Posts Tagged ‘taxes’

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Lower Charitable Tax Deductions Reduce Incentive To Give

Tuesday, July 6th, 2010

A proposal worries nonprofits as lower charitable tax deductions might keep donors from giving the big bucks.
  • Nonprofits in New York City are anxious that a state budget proposal will be implemented that greatly reduces tax deductions for charitable donations.
  • The proposal is meant to bolster New York’s sluggish economy by allowing the 3,500 New Yorkers who earn more than $10 million a year to deduct only 25% of their charitable contributions – instead of the 50% it is now.
  • If the proposal passes, it could generate up to $100 billion for the state, but it will also greatly decrease the incentive for high-income New Yorkers to donate to charities.

Best Quote

“Any proposal that could possibly decrease private giving is going to be a disaster for all nonprofits in New York City and throughout the state. The state cannot balance the budget on the backs of those in need.” – Michael Stoller, Executive Director, Human Services Council

The Ups and Downs Of A Carbon Tax in Britain

Friday, June 25th, 2010

To tax or not to tax? Will imposing a carbon tax have enough advantages to not disgruntle the British population?

  • A British economic-modeling firm (Cambridge Econometrics) evaluated the effect a carbon tax would have on the country’s economy and environment.
  • The results were mixed. Experts found the tax would boost the overall economy by increasing gas-fired power stations and decreasing expensive wind power operations. However, Britain depends on gas already, and encouraging its use would only speed up the country’s dwindling supply.
  • A carbon tax would also be much simpler than then hodgepodge of environmental laws and tax breaks already in place. The tax would regulate the price of carbon so that if people pollute, they pay for it, encouraging greener technologies.

Facts & Figures

  • With a carbon tax, Britain would raise an extra 11 billion pounds by 2015.
  • Average fuel bills would also grow by 0.5 % by 2020.

You can postpone your taxes?

Tuesday, March 2nd, 2010

In certain situations, you can actually put off paying your taxes until later – sometimes many years later – but methods of doing so are pretty complicated. Income whose taxes you can pay later is called tax-deferred, and the most common type of tax-deferred income is the money you put into a retirement plan.

Most retirement plans (IRAs, 401(k)s, Keogh Plans, and so on) allow you to make elective deferrals up to a certain amount. What does this mean? Under a retirement plan, you set aside a portion of your income every year and put it into a retirement account for use – you guessed it – after you retire. Think of it this way: as far as the IRS is concerned, the money you put into a retirement account essentially doesn’t exist until you withdraw it, which means the IRS isn’t going to tax that money until you withdraw it.

But you still have to pay the taxes eventually, right? Why not just pay them now and get it over with? The answer has to do with tax brackets. By the time you actually start using the money in your retirement account, your income may be lower. And if you’re in a lower income tax bracket when you withdraw the money, you’ll pay less in income taxes on that money than you would if you paid up when you originally earned it all those years ago. So in some cases, putting off payment can actually pay off.

Why does your mocha frapp cost more in New York than in Pittsburgh?

Friday, January 8th, 2010

It just seems to make sense that a drink from a chain like Starbucks should cost the same amount no matter where you are when you order it. The menus are the same and the coffee all comes from the same place — so what’s the difference? To understand, you need to realize that you’re paying for much more than just espresso and the Barista’s snazzy signature green apron. While some operational costs are the same for all stores in a megachain like Starbucks — the coffee itself, for instance — other costs vary depending on the location of the individual store.

The cost to hire the best Baristas, or wages, varies from state to state. Taxes are much higher in some states than others. The cost of renting space in a city like New York is simply much higher than renting space in Pittsburgh. Even the price of milk varies greatly depending on where you are. When you pay a few cents or a dollar more for your drink in New York than you would Pittsburgh, you’re really paying for the heightened costs of running a business there.

New Charities: Helpful Or Excessive?

Monday, January 4th, 2010

The rapid growth of the number of charitable organizations is raising some red flags for some.

  • There is concern that some nonprofits are exploiting the IRS’s broad definition of what constitutes a 501(c)3 organization.
  • The issue isn’t whether the charities are fraudulent as much as whether the applicants are following state and federally-mandated regulations and laws.
  • The IRS stands by its streamlined process that distinguishes between small and large organizations.

Facts & Figures

  • Last year the IRS approved 99% of all applications for public charity status (that’s more than one every 10 to 15 minutes!)
  • In 2008, $300 billion was donated to charities which cost the federal government more than $50 billion in lost tax revenue.
  • The tax code defines public charities as organizations that are “religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international amateur sports competition or prevention of cruelty to animals.”

Best Quote:

“It just seems utterly implausible that anyone can be doing due diligence in any way that constitutes a serious review of the applicant, let alone keeping an eye on them after they are approved. Why bother to have a review at all if you only reject 0.5 percent of the applicants?” – Rob Reich, Associate Professor of Political Science at Stanford

Are scholarships taxable?

Monday, December 21st, 2009

Scholarships and fellowships are considered tax-free as long as two conditions are met:

First, (as obvious as this seems) you have to actually be enrolled at a university. Second, the scholarship or fellowship has to be used to pay for tuition or required books and supplies. Expenses due to room and board, traveling, or optional supplies don’t count (they’re considered incidental expenses, so they go towards calculating your adjusted gross income instead), and you have to report any payments you received for doing any kind of teaching or counseling that was required by your scholarship or fellowship (although there are some organizations that exempt you from this rule).

Students who receive scholarships or fellowships to do work in, say, a hospital setting may find the tax question a bit more fuzzy. If you’re ever unsure, just check with your sponsoring institution.

What happens if you don’t pay your taxes?

Monday, December 21st, 2009

Every taxpaying American citizen is required by law to file a tax return by April 15th of every year. Failing to submit your tax forms on time, or submitting them with incorrect information, is a crime that can earn you jail time if the IRS finds out, but you might wonder just how that happens. What is the process through which the IRS catches you and decides whether or not to press charges?

Businesses have to file tax returns for all their employees, so as long as you aren’t self-employed, tax infractions are relatively easy to spot. Even if you don’t work for anyone else, the IRS tends to audit the very wealthy more often, and since your tax records from years past are kept on file, the IRS can spot the discrepancy if you just stop paying taxes all of a sudden. The IRS also performs some random audits every year for statistical purposes, and every tax return that goes through gets a DIF score – basically, a measure of how suspicious it looks. If your DIF score is high enough, the computer program that evaluated your tax return will audit you automatically.

The good news is that the IRS generally won’t press charges even if they do bust you – they’ll probably just file a tax return on your behalf and then charge you for it. But anyone who files an incorrect tax return – or doesn’t file at all – is potentially at risk for jail time, so it’s worth it to keep careful records.

How do you know if you have to file an income tax return?

Monday, December 21st, 2009

Income tax filing requirements are easy to describe but difficult to state specifically. Basically, you have to file a tax return if your income for the fiscal year is above a certain level. What is that level? That’s the tricky part. The numbers can vary from year to year, so if you’re not sure whether you qualify, you can check the IRS website to find out. But here are some general rules of thumb that determine the relative level you have to reach:

Here are the minimum income requirements for several filing statuses for 2008:

  • Single and under 65: $8,950 (though if someone else can claim you as a dependent on their tax return, this number will be slightly lower)
  • Single and over 65: $10,300
  • Head of household and under 65: $11,500
  • Qualifying widow(er) with dependent child and under 65: $14,400

Hungry for more filing facts? We’re here for you:

  • If you are over 65, your income has to be greater than a younger person’s to qualify for taxation.
  • If your filing status is head of household or qualifying widow(er) with dependent child, your income has to be greater to qualify than if you file as single.
  • If your filing status is married filing separately, you must file a tax return.
  • If someone has claimed you as a dependent on his or her tax return but you still received income for that year, you have to file a tax return if your income is above a certain level (usually relatively lower than for non-dependents).
  • You may also have to file a one-time-only tax return if you don’t normally make these levels but you come into a sudden sum of money (say you’re unemployed and win the lottery, for example).

So while the numbers may change, the basic principles behind them are that the IRS cuts you more of a break if you’re over 65, the head of a household, or widowed with a dependent child.

A Sin Tax is…

Sunday, October 18th, 2009

A “sin” tax is a tax put on items that are considered bad for you or dangerous, like alcohol or tobacco. There is a sin tax on cigarettes because the negative health effects of cigarette smoke impose a burden on society; the idea is that by making them more expensive, people will buy fewer of them. The tax also provides the government with additional revenue to pay for programs to help people stop smoking, among other things.

Income Tax is…

Monday, October 5th, 2009

Income tax is an annual tax collected by federal, state, and sometimes local governments. It is structured so that the more money you earn, the higher the percentage you pay in income taxes. Income tax is the main source of revenue for the U.S. government.

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