Every year at tax time, I have clients who want me to help them compute their tithe so they can plan their charitable giving for the upcoming year.  You would think that computing your tithe would be fairly easy – it’s just 10% of your income.  But sometimes, computing your income for tithe purposes isn’t as easy as it seems.

Before I begin, let me do the quick and easy calculations first.  For some people, your tithe is based on your take home pay.  If your paycheck says \$200 – then boom, take \$200 times 10% and you get \$20 for your tithe.  It’s a pretty easy tithe calculation.

For some people, they want to compute their tithe on their before tax dollars.  It’s a little trickier.  You’ll actually need to see your pay stub and look at your gross income before taxes and other deductions.  So maybe the gross pay is actually \$250 on the paycheck – so the tithe would be \$25.  (\$250 times .10)  The key here is that you have to find your gross pay on the stub first.

But if you’re retired or have investment income, then computing your tithe can be a little more difficult.  Those are the people who usually ask me to figure it out for them. This is what I’ve come up with while working with some of my clients who base their tithe on their entire income.

First, we start with the tax return.  I’ve put a sample return below so that you can follow along.

Here’s a sample federal tax return that we’ll use to determine total income for computing someone’s tithe.

Start with line 22 – that shows the total income.  In this example, we’re looking at \$29,223.  But \$29,233 isn’t really all of this person’s income.

Look at line 8b – you see that she has \$1300 of non-taxable interest income.  So if we want to compute how much she really makes, we need to add that back in.

Now look at line 20a –  the full amount of her social security income is \$23,580.  If you look at line 20b, you’ll see that only \$6,252 of it was taxed.  So the difference also needs to get added back into the income.  \$23,580 minus \$6,252 is \$17,328.

So, in this example, you’re going to take the total income from line 22, plus the non-taxable interest from line 8a, plus the difference between the taxable and total social security income on line 20 to figure your total income for computing your tithe.  It looks like this:

line 22   +    line 8a +    (line 20a – line 20b)   = actual total income

\$29,233   +   \$1,300 +           \$17,328            =      \$47,861

So if you take the \$47,861 times 10 percent, you get a tithe of \$4,786.  That’s a whole lot more than if you just used your total income figure from line 22.

FAQS

What about lines 15 and 16 – the IRA and pension distributions?  That depends.  If you have a portion of your pension distribution that isn’t taxable – (like you have with social security)  you would add the difference in the same way you added the difference in with your social security.  But if you merely did a non-taxable rollover, then you shouldn’t include that as income for the purposes of your tithe because you’re just moving your retirement funds around.

What about line 9b, qualified dividends?  What should we do with them?  Nothing.  Qualified dividends are included in the number on line 9a so you’ve already counted them.  You don’t need to add them again.

What you choose to donate and how you choose to donate is between you and God.  This is just a guideline based upon some of my client’s preferences on how they determine their tithing.  You may wish to consult with your own church leaders for guidance.  There is no IRS rule about tithing amounts, although your tithe may be a deduction on your federal income tax.

Charitable Giving 2012

Here is the link to our free donation tracker!
http://robergtaxsolutions.com/2013/01/roberg-tax-solutions-free-donation-tracker/

Photo by Sarcasmette on Flickr.com

Good afternoon everyone.  Being my first official blog post, I would like to start off by formally introducing myself—my name is Michael Siebert and I am a recent graduate of the University of Missouri – St. Louis.  I have a bachelor’s degree in Business Administration with an emphasis in personal finance.  My affinity for taxes began when I was a volunteer for the Volunteer Income Tax Assistance Program also known as VITA back in 2010.  One day in November 2011, in search for a tax preparation job, I typed in “St. Louis Tax Preparation” in the Yahoo search bar.  I saw Roberg Tax Solutions as the first link and decided to click and explore.  I clicked the “Contact Us” tab at the top and thought, “Well, I guess I’ll give this a try, but no one answers these things anyway so probably nothing will happen.”  In less than a day, I received a heartfelt reply email from Janice Roberg.  I then thought out loud, “This person really cares about people and their well being.  If she responded quickly to me, she must respond punctually to everyone else.”  And believe me, she does.

We set up a day for lunch, conversed, and from that moment on, I was determined to work for her.  So in the beginning of 2012, I worked for Roberg Tax Solutions part time while working another full time job—to get my feet wet in the compensated tax prep world.  It is now 2013, I am a full time employee, and I could not be happier.  Jan’s dedication to her business, her ability to empathize with clients, and determination to grow are just few of the many facets that make work enjoyable.  I am truly happy to come into work every day.

Alright, enough sucking up.  Let’s get to our topic of charitable giving.  Above is a link to a donation tracker that I made which is free for you to use, disburse amongst your friends and family, or even frame and display in your office if you’re into that sort of thing.  Kidding aside, I am pretty good with Excel but definitely not a guru.  If you see any problems or improvements feel free to leave a comment.  It includes a fair market guide for used items which can save you some research time.  It also includes important little tidbits of information, useful links, and the record keeping requirements for charitable contributions.

Charitable contributions go on your Schedule A if you itemize deductions in place of your standard deduction.  The 2012 standard deductions are:

• Singles: \$5,950
• Married Filing Jointly or Qualifying Widow(er): \$11,900
• HOH: \$8,700

The 2012 additional standard deductions for people age 65 or older, legally blind, per person, per event are:

• MFJ, QW, MFS: \$1,150
• Single or HOH: \$1,450

Use the IRS online search tool, Exempt Organization Select Check: www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.  Or call the IRS at 1-877-829-5500.

Cash Contributions

Contributions made by cash or check go on line 16 of your schedule A.  Boring.  Out-of pocket expenses incurred in performing volunteer work for a charitable organization (including the charitable mileage deduction) are also considered contributions.  If you are reimbursed by the organization, you cannot deduct them on your schedule A.  No double dipping—unless you’re with your friends and the dip is good.  The charitable standard mileage rate is 14 cents.

Contributions that Benefit you—Mr. or Mrs. Taxpayer

If you receive a benefit for a charitable contribution, your deduction is reduced by the value of the benefit received.  As much as I would love to provide examples of this, I have to keep you awake a little while longer to finish reading.

Contributions of Property and One of My Favorite Tax Forms, Form 8283

Yes, I like tax forms.  Jan thinks I am an extreme nerd because of this and she’s probably right.

Contributions of property are reported on line 17, Schedule A.  (Mike, nobody cares about where it goes because the software will take care of it!)  The deduction is generally equal to the fair market value of the contributed property.

An important and common planning tip:  If the fair market value of stock is less than what you paid for it, you could sell the stock, recognize the capital loss, and then donate the cash to the charity rather than give the stock directly to the charity.  This reduces your tax liability more so than if you were to donate the stock directly.

Form 8283 Noncash Charitable Contributions is required when the total value of your noncash contributions exceeds \$500. The four methods of evaluating fair market value are the appraisal, thrift shop value, catalog, or comparable sales method.  Most people use the thrift store value for common household goods.  You have to have the Donee tax identification number, the donee street address, the property description, the physical condition, the date acquired, date contributed, your cost, and the item’s fair market value.  They should give you a receipt verifying your donated property that acts as proof for your donation.  Isn’t this stuff fun?

Charitable Contributions Deduction Limitation

The total deduction for all charitable contributions is limited to 50% of the taxpayer’s AGI.  Charitable contributions in excess are carried forward for up to 5 years.  There are also 30% and 20% AGI limitation rules that I will not delve into here.

You must obtain written acknowledgement from the donee organization, which includes details on the use or disposition of the vehicle by the donee organization.  A copy of the written acknowledgement must be attached to the tax return.  Check out http://www.irs.gov/pub/irs-pdf/p4303.pdf for more information.

To those of you who made it this far, thank you for reading.  I look forward to writing more blog posts in the future as my skills and knowledge increase.  But remember, the intrinsic value of the donation will always exceed the dollar amount of tax saved. You should feel good about helping needy families!

Here is the link to the donation tracker again.
http://robergtaxsolutions.com/2013/01/roberg-tax-solutions-free-donation-tracker/

Qualified Charitable Distribution: Last Minute Tax Tips for Seniors

If you are over 70 and 1/2, you may be able to take advantage of a Qualified Charitable Distribution.

UPDATED FOR 2016

The Qualified Charitable Distribution (also known as a Charitable IRA Rollover) is now a permanent part of the tax code!

What is a Qualified Charitable Distribution (or QCD)?  If you’re 70 and 1/2 or   older, you’re required to make required minimum distributions (RMD) from your Individual Retirement Account (IRA.)  Even if you don’t need the money, you have to take it out of your retirement account and you have to pay tax on it.  If you don’t, the penalties are even worse than any tax you’d have to pay. Additionally, many seniors don’t get the benefit of claiming their charitable donations on their income tax returns because they don’t have enough other things to deduct like mortgage interest.

The Qualified Charitable Distribution helps with this problem by allowing you to take money out of your IRA and make a direct contribution to a charity.  The distribution counts towards your RMD and it’s tax free to you because it went to the charity.  That’s a win/win situation!

Another advantage to the QCD is that the income from the distribution never shows up as income on the face of your tax return.  This is really helpful for people who may be able to claim other deductions or benefits based on having a lover Adjusted Gross Income (or AGI.)  For example:  if you had enough medical expenses to be deductible, a lower AGI would allow you to claim a bigger deduction.

Can you make a contribution of more than your RMD?  Yes you can.  You can actually make a charitable distribution of up to \$100,000 from your IRA with no federal income tax impact.  \$100,000 – that wasn’t a typo.  If you’re in a financial position to make a donation like this, that would be \$100,000 to a charity of your choice with no limitations as to its deductibility because it’s part of an IRA charitable rollover.

Can you make a QCD if you’re less than 70 and 1/2 years old?  No, I’m afraid not.  You must be at least 70 and 1/2 at the time you make the distribution.

If you’re interested in making a Qualified Charitable Distribution, talk it over with your financial advisor and your charity.  You’ll want to make sure that it’s done correctly and you’ll want to keep good records in case there’s ever any question about your RMDs.

Can I still take a charitable deduction on my tax return for my QCD?   No, the QCD will be exempt from tax so you can’t claim it as an additional deduction.

Last Minute Tax Tip: Donating Stock to Charity

December is always the big  push time for charitable donations.  If you’ve ever thought about donating your stock holdings instead of plain cash, here are some things you should know.

First, if you have stock that has appreciated in value, you want to give the charity the stock and let them sell it for cash, instead of you selling it and giving them cash.  The reason is because you get to claim the charitable deduction for the fair market value of the stock you gave away, but you don’t have to pay any capital gains tax on the increase.  You have a win/win/win situation.  (No capital gains, plus charitable deduction, plus the charity gets stock they can sell for cash=win/win/win.)

Second, if you have stock that has gone down in value, you want to sell it first and then give the cash to the charity.  This is exactly the revese of the above.  By selling stock that’s gone down in value, you get to claim a capital loss which can offset you capital gains or up to \$3,000 of your ordinary income.  Once again you have a win/win/win situation.  (Claim loss against income, get charitable deduction, plus charity gets cash.)

Although December 30 and 31 are the highest giving days for charity donations, you need to do this a little earlier in the month so that your brokerage has time to do all the transactions.  Make sure you have some wiggle room for your stock transactions to actually close and get it all done before Christmas.  Earlier if possible.

Bottom line:  stock goes up — give it directly to charity, stock goes down — sell first then give money to charity.  It’s that easy.

Last Minute Tax Tips: Missouri Food Pantry Credit

UPDATED FOR 2013

Did you know that if you donate money to a local food pantry in Missouri, you may be eligible for a Food  Tax Credit worth 50% of what you donate?  Let’s say for example that you gave \$500 to your local food pantry.  You would get a receipt (or have the food pantry sign a special form) and then you’d use that to take \$250 off of your Missouri state tax liability.  But that’s not all!  It’s a charitable donation so if you file a Schedule A to itemize your deductions, you’d reduce your federal taxable income by \$500.  So if you’re in the 25% tax bracket, that would be another \$125 you’d get back on your taxes.  That’s like paying \$125 to have \$500 worth of value.

But it’s even better than that.  I read on one of the food pantry websites that for every \$1 of cash donated to the pantry, \$20 worth of food is generated for the hungry.  It’s a gift that just multiplies.

You can’t claim a credit for over \$2,500 (that would be a \$5,000 donation.)  The credit is non-refndable, that means you can’t get a credit for more than the amount of your tax liability. Remember, since you’re getting a tax credit for the donation, you don’t get to claim the donation as a deduction on your Missouri return-it’s an adjustment you’ll have to make on the return.

The state of Missouri has only allocated \$2,000,000 for the tax credit.  What happens is that all the credits are held until April 15th before they are allocated.  If there are over \$2,000,000 of credits applied for, they will be allocated among the applicants.  In that situation, the credits that you weren’t able to use can be carried forward to next year.

This is one of the those few tax credits that normal, everyday kind of folks can use.  There’s no dollar minimums but I recommend donating at least \$100 to make it payoff.  Most tax companies charge an extra fee for preparing Missouri Tax Credits.  It doesn’t make sense to claim a credit for less than the amount of the charge to prepare the form.