Archive for the ‘Question of the Day’ Category

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What does it mean when they say your donation is tax deductible?

Tuesday, June 9th, 2009

Philanthropy can do more than just aid a worthy cause; in certain situations, generosity can reward the giver as well. Giving to charity can actually reduce the taxes you have to pay, but there are special conditions that have to be met first.

When you donate to charity, you’re spending money, right? So no matter how much money you make, you now have less of it to use. But even though donating to charity means you’re using your own money in a way you choose, you’re not using it to buy new things for yourself, you’re using it to benefit a worthy cause. As long as you donate the money to a qualified recipient – a person or organization the government trusts to use that money effectively – you have the right to be rewarded for using your own wealth to help others. So your donation becomes tax deductible, which means you have a lower adjusted net income.

To put it simply, when you donate to charity, you’re really getting two benefits at once: you’re helping your chosen organization and you’re also reducing your own income taxes.

Why do customer service calls connect you to India?

Friday, June 5th, 2009

Chances are if you’ve called a large company to ask them to help you with your phone, computer, or pretty much anything, you have talked to someone in India. Not just anyone, but a trained professional who can help you through your problem.

Companies from all over the world outsource their call centers to India and other countries because a strong portion of the educated class there speaks English and the workers do not require as much in wages as call center operators in America. The economic theory behind the difference in wages is called comparative advantage, which is when one provider can produce something more efficiently than another provider. In this example, Indian call centers have a comparative advantage because they can pay their workers less than American call centers can.

So what’s the easy answer? Companies contract with Indian call centers simply because it’s cheaper. And if they can lower their operational expenses without lowering their income, it adds up to more profit for company shareholders.

What is the difference between a debit card, a credit card, and a charge card?

Thursday, April 9th, 2009

All three cards allow you to make purchases without handling any cash, but each has its benefits and drawbacks.

A debit card is linked to your bank account and when you use it to buy something, the money is immediately taken out of that account. This is a good option if you want to make sure you’re only spending money you have, as the card will generally be declined if you don’t have enough money in your bank account to cover the purchase. But using a debit card won’t help you build your credit history.

A credit card is like a short-term loan. It is not linked to any bank accounts. Instead, the a credit card company covers the cost of your purchase today (up to a certain amount per month) with the understanding that you will pay them back later. You don’t have to pay it all back right away, but you do have to make a minimum payment every month. If you don’t pay in full, your remaining balance plus interest (called APR) will appear on next month’s bill. Using a credit card responsibly can be a great way to build a good credit history, but consistently missing payments or carrying a balance from month to month will do the opposite.

A charge card isn’t a loan and it isn’t linked to a bank account. This type of card covers the cost of your purchases today with the understanding that you will pay back what you owe at the end of every month. Unlike credit cards, charge cards do not have a pre-set spending limit.  If you do not pay off the full balance at the end of the month you will be hit with high fees or possibly a spending cap. Charge cards are good for people who want unlimited spending and can afford to pay off their balance each month. However, unlike credit cards, charge cards cannot help you build a good credit history.

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Why would an organization choose to be a 501c4?

Tuesday, April 7th, 2009

A nonprofit organization might choose to file as 501c4 if it wishes to engage in political lobbying or if it does not qualify for 501c3 status because of political activities. Unlike 501c3s, contributions to 501c4s are not tax-deductible, making them less attractive to donors who wish to save money on their taxes.

For example, MoveOn.org – a progressive online advocacy group initially registered as a 501c3 – wanted to lobby Congress freely and run ads for and against certain political candidates, so they registered a separate 501c4 organization and eventually phased out the 501c3 arm of the organization.

What is the difference between a microloan and a regular loan?

Monday, March 23rd, 2009

Normally, banks make loans to customers who need a large sum of money immediately to purchase a house or a car or to start a business. These customers are attractive to the banks because they promise to repay their loans with a significant amount of interest.

A microloan is a very small loan for individuals or entrepreneurs – often those living in poverty – who aren’t as attractive to traditional large financial institutions. Banks decide whether they want to lend money based on how likely they are to make a profit by doing so. Things they consider to make their decision are the size of the loan, interest rate charged, and the borrower’s credit quality (or the risk involved in lending to a specific person).

Microloans are available in the U.S., but they’re even more popular in developing nations with a high poverty rate. The average size of a microloan secured through the U.S. Small Business Administration is $13,000. The size of an average microloan worldwide is $1,026. To make up for the higher risk involved in lending to people who may not be able to pay back their loan, microloans often have a much higher interest rate than traditional loans. Interest rates on commercial loans in the U.S. are typically around 7-8%, but they can be more than 20% on micro-loans!

Still, microloans are important to the development of a struggling economy. They are sometimes the only opportunity a poor entrepreneur has to raise enough money to start up a potentially successful business.

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