Friday, August 26, 2011

Charitable Contribution Tips

Charitable contribution tips

Charitable giving has many benefits, including the possibility of being able to take a deduction on your tax return. Here are some things to keep in mind.

1. The first thing to keep in mind is you can only take a charitable deduction if you use Schedule A for itemized deductions instead of using the standard deduction.

2. You can only take a deduction if the organization is a qualifying charitable organization. You can ask an organization if they’re qualified or visit http://www.irs.gov/app/pub-78/. Most churches, the Red Cross, most Food Pantries, Goodwill, etc, are qualified charitable organizations. You can never deduct payments to an individual as a charitable contribution.

3. Generally, you can deduct your cash contributions or the fair market value of most property. If you donate used clothing or household items, you will need to use the thrift shop value. Valuation guides can be found on the Salvation Army and Goodwill websites to assist you.
4. If you receive something in return for your giving, such as merchandise, goods, or services, you can only deduct the amount given that exceeds the fair market value of the benefit you received.

5. Keep a record of any contribution you make, regardless of the amount. The record can be a cancelled check, bank or credit card statement, payroll deduction record, or a written statement from the charity.

6. You can only deduct contributions actually paid during the year. For example, if you pledge $1,000 in July but only end up paying $300 of it by December 31, you can only deduct $300. You don’t have to pay your credit card bill before you can take the deduction, making the charge by the end of the year is enough. Likewise checks do not have to be debited from your account by the end of the year, as long as you write it and send if off by December 31, you can count it. In years past the IRS has made special rules for contributions for disaster relief for situations that occurred before tax returns are due. These exceptions can be to your advantage.

7. If you make a contribution of $250 or more you need a written acknowledgment from the organization. The acknowledgment must include the amount of cash donated and whether any goods or services were provided. If you donate property, the acknowledgment needs to include a good faith estimate of its value. If your donated property is valued at more than $5,000, you need to obtain an appraisal.

8. Approximately 275,000 organizations lost their tax-exempt status because they didn’t file their annual reports for three consecutive years. If you donated to any organizations on the list prior to their losing their tax-exempt status, you can still claim a charitable deduction. Once the organization is on the list, and until they are reinstated, any contributions to the organization are not allowed a charitable contribution for income tax purposes. For a list of organizations who lost their tax-exempt status, visit www.IRS.gov.

For more info on this topic please contact Bethany Pursifull at bethany.pursifull@bellandcompany.net or give her a call at 501.753.9700.

Wednesday, August 17, 2011

Back to School Time!

By: Bethany Pursifull

As college students are heading back to school, it’s a good time to be reminded about what tax benefits are available. There are four tax benefits available for costs of higher education:

1. American Opportunity Credit (formerly the Hope Credit): This is only available for the next two years, 2011 and 2012. You can only claim it for the first four years of post secondary education, so no credit is available for those in graduate school. The credit, which directly reduces the amount of taxes you owe, is the sum of 100% of the first $2,000 and 25% of the next $2,000, for a maximum amount of $2,500. It’s also a partly refundable credit, meaning you can get up to $1,000, or 40% of your total credit, back even if you do not owe any taxes. Another caveat – your modified adjusted gross income (that number on the bottom of page 1 of your tax return) needs to be below $80,000 for single taxpayers and $180,000 for married couples filing jointly. Eligible expenses include tuition, fees, course related books, supplies, and equipment.
2. Lifetime Learning Credit: There is no limit on the number of years you can claim this credit, so even if you or your dependent is in graduate school or taking continuing education classes, you may still be eligible. The amount of the credit is 20% of tuition expenses on the first $10,000. The credit is only available for expenses spent on tuition and fees, and does not include course related materials. The Lifetime Learning Credit is non refundable, so you can only get the credit if you owe taxes. The adjusted gross income limit for this credit is $60,000 for single taxpayers and $120,000 if married filing jointly. Scholarships and Pell Grants must be deducted from the tuition expense before calculating the Lifetime Learning Credit and the American Opportunity Credit.
3. Tuition and fees deduction: This deduction reduces your adjusted gross income, or the amount of income your tax is calculated on. The maximum deductible amount is $4,000 of tuition and fees. Your adjusted gross income must be below $80,000 if filing single and $160,000 for married couples filing a joint return.
4. Student loan interest deduction: Interest paid on student loans can be deducted on page 1 of your return, reducing your adjusted gross income. The maximum amount of interest you can deduct is $2,500. The deduction is available for taxpayers with adjusted gross incomes below $75,000 for single filers and $150,000 if filing a joint return.

For each student, you can only claim one of the credits. If you take one of the credits, you cannot claim the tuition and fees deduction. But if you pay college expenses for more than one student, you can choose different credits or deductions for different students. If you’re married filing separately, you cannot take the American Opportunity Credit, the Lifetime Learning Credit, or a tuition and fees deduction. You can, however, still get a student loan interest deduction.

If you would like more information on this subject you can contact Bethany at bethany.pursifull@bellandcompany.net.