cost-sharing, 75 percent plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75 percent coinsurance for specialty drugs.

Possible Employee Public Relations Opportunity

If it turns out the plan your organization is already offering exceeds the bronze standard (making it a silver, gold, or platinum plan), consider informing employees to help them appreciate the benefit they're receiving. Taking advantage of this employee public relations opportunity can counter any lingering doubts or speculation by some employees about the coverage you are offering them.

Keys to Attracting and Retaining Talented Workers

Who was the highest-paid executive at a U.S. public company last year? Software giant Oracle paid its CEO, Larry Ellison, $96.2 million last year in cash, benefits and stock options, according to its proxy statement.

That might seem like a hefty price tag for C-level talent, but many public companies pay out multi-million dollar compensation packages to attract and retain key executives. In addition, they often provide lavish perks.

New Reports: Job Market Is Rebounding Recent sources of hiring data suggest that the job market is starting to turn around. AICPA Survey: A growing number of companies plan to hire new employees in the next 12 months, according to the third quarter Business & Industry Economic Survey recently released by the AICPA. Companies have improved outlooks for revenues and profits, which translates into higher spending on hiring, capital investments, information technology, training and development. However, the AICPA survey found that financial pros are cautiously optimistic about the future. Their optimism is tempered by three concerns: Regulatory changes (such as healthcare and tax reform), Domestic economic conditions, and Employee and benefits costs. Manpower: A recent Manpower survey supports the AICPA's findings about increased employer optimism. Manpower discovered that 18 percent of employers expect to add workers in the fourth quarter of 2013, according to seasonally adjusted data. This represents the highest percentage of employers projecting a fourth quarter increase since 2007. DOL Data: The Department of Labor reports similar findings. In July 2013, job openings in the U.S. fell to their lowest level in six months. The reasons? Hiring and payrolls are up while firing is down. The jobless rate was 7.3 percent in August, its lowest level since December 2008. Hiring Tips If you're among the employers that plan to hire new workers in the coming months, here are a few considerations: Downplay first impressions. Don't make hiring decisions based on gut feelings or what happens in the first minutes of an interview. Measure performance first, then personality. First determine if a candidate can do the work. Then determine if you like him or her. Clarify success. Before you begin the hiring process, define specifically what superior performance is for that job. Clarify what the candidate must do to succeed in the job, not what experience or skills the candidate must have. Then, you can begin looking for superior people. Think beyond traditional recruiting.The response rate to newspaper ads is declining. To maximize the number of qualified applicants for job openings, consider social media, Internet hiring sites and radio ads -- or put up notices for entry level positions at business school campuses. Market your job. Think of candidates as customers.

How Does Your Package Measure Up?

Your employees may feel undercompensated and overworked when they hear about highly paid executives. They're not alone. A Gallup poll conducted in August 2013 reports that:

• 31 percent of U.S. workers are dissatisfied with the money they earn;
• 40 percent are dissatisfied with their health insurance benefits; and
• 15 percent are dissatisfied with the amount of work their employers require.

As the labor market heats up (see right-hand box), it's a good time to assess whether employees are satisfied with what you're offering in terms of:

• Salaries, wages, overtime and bonuses;
• Vacation, sick and holiday time;
• Medical, dental and vision benefits;
• Life and disability insurance coverage;
• Retirement plans;
• Wellness benefits, such as reimbursement for health club dues; and
• Other perks, such as discounted stock, company vehicles and corporate discounts.

Research how other companies in your area and industry compensate their workers. If it seems like you're offering too little (or too much), consider revising your compensation package. Also, survey your employees to see which benefits and perks they value most. You might be surprised by the results.

For example, after surveying employees about benefits and perks, one large insurance company discovered that workers valued free daily lunches from local restaurants above other more expensive perks, such as commuter benefits, an annual holiday party and Friday afternoons off during the summer. From the employer's perspective, a bonus from free lunches is that employees are more productive, because they don't leave their desks and often collaborate over meals. As a result of surveying employees, the insurer eliminated summer hours to save money but kept its free lunches to maintain morale.

There is no universal compensation package that works best for all companies. The "best fit" for your business depends on demographics, such as geographic location, income levels and average age of employees.

Don't Fear Change

If you modify your compensation package, expect some initial resistance. People don't typically like change, especially if they feel like something's being taken away. But sometimes you need to rethink conventional ways of doing business.

For example, some high-end restaurants in major cities no longer accept gratuities from customers. Instead, they've built tips into their menu prices and they pay wait staff a higher fixed salary. Initially, many people scoffed at the change, arguing that customer service would suffer without tips.

But restaurateurs who adopted a "no-tip" policy -- a practice common in other countries -- found that when servers are less concerned about money, they're more focused on doing a good job. There are also fewer spats about how to divvy up tips among servers and support staff. Of course, customers are happy to forego the post-meal mathematics, too.

Change is often necessary to remain competitive. If you continue to offer mediocre compensation because you're afraid to rock the boat, employees could seek greener pastures. Weak compensation packages also make it harder to attract new talent as companies ramp up their hiring efforts.

Money Alone Doesn't Buy Happiness

Compensation packages aren't the only means of attracting and retaining talent. Many employees are motivated by qualitative factors, such as challenging assignments and the opportunity to contribute.

These can be hard motivators to measure, because you can't put a price tag on them. Here are some ways to help employees feel enriched and empowered:

Give them a voice. Some of the best ideas come from frontline workers. Put out a suggestion box or set up an online system for submitting ideas. Survey workers about proposed changes to policies and procedures. Create think tanks to brainstorm more efficient workflow. Above all, listen and implement feedback whenever possible.

Provide opportunities to try something new. No one wants to do the same tasks, day after day, year after year. Allow employees to rotate duties. Invest in training and continuing education. Expand or modify daily responsibilities. If you don't allow employees to change it up, they may get bored or burnt out.

Share what's in the pipeline. Surprises and rumors make employees edgy. As much as possible, communicate how the company is doing and where it's heading.

Create a sense of real or perceived ownership. Tie bonuses to personal, department and company performance. Or consider offering stock options or discounted stock purchase plans for employees. As the value of the company climbs, so does the value of these benefits. When employees feel their input is valued, they want to make a difference in your organization.

An Overall Competitive Environment

Your ability to attract and retain the best and brightest employees can make or break your business. While few businesses are in a position to offer multi-million dollar compensation packages, yours needs to be competitive. And your work environment needs to foster personal development and enrichment -- attributes employees often value more than cash and other perks.

Deadline for Reversing 2012 Roth Conversions Is Closing In

If you converted a traditional IRA into a Roth account last year and are now unhappy with the results, you can reverse the conversion as long as you get it done by October 15. Here's what you need to know as this deadline rapidly approaches.

Reversal Basics

When you converted your traditional IRA into a Roth IRA last year, the transaction was treated as a distribution from the traditional IRA followed by a contribution of the distributed amount to the Roth account. So the conversion triggered a 2012 federal income tax bill (and maybe a state income tax bill, too) based on the traditional IRA's value on the conversion date.

Better Luck Next Year? Following the recharacterization of a devalued Roth account back to traditional IRA status, you might want to reconvert the same account back to Roth status. This time around, however, the conversion tax hit will be lower (all other things being equal), because the account is worth now less than before. There are timing restrictions on the reconversion privilege, however. After an account has been recharacterized back to traditional IRA status, it cannot be reconverted to Roth status until the later of: January 1 of the year following the year the account was originally converted to Roth status, or 30 days after the date the account was recharacterized back to traditional IRA status. To illustrate, suppose you converted a traditional IRA into a Roth in 2012. The account took a nosedive over the summer, so you recharacterize it back to traditional IRA status on October 1, 2013 to avoid an inflated conversion tax hit. The earliest you can reconvert the account back into a Roth IRA is October 31, 2013 (30 days after the recharacterization date). Alternatively, let's say you converted a traditional IRA into a Roth account in 2013 and then recharacterize it back to traditional IRA status on November 1, 2013. The earliest you can reconvert the account back into a Roth IRA is January 1, 2014 (January 1 of the year following the year the account was originally converted into a Roth IRA).

However, one taxpayer-friendly aspect of the Roth conversion drill is that individuals who use the calendar year for tax purposes have until October 15 of the year following the conversion year to reverse a conversion. For example, you have until October 15 of this year to reverse a 2012 conversion. That October 15, 2013 deadline applies whether or not you extended your 2012 Form 1040.

When to Reverse a Roth IRA Conversion

You accomplish a Roth conversion reversal by "recharacterizing" the Roth account back to traditional IRA status. This is done by turning in the proper form to your Roth IRA trustee or custodian.

To illustrate, say you converted two traditional IRAs, Account A and Account B, into two Roth accounts in 2012. Account A has gone up in value since the conversion date. But Account B has plummeted in value and is now worth significantly less than on the conversion date.

In this suboptimal situation, you would have to pay income tax on the value of Account B on the conversion date, even though its value subsequently took a nosedive. Thankfully, you have until October 15, 2013 to recharacterize Account B back to traditional IRA status. After the recharacterization, it's as if the ill-fated conversion never happened, so you won't owe any 2012 income tax on the conversion of Account B. In other words, the 2012 conversion of Account B is reversed this year with no tax harm done.

Key Point: What you do with Account B has no effect on Account A. You can leave Account A, the converted account that is performing well, in tax-free Roth IRA status.

What if the Roth IRA Includes Other Contributions?

Matters are more complicated if your Roth IRA includes other contributions besides the 2012 conversion contribution that you now want to reverse. In this case, it may not be possible to simply recharacterize the entire Roth account back to traditional IRA status.

For instance, if the Roth IRA includes contributions for pre-2012 tax years, it is now too late to recharacterize the part of the account balance that is attributable to those pre-2012 contributions. However, up to the October 15, 2013 deadline, you can still reverse the account balance that is attributable to the ill-fated 2012 conversion by filing the appropriate forms with your IRA trustee or custodian.

You will have to instruct your IRA trustee or custodian how much you want moved back into a traditional IRA. Most trustees or custodians can help calculate the amount converted in the current year less any related losses.

Tax Return Implications

If you extended the filing deadline for your 2012 Form 1040 to October 15, 2013, and have not yet filed the return, you reflect the reversal of the 2012 Roth conversion by simply not including the income triggered by the conversion on your return.

If you've already filed your 2012 Form 1040, you'll have to file an amended 2012 return to delete the conversion income and claim a refund for the related tax bill. Consult your tax adviser for full details about filing an amended return.

Limited Time Offer

In many cases, converting traditional IRAs into Roth accounts is a savvy tax planning strategy. But that's not true when the converted account quickly plummets in value. When the value of your investment tanks after the conversion date, you wind up paying taxes on account value that no longer exists.

The conversion recharacterization (reversal) privilege is specifically intended to prevent that problem, but the deadline for reversing 2012 conversions is almost here. Contact your tax adviser as soon as possible if you're interested in reversing an ill-fated 2012 Roth IRA conversion.

A Closer Look at Home Office Deductions

Home office deductions can save taxpayers a bundle, if they meet the tax law qualifications. However, claiming expenses for a home office has long been a red flag for an IRS audit since many people don't qualify. But don't be afraid to take a home office deduction if you're entitled to it. You just need to pay close attention to the rules to ensure that you're eligible -- and that your recordkeeping is complete.

Beware: IRS Hot Button The IRS often scrutinizes home office deductions claimed on tax returns. In one recent U.S. Tax Court case, many of the taxpayer's claimed expenses were disallowed once she became an employee. The case illustrates a number of issues that you should consider before deducting home office expenses. Facts of the Case Jean Marie Fontayne and her husband worked for Vitesse Semiconductor Sales Corporation. The husband was an employee, but Jean was a part-time independent contractor who worked from her home from January to July 2008. After Jean's supervisor retired, his replacement hired Jean as a full-time employee in July 2008. As an employee, she was required to work from Vitesse's office at least two days a week and could work from home up to three days a week. The taxpayers moved into their home in January 2008. Jean designated a room with a closet and a bathroom as her office space. Later that year, the taxpayers enlarged the home office. A contractor removed an office wall and replaced it 14 inches further into the living room. In the home office area, the taxpayers replaced the carpet, re-tiled the bath, and added under-the-floor heating, a central vacuum, and a fireproof safe in the closet. The Fontaynes reported a tentative profit from the business of $24,728 and expenses of $24,728 ($22,883 plus $1,845 for a casualty loss and depreciation) for business use of their home. That amount included direct expenses of $16,501 for repairs and maintenance, as well as an allocable portion of indirect expenses, such as utilities and homeowners insurance. The taxpayers claimed that the office occupied 17.87 percent of their home (554 square feet in the home office divided by 3,100 feet in the total house). Their home office measurement included the hallway, entryway, room, bathroom and closet. In addition, the taxpayers calculated square footage from the outside of the house. The IRS allowed deductions of just $1,113 for business use of home expenses. This included $391 of real estate taxes removed from Schedule A and re-characterized as home office expenses. Tax Court Findings: The court agreed that the taxpayers qualified for home office deductions, for part of the year. The rest of the time, the court noted the taxpayer was an employee who wasn't required to work from home, although it might have made her more productive. The taxpayers presented a letter from Vitesse stating Jean's part-time home office was beneficial for the company but wasn't required. Instead, she had to work at the company's location at least two days a week. The court ruled Jean didn't meet the "convenience of employer" requirement and disallowed home office deductions for the second half of the year. The court also ruled the bathroom wasn't used exclusively and regularly for business. Neither was the closet, because Jean wasn't required to store inventory or other items for work. In addition, most of the claimed repairs were capital improvements, which couldn't be deducted. Ultimately, the Court allowed a home office deduction for the first half of the year, when Jean was a contractor. The judge also scaled back on many of the taxpayers' computed direct and indirect expenses. (Fontayne, T.C. Summ. Op. 2013-54)

For Self-Employed Individuals

For self-employed individuals, a home office qualifies for deductions if it is used:

• Exclusively and regularly as your principal place of business;
• Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business; or
• In the case of a separate structure, in connection with your trade or business.

There are also special rules for portions of a home used as a child care facility or for storage of inventory or product samples.

If you are self employed, have no other business location and perform the work at home, you should qualify. You can also qualify if you perform administrative or management activities in a home office and have no other fixed location where you can conduct such activities.

For example, suppose you're self-employed and take orders while visiting clients. Your only location for processing orders and following up on inquiries is your home office, so it likely qualifies for a tax deduction.
Regularly meeting customers or clients at a home office also qualifies it. The key word is regularly. Seeing customers twice a month is unlikely to meet the threshold.

The exclusive use requirement is also strictly interpreted. A spare bedroom converted into a home office will probably qualify, unless your relatives use the room when they come to visit.

For Employees

The rules for employees are stricter. An employee's home office qualifies if it is:

• For the employer's convenience and
• Required as a condition of employment.

To be a condition of your employment means it is necessary for you to properly perform your work. For example, suppose you're an engineer who inspects construction sites during the day and performs administrative tasks at night. If your employer's office is locked after hours, your home office would probably qualify for home office deductions if you use it to write up daily reports. In these types of cases, get a letter from your employer to substantiate the facts.

Crunching the Numbers

When computing your deduction, there are two types of expenses that are deductible -- indirect and direct. Indirect expenses are those that pertain to the whole house, such as utilities and homeowners insurance. Those are apportioned based on the percentage of the space used for business.
Some expenses -- such as housekeeping and gardening expenses or repairs to another room in the house -- don't qualify as an indirect expense and would not be deductible at all.
Direct expenses don't have to be apportioned. For example, if you have a separate electric line and meter for your home office, the full amount of the electric bill for that meter would be deductible.

New Simplified Option

Starting in 2013, you can deduct a simplified safe harbor amount of $5 per square foot up to a maximum of $1,500 (300 square feet). That's not overly generous, but it means you can itemize your full mortgage interest and real estate taxes on Schedule A of your personal tax return.

In some parts of the country, the effective savings of the new simplified option may be as much as if you claimed actual home office expenses. But if you live near a major metropolitan area, the simplified option might amount to a fraction of the actual expenses.

Keep in mind, the simplified option only makes the recordkeeping burden easier. It does not change the criteria for who can claim home office deductions. There's no simplified method for qualifying in the first place.

Pick One Method for the Year

Below is a chart from the IRS comparing the two options for claiming home office expenses. Once you choose a method for the tax year, you cannot change to the other method for the same year. If you use the simplified method for one year and use the regular method for any subsequent year, you must calculate the depreciation deduction for the subsequent year using the appropriate optional depreciation table. This is true regardless of whether you used an optional depreciation table for the first year the property was used in business.

If you have questions about whether you qualify to claim home office deductions on your tax return, consult with your tax adviser.

New Simplified Option	Regular Method
Deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes	The same rules apply
Allowable square footage of business home use (not to exceed 300 square feet)	Percentage of home used for business
Standard $5 per square foot used to determine home business deduction	Actual expenses determined and records maintained
Home-related itemized deductions claimed in full on Schedule A	Home-related itemized deductions apportioned between Schedule A and business Schedule C or F
No depreciation deduction	Depreciation deduction for portion of home used for business
No recapture of depreciation upon sale of home	Recapture of depreciation on gain upon sale of home
Deduction cannot exceed gross income from business use of the home, less business expenses	The same rules apply
Amount in excess of gross income limitation may not be carried over	Amount in excess of gross income limitation may be carried over
Loss carryover from use of regular method in prior year may not be claimed	Loss carryover from use of regular method in prior year may be claimed if gross income test is met in current year

Charitable Giving: Which Americans Are the Most Generous?

Charitable giving is growing at a healthy pace, a sign that Americans are a little more confident about the economy and their own finances.

Individuals, corporations and foundations donated $316.2 billion to charitable causes in 2012, a 3.5 percent increase over 2011, according to the annual Giving USA study, which is conducted by the Giving USA Foundation and Indiana University Lilly Family School of Philanthropy.

Ten Important Facts about Charitable Tax Deductions Charitable contributions are deductible only if you itemize on your tax return. To be deductible, charitable contributions must be made to "qualified" organizations. Giving money to an individual is never deductible. To determine if an organization qualifies as a charitable organization, go to the IRS Exempt Organizations Select Check. To deduct a charitable donation of money, regardless of the amount, you must have a bank record or a written document from the charity showing its name, the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. These statements should show the name of the charity, the date, and the amount paid. Credit card statements should also show the transaction posting date. For a gift of $250 or more (cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of cash or a description of property contributed. The acknowledgment must state whether the organization provided goods or services in exchange for the gift. If so, the organization must provide a description and a good faith estimate of the value of the goods or services. One document from an organization can satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more. To be deductible, clothing and household items donated to charity generally must be in good used condition or better. Household items include furniture, electronics, appliances and linens. A clothing or household item for which a taxpayer claims a deduction of more than $500 doesn't have to meet the standard described above if you include a qualified appraisal with the return. If a contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received. If your deduction for a non-cash contribution is more than $500, IRS Form 8283 must be filled out and attached it to your return. If you claim a deduction for a contribution of non-cash property worth more than $5,000, you need a qualified appraisal. If you claim a deduction for a contribution of non-cash property worth more than $500,000, you must attach the qualified appraisal to your return. The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. IRS Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor's tax return. Contributions are deductible in the year made. So donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn't paid until 2014. Also, checks count for 2013 as long as they're mailed in 2013. Questions about charitable contributions? Consult with your tax adviser.

A Partial Recovery

As encouraging as those numbers are, charitable giving was still below the level it reached before the 2008 financial crisis -- $344.5 billion in 2007 -- and is not likely to get back there for six or seven years at its current growth rate, said Patrick M. Rooney, Associate Dean for Academic Affairs and Research at the Indiana University Lilly Family School of Philanthropy.

"Individual giving rose 1.9 percent after inflation, perhaps reflecting the fact that the average household is still struggling in some areas," Rooney said in the university's report on the study, which has been conducted every year since 1955.

Another dark cloud hovering over charitable giving is that the Obama administration and some members of Congress want to limit or eliminate the federal tax deduction for it.

The Chronicle of Philanthropy, quoting "non-profit advocates," stated that limiting the charitable giving tax deduction to 28 percent, as the White House has again proposed, would reduce giving by as much as $9 billion per year.

Sources of Charitable Contributions

Individuals gave $228.9 billion in 2012 -- more than all other philanthropic entities combined. Private foundations gave the second largest amount in 2012. Foundations donated $45.7 billion last year, a 4.4 percent increase over 2011.

The next most generous group comprised the recently departed who had bequeathed money to charities in their wills. Although such bequests fell by 7 percent in 2012, they still added up to $23.4 billion.

Then came corporations, whose charitable giving rose 12.2 percent last year to $18.2 billion. That amount included donations by the corporations and their foundations. They gave cash, in-kind donations and grants. The large annual increase in corporate giving is due in large part to corporations giving about $131 million to not-for-profit organizations working on Hurricane Sandy relief.

"Corporations represent a vital portion of our country's total charitable giving," said Gregg Carlson, chairman of the Giving USA Foundation. "And while their donations increased last year, corporate philanthropy represents only 6 percent of total giving."

Recipients of the Generosity

Among beneficiaries of all this generosity, the most blessed, if you will, were religious entities, according to the Giving USA study. They took in about $101.5 billion in 2012, slightly less than in 2011.

Educational institutions received $41.3 billion in contributions last year, an increase of 7 percent over 2011. The majority of these donations went to colleges and universities.

Human services giving, such as for disaster relief, amounted to $40.4 billion last year, a 3.8 percent increase over 2011. Total contributions for Hurricane Sandy relief were $223 million.

And giving to foundations amounted to $30.6 billion. That was down by 4.6 percent from 2011. "Estimated contributions to foundations can change dramatically from year to year, depending upon very large gifts received from the wealthiest donors in America," stated theGiving USA study.

"The $316 billion in total giving reflected by our 2012 data continues the positive twin trajectory of dollars coupled with hope," Carlson said. "I would say the outlook is positive for those who believe in and understand the power of American philanthropy."

A Closer Look at Demographics

Blackbaud, a software and service provider for not-for-profit organizations, commissioned a recent survey to identify charitable trends for various age groups. The survey discovered that Baby Boomers are the most generous.

People between 49 and 67 years old account for 43 percent of charitable giving and each one gives about $1,200 per year, the survey found. It said 63 percent of Baby Boomers donated clothing and other goods to charities, 52 percent gave to local social service providers and 46 percent gave to places of worship.

Americans age 68 and older give about $1,370 per year -- more per capita than Baby Boomers do. However, their total annual contributions are less than that of the Baby Boomers, because there are fewer of them. About 72 percent of "Matures," as Blackbaud refers to them, donate goods, 55 percent to local social service providers and 50 percent to places of worship. Older people are more likely than others to donate their time. About 42 percent of them volunteer.

Generation X, consisting of people between ages 33 and 48, give an average of $732 per year. Forty percent of them donate to places of worship, 39 percent to health charities and 37 percent to social service agencies. Fifty-six percent of Generation Xers give goods to charity.

Finally, the survey looked at Generation Y. This cohort, consisting of people between ages 18 and 32, gave an average of $481 per year to 3.3 charities. They prefer charities oriented toward children and healthcare. They also demand the most accountability from nonprofits. Sixty percent of Gen Y want to see the direct impact of their donations.

Technology Trends

Not surprisingly, Gen Yers are the most likely of all age groups to give via a mobile phone and share information about their preferred charities on social media, according to the Blackbaud survey. They were also the most apt to view online videos about charities and follow beneficiaries on social media. Gen Xers were close behind in these trends, however.

The Blackbaud survey also looked at whether different age groups use mobile phones as their primary phone. Almost all Gen Yers do (98 percent), compared with 86 percent of Gen Xers, 60 percent of Baby Boomers and 30 percent of Matures.

Here are a couple more tech findings from the survey:

	Who Banks Online?	Who Is on Facebook?
Gen Y	80 percent	90 percent
Gen X	78 percent	77 percent
Baby Boomers	72 percent	71 percent
Matures	60 percent	59 percent

Tips for Charities

Here are a couple considerations from Blackbaud for not-for-profits hoping to most effectively reach today's donors:

Direct mail isn't dead. For example, 52 percent of Matures and 40 percent of Baby Boomers gave in response to a direct mail solicitation. It is not the vehicle of choice for younger givers, however. So not-for-profit organizations need to cultivate other channels, such as Internet video and Facebook. While you might expect that 97 percent of 18-to-32 year olds watch YouTube videos, you may be surprised to find that 58 percent of those age 68 and older do, too.

Take a multi-channel approach. Targeting different generations through the Internet, social media, direct mail and other channels will maximize potential gifts.