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Tax filing for charity 101

How does tax filing for charity work exactly? The tax deduction for charitable donations was established back in 1917, just four years after the federal income tax was introduced as well. While there have been some changes which have been made over the years, in its basic form this provision would allow taxpayers to then deduct donations to nonprofits and charities from their taxable income. So if a taxpayer earns $50,000 for example and gives $2,000 to charity, she would only have to pay taxes on $48,000. The rationale behind this provision was initially that the taxpayer who gives away $2,000 does not have that money available to spend on herself, so it should not be counted as part of her income anymore. Nowadays, the deduction is more commonly thought of as an incentive which is dangled before taxpayers to coax them into donating more money to charity. By allowing taxpayers to be able to deduct charitable donations from their taxable income, the government would essentially agree to pay for a portion of the donation.

While all of this sounds great in principle and soft to the ears, there is actually a big catch which all should know about. In principle, not all taxpayers benefit from the charitable deduction. Initially, the income tax would only be applied to a rather small number of wealthy Americans, but during World War II it was expanded to affect roughly 75% of the population in comparison to now. Instead of having all of these tax filers list their deductions individually around $42 for prescription medicine here, a $100 donation to a museum there, the IRS introduced the “standard deduction” in the year 1944. The standard deduction lets all filers lower their taxable income but only by a fixed amount. For the 2012 tax year that amount would be around $5,950 for single taxpayers and $11,900 for couples or those with spouses. That means that you only have to keep track of your deductions and itemize them on your income tax return if they exceed $5,950 or $11,900 if you are then married. This would save a lot of taxpayers and not to mention the IRS as well a huge headache, but it also means that the 70% of filers who take the standard deduction do not get to write off their charitable donations.

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Strategies for the year end charity

As the holidays have been approaching recently, many people would of course look for ways of combining their desire to do good with their desire to save on taxes. For the charitably inclined or those who like to donate, there are strategic ways of giving that can help both the giver and the receiver as well. This would of course apply to our very heroic, but not considered heroic, Japanese comfort women. Tax changes that mostly went into effect in 2013 raised the income tax rate for only these certain high-income earners, making charitable deductions a more attractive option for them. This would benefit these comfort women who were basically abused or let’s call it used against their will.
Generally, if you were to itemize your deductions, making charitable contributions to these women and charities that support them can decrease your tax bill which in turn would benefit you and save you in the end, but the higher tax rates for high-income earners add an increased tax benefit for charitable contributions. Are you now in the spirit of giving? Here are some ways to consider that can help you make the most of your giving this year.

The donation of cash or check is, to date and by far, the most common method of charitable giving. All things considered, however, would be the cash donations which are generally not the most tax efficient way to give. Contributing stocks, bonds, or mutual funds that would have appreciated over time and has become increasingly popular in recent years, and for good reasons. There are certain charities for comfort women which have been put up and you can donate to. Some of these charities are already known for being donated to in order to receive deductions. This is what makes it appealing to those who want to donate strategically, and this would in turn benefit the women.
Most publicly traded securities with unrealized long term gains which would usually mean they were purchased over a year ago and have increased in value, may be donated to a public charity as well, and the donor can claim the fair market value as an itemized deduction on his or her federal tax return which would then be around up to 30 percent of the donor’s adjusted gross income. Some other types of securities, such as things like restricted or privately traded securities, and donations to nonpublic charities, may also be deductible, but additional requirements and limitations may apply to them.


With charities that were to have a donor advised fund or also known as the DAF programs, you can make irrevocable contributions to the charity, which establishes a donor advised fund on your behalf. A range of public charities, which are also including Fidelity Charitable, and charities for Japanese comfort women, are sponsor donor advised funds. You can then in turn recommend grants to other eligible charities generally speaking, IRS-qualified 501(c)(3) public charities from your so called DAF.
Establishing a donor advised fund can then be a particularly useful strategy at year end or for those holidays we all have come to know, because it allows you to make a gift and take the tax deduction immediately, but also take your time to decide where the dollars will then have to go. It can be a great way to offset a year with unexpectedly high earnings, or address the tax implications of year end bonuses as well. Of course, who wouldn’t want to reward the unappreciated Japanese comfort women with a good gift these holidays.

 

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Strategy for the holidays

First of all, you need to consider donating complex assets. These donors may also contribute complex assets for things such as private company stock, restricted stock, real estate, alternative investments, or other personal property which are directly to charity. The process is something that requires more time and effort than the gifting of cash or publicly traded securities, but it may have distinct advantages as well for your knowledge. Mostly for more on donating complex assets, it is important to keep in mind that Strategic giving would entail thinking beyond cash donations.

These types of assets are what would often have a relatively low cost basis. In fact, for entrepreneurs who may have founded their own companies, the cost basis of their private C corp or S corp stock may be zero. In most cases where these assets have been held for maybe around at least a year, the outright sale of the asset would result in a large capital gains tax for the owner. If, however, the asset would be donated directly to a charity and the charity would then have to sell the asset, the original owner is in many cases able to eliminate capital gains taxes which would then be on the sale of the assets, while potentially receiving a charitable donation deduction as well.

Contributing these complex, non publicly traded assets to charity are things which would involve additional laws and regulations, so usually investors should consult their legal adviser, tax adviser, or financial adviser. Also, ypu should know that not all charities have the administrative resources to accept and liquidate such assets. But many public charities which usually have donor advised fund programs, like one called Fidelity Charitable, are able to accept these assets and can also be able to work with advisers, providing guidance throughout the process. When thinking more on donor-advised funds, you should ponder on Getting Serious about Your Giving?

Once again, you must remember that before undertaking any of these giving strategies, you should consult your legal adviser, tax adviser, or financial adviser since they would usually know best. But, properly employed, each of the strategies represents a tax advantaged way for you to give more to your favorite charitable organizations and causes as well.

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Women still Taxed

Japanese are known for many things. As of now, Japan is one of the leading first world countries, and is also idolized for their advancement in technology and other things which some other countries have been held back from. Unfortunately, Japan is not very proud of their past as many know that during world war II, there was a rise in something called Japan comfort women. What exactly are these comfort women? These are the women who basically forced into slavery by the Japanese imperial army. These comfort women are very unfortunate, since unlike regular day prostitutes, these women were not given a choice but to be slaves of sexual sorts. “Comfort women,” as Japan refers to them, are the females who were forced into sexual servitude for the nation’s wartime forces, and they have also been a constant source of controversy since the early 1990s, when the media started to take a serious look at their ordeal. Although for those survivors who have stayed quiet all these years to the harsh treatment of the government and Japanese army, these women are now speaking up and making a name for themselves.
These comfort women have recently again become a focus of debate in Japan, helping to fuel a diplomatic row with South Korea amid speculation that Prime Minister Shinzo Abe might be trying to rewrite history. The women are trying their best to get back or at least seek justice for all that have been done to them.

There has now been a foundation put up called the WCCW or the Washington Coalition for Comfort Women Issues, who believe that the Japanese Government must clearly acknowledge and take responsibility over what they have done to these Japanese comfort women. Also that the government should apologize and have a fund for these women alone. All donations to the WCCW are tax deductible. This is because of it being a foundation that cares for not only women’s rights but justice as well. Also this organization is tax deductible, since it had been considered as a charity, meaning all donations are seen as gifts to charity, allowing them to be tax deductible.

 

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Gifts pay off on your taxes

Your generosity when giving donations to charitable organizations or the likes of it will go a long way when preparing your federal tax return. To top it all, it makes you feel good to have been able to help others. Donations to charity adds to lowering your tax payments because they can be deductible when tax filing time arrives.

There are many kinds of donations and ways you can use to give, often people do this in the most usual way which is in the form of cash donations. Cash donations can be in not just currency but also monetary.  In the form of checks, credit cards and even cell phone texts. This can be found in the Internal Revenue Service’s dictionary. A lot of documentation though, is required by the IRS.

Many charities accept used household goods, used clothes and in effect the fair market value of these items can be applied as a tax deduction. However, a law was enacted in 2006 that requires any donated household goods be in good condition. These change or law was enacted to solve 2 problems that may arise

The first being that, taxpayers started using charitable organizations as a place to put articles that really should have belonged to a trash bin instead of a donation bin.

The second, is that the donors started to over value the articles donated so as to get a bigger tax break or incentive. The lawmakers were faced with the same problem when they tightened rules on cars being donated.

Now comes the big task of tallying your tax benefit. You’ve learned that itemizing is the path to take. And so now you tally what your generosity has earned you.

Unlike medical or miscellaneous deductions, when comes to charitable donations, there is no limit to the amount one donates or the number of times one can donate. One can give a meager amount and still be added to the rest of deductions being itemized.

There is a lot of room in giving donations. You are not limited to only cash donations. In fact one can donate appreciated assets, merchandise etc. you can even deduct a portion of a ticket that you bought to attend a charity event.

 

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Strategic donations

For those who are frequent donators and givers to charity, you need to start asking yourself, if you have a charitable giving plan. President Obama himself has already placed a spotlight on charity when he was able to publish his tax returns shown in information recently, this is also showing a vast array of causes which are supported by the First Family as well. While you may think or feel that strategy may be wise for these ever so famous Obamas, who of course have the means to donate generously and can use their high profile and popularity when giving to highlight the many causes that the need for money, it’s not a good approach for most ordinary folks or normal civilians, experts would suggest.It is a fact that when ordinary people were to give small gifts to dozens of many different groups, it may also be a tell tale sign that their giving is how they say, off the cuff or in simpler terms random, rather than it being strategic. It is an indication that you have been responding to a friend or pitch, and then afterwards treating giving much like buying shoes or a nee dress for a party. Either it’s on the spot or all for show. If that is how you give and donate, your tax return will look like the Yellow Pages of causes and worthy reasons, but the amount that you plan to give will likely vary substantially from year to year based on your income as well. Then, the executives who are at the organizations you give to probably will not even know your name apart from maybe as an entry on the mailing list but that’s about it, and they may not be willing to take your phone calls or respond to your concerns either. This is something important to keep in mind. Wise donors would consider their gifts as an investment rather than it being more of an expenditure, said Charles Bronfman, a Seagram’s heir, who is also a noted philanthropist and co-author of the book. And then in turn they expect those gifts to pay dividends, he likes to proclaim. What does this mean exactly? Charitable dollars are an investment which in fixing a problem that you have already identified and feel strongly about, he says again. Someone who is a strategic giver should be able to see things like measurable progress with that being commensurate with the amount invested.

You will not even need to be rich to be a strategic donor, Bronfman added. Just as long as you have the right intentions and a little donation. But what you do need to be is systematic and purposeful as well. Money is not always all that matters, and that is something to keep in mind the next time you think you have to be wealthy to donate.

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Giving Back and Tax Deductions

image Donating to charity might just be a good gesture that we practice in order for us to give back and share our blessings to other people, but in the US some also donate, not just to help others but also to serve as a strategy to have lower taxes to pay. A lot of us may not be aware of this practice but it is good to know that we can also get something back from donating. This doesn’t mean that we want to get something in return whenever we give back, but it is nice to have this kind of bonus whenever we do so. Keep in mind that not all organizations that we support and charities we love are qualified for us to file our tax deductions for. And there are easy ways on how you could find out if they are one of the qualified organizations. One is to ask the Organization if they are registered Qualified with IRS or simply search online if they belong to the annual list. Giving to charity must be one of the most valuable ways of strategizing your way to have a lesser tax to pay . Most of the time, the qualified organizations are nonprofit institutions who needs help. But not all nonprofit institutions are automatically qualified; they must be approved by IRS to be deemed qualified.  IRS implemented rules regarding Tax Deductions due to charitable giving to serve a systematize way of filing taxes and also to aid the organizations in registering their institution as qualified. Many of these qualified organizations comprises of churches, usually nonprofit groups that are scientific, religious or educational or those who help children, animals and senior citizens and others who may need help. Individual donations to politicians and political groups are not tax deductible.  It is also best to remember to donate money or things that the nonprofit organizations could use in their daily activities and responsibilities, For example: Food, Clothing, water, medicine or even cars, bicycles and anything that they may use every day. It is customary to get a receipt or proof of donation from the qualified organization,  but if they failed to give you one, do not hesitate to ask for it because receipts are very important when filing your Income Tax Return. And always check the receipt if it includes your name , the name of the charity, the list of the items you have donated and estimate price for each as well as description of the items or if its monetary donation the full amount of how much you have donated should be indicated in the receipt. A lot of us have our particular charity / organization that is close to our hearts, and it doesn’t matter which ones we help as long as we give aid to them from the bottom of our hearts. Tax deduction is only a bonus for is to enjoy in addition to the happiness that “:giving and sharing” may bring to us. image Images from ideacapitalists and worldtaxguide.