February 23, 2012

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Smart Ways to Donate to Charity

February 10, 2012 By

There are numerous charitable tax deductions that a smart taxpayer can benefits from. In our houses, there are several items that lie around and no one seems to even notice they exist. These items range from electronic gadgets to clothing and many more that can actually be very useful when it comes to tax matters. There are two options: you either clean up your house by giving them to a friend to itemize or you set out to donate but be prepared to make the list for the IRS.

Listing your Donations

Whenever you make a donation worth more than $500 to your favorable charity, the details of individual items are needed; what was given out, the number of units, the approximated original and current value of each. There is a grid on Form 8283 that contains data required for your tax return, at the bottom of part 1.

Where do you Find the Costs?

Some of these items might have been purchased ages ago and you may not have their real costs. That is no problem as there are several options that you can resort to. One of which is the use the Salvation Army site that provides “thrift shop values.” Some other free tools like Turbo tax and H&R Block can also come in handy. They have databases with the prevailing costs and market values of almost anything that may be under your roof. It is simple, all you have to do is to make a list of what you intend to donate, print out the resulting report and enter the summary in Form 8283. Also, the data can be imported directly to your tax return for you.

The Conditions of Items

The one condition that should never be overlooked is the state of the items you donate to charity. It is mandatory that they need to be in good shape to be useful elsewhere. You can prove this by taking some snapshots of these items, saving them in a folder alongside other tax data or pint them and attach them in your tax file. This can be done with any digital camera or even a phone.

Plan the Donations

Some people accumulate a lot of stuff to send to charities all through the year and as a result, end up with non-cash donations amounting to over $5,000. This requires a written appraisal to be claimed. Getting appraised in towards the end of the year may prove to be an uphill task, especially when you have been donating the whole year. This is why it is advisable to make a plan for your donations. Whenever you deduce that your planned donations for the year may be worth a lot of money, you should save and appraise them and then donate them once a year-preferably towards the close of the year. Some activities may lead to voluminous donations, like death and moving houses, and it is preferred that you have them all evaluated and recapitulated before moving forward.

Sell and Donate the Proceeds

Sometimes you realize you have a lot of stuff worth a lot of hard cash. You should turn them to a second hand dealer or an estate agent, get the cash, and donate the earnings, literary evading the tedious paperwork. Report the sale on Schedule D with the same cost as the sale prices as you don’t have to worry of being taxed.

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Four Temporary Tax Reliefs Available in 2011

September 6, 2011 By

When the Bush tax cuts were passed into law, they were passed as a temporary tax code and were set to expire in 2009. These cuts include many of the tax deductions and tax credits that are claimed every year. However, when the Obama administration took over after the Bush administration, they did not remove these temporary tax cuts. Instead, through a negotiation with the Republican side of Congress, these tax cuts were extended so as to expire in 2012. There are therefore, some temporary tax reliefs that you can only take advantage of until 2012, as they will no longer be available after that – unless Congress decides on another extension. Four of these temporary tax reliefs are explained below:

1. Adoption Credit

The Adoption Credit is a tax credit that is available to people who adopt a child or children. The credit is used to help the adopters to recover some of the costs for adopting children. For the tax year 2011, the tax credit cap for adopting a child is $13,170.00. Households with more than one child can claim a credit for each child. What is better for the 2011 tax year is that the Adoption Credit is refundable. This means that if a balance remains after the credit is used up against due taxes, the IRS will provide a tax refund. The credit is only available to taxpayers who have an income of less than $182,520.00. To be entitled for this credit, you will need to file IRS Form 8839, attaching the support documentation of bills related to the adoption process. For children with special needs, the adopter can claim the maximum credit without producing any support documentation.

2. American Opportunity Credit

Under the American Opportunity Credit, taxpayers who have incurred higher education expenses (tuition only) can now claim a tax credit against the expenses with a cap of $2,500.00 annually. The credit is available for taxpayers who have an income of $90,000.00 and below (and for those who file jointly, there is an income cap of $180,000.00).

3. Charity IRA Rollover

The Charity IRA rollover is a tax opportunity available to taxpayers who are 70.5 years and above. The taxpayers can contribute their IRA funds to a qualifying tax-exempt charity up to a cap of $100,000.00 with no tax implications. This tax break is only available until end of 2011 and therefore, those seeking to take advantage can only do so within this time.

4. Health Insurance Deduction

For those in self-employment, the tax code provides a tax savings for the health insurance of you and your whole family. A taxpayer can now deduct the premiums paid for the health insurance policies of him or herself and his or her spouse and children. For the children, the tax relief allows for the deduction of premiums for children aged 27 years and below, even if they are not dependents.

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Top 10 IRS Tax Deductions and Tax Credits in 2011

September 1, 2011 By

The 2012 April tax season that accounts for the 2011 tax year may seem far and most taxpayers may not be overly concerned with their taxes at the moment. However, being conscious of tax matters as the year goes by ensures that you not only have a smooth tax time as you draw close to the next tax season, but also capitalize on the available tax opportunities. The major way in which taxpayers get tax savings from their returns is through tax credits and tax deductions. Below are 10 of the most common tax deductions and credits that you may qualify for in the 2011 tax year.

1. Charity Donations

Donations are the easiest and one of the most common tax deductions. The tax code allows for a tax deduction of donations made to any qualifying tax-exempt organization. In 2011, the IRS released a list of the organizations that had lost their tax exempt status due to non compliance with various regulations. A taxpayer therefore, needs to verify that an organization is qualified as tax exempt to be able to qualify for the tax deduction. For donations above $250.00, you will need an acknowledgment from the organization that you have donated to as support documentation for the tax deduction. For non-cash contributions above $500.00, you will need to file Form 8283, “Non-cash Charitable Contributions Form”. Non-cash items that are above a given threshold will also require a valuation from a qualified appraiser.

2. Child Care Tax Credit

The Child Care Credit is given to parents or guardians who spend money to have their children or qualifying dependents taken care of while they are out working. The credit can be claimed for regular child care or even for a summer day-camp. The amount to claim depends on one’s income and the number of children. The allowed credit ranges from 20% to 35% of one’s income. The credit also has an annual cap of $3,000.00 for a single child and $6,000.00 for more than one child.

3. Mortgage Interest

The mortgage interest tax deduction allows homeowners who are paying for a mortgage to claim a deduction on the mortgage interest paid on their primary residence and qualifying second home. Various rules govern the qualification of primary residence and second home and you will need to ensure that your homes qualify before deducting these expenses. Besides mortgage interest, you can also deduct the real estate taxes paid on non-business property.

4. Medical Expenses

Various medical expenses can be tax deductible for taxpayers who choose to itemize their tax deductions. The qualifying deductions are subject to a threshold of the excess of 7.5% of one’s Adjusted Gross Income. The expenses include travel related to medical care, out-of-pocket medical expenses, and health insurance premiums. For out-of-pocket expenses, there are various items that qualify and you can get a comprehensive list of qualifying medical expenses from the IRS website.

5. Health Savings Account

Contributions to a Health Savings Account (HSA) are also tax deductible. However, the HSA must be a qualify one for the tax deduction. Interests earned from the account are also not taxable. However, for a HSA to qualify, it must be a high-deductible health plan.

6. Work Related Expenses

There are various work related expenses that are IRS tax deductible. Various training expenses, business travel (excluding travel from home to the office), qualifying work uniforms and work clothing, and qualifying entertainment expenses for potential clients are tax deductible, subject to various IRS rules. These expenses only qualify for deductions if they were not reimbursed by the employer.

7. Home Offices

For people who work from their homes, they can deduct various home expenses that are related to their home office. You will need to determine and apportion the home expenses that are attributed to the home office to deduct the costs. The expenses include rent, insurance, mortgage, repairs and maintenance, other related utilities, and depreciation.

8. Qualifying Retirement Savings

Contributions to various qualifying retirement accounts such as 401(k) accounts and IRAs are also tax deductible. For the 2011 tax year, the cap on the contributions to these retirement accounts is $16,500.00. For senior citizens above the age of 50, the tax exempt limit goes up to $37,500.00.

9. Education Expenses

The tax code also allows for tax deduction of various education-related expenses. For the 2011 tax year, there is a cap of $4,000.00 for tax deductions of tuition-related expenses. You can also claim the American Opportunity Tax Credit if you qualify for it.

10. Student Loans

Interest paid on student loans is also tax deductible subject to an annual cap of $2,500.00. This applies only to the interest and not the principal. However, to qualify for this tax deduction, you must be earning an income of less than $70,000.00 for single taxpayers or $145,000.00 for married taxpayers who file their taxes jointly.

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Updated Guidelines Regarding IRS Tax-Deductible Charitable Donations

July 8, 2011 By

One of the most common itemized deductions is donations to qualifying tax-exempt organizations. However, the rules pertaining to such deductions have been tightened in the recent past and the IRS is giving keen scrutiny to this section of tax returns. Therefore, you need to apply more caution the next time you are claiming deductions against a donation you make. Below is a guideline as to some of the important aspects of donations that you need to keep in mind:

Confirm Eligibility of Organizations

The first rule of donation is confirmation as to whether an organization is tax-exempt and certified to receive tax deductible donations. In June 2011, the IRS released a list of organizations that had lost their tax-exempt status. The organization had failed to file certain documentation as is expected by the law and have therefore, lost their tax-exempt status. The IRS has, however, put in place an arrangement for any organization that has lost its status to regain it. However, for the donors to these charities, it is his or her responsibility to check with this IRS’s list to confirm that an organization to which they are donating still has its tax-exempt status. The IRS has also announced that it will periodically update this list on their IRS website and that it would be wise to check the list each time before making a donation.

Non-cash Donations

A deductible charitable donation can either be in monetary terms or in non-cash items. You can donate clothes, cars, property, toys, bedding, or any other items. However, there are certain rules that apply to a donation of these kinds. For a donated item with a value above $250.00 to be deductible, one must receive a record (document) from the charity organization, acknowledging receipt of the item with the description and value of goods indicated. This will be the support documentation for the donation made. For items that exceed a value of $500.00, one needs to file Form 8283, “Noncash Charitable Contributions Form” and attach it to one’s tax returns. If you donate an item or similar items with a value of more than $5,000.00, you must fill out Section “B” of the Form 8283 with a valuation/appraisal performed by a qualified appraiser. The items being donated need to be in a good and usable state or even better. For property and car donations, there are other specific rules that apply and you will need to ensure that you adhere to these rules to have your donation qualify as a deductible.

Donations for a Benefit

For donations that provide you a benefit of monetary value, you must deduct this value of the benefit to the donation made before making a deduction. For example, if you pay for a charity opera or dinner ticket, you must deduct the regular price of the opera or dinner before making the donation deduction.

Donation Threshold

The maximum amount of donations that one can deduct is 50% of their taxable income. If a taxpayer donates more than 50% of their income, they are only allowed this maximum and they will have to shoulder the rest after taxes. Besides this maximum, high value donations that are not proportionate to ones income are also a tax red-flag and can easily get you singled out for an IRS audit.

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Donation Disparity in Obama and Biden’s IRS Tax Returns

June 28, 2011 By

The 2010 tax returns season is now over for most taxpayers and many have already received their tax refund checks. The 2010 IRS tax return season had its ups and downs, including a high electronic filing rate, increase in identity theft, confusion and errors with the First-time Home Owners Credit, delays in refund checks for the Adoption Credit claimers, and much more. The post-tax return period is usually a time of reviewing tax return statistics and learning from mistakes. However, besides these statistics, it is also a time when the public gets to be alerted to the tax returns of some of the prominent public figures who make their returns public. Prominent taxpayers of high interest are the president and other top politicians.

One of the more notable items in the 2010 tax returns for President Obama and Vice President Joe Biden is the disparity in the percentage of their income that was given to charities. President Obama and First Lady Michelle Obama donated $245,075.00 to tax-exempt charities in 2010 against an Adjusted Gross Income of $1,728,096.00. Their tax bill for the year was $453,770.00. Most of the income made by the Obamas was from the sale of Obama’s book. One of the notable donations by the president was a $131,075.00 donation to the Fisher House Foundation that provides scholarships to orphaned army children and children of disabled army soldiers. According to a blog post on the White House website, the president was donating proceeds of his children’s book to the Fisher House Foundation.

In contrast, the Vice President made charity contributions of $5,350.00 for the tax year 2010 against an Adjusted Gross Income of $379,178.00. Part of the donations by Joe and Jill Biden included donations of used clothing and household items to Goodwill, totaling $950.00. Many find the donation levels of the Vice President wanting. However, in response to his low donation levels, the Vice president said that his wife, Dr. Jill Biden, volunteered time in helping out with military families. Either way, the donations by the Biden couple had gone up in comparison to their average donations of $369.00 between 1998 and 2008, before Biden became the Vice President.

In comparison to the national average, the Biden donation levels were still very low. The average 2010 donations made by a taxpayer with an Average Gross Income of $380,000.00 was $9,544.00, which is about 78% more than what the Biden couple donated. For Obama, the average donation of taxpayers with an AGI level equal to the president’s was $46,359.00, which was about a fifth of what Obama donated.

Donations, whether given out of philanthropy or out of strategic tax planning, continue to impact majorly on tax expenditures, as they contribute majorly to the total tax deductions claimed every tax year. On the flip side, the donations enable services to be extended to areas and to people who the government may otherwise not reach out to.

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Don’t Get Deduction-Happy on Your 2010 IRS Tax Return

March 15, 2011 By

When you are filing your 2010 IRS tax return this year, be careful not to get deduction-happy and give yourself breaks which do not apply. It is important that you have the qualifications before taking an undeserved deduction.

For your job, you may have available deductions for job expenses, telephone lines, or commuting costs. However, these are not just for anything remotely related to your employment; job expenses must be unreimbursed by your employer, and ordinary and necessary expenses used for carrying your trade. Telephone lines used only for business are deductible, but primary home telephone lines that are also used for business purposes are not. You cannot pro-rate the business usage time either; the line must be entirely separate and primarily for business. Additionally, commuting to and from work is not deductible, but travelling to and from clients, customers, or vendors is.

Personal expenses such as diet and health club expenses, attorney’s fees, home improvements, and pet care are generally not deductible. Diet and health club expenses are only deductible if they are specifically ordered by a doctor for a medical condition. Attorney’s fees, aside from fees for tax advice and services, are considered personal and not deductible. Home improvements are also generally not deductible, aside from some energy-efficient appliances. Additionally, pet care services are considered personal and are not deductible. However, exceptions apply for guide dogs and service animals.

Limited public service costs are deductible as well. If you are considering running for office, your campaign expenses are not deductible. If you perform charitable services, only the costs you incur for doing those charitable services and any donations you make are deductible.
While you likely are entitled to some deductions, it is important to make sure that you only claim those which actually apply to you in order to avoid any “surprises” on your return.

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Great Tips on Credits and Deductions to Help Tax Filers

February 7, 2011 By

Many people who file taxes find that filing can be tricky. Although April is months away, it can approach with great speed and before anyone knows it, April descends upon us! There are many great tips to help tax filers to make filing easier and less time consuming.

Making Work Pay Credit – This is a credit that can be used only this year for filing as it expired this past December 2010 when some of the taxes were updated, changed, or amended. Make sure you use this credit as it lowers the amount of taxes paid in to the IRS and can end up giving positive result towards a refund.

Deductions – There are many deductions that many taxpayers are either unaware of or don’t realize that they can take. These are some lesser known deductions (if the deductions apply to you) that you should not overlook: moving expenses, charity donations, Disaster Relief deductions, elderly or disabled deductions, and college expenses. There are even more deductions that can be taken if the taxpayer has the right information and knowledge; take advantage of these deductions by taking the time to do a little bit of research! Check the IRS website for the newest tax changes and lists of credits and deductions that may apply to you at:

http://www.irs.gov/faqs/faq/0,,id=199544,00.html

First Time Home-buyer Credit – For those who bought a house for the first time and closed between April 30, 2010 and June 30, 2010, you can claim the first time home-buyer credit. This credit is only available to claim for the 2010 year tax return as this is also another credit that has expired December 2010 and is only applicable for up to April 18th 2011.

There are other credits and deductions that can apply regarding your home, such as home energy expenses that incurred when remodeling a home to an energy-efficient home (the maximum amount of this credit is $1,500.00).

Take advantage of all the help tax filing can offer, as this is the last time for some credits and deductions that are applicable for taxpayers!

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Holiday Tax Relief Tip: Charitable Giving- Careful Planning

December 9, 2010 By

Charitable Gifts Require a Good Heart But, Careful Thought

Not many taxpayers realize it is very easy to muddle up a charitable donation left under your Will and Trust. Your heart may be in the right place but your good deed may become extremely complex. For example, your request must be clearly understood and it must have all the necessary IRS requirements. If you leave out any of the requirements it is extremely hard to put right. This may require expert advice in order to avoid a seemingly tiny error that results in a massive complication.

  • You must use the correct name of the charitable organization. Be safe and make contact with the charity. If your donation is anonymous simply don’t reveal your identity.
  • A charity must be an accepted 501(c) (3) organization according to the Internal Revenue Code.
  • Stipulate the money is only to be awarded to that charity if it is still in existence at your death.
  • You can either leave a donation that is to be used as the charity sees fit or you can stipulate exactly how you want the donation to be used. Example, you could leave a donation to a certain child care organization to be used for their feeding scheme. Bear in mind such a fund may no loner exist at your death.
  • You must decide on a Will or Trust. Charities that are registered do not pay income tax. Retirement accounts left to them are not taxed. The same accounts left to family or friends are substantially taxed. If you leave $300,000 to charity they keep the full amount. If you leave $300,000 to family or friends they get $200,000 and the IRS takes $100,000.
  • You could give a donation in your lifetime. A donation of $300,000 that is received in twenty years time means the charity gets the full amount plus interest without being taxed.

For more holiday tax relief tips, click here!

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Holiday Tax Relief Tips: Use Your FSA and GIVE!

December 3, 2010 By

Holiday Tax Relief Tips

Use Your FSA or Lose It But Keep Giving to Charity

The holidays are great because it’s a time for gift giving. It is also a good time of year to benefit from IRS allowances on tax. Add using your FSA and being philanthropic to your Xmas list.

Using Your FSA

If you understand your FSA (flexible spending account) it can save you some tax money. There are two kinds of accounts. One is for medical costs and the other for child care.

It is usual for parents to use up the money for child care prior to closure of the benefit year therefore you don’t lose anything.

It is also usual for workers to overrate their yearly medical costs and it leads to their medical scheme having an overage of funds towards the year end. This is not in the best interest of the taxpayer. If you don’t use all the money in an FSA by a specific date you lose that money. Often the specified closing date is 31 December. There are some employers who permit an extension to 15 March. It is solely at the discretion of the employer.

There are legitimate ways to use up your excess funds such as restocking your medicine cabinet, laser eye surgery, dental appointments, annual medical exam, chiropractor visits and a prepaid health card.

Become a Philanthropist

Xmas is the perfect time of year for giving and it is also the time of year for receiving. You can take care of both by donating money to charitable organizations i.e. non-profit organizations. They get the benefit of a cash contribution and you get a tax benefit and the knowledge your money is doing good.

If you donate money it decreases your taxable earnings and leaves you with a leaner tax bill. You must make the donations by 31 December. The donation is significant for a deduction in the year it was prepared.

You are permitted to donate cash (IRS charged donations) or property such as clothing, household items or used vehicles. It is very important to understand you can only claim a tax deduction if the goods you donate are in good condition. Unfortunately, there were people who used charitable organizations as dumpsters.

Uncle Sam was so disappointed by this mean spirit he declared such an action to be in violation of the tax law. He is also aware there those who overestimate the worth of donated used vehicles. He also considers this mean spirited and in violation of his tax laws. Uncle Sam insists you have a receipt to prove every cent you donate you to charity.

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IRS Tax Help | A Time For Giving

November 24, 2010 By

IRS Tax Help: Reporting a Charitable Donation

A sound time to help charitable organizations is during the holidays. Tax laws make it possible for both the donor and the recipient to benefit from donations. However, there are specific regulations governing this procedure.

In order for a taxpayer to benefit from charitable donations you must list (itemize). It is on Schedule A of the Federal Form 1040 where deductions are listed (lines 16 to 19).

If you have made cash donations of any amount, they must be backed up by a credit card receipt, cancelled check or written affirmation from the organization.

If you donate goods you are permitted to subtract fair market worth, i.e. the price it would get in its current state. Donated goods must be in a ‘good’ or ‘better’ state. If not, it will be unacceptable to the IRS. If an item is worth more than $500 and is not in a ‘good’ state; it will be permitted as a deduction but with an evaluation (appraisal). Other specific regulations apply to artwork, jewelry and appreciated stock.

It is imperative to have a receipt of proof from the charity in question. It must have the location, name, detailed description of donation and date of donation. The more detailed the better.

When it comes to charitable donations the IRS has made it easy for taxpayers to contribute either cash or goods. Their rule of deductible property being in ‘good’ or ‘better’ condition assists charities to receive worthwhile goods. Remember, an item may not be valuable to you but it could prove to be a blessing to someone else. The holidays are the perfect time to give.

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