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Understanding tax exempt organizations

There are rules to be followed by citizens in any society. To help things run smoothly, rules have been set to benefit a community as a whole.

Others help us learn and abide by these rules as individuals and as we grow. In our young age, we were taught that we are to pay for a chocolate bar we want in a candy store. That we cannot just take what we want when there is a tag price attached to it. We know that at the age of 18 we can register and vote. And we’ve learned that come April, we need to fill out those agonizing forms. But we also know where we can go for help if doing it for the first time. Terms such as “total taxable income” and “earned income” can be perplexing for a first timer.


These two terms are not the same. But are related. Many non-profit organizations long to be tax exempt and this sometimes causes confusion when referring to the 2 terms being talked described here. Charitable organizations more often than not, described as  nonprofit organizations and therefore are tax exempted and this is recognized by the federal government. There are processes in becoming non-profit or tax-exempt.  This are done at different times and by different government agencies. Generally, by applying for the status, an organization can become tax-exempt but this entails a long process. There is approximately 30 pages to application form (Form 1023 for 501(c)(3) organizations; Form 1024 for others) is approximately 30 pages, and the IRS suggests that it (1023) to begin with and this can take about eight hours to completed. A status is granted after several months.

Once status has been granted. A “letter of determination” is sent by the IRS. This letter can now be used by your organization as proof of your tax-exempt status on a permanent basis. The letters will come of use when he need arises to show foundations during application for grant. It can also be used whe applying for state tax-exemption.

There are 2 additional ways of securing tax-exempt status. They are: automatic recognition and a fiscal conduit.


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Tax filing for you gifts

Start by asking yourself when you would know your donation is deductible. To know when your donations or contribution are deductible, you need to take the incentive and ask the organization directly if your contribution is tax deductible. More popularly, under federal income tax laws, all or at least part of your charitable donation may be deductible, or it may not be deductible as well at all under certain circumstances. Moreover, please note that if a group tells you it is “tax exempt,” that does not immediately mean your contribution is tax deductible. Tax exempt is something that simply means that organization does not have to pay federal income taxes. You should contact your local IRS office or the organization directly if you are not sure about an organization’s tax status or the tax deductibility of contributions. Now from your mailing list, while there is still no known or proven foolproof way of eliminating your name from all mailing lists due to advanced technology, there are some simple steps you can take to cut down on the amount of charitable solicitations that you may usually receive.
You can actually write or telephone the organization directly and file a request that your name be removed from its mailing list. One thing to remember is that you cannot simply return the mailing you received with a written note, something like saying “please do not send future solicitations and emails to me,” because most charities use non profit postal rates that cover one way delivery only. In turn, you must add additional postage or the letter will not be returned to the charity, and your name will then not be removed from the charity’s mailing list, putting all your efforts to waste. Now, when you decide to make a donation, please do not forget to include a note to the organization requesting that your name should not be rented or sold to other organizations, because this may happen. If you have contributed to a certain charitable organization in the past, your name is more likely placed on a something called a donor list. Then, your name will be exchanged or sold to other nonprofit organizations who are interested in sending their appeals to known donors, or to direct mail marketers.

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Death real estate and estate taxes

The month of November we remember our dead. All Saints’ day and All Souls’ day. On any other time and day, the topic of death is usually avoided. It is a reality though, that a time will come when we will all die and it’s just a question of when.

Immediately after the death of a love one a person can be in a state of despair, overwhelmed with feelings of grief, emotional pain and inability to function. This we may know from experience. But, we need to face the fact that there are arrangements needed to be made and that someone has to do it. Arrangements such as the embalming, wake, casket, place of burial and the gravestone. Then the matter of the estate tax that will need to be taken care of.

At the transfer of the net estate,  an Estate tax will be imposed which is the difference between the gross estate (as defined under Section 85 of the Tax Code) and allowable deductions (under Section 86) of the decedent. A tax estate return is needed to be filed and paid to be able to transfer to the heirs the real estate of the decedent. Estate tax rates are graduated and will be based on the net estate amount.  Many problems arise when there is non payment of estate tax making it difficult to transfer to the buyers/heirs.

Gross estate is described as the value of all property, real or personal, tangible or intangible, wherever situated at the time of death. When decedent is a non resident or not a citizen of the Philippines at the time of his death, the only thing that will be included in the gross estate will be that part of the entire gross estate which is situated in the Philippines. Any proceeds of life insurance  are included in the gross estate and shall remain so unless the beneficiary is designated irrevocable.




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Tax deductions 101

What is tax deduction exactly? So tax deduction is actually a reduction of the income which is subject to tax, for various items, especially things that include expenses incurred to produce income.

It is often pointed out that the deductions are subject to some limitations or conditions as well. A deduction which is from gross income that arises due to the various types of expenses which is incurred by a taxpayer. You must know that these tax deductions are removed from taxable income and then adjusted gross income, and thus lower the overall tax expense liability. Usually, different regions would have different tax codes which would allow a variety of expenses to be deducted from this taxable income. The tax deductions we talk about are often used to entice taxpayers to be able to participate in programs which have a societal benefit. An example of this would be, charitable donations and the expenses which are incurred to make one’s home more environmentally friendly can sometimes be deducted from the taxable income.

There are actually a lot of systems which reduce taxable income for personal allowances or even provide a range of income which is subject to zero tax. To add to that, some systems allow deductions from the tax base for items and the tax levying government would desire to encourage. Some systems would even distinguish these things among types of deductions for example something like a business versus a non-business.

For some of these non business sectors, many of the systems would allow a deduction for loss which is done on sale, on exchange, or on the abandonment of both business and non business income, which are what is producing those assets. This deduction though, may be limited to gains which are from the same class of assets. In the U.S. For example, a loss on non business assets would be considered a capital loss already, and deduction of the loss would then be limited to capital gains. Also another example is, in the United States, a loss which would happen on the sale of the taxpayer’s principal residence or some other personal assets would not be allowed as a deduction except to the extent due to things like casualty or theft.

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Tax deductions for teachers

It is not unusual to come across teachers who take up burden of purchasing supplies for their class, at their own expense.  This is so because school budgets have been often cut or slimmed down. If by any chance you are a teacher and have done the above, you will be happy to learn that you may be able to deduct some of the purchases you have shouldered in your income tax. In fact, taking out of town seminars, additional classes to add to your education or conventions, may qualify you for tax deductions. And even if you do not itemize these, it is still available for deductions.

An amount of $250 incurred from purchased of book, supplies, and other materials that is used in class can be deducted directly from the teacher’s income on line 23 of the Form 1040. You can once again do this without having to itemize it. If married and your spouse is also a teacher, he/she gets a deduction of  up to $250 of expenses also,bringing this to a total of $500. If expenses you incurred are more than $250 on supplies and you itemize your taxes, any amount over $250 can be included in the miscellaneous deductions.  Only the amount of miscellaneous deductions that are more than 2 percent of your adjusted gross income can be deducted. .

Now in the case of Student Loan Interest, if you are not done with payments for student loan, it will help you to learn that you can deduct up to $2,500 on interest you paid for these loans. If you are married and filing separately, you can avail of it. However you do not have to itemized it in order to take advantage of the deduction because this is subtracted from your adjusted gross income directly.

As for Education Expenses, in the chance that you go back to school for a master’s or a doctorate, or simply to take an additional course to enhance your teaching skills, you will learn that this too may be deducted. Lifetime learning credit or an American opportunity credit of up to $4,000 can be deducted for expenses incurred on tuition, books etc. If married, you must file a joint tax return to be able to take advantage of the deduction.


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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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Tax exemption and rules

For you to be able to avail for a tax exempt status, non stock, and non profit organizations are required to be able to secure confirmatory rulings or things such as certificates of tax exemption which should come from the Bureau of Internal Revenue or more known as the BIR. The tax exemption privileges which are of these organizations are not really absolute if that is what you are thinking, and this is because it does not cover all types of income and activities as well. Now for tax exempt corporations which are usually found or listed under Section 30 of the 1997 National Internal Revenue Code, as amended, are the exempt from income tax, this is apart from those whose income was earned from activities and were conducted for profit. However, the tax exemption which is granted under the law is also not exactly automatic and absolute, which is what people usually mistake.

Now to add, the RMO is the one that provides the following causes of revocation of the tax exemption certificate or ruling. Some of these are if there are material changes in the character, in the purpose, or in the method of operation of the corporation or of the association which are more or usually inconsistent with the basis for income tax exemption and which are confirmed in the tax exemption ruling. Next would be the on renewal and non revalidation of the tax exemption certificate. And lastly if the corporation which has been issued a tax exemption ruling fails to file something known as an annual information return. There are also several different approaches which are supposed to be used in granting exemption to organizations. Different approaches may be used within a jurisdiction or especially within sub-jurisdictions. Some jurisdictions usually grant an overall exemption from taxation to organizations which usually are meeting certain definitions. The United Kingdom, as an example, would provide an exemption from rates or property taxes, and income taxes for entities governed by the Charities Law. Lastly, the overall exemption may be somewhat limited by something known as the limited scope for taxation by the jurisdiction. Some jurisdictions may levy or rely only a single type of tax exemption from only a particular tax.


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Volunteer work are tax deductible

image A lot of the nonprofit organization and charities nowadays travel around the world to spread help to the poor most especially to the areas where calamities struck. From Haiti, to Indonesia, to Africa , Philippines, Japan and other countries that needs help, but most often than not, these organizations are short-handed and they are lacking of people who would actually carry out help to these people in need. Most of us really wants to volunteer and it would be great to participate especially if your are going to help and travel to different international countries, but these kind of volunteer work require huge amount of money for you to actually join, since charities will not pay for your expenses when you join their volunteer work abroad. Do not fret, you can opt to join the volunteer services and pay for your own travel expenses, because most of the expenses you will pay for yourself are tax deductible. There are a couple of reminders you need to remember when filing tax deductions due to volunteer work’s travel expenses. : 1st to consider is if the tax deductibles from this travel expense are bigger than the standard deductible for your tax, if it doesn’t have greater amount, it will no longer be deductible because IRS only deduct Standard OR Itemized deductions on your tax bill. 2nd Volunteer expenses are deductible such as food, clothing required (example: uniforms, shoes), your hotel room or transportation are all tax deductible as long as there are no combined personal pleasure at the time of the trip of your volunteer work. All of your expenses will be covered if you don’t incorporate vacation at the same travel period of the volunteer. Enjoying your trip while helping the charity doesn’t mean it won’t be eligible for tax deductions, it just basically means not to plan a personal vacation on the same duration of your service for the charity. 3rd your time volunteering will not be paid by the charity and therefore it is not tax deductible. Remember these four things to know when your expenses are Tax Deductible: If your expenses aren’t reimbursed or paid back by the charity. The expenses will not incur if not for the volunteer work. If its not an expense for personal use. And most especially if the expense is connected directly to volunteer work you’ve attended abroad. 4th Like all other charitable contributions may it be monetary or non-monetary as such, you must provide your services only to nonprofit organizations that was deemed qualified by the IRS, who also has tax exempt status from them. image Images from wisegeek and wjb-cpa.typepad.

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.

Tithes and Church Donations for Tax Deductions

image Like any other charities, most churches are non-profit institutions where you can donate money or non-cash items to get tax deductions from. And like any other charitable contributions there set rules and regulations you need to follow in filing your tax breaks from a church tithing or donations. Donating to your church serves as a good way of supporting your beliefs and lessening your tax bill while doing so. You can just simply call your church and ask if they are listed as qualified organizations where they can be eligible for the tax deduction. Same as the other charitable contributions if you make a cash donation to your church, those donations are tax deductible where you will receive a tax credit equivalent to the donation amount you made. Non-monetary gifts are also considered as tax deductible item; as long as you get the fair market value of the items you donate and keep a good record for your tax submission. Identical to other non-monetary goods donation to other charities, it is best to keep a good record of the lists of your non-cash donations since IRS requires this list when tax season arrives. You church also needs to provide you with the list of items they have received from you to support the list that you have. For cash contributions to your church, you can always ask annual receipt from your church to use in filing for your taxes. But it is best to get your receipt every time you give your donations for you to keep for tax filing purposes. For tithe payers who usually pay 10% of their income to the church, these are also tax break eligible, but the value or nature of the tithe given to the church doesn’t determine whether this is the amount you can deduct. If you didn’t get or receive personal benefit in giving tithes you may deduct the amount of the tithe you have given to your taxes. But if you do receive benefit or entertainment from the church then you have to reduce the amount of the benefit or service given to you from the amount of the tithe you provided. Just like other charitable contributions to other nonprofit institutions, you must now fill out the Schedule A form and attach it to your completed Form 1040 and other tax forms needed when tax season came. It is very important to be accurate and punctual whenever you submit these documents to avoid tax penalties. image Images from marketwatch and tax.answers.