Moore Colson Messages

Do your homework before donating a car

You’ve probably heard of charities that will take used cars. It’s fast, easy and convenient, and you can donate even a non-running vehicle for a tax deduction, based on its value.

But because donating used vehicles has become so popular, scamsters are getting in on the action. So check out whom you’re giving your car to, and make sure you can prove what it was really worth if the IRS challenges you by determining:

Who’s who. The IRS warns that less-than-honest middlemen may sell your car and donate only a small percentage of its value to the charity they represent. It cites one case in which a taxpayer donated a truck valued at $2,400, and the charity ended up with $31.50. The rest of the money went to the fund-raiser’s advertising and administrative costs.

What’s what. The IRS also has disputed values taxpayers assigned to donated vehicles. Value your car at the amount you could sell it for — not necessarily the “blue book” figure. Be able to back up your stated value: for instance, with photos and a mechanic’s report. And get a receipt from the charity proving you made the donation and didn’t receive anything in return.

Before you hand over the keys and title, talk to someone at the charity and find out how much of your donation is going to direct services. And check the IRS’s Web site to make sure it recognizes the charity as legitimate. If it doesn’t, you could lose the deduction.

5 working-capital management ratios

As you improve working-capital management, use ratios to measure your progress. Here are five key ratios:

1. Inventory turnover ratio = cost of goods sold / average value of inventory

This indicates how quickly you’re turning over inventory. A higher number usually is better, but if it gets too high you may be losing sales because you don’t have enough inventory on hand.

2. Receivables turnover ratio = credit sales / receivables

This shows how fast your customers are paying you. As the number increases, it indicates a shorter time between sale and collection. You may also want to calculate the average collection period (receivables/(credit sales/365)) to gauge how quickly, in days, your customers settle accounts.

3. Payables turnover ratio = cost of sales / payables

Calculate this ratio to find out how quickly you’re paying vendors. If you consistently beat the industry norm, you may have leverage to negotiate discounts or other favorable terms.

4. Current ratio = total current assets / total current liabilities

This helps determine your near-term ability to pay bills. If your current ratio is 2, for example, you can expect to take in $2 for every $1 you owe over the next 12 months. If this ratio is less than 1, you may have liquidity problems.

5. Quick ratio = (total current assets – inventory) / total current liabilities

Also known as the “acid test,” the quick ratio can better predict your immediate liquidity than the current ratio, because it takes into account the time needed to convert inventory to cash. A higher number is better and a lower number (generally below .50) can mean liquidity issues loom in the near term.

Remember the annual gift tax exclusion

Outright gifts that qualify for the annual gift tax exclusion are usually exempt from the generation-skipping transfer (GST) tax to the extent of the exclusion amount. This means that you can give up to $11,000 (the annual gift tax exclusion limit in 2004) per recipient each year gift-tax free — and without using your gift, estate or GST tax exemptions.