Charitable Deductions

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Image taken on 2009-07-30 00:39:47 by me and the sysop.

How to Continue Charitable Giving during a Recession

Finding ways to continue charitable giving during a recession can be rough. Times are probably tough for you and your family, but they are equally hard for charities. Many of these organizations help people who cannot help themselves or who don’t have enough money to meet their most basic needs. When the economy sours, these charities struggle to find the necessary resources to keep the help coming. There are a few ways, however, that you can continue giving and still have enough left over to take care of yourself.

Reduce amounts, but still give – Perhaps you used to send a large check to your favorite charity, but can no longer spare the money. You don’t have to give a large gift in order to make it worth the effort, however. One very effective way of continuing charitable giving during a recession is to plan small amounts that you can give. If you can pare down your expenses to find the money, or even find ten dollars in a month to give, the charity will be glad to have it. It’s not how much you give, it’s giving what you can, and even that small amount can make a big difference in someone’s life.

Consider in-kind donations – If no amount of money is available in your budget, what about giving away some of the items clogging your basement? Many charities will take donations of any usable household items, which they can sell to raise cash. They’ll pick it up, and not only do you not have to hold a garage sale to get rid the clutter, but many of those items are tax deductible. Be sure that you are only giving away items in good order, however. Sending broken items forces the charity to pay money to take it to the dump, and actually takes money away from they people they are trying to serve.

Time is money, too – Your budget may be under so much stress that you have no spare cash and you’ve already sold your extra items to make money for your own needs. Your time, however, won’t cost you a thing. Even if it’s not money or food you are giving to the food bank, for example, they still need volunteers to sort through the donations and to make packages for those in need. Many other types of nonprofits are also desperately in need of volunteer help, and volunteering is a fabulous way of continuing charitable giving during a recession. You may not have the resources to give material goods these days, but you can still help people in need.

Continuing charitable giving during a recession isn’t always easy. Many people are feeling the pinch, and finding the money to give may not be possible. With a little creative thinking, however, you can still find ways to give. Small amounts of money, unused household goods, or just your time can show your spirit of generosity. Times may be tough, but even the smallest of gifts can make a tremendous difference and contribute greatly to your own wealth satisfaction.

Alternative Minimum Tax Planning Ideas…Standard Deduction

A taxpayer has a choice of itemizing deductions or taking the Standard Deduction in computing his Regular Tax liability.  The Standard Deduction is a fixed dollar amount that varies depends on filing status.  In tax year 2009 it is $5,700 for Single and $11,400 for Married Filing Jointly – what we’ll call the base Standard Deduction.

State sales taxes paid in 2009 on the purchase of a qualifying new automobile can be added to the base Standard Deduction.  Similarly, a limited amount of real estate taxes, and certain casualty losses, also may be added.

For purposes of the Alternative Minimum Tax, however, the base Standard Deduction is not allowed.  But if the taxpayer was eligible to take a Regular Tax deduction for a casualty loss or for the new car sales tax in addition to the Standard Deduction, these items also are allowed for the AMT.  The Form 6251 shows the AMT payer how to do this.  Note also that if the Standard Deduction is chosen for Regular Tax purposes, it must also be used when calculating the AMT – it is a binding tax election.

The choice between itemizing and taking the Standard Deduction seems simple: if the total of a taxpayer’s itemized deductions is less than the Standard Deduction, then the Standard Deduction will result in less being paid.  But this is not always the case when the Alternative Minimum Tax is involved.  For AMT payers, there are certain situations where itemizing for Regular Tax purposes actually could lower the amount of AMT paid.

To illustrate, assume a taxpayer lives in Florida (no state income tax), rents instead of owns a home (no real estate taxes or mortgage interest), and didn’t make any taxable purchases this year (no sales tax deduction).  But suppose this taxpayer also gave $10,000 to charity.  The Standard Deduction for 2009 for joint return filers is $11,400, so this would appear to be the better choice.  However, if the taxpayer were in the Alternative Minimum Tax there would be no benefit at all from the Standard Deduction, but there would be a benefit of up to $2,800 (the 28% Alternative Minimum Tax bracket times the $10,000 charitable contribution deduction) if itemizing is elected instead.  Even the lower 26% tax rate would result in nearly the same benefit.  So, somewhat counterintuitively, in this example opting to pay more Regular Tax will result in a lower overall tax liability.

Donate a Car to a Charitable Organization

Many individuals have unused autos that don’t have enough  value to sell. They may be broken and not worth repairing, or they may go but aren’t being used regularly. If you have an old vehicle that you aren’t using, think about making a vehicle donation to a charity.

If you have a charitable organization that you favor, you can earmark your gidt for that charity. The auto will be retrieved, within 24 to 48 hours of your call and the collection is free. To give a used car, you merely have to make a phone call and plan to be available when the vehicle is picked up, so that you may hand over the keys and title of the vehicle.

A car donation is tax deductible. When your vehicle is picked up you will receive a statement of the value of your donation for use on your taxation form. Frequently the credit you earn for your gift will be greater than what you could have earned by selling the vehicle. So you can receive a nice credit on your taxes in return for your generosity.

If your vehicle isn’t running, you are not likely to get a lot by selling it for salvage, and many salvage companies will recover the cost of collecting the vehicle from the amount you are paid. In the majority of cases, a vehicle donation will be better from a monetary point of view than a salvage sale. You receive a tax deduction and your charity receives a nice gift.

As well as cars, charities accept trucks, vans, SUVs, boats and motorcycles as donations. Charitable organizations depend heavily on vehicle donation to secure funds and sustain their community efforts. Since the process of donating a vehicle is so easy, it has become a very fashionable way to give. These gifts allow charities to sustain their work in communities around the world.

So if you have an auto that is just taking up room, that you don’t want to be bothered selling, consider making a gift of it to your chosen charity. Both you and the charity will benefit as well as some people you probably will never even meet.

Certain Issues On Taxation Of Charitable And Religious Institutions

Devendra Jain

In a vastly populated developing nation, the parallel role of NGOs in public welfare is indispensable. The Income-tax Act, 1961 has recognized the importance of the very concept of â??charityâ?? in the Indian society. The income derived by charitable institutions is exempt under section 10 or section 11. This article discusses certain issues arising out of section 11, which provides exemp­tion to income derived from property held under trust for char­itable or religious purposes. The author opines that the law relating to taxation of charitable institutions ought to be simple looking at the noble cause behind the existence of such institutions. He hopes that with the new Income-tax Code likely to be put in place, we will find a simple and non-controversial taxa­tion system for charitable institutions.

1. In a vastly populated developing nation, the parallel role of NGOs in public welfare is indispensable. Public charity has reached numerous areas which were untouched by the Government due to bureaucracy or otherwise. In fact, the theory of â??danâ?? or â??chari­tyâ?? is found even in our mythology where we find instances of â??Karnaâ?? or â??Raja Harishchandraâ??.

The Income-tax Act, 1961, has recognized the importance of the very concept of charity in indian society and, hence, it finds place in sections 10(23AA), 10(23AAA), 10(23B), 10(23BBA), 10(23C), section 11, section 35, section 35AC, 35CCA, 35CCB, sections 80G, 80GGA, etc. The income derived by charitable institutes is exempt under section 10 or section 11 and the donors get deduction under section 35, 35AC, 35CCA, 35CCB, 80G or 80GGA.

2. Certain issues arising out of section 11 which provides exemption to income derived from property held under trust for charitable or religious purposes are :

(i) Section 11(1)(a) provides exemption to income derived by charitable or religious institutions/trusts (â??the trustâ??) to the extent it is applied for charitable or religious purposes, i.e., for the objects of the trust. Further, 15 per cent of the income can be set apart for future application. In other words, at least 85 per cent of the income is to be applied on the ob­jects of the trust to claim 100 per cent exemption. It is well-settled by various judicial pronouncements that the words â??income derivedâ?? should be interpreted as income in commercial sense and not the â??total incomeâ?? as per the Income-tax Act. Further, the words â??applied to such purposesâ?? are to be interpreted in a wide sense so as to include all outlays on the objects of the institu­tion – be they capital or revenue in nature. Thus, for instance, purchase or construction of a school building by an educational institution is an application of income. [CIT v. Kannika Devas­thanam & Charities [1982] 133 ITR 779 (Mad.); S.RM.M.Ct.M. Tirup­pani Trust v. CIT [1998] 230 ITR 636/96 Taxman 635 (SC)]

(ii)- Barring the dogmatic approach of certain departmental authorities in not considering administration expenses as appli­cation of income but as an expense against earning the income; the law under section 11(1)(a) is well-settled that all spendings or outlays by such institutions are application of income. In fact, judiciary has even upheld that expenses incurred for maintaining the establishments like legal expenses, audit fees, etc., are to be considered as application of income. However, there is another issue which is often less discussed about and that is section 11(1A).

(iii)- As per section 11(1A), where a charitable or religious institute/trust transfers a capital asset, the capital gains shall be deemed to have been applied towards charitable or religious purposes to the following extent :

(a)- Where entire net consideration is utilized for acquir­ing a new asset, the whole of the capital gain;

(b)- Where only a part of the net consideration is utilized in acquiring a new asset, the excess of the cost of the new asset over the cost of the old asset.

An example may clarify the above position.

A capital asset was acquired by a trust during 1985-86 for Rs. 10 lakhs and it is transferred during 2007-08 for Rs. 25 lakhs resulting into a surplus of Rs. 15 lakhs.

Situation 1 : Cost of the new asset is Rs. 25 lakhs or more.

In such a case, the entire surplus of Rs. 15 lakhs shall be deemed to have been applied towards charitable purpose.

Situation 2 : Cost of the new asset is Rs. 22 lakhs.

In such a case, Rs. 12 lakhs (22 lakhs-10 lakhs) shall be deemed to have been applied towards charitable purpose. The balance surplus of Rs. 3,00,000 (15,00,000 – 12,00,000) shall be taxable subject to application under section 11(1)(a) and 11(2).

2.1 Some controversies - The following controversies arise in the above scenerios:â??

(i)- Section 11(1A) uses the words â??capital assetsâ??, â??trans­ferâ?? and â??capital gains arising from the transferâ??. Though the words â??capital assetsâ?? and â??transferâ?? are defined in section 2(14) and 2(47), yet the expression â??capital gainsâ?? is nowhere defined in the Act. A controversy therefore arises as to whether capital gains should be interpreted as profits arising on trans­fer in commercial sense or capital gains calculated under section 48, i.e., after indexation. The Amritsar Tribunal has held that the capital gains need to be calculated as per sections 45 to 55. It implies that the benefit of indexation can be claimed by charita­ble trusts also. [Akhara Ghamanda Dass v. CIT [2000] 68 TTJ (Asr.) 244/[2001] 114 Taxman 27 (Asr.)(Mag.)] Whereas there are a series of judgments favouring the commercial income theory. [CIT v. Rao Bahadur Calwala Cunnas Chetty Charities [1982] 135 ITR 485 (Mad.) & CIT v. Trustees of H.E.H. Nizamâ??s Supplemental Religious Endowment Trust [1981] 127 ITR 378 (A.P.)]

(ii)- Section 11(1A) starts with the expression  â??For the purpose of sub-section (1)â??. It implies that sub-section (1A) is merely an enabling provision quantifying the â??application of incomeâ??. The main provision granting exemption is sub-section (1), which uses the expression â??incomeâ?? and not â??total incomeâ??. It can, thus, be inferred that a trust has to apply 85 per cent of its income (in commercial sense). If that is the case, the benefit of index­ation which is a special mechanism for the purpose of the Income-tax Act may not apply and entire profit on sale of capital asset may be regarded as capital gain. Another remote view could also be possible that the surplus on transfer of capital assets is not at all an income (being a capital receipt) and, hence, outside the purview of 85 per cent application.

Two Things To Remember To Get Tax Deduction For Car Donation

It is not hard to find several charities working for the betterment of people. But, it is also a fact that these organizations can do nothing with your active support. If people like you will not support them to keep helping others, they will not become able to run their organization in a better way.

In order to inspire people to make a donation, different charities use different methods. Some try to raise awareness through promotional items and others try to inspire people by arranging certain charity events. But, if you are not a supporter of any charity organization, you must think about making a donation now. The good thing here is that by making a donation you can actually get some advantages.

Of course, you will get mental satisfaction but if you will donate something like your car, you may qualify for a tax deduction. Car donation is one of the better ways to help charities along with yielding some benefits in terms of tax deduction. Actually, you qualify for a reduction in tax because of charitable contributions. But if you are interested in using your donation specifically to see a deduction in your tax, you need to take few important things into consideration.

First off, you need to find a right charity organization. This will take some time especially if it is your first time to donate car. Although you can find a list of charity organizations just by spending some time over the internet but there will be some chances of making a mistake by not choosing a right organization. Actually, only few of the charities are there that can be considered to get some help pertaining to tax deduction. However, exploring an online resource, Publication 78, can help you to find out more about the charities to use for tax benefits.

The other important thing is to know the exact worth of your car. You can get a deduction on your income tax returns according to the fair market value of the car. It is the price at which a buyer may have no problem in buying and seller may be happy to sell it. Knowledge about these factors is also quite crucial and can affect your objective of getting some discount on your income tax returns.

The fact of the matter is that car donation can help a charity to work in a better way along with helping you to get some tax related benefits. But, do keep in mind that not all charities are supposed to provide you with the tax benefits. In fact, there are only few of those charities where your donation will be tax deductible. Though you can donate a car to educational, religious and charitable organizations but it is better to research before doing so. So, always find a right organization and don’t overlook the importance of knowing the right market price of your car to qualify for a tax deduction without going through a lot of hassle.

10 Tax Deductions for a Small Business

Almost 90% of small business owners overpay the IRS each year – do you want to belong to this category? We guess not! There are a number of tax deductions for a small business to take advantage of, and help save them money. Here are the top 10:

1. Auto expenses: If you use your car for business, or your business owns its own vehicle, you can deduct some of the costs of usage. If your automobile is used for both business and pleasure, only the work related usage of the vehicle entitles the business to a tax deduction. That means you must keep track of how often you use the vehicle for business, and add it all up at the end of the year.

2. Education expenses: Expense incurred on education, related to your current business, trade or occupation is another cost that can count towards tax deductions for a small business. Of course, there are strict guidelines to be followed – the expense must be to maintain or improve skills required in your present career and must be undertaken during the course of your job.

3. Legal and professional fees: Fees paid to lawyers, tax professionals or consultants generally can be deducted in the year in which they are incurred.

4. Business entertaining: If you pick up the tab for entertaining present or prospective customers, you may deduct 50% of the cost, while calculating taxes. This should be directly related to or associated with the business, and the entertainment must take place immediately before or after a business discussion. Remember to write down the purpose of the event on the receipt or bill.

5. Travel: Travel costs also count towards tax deductions for a small business. If you travel on business, you can deduct most of the expenses including the cost of air fare, car rentals, taxis, lodging, meals, shipping of business materials, telephone calls, faxes and tips. But if you take your family along, remember, you can only deduct your own expenses.

6. New equipment: Some small businesses can write off the full cost of assets in the year in which they are bought. You can deduct up to $108,000 for a single piece of equipment or from the cost of various items as long as the equipment is placed in service before the end of the year.

7. Interest on loans: The interest and carrying charges on business loans are fully tax-deductible. Be sure to keep good records showing that the money was really put into your business.

8. Moving expenses: If you move because of your business or job, you may be able to deduct certain moving costs that would otherwise be non-deductible personal living expenses.

9. Charitable contributions: Here’s an expense that serves two good purposes. Charitable contributions are allowed as tax deductions for a small business. When your business makes a donation, claim a deduction on the tax return.

10. Advertising: The cost of advertising your goods or services is also deductible as a current expense.

Finally, keep an eye open for the latest on tax deductions for a small business, since laws do undergo changes. Even more important is to ensure that your financial records are maintained well.