Posts Tagged ‘tax deductions’

How To Mess Up Your Holiday Giving

Monday, December 20th, 2010

It’s holiday giving time! People who – oops – forgot to donate to charity all throughout 2010 are now scrambling to give away enough money to score some sweet tax breaks before the end of the year. But according to some lady at the Wall Street Journal, there are a lot of stupid things you can do when you engage in last-minute philanthropy.

gift-house-by-howard-dickins.jpg
credit: howard dickens

Let us count the things you should not do, according to Ms. Shelly Banjo:

1. Give impulsively. Newsflash: Charities are falling over themselves trying to get your attention. Good for them, but don’t be a philanthropic sucker. Think about what’s really most important to you, decide how much you want to donate, and engage in some thoughtful charity.

2. Donate stock you’ve held for less than a year. Did you know you can donate stock to some organizations? Did you also know that you can only get a tax deduction for doing it if you’ve owned the stock for more than a year? Now you know.

3. Donate stock that’s lost a lot of value. You can actually claim the money you lost on that stock as a tax deduction, which might lower the taxes you have to pay on the investments that did make you money. If you hold onto the stock and donate cash instead, you get double the deductions!

4. Think you can claim the cost of a fundraiser ticket as a charitable donation. Okay, actually you can do this. But you can only claim the cost above what the ticket is actually worth. (So if you bought $1,000 Knicks tickets to benefit a charity, but the tickets are actually worth $200, you only get to claim the $800 as a donation.)

5. Donate stuff (instead of money) to an organization that won’t use it. This is something only your accountant understands. Basically, the amount you can write off on stuff donations depends on the mission of the organization you’re donating it to.

6. Donate something called a “gift annuity” when interest rates are really low (i.e. right now). Gift annuities are basically donations to charities that earn you a little money on the side. The charity keeps the money you’ve given them, but they pay you interest every year on the amount you donated. So low interest rates mean your payments will also be low.

7. Obsessively stick to charity ratings. Rating sites like CharityNavigator.org and GuideStar.org are helpful when it comes to sorting through the jillions of charities out there. But they can basically only give you numbers. (And numbers liiiiie!) It’s up to you to get the full picture before you shell out for a particular organization.

8. Give to a charity that rents or sells your personal information. (duh)

9. Donate to the wrong donor-advised fund. Donor-advised funds are a complicated way of pooling your money with other investors so that you all save big on taxes while your money or investments go to organizations you all believe in. You don’t have much control over where the money goes after you put it in the fund, so make sure you’re a believer before you join a specific donor-advised fund.

10. Don’t get insurance if you’re on the board of an organization. Congratulations! You’re on the board of an organization. Now you’re partially responsible if that organization does something stupid. Directors and officers insurance exist for a reason.

Now that you’re paying attention, here’s a picture of two Christmas cats hugging to get you in the philanthropic mood:

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credit: tuija2005

Aww.

How much can you legally deduct on your taxes for charitable contributions?

Monday, October 5th, 2009

While tax laws are pretty complicated, there are still some general limits on charitable tax deductions. These limits only apply if you are donating a significant amount – more than 20% of your adjusted gross income (AGI). If you are not donating more than this amount in a year, then deduct away!

Once you reach the 20% threshold though, you should know the different limits on tax deductions that come into play. You can’t deduct more than 50% of your adjusted gross income (AGI) for cash donations, 30% for property, and 20% for assets. If you go over your limit for one year, you can roll the deductions out overthe next five years – and hopefully you’ll be able to deduct it all.

A Personal Exemption is…

Monday, August 3rd, 2009

A personal exemption is a tax deduction that is designed to represent the amount of money you’d need to survive at subsistence level – you subtract this amount from your taxable income. You can claim personal exemptions for yourself, your dependents, and (in certain situations) your spouse.

A Tax Shelter is…

Monday, August 3rd, 2009

A tax shelter is any financial arrangement that minimizes the amount of income taxes you have to pay. For example, if you arrange your company’s expenses so that you qualify for certain tax deductions, you’ve just created a tax shelter.

A Tax Credit is…

Monday, August 3rd, 2009

A tax credit is a dollar value you can subtract from your income taxes. For example, if you owe $20,000 in income taxes and you’re entitled to a $2,000 tax credit, you only have to pay $18,000.

Two for the price of one?

Monday, August 3rd, 2009

Once you’re married, you and your spouse probably live under the same roof and share most of the expenses, so it makes sense that you should be able to share taxes, too, right? The government does allow married couples this option: you and your spouse can choose to file joint or separate tax returns. If you file a joint tax return, the government basically taxes the two of you as one person, lumping your incomes and tax deductions together; if you file separately, you’re taxed in much the same way you both were when you were single.

Why does the government give you the option to file separately? Although filing a joint tax return usually means you and your spouse pay less in taxes, this isn’t always the case. The problem is tax deductions due to theft, casualty losses, or medical expenses: in order to earn a tax break for these and similar catastrophes, you usually have to have lost or been charged for a certain percent of your income (usually 10% for casualty losses and around 7.5% for medical expenses). If you file jointly, your income is higher, so it’s harder to reach the benchmark that would let you qualify for those deductions. It’s a matter of considering both options and figuring out which one saves you more money.

A Standard Deduction is…

Wednesday, July 29th, 2009

A standard deduction is a predetermined reduction in the amount of income taxes you have to pay. The value of your standard deduction is determined by your filing status, your age, whether or not you are blind, and whether anyone can claim you as a dependent.

Why does the United States give more aid to developing countries than anyone else?

Tuesday, July 7th, 2009

In absolute numbers, the U.S. gives by far the most money in Official Development Assistance (ODA) – in 2008 it was nearly twice that of the next biggest donor, Germany. Compared to how much money we have, however, the U.S. actually gives the least of any developed country. Does this mean Americans are the least generous people of all the nations of the industrialized world? Hardly. ODA is just foreign aid give by governments under the watch of the OECD (Organization for Economic Co-operation and Development). It doesn’t take into account private contributions from individuals, foundations, and other institutions.

American people, foundations, and institutions send more money and aid abroad than private citizens and organizations in any other developed country in the world by far. Why? It might be easier to understand by examining why people in other countries give less. In Europe – where most of our fellow developed countries are located – there are tons of big social programs based on the philosophy that the government should take care of the poor and other issues that Americans generally think should be taken care of by private individuals, religious organizations, and stuff like that. In order to pay for these big social programs, these countries have equally big taxes. Even more so, the U.S. gives tax breaks to people who give to charity – almost paying you to give money away.

Living under the assumption that the government should pay for all social ills, and having less money to give away because of higher taxes isn’t a recipe for huge private donations.

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.

A 501(c)(4) is…

Tuesday, April 7th, 2009

A 501(c)(4) is a nonprofit organization that is exempt from paying federal income taxes but still has an unlimited ability to lobby and participate in political campaigns and elections. Donations to 501(c)(4)s are not tax-deductible.