Happy (Paper) Trails

[See our Disclaimers page about relying on this website’s contents.]

All of our ancestors conducted business by paying with cash. When we were younger, our parents told us that it was irresponsible to live without carrying substantial amounts of cash. Those beliefs may have been valid in the past, but doing business without keeping a paper trail creates costly problems. Today, unless cash users are willing to keep and catalog receipts for ALL of their cash expenditures, their cash dependency may create problems that wise debit card users and check writers never face.

Tax-Deductible Contributions

People who contribute to churches. charities, and certain other nonprofit organizations can claim tax deductions for their contributions on state and federal income tax returns. The IRS has increased paper trail requirements for such contributors to claim income tax deductions in recent years to prevent taxpayers from claiming charitable income tax deductions without proof of their charitable contributions.

According to IRS Publication 1771,

  • a donor must have a bank record or written communication from a charity for any monetary contribution before the donor can claim a charitable contribution on his/her federal income tax return;
  • a donor is responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donor can claim a charitable contribution on his/her federal income tax return; and
  • a charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.

Cash contributions burden nonprofit groups with record-keeping responsibilities that do not exist with contributions by check or debit card. For that reason, churches are now having to establish policies about how to deal with cash contributors that want written acknowledgments for their contributions.

Nursing Home and Long-Term Care Issues

It costs an average of more than $71,000 per year for a Hoosier to stay in a nursing home in 2016. People who do not have enough income or assets to pay that much money depend on Medicaid to help pay nursing home bills. Medicaid penalizes people forgiving away money and other assets by disqualifying them for nursing home assistance. The state can require disclosure of gifts made within five years before a Medicaid application. Generally, Medicaid caseworkers assume that people who cash their checks or withdraw cash from their bank accounts are giving away the cash and less the people can produce receipts showing how they spent their cash.

We help many spouses of a nursing home residents apply for Medicaid to pay for the spouses’ nursing home care. Federal law allows most spouses of nursing home residents to keep at least half of their households’ money, up to a maximum limit ($121,220 in 2016) to avoid poverty. We encounter many couples that habitually withdraw their Social Security and retirement benefits checks every month and spend cash without keeping receipts. It is always heartbreaking to see the stressed-out spouse of a nursing home resident figure out that the couple’s cash dependency and poor record-keeping may trigger a costly Medicaid penalty.

Cash-Free Freedom

Cash still plays an important role in society. We do not recommend that people illuminate cash usage, but we recommend limiting cash usage for things like hotdog purchases at ballparks and paying all significant expenses with checks and debit cards that create paper trails. People that follow this cashless or low-cash advice walk happier, paper-paved trails through life.

Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation;  a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.

Find more information about these and other topics at www.HawkinsLaw.com, add us to your Google+ circles, like us on Facebook, follow us on Twitter @HawkinsLawPC or call us at 812-268-8777. © Copyright 2015 Hawkins Law PC. All rights reserved.