If you’re a parent and you use a babysitter or daycare provider to care for your child while you are at work, that’s a deductible expense. In general, both parents must work, or one must be disabled or in college in order to qualify. But did you know that hiring a babysitter to care for your child while you are performing charity work counts as a charitable donation? I didn’t until recently. In fact, if you read the IRS regulations, it’s pretty clear that it’s not allowed.
But, according to Kiplinger.com—the IRS lost a case in Tax Court trying to uphold that rule. The difference is, in this instance, you claim the child care expenses as a charitable donation instead of as a child care expense.
Now, in order to make such a claim, I would recommend that you keep excellent records of the time spent volunteering, the type of work performed, and the charity you worked for. Of course, if you spend two hours a week volunteering, but your child is in daycare for 30 hours a week, you can only deduct for the two hours of time you volunteered.
I realize that I’m plugging the Missouri Tax credits quite a bit, but when you’re choosing a charity, they really give you the best bang for your buck. You don’t just get a federal income tax deduction, you also get a 50% tax credit to offset your Missouri state income tax liability. The other thing that I really like about the Missouri Tax Credits is that the money you donate to these charities is staying right here in Missouri, helping our friends and neighbors. It’s a win/win/win situation.
Today I’m going to talk about the Center for Head Injury Services. The Center serves over 800 people each year who have head injuries or other cognitive disabilities. Their programs include employment assessment, job placement and day services. Their newest program is the Midwest Adult Autism Project (MAAP) which serves young adults with severe autism.
The Missouri tax credit available falls under the category of Neighborhood Assistance Program (NAP) tax credits. It’s available to businesses or individuals who have business, rental or farm income. That means, if you want to claim this credit, you need to be filing a schedule C (sole proprietor), a schedule F (farm income), or a schedule E (rental real estate) forms with your tax return. Or your business (partnership or corporation) makes the donation directly. So there’s a little bit of a limitation as to who can claim this credit. (If you don’t have this kind of income, check out one of the other tax credit programs in this blog. There’s bound to be a program for you.)
Charities that qualify for Missouri Tax Credits have already been pre-screened by the state and meet pretty strict requirements about how they spend your money. The idea behind these grants is that a well run non-profit organization can provide these valuable services better than the state can.
So why is the Center for Head Injury Services so important? Many reasons. Did you realize that over 2 million people suffer from brain injuries every year? And what most people don’t realize is that brain injuries can cause permanent limitations and chronic health conditions that require long term support. Brain injuries aren’t like a disease that can be cured. The Center for Head Injury Services is a comprehensive resource to all types of head injury victims and their families.
They provide adult day care and therapy for persons with severe injuries and vocational and employment services to persons with less severe injuries. They also provide counseling to families having trouble adjusting to disability issues. They serve people with all types of head injuries whether its from a car accident, a stroke or an aneurysm. Bottom line: they do good work.
Even if you’re unable to qualify for a Missouri Tax credit, a donation to the Center for Head Injury would be money well spent.
One final thing, the Center for Head Injury Services has an equipment loan program. If you have equipment that you are no longer using, they could use crutches, walkers, canes, wheel chairs, bath & shower chairs and benches, commodes, and other types of rehabilitative equipment. Donating these items doesn’t qualify for the Missouri Tax Credit, but it would certainly be a good use of these items. You also might be able to qualify for a deduction on your federal return for “non-cash” contributions.
To learn more about the Center for Head Injury Services, click here: http://www.headinjuryctr-stl.org/index.html
And to find out more about the Midwest Adult Autism Project, click here: http://www.maap-stl.org/
Here’s another charity that you might want to take a look at, it’s called Almost Home. Almost home serves teen mothers and their children with up to two years of housing, counseling, education and other support services. Since they opened back in 1993, Almost Home has served over 1,500 mothers and their children.
Almost Home currently has Missouri tax credits available to individuals and corporations for donations of between $100 and $100,000. Many of the tax credit programs don’t even start until you make a donation of $1,000 or more, so this is a good program for persons with a smaller charitable donation budget. As usual with Missouri tax credit programs, the credits are good for a 50% credit against your Missouri state income tax liability. This tax credit is in addition to the usual deductions that you get to claim for charitable contributions on your federal and state income tax return.
For a donation to Almost Home to count towards the Missouri Tax Credit, the donation must be in cash, stocks, bonds, securities or real property. If you can’t make that type of contribution but would still like to help Almost Home, they have a wonderful wish list on their web site. Donations of clothing, toys or supplies won’t qualify for the Missouri tax credits, but would be most graciously and gratefully accepted by the organization.
Almost home qualifies for Missouri Tax Credits under the Missouri Maternity Home Tax Credit program which is admistered by the Department of Social Services.
For more information about Almost Home and the tax credit program, please click on the link to their website: http://www.almosthomestl.org/donate/tax-credits
For information on the Missouri Maternity Tax Credit program, click on the Missouri website: http://www.dss.mo.gov/dfas/taxcredit/maternity.htm
Almost Home was established by the Franciscan Sisters of Mary. Their primary areas of concern are establishing and achieving personal goals related to health care, emotional stability and education; teaching appropriate parenting skills; and empowering members for independent living.
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.
The idea of tax deductions for high income earners must sound preposterous, especially if you’re a high income earner. You know how it goes, you try donating money to charity or taking advantage of any of the other tax deductions only to find that your deduction is “limited due to your income.” So what’s the point?
Well this year, there is a point. Itemized deductions and exemptions aren’t phased out for high income taxpayers for 2010. Last year, if you earned over $166,800 you started to lose out on your deductions. The higher your income, the less valuable your deductions were. Only for 2010 are you allowed all of your itemized deductions. You also get 100% of your exemptions also.
But what about the Alternative Minimum Tax or AMT? Won’t that get us anyway? Well, yeah. AMT is a problem for high income earners. But, and this is important, charitable deductions aren’t eliminated in the AMT calculation. AMT dings you for your state tax payments, miscellaneous deductions (like employee business expenses), and some types of mortgage payments. Your charitable contributions still count as a deduction in the AMT calculation. Even if you’re stuck paying AMT, you’re still better off having that charity deduction on your tax return.
Bottom line: If you are a high income earner, there has never been a better time for you to make a charitable contribution.
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.
For more information about the Food Pantry Tax credit, click here to go to the Missouri Department of Revenue web site: http://dor.mo.gov/taxcredit/fpt.php
The food pantry shelves are low and the need is at an all time high. Make your donation before December 31st because the Food Pantry Tax credit will not be available for 2011.
In my neighborhood it’s back to school week! Here’s some tax tips related to sending the kids back to school.
It seems like if they start school on Monday, then the gift wrap/candy sale starts on Tuesday. If you have a choice, you’re better off writing a check directly to the PTO for whatever donation you’d like to make to the school rather than buying whatever the kids are selling. For one thing, the school will get all of your donation instead of the money going to some fundraiser sales company. For another, your check to the PTO will be 100% tax deductible. (I would argue that 50% of whatever you pay for the gift wrap should be counted as tax deductible as well, but the fund raising companies will argue that their gift wrap really is worth $7 per roll so it’s an iffy deduction.)
If you’re a school volunteer, the money you spend for the classroom counts as a charitable contribution. Same goes for scouts and church groups. Now if the kids pay an activity fee and you’re using the kids’ activity money to buy supplies, then you can’t deduct those receipts. But if you’re spending your own money on projects, then you definitely can use that as a deduction. Scout leaders–your uniform is deductible, your kids uniform isn’t.
Remember that the mileage you put on your car for volunteering is also deductible with your contributions. Charity miles are counted as 14 cents per mile. It doesn’t seem like much, but for some people it really adds up.
One final thing, if you’re on your school’s PTO, or other charitable organization, make sure that your organization has filed it’s not for profit tax forms (990) with the IRS. Most schools groups never had to file before because PTO’s generally have receipts of under $25,000. But a law passed in 2006, made filing mandatory. Thousands of not for profits are in danger of losing their charitable status and could wind up having to pay taxes on all those school fund raising efforts. The IRS has granted relief to these groups until October 15th. You can check if your group is in danger of losing it’s charity status by checking the IRS website: http://www.irs.gov/charities/article/0,,id=225889,00.html
Your scout troop or den is covered by the national organization, and your church has different rules, but school groups really need to check this out. Welcome back and have a great year!