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Tips for deducting charitable donations

Usually, charitable contributions which are made to qualified organizations may lower your tax bill. There are a few tips which were put together to help ensure your contributions pay off when it comes to your tax return.

First, if your goal is a legit tax deduction, then of course you must donate to a qualified organization. You are not allowed deduct contributions which were made to specific individuals, political organizations and this would include candidates. Then we have to know that to deduct a charitable contribution, you must file a Form 1040 and itemize deductions as well. If you are able to receive a certain benefit because of your contribution which may be something like merchandise, concert tickets or other goods and services, then you can only minus the amount that would exceed the fair market value of the benefit which was obtained. Donations of non-cash property are mainly valued at the fair market value of this property. Things like household materials or even clothing items must generally be in good condition or better to be deductible. The fair market value is the price at which property would switch grips between a willing buyer and seller, neither of these two people having to buy or sell, but both having knowledge of all the facts which may be connected. Regardless of the amount, to deduct a contribution of any monetary gift whether cash or check, you must keep a record in the banks for your payroll or other deductions, this would include the date of the contribution and amount as well. Donations made via text message, the telephone bill will be the one which is responsible for the record-keeping requirement as long as it shows the name of the receiving organization, the date of the contribution, and the amount given. For you to be able to claim a deduction for the contributions of either cash or property that must be equal to or above $250, there must be a bank record, and of course the payroll deduction records or a written on the acknowledgement form provided by the qualified organization showing the amount of the cash and describing whichever property was donated. One document may satisfy both the written communication requirement for monetary gifts and written acknowledgement records.

  

images from: 2.warwick and moneymanagement

Strange Tax Deductions

You may be surprised to know that your tax deductions may look absolutely boring compared to some tax deductions that I will mention. If you may be bored with all your usual tax deductions and you are feeling adventurous and fun, I’ll give you some additional tax deductions that you may not have known about. These are a few unusual deductions that a few taxpayers were able to get approved.

 

Drunk Driving Expenses

–          So the usual “I drank too much at this party and instead of just passing out and sleeping it off or hitching a ride, I want to drive myself” mindset of most of the people now a days. Of course we all know where this ends don’t we? Driving and hitting some road sign or driving off the road. The worst part, would probably be the getting arrested for the DUI. Of course, the car was damaged and the insurance company will refuse to pay for the damage since this is associated with DUI. As a result, the driver will have to end up paying for the repairs and deduct them. This would be a casualty loss. Brought to court, reasonable actions gave rise to reasonable deductions.

Free Beer

–          A certain gas station owner thought that giving beer in place of trading stamps. This was a promotional scheme. The owner would deduct each beer as a business expense. Naturally, the IRS denied the deductions and then went to tax court for it. The court then ruled the deductions being proper.

 

Babysitting Fees

–          Originally, babysitters expenses are personal, although sometimes, this may not be the case. The IRS stated that payments cannot be deducted for any child care expense whether or not they may be necessary. This is done so volunteer work can be done for a work qualified organization. There was an instance however that a sitter was paid to do charity work out of the house. The money obviously did not go to the charity and the IRS did not deduct. After these events, the tax court once again held a hearing and decided that the fees handed to the sitter would qualify as a sort of charitable contribution since this enabled the work of the sitter’s boss.

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Images from : september2000 and 4liberty

What is a Tax Deduction?

 

What are tax deductions and how exactly do they work? Often we hear phrases such as “ You can just write that off.” Or “Just deduct that.”, but we don’t exactly know what this means. Why are they considered so important in the first place?

Tax Deduc 1

Tax Deduc 1

Tax Deduc 2

Tax Deduc 2

The main purpose of Tax Deductions is to decrease your taxable income which in turn results to the decrease you’re the amount of tax you may owe to the federal government. There are numerous ways to use deductions to reduce your taxable income, but unfortunately, many people don’t know about them or know how to take advantage of these deductions. There are different ways to find out about how you can maximize your deductions. A few popular ways to know would be talking to a tax professional for example a tax preparer or you may also talk to your lawyer. They will definitely be able to help you given that their job is to know about tax deductions and how they work. By knowing this, they will be able to guide you to use your deductions legally, efficiently, and to the fullest. If you know about your deductions early on in the year, the more you will be able to take advantage of them. The earlier you know, the better. Many mistake these tax deductions for only applying to those who are richer or possibly more famous or known compared to some of us. This is where they get it wrong because a big amount of tax deductions and credits are actually available to the middle income tax payers and the lower income tax payers. Although, the biggest known dividing line in the world of dividing would be what is called itemizing. You must distinguish if you are one who is able to itemize because itemizing plays a very big role in world of deductions. An example of a tax deduction we miss would be health insurance premiums. Any of the health insurance premiums you pay, this includes some long term medical premiums you pay which are based on your age and medical care premiums as well are very much considered deductible. These need to be added to what you call your medical expense pot. Your medical expenses need to exceed 7.5%  of your adjusted gross income before you will be given any tax benefits. An exception would be if you are self – employed and not covered by an employer paid plan you can deduct 100% to your insurance health premiums. This gives you the benefit of not having to exceed the 7.5% floor and you don’ have to itemize.

 

Images from: davidminotti and realestatewithcauses

Charity and Your Taxes

 

 

 

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Many of us are aware, especially the more privileged, that donating to charity would reduce the amount of taxes we have to pay. We sometimes tend to mistake that donating to charity would not just reduce but almost deplete the amount of taxes we have to pay. This is not exactly the case. If you try and to that strategy of donating to charities to reduce your annual taxes, you will come to see that the return you receive will not be as large as you may have hoped. Now the question is, are charitable donations really a big deal?

 

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Yes charitable donations do provide a reduction to your taxes, but you have to understand that it’s not as huge what many others often expect or think. You must understand how your charitable donations benefit your taxes and by doing that you must first know how to understand your taxes. We all know that when you have a job, you need to pay taxes but people may not exactly understand how this works. Let’s say that you are earning $50,000 a year. Now, for an income which is $34,500 and $83,600, you pay 25% in taxes. If you add up all the taxes you pay per paycheck that you receive, this would total to $8,625, which means this person will owe $8,625 on their taxes for this year. Now, what we ask is how one can lower that amount they have to pay? The most common way to do that would be deductions. For example in the year 2011, the government would deduct an amount of $5,800 per person. All you have to do is simply deduct the $5,800 from the total income of the person per year making this person’s income for tax purposes actually $44,200. So basically that person’s standard deduction would save then by $1,450. The same thing goes when it comes to Charitable giving. Every dollar which you donate to a legit and registered charity would be reduced from your taxes. An example would be the person above donating $9,000 worth to three different charities. Making $50,000 a year, this person can either subtract his standard deduction $5,800 or he can subtract the $9,000 worth of charitable donations. Now looking at the taxes this person owes, the person would owe $6,375 on their taxes this year. Basically, this person’s $9,000 charitable contribution saved them $2,250 on their taxes for the year. This is because the person was in their twenty five percent bracket before the donation and same for after the donation. This means they saved 25% of their donation on their taxes. This proves that charitable donations are a good thing and that they are able to offer you some tax savings. You may not save a dollar for every donated dollar but you are roughly able to save a fourth of that dollar.

 

 

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Country Tax Rankings

 

Tax Justice

Tax Justice

Country and Taxes

Country and Taxes

Tax issues are present way back in the colonial era and tax deductibles are a great answer to the people’s problem. Different people wants different things, there are three types or groups that see these taxes differently or has a different view about it or is thinking of a way to lessen it. The first one are the businessman, the businessmen want to lessen the tax and remove or reduce taxes, making their earning greater, their companies bigger, hence more work will be provided and less employment will occur. The next group sees it as an opportunity to increase the tax for the wealthy, or those who can pay more, and the taxes they pay go to the national debt, lessening it, lessening the nation’s debt will also make the country improve, so in that aspect, it is a good intention, however the wealthy people will get affected. The third group wants everything revised, they want the laws, exceptions, circumstances to change, they want to find loopholes in the system  that are allowing some people to pay no tax at all and these people wants it revised, so it would be fair for everyone paying the same percentage of tax to benefit the mankind.

But is it all the same for all the countries? Are there countries that pay more? Necessarily, taxes are handled differently in all countries; there might be similar percentage of taxes but all for different reasons. Belgium stands out as the leading taxpayers in the world with 54.9% marginal rate, it is so high because of the lack of job offers, since people work less, people usually have no money to pay in general and the government cannot get enough money to support the country’s system hence those who work pay a large amount of sum as tax. Taxes in Belgium are focused on the big earners paying about 50% of their salary to tax. In contrast to Belgium having the most number of unemployment and highest tax, Switzerland, having the least number of unemployment of 3% (as of 2009), also has the one of the least tax to pay with 20%. One of the tax reductions in Switzerland are based on their transportation, people in Switzerland normally have only two cars, one for the winter and one for the summer and they only have one plate for both that way rad tax is reduced and that is actually legal. Basically, to make things simple, Swiss people invest even on the smallest things that can make their tax low from garbage bags to business expenses to personal expenses, all are being appropriately handled.

 

Image By: taxjustice.blogspot.com/

Rules for Claiming Tax Reductions

Tax Reductions

Tax Reductions

Gifts to Chaiity

Gifts to Charity

Having to help others instead of actually giving money to the government is somehow more pleasing on a personal note. Giving to charity, at least, we know who is actually benefitting and as the donator, you will see an impact in the use for your money, where it went and what good it did. There is an option now for doing this constantly since there is a law that your tax will be reduced if you donate to charity.

Having said this, there are still papers and proper documents one needs to achieve and one must still meet certain criteria for you to have tax deductions. There are four rules, basic ones, for charitable contribution deduction. First is that you must actually donate, either cash or property, and until proven, tax would not be deducted yet. There are still certain people who promise to donate but after realizing things or having something else to use the money or property for, they might turn back while the tax are already deducted. The government and institutions try to avoid circumstances like this hence the work “actually donate”. Second is you must donate to an accredited organization and not just some personal charity of yours. There are papers or documents that are called tax-exempt status forms, and charities must have these in order to be qualified that donation to their charity will reduce the tax of the one donating. And for the organizations, there are certain churches and other religious organizations which are not qualified as well. Third is to itemize your tax reductions. For those who do not want to pay their taxes, giving to charity is a very good option to avoid paying however you must be able to itemize your deductions in order for it to be valid, which can sometimes be too tedious. And lastly, you must maintain all the papers and records as proof of your donation. Some of the papers include acknowledgement letters, cancelled checks, appraisals, etc.

An act named Pension Protection Act holds all the requirements that you will need as proof of your donation. Some of the requirements that are part of the records are the amount of contribution (for cash donations), the name of the charitable organization, to know whether it is legitimate, and the date of the gift, for actual checking. And for the charitable organization one has donated to, they will provide you a written letter which states that they have received your donation or they will give you a receipt, depending on the organization.

Image By: npr.org/      greenbridgeadvisors.com

Charity Tax Cellphone App: A Manual

 

Itemizing is hard

Itemizing

Helping Hands

Helping Hands

 

Previously, itemizing your charitable deductions is tedious and hard, and keeping record is a must, but now, we have certain innovations to make life easier. Now, an online software solution comes to the rescue with the “Its Deductible” application launched last December 2013. There is a bunch of helpful reminders that pop out to let you remember the things you need to do for the IRS to grant you the reduction. And it is under four different categories depending on your type of donation.

First is through cash, the initial thing to do is to register the charity you are donating to, if this is the consistent charity you are donating to, then it will immediately pop out and you won’t have to enter it again. Then you choose the mode you want to pay it with, wither by check, cash, payroll deduction or credit card, all of which is still under the donation category cash. But although there is an app for this, you still need to get a hold of a statement from your bank company or credit card company, and a written acknowledgement from charity if you donation is at least $250.

Second is through the category Stuff. From the word ‘books’ to the word ‘vacuum cleaners’, the its deductible app provides a set of items to choose from and the price appraisal is gotten from local thrift shops or Goodwill or other local scores that people are familiar with. But the price there is fixed and if you happen to find the same item but of lower value, then you buy it yourself and hand it over to charity yourself. And for the people buying second hand stuff, be sure it is in good condition because taxes won’t be deducted if conditions aren’t accepted.

Third is categorized as Stock. With the title there is not much to say, you are donating your stocks to charity and this is a wise decision if you are donating big amounts since you get a deduction on the fair market value price and you avoid paying any capital gains tax as well.

And the fourth one is under the category Mileage. For this one, you record your mileage say going to the charity organization you are donating. The mileage measures 14 cents a mile and then the IRS tracks down the average income range and base the reduction from there. For example, an income range of $15000 to $30,000 will have a reduction of $2,058, and a man with an income $50,000 to $100,000 will have a deduction of $2,815, etc. They have a list of ranges with their corresponding deductions and a certain percentage will be given to charity.

 

Image By: hongkiat.com/       stann-nyack.org

Valuing Non-Monetary Charity Donations

image Whenever you choose to donate non-monetary gifts such as, 2nd hand clothing, shoes, furniture, appliance, or what have you, keep in mind that you need to know the value of each item you will donate for tax deduction listings. You cannot come up with your own price that and because of previous abuse incidents about the valuing of non-monetary donations, IRS implemented special rules and regulations when getting the value of your non cash donations. You have to find out what is the Fair Market Value or FMV of the items you will donate or have donated. It is wise to know before-hand the FMV of the items you will donate before you donate it instead of after donating it. It is better to have the FMV before donating it to ensure that your list will be up to date and would have valid information during tax time to avoid tax penalties. What is a Fair market Value, you ask? Well FMV or the Fair Market Value is the agreeable amount of the item from both buyer and seller who has the same knowledge about the object that would be agreed upon at the time of the donation, considering the age of the item, the condition and the demand. For IRS, it simply means the price that the willing buyer would pay for the said item/s. It is said to be the fair price of that certain object for donation, the value is not too low or too high. Your property donation that doesn’t exceed $5000 doesn’t require a qualified appraiser to value them, but the IRS requires you to consider the following when making the value of your non-monetary goods: The cost or selling price of the item The price of the comparable items The replacement cost of the item as well as An Expert’s opinion From the IRS publication 561, Indicates that knowing the value of the donated property will give a good explanation of how the following factors above could be used to determine an items’ fair market value. Two of the most popular local appraisers you could go to are Goodwill Industries and The Salvation Army, where you could also donate your items to qualify for tax breaks, since both establishments are non-profitable institutions. Now, donations over $5000, a qualified appraiser needs to be involved in determining the fair market value of your non cash donations, just to avoid valuing the items incorrectly. A formal appraisal will then be given to you to present when it’s time to file your taxes and deductions. image Images from ufz and thecentralline.

The Best Tax Deductions Strategy

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In the United States, there are different ways for the tax payers to get more money on their tax season especially if they keep track of it. Most of the time they file these following as itemized deduction for the tax year: Stock and Gamble Losses, Medical and Dental expenses, state and local state taxes , real estate and personal property taxes , home mortgage interests, investment interests, theft losses, Job searching expenses and most of all itemized list of your gifts to charity /  charities. It is said that among the other potential tax itemized deductions, donating maybe the best one and most frequently present on their list when filing for their taxes.

When November and December comes every year, it is said to be the best months where you could give out donations to your favorite qualified organizations, since both months are tagged as months of giving and sharing. With it, it is imperative to remind yourself to donate before December 31 of each year for you to qualify on the deduction of taxes the coming tax season which is usually the month of April. Because apart from the standard deductions IRS provide (which are depending on you civil status), you can also declare multiple items to deduct on your ITR, and to get a great deduction of your taxes, giving or contributing to charity is one of the best take you could do. It’s like hitting two birds in one stone. You are helping your favorite charity and then you will be getting deductions on your tax on the next tax season as well.

It doesn’t matter what you donate, money is good and would really help the nonprofit organizations a lot from their day to day responsibilities, but donating good items from your home that you do not use anymore is also one great idea to give out, if you do not have money to spare. This is the best time to get all the good clutter in your living room, bed room or from your garage, if you think and feel you won’t use it anymore, it is best to just donate it. Also, if you are giving non-monetary gifts, it is important for you to create an itemized list of the gifts and their estimated cost for you not to have a hard time when it’s time to file for your taxes. It is customary that you will be given acknowledgement of contributions by the charity / charities but it is also good to have your own list.

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Images from pnwtaxschool and don’tmesswithtax.

Summary of Tax Deduction through Charitable Giving

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When donating to charity, you might want to consider the tax breaks you could be eligible for. A Tax deduction occurs whenever you give monetary or non-cash contributions to qualified organizations that are registered Tax Exempt by the IRS. Most of these organizations are non-profitable institutions that help children, senior citizens, or animals, institutions that helps education, science and more, and this also includes churches. Keep in mind that donations to non-qualified organizations will not be tax break eligible. Monetary donations or gifts are always welcome and will always be appreciated by these organizations, since that will help them fund and pay the necessary expenses for their day to day responsibilities to pursue in helping other people in need.

But Non-Monetary contributions are great too, especially if you are donating things that the charity needs or could use with their day to day activities. Non-cash donations often includes: clothing, furniture, shoes, vehicle, stocks and volunteer work. Most of these non-monetary gifts need a fair market value to be determined prior filing your tax deductions as you will be recording your donations one by one with the appraised FMV to submit at tax time. It is also nice to know that donations to museums such as artifacts and paintings are tax deductibles, donations to public schools like books, school supplies, or anything the school may need are tax break eligible as well, and also books being donated to the public libraries are also qualified to have a deductible on your tax bill.

You only need to remember to list down all the items you will donate, determine the Fair market Value prior donating, keep a clear and good record of your donations throughout the year and most of all do not forget to ask for receipts or document of acknowledgement from the qualified institutions you will donate it from. For donations that are worth $5000 or more you would need to get a qualified appraiser to value your donations and provide you a formal document to file along your tax documents such as Form 1040 and the Schedule A form. And above all, the most important thing to consider before filing your charitable contribution deductions is the amount of the Standard Deductions from your taxes, since IRS would not deduct both Standard and Itemized deductions from your tax bill. It is best to evaluate which one has the higher value to be deducted from your tax bill to enjoy the tax break given by the US government.

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Images from thecommoncents and hgco.