Posted on April 30, 2013May 31, 2016 by Jan Roberg

How To Claim a Youth Opportunities Program Tax Credit for Missouri

Kids In The Middle® (KITM) is a 501 (c) 3 nonprofit organization that helps children, parents and families thrive during and after divorce through counseling, education and support.

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I was recently at a gala fundraising event for an organization called Kids in the Middle. Kids in the Middle is a not for profit group that helps children cope with the issue of their parents divorcing. It’s an awesome organization and here’s a link if you want to learn more about them: http://www.kidsinthemiddle.org/

One of the cool things about Kids In the Middle is that a donation to their organization can qualify you for a Missouri Youth Opportunity Tax Credit (YOP). If you live in Missouri, donating to a Missouri Tax Credit Organization is a really sweet deal.

Let me tell you about how it works. Let’s say you want to donate $1000 to Kids in the Middle. (The minimum donation for the tax credit is $100.) When you donate money to an organization that qualifies for a YOP tax credit, you get a credit of 50% of what you donated against your Missouri taxes. So if you donate $1000 to Kids in the Middle, you get $500 taken off of your Missouri income tax return next April. That’s a pretty good bang for the buck right there isn’t it?

But, it’s even better than that. If you itemize your deductions, your donation also counts as a charitable contribution as well. So if you’re in the 25% tax bracket, then you’re saving another $250 on your federal taxes, plus another $60 off of your Missouri taxes on top of the $500 you’ve already saved. So if you’re in the 25% tax bracket, your $1,000 donation really only cost you $160! If you’re in a higher tax bracket, your donation will cost you even less! How cool is that?

Full disclosure, (I’m a tax geek can‘t help it) because you’re going to pay lower state taxes for doing this in 2013, you’re going to have a lower state tax deduction on your 2014 federal tax return. That means your federal taxes will be $125 higher in 2014. You’re still coming out way ahead, but I just needed to point that part out.

When I was at the gala, people were donating left and right–mostly because the charity is such a good organization, but I think the YOP tax credit really sweetens the pot. And afterwards, people were asking how do you claim the tax credit anyway? That’s something I can help you with.

Claiming the Missouri tax credit isn’t difficult at all! The important thing is that you’re going to need the form that you’re mailed authorizing the tax credit. You’ve got to have that form so once it’s mailed to you, don’t lose it. You need the code on there and you need to mail it in with your tax return. With Kids in the Middle, it’s going to be a two step process.

First, after you make your donation, you’ll receive a notification letter and an application for the tax credit. You’ll have to fill out that form and mail it back to Kids in the Middle. Then you’ll receive your Certification letter from the Missouri Department of Economic Development. That’s the form you’ll need for your tax return. Don’t lose that. Your regular receipt from Kids in the Middle won’t work on your tax return. You must have the Certification letter for the tax credit.

When tax time rolls around, you’re going to fill out form MO-TC. Here’s a link to see what it looks like: http://dor.mo.gov/forms/MO-TC_2011.pdf As you can see, there’s not much to it. The amount of the tax credit will get carried over to line 37 of your Missouri 1040 tax return.

You will have to mail your Missouri return instead of e-filing because you’ll have to attach the certification letter along with the tax credit form to your tax return. But that’s about all there is to it; get a form, complete the MO-TC document, claim the deduction, attach the paperwork to your tax return, and mail. It’s that easy to do a really good thing.

Posted on April 23, 2013May 31, 2016 by Jan Roberg

Is Your 401(k) Helping or Hurting You?

Jan's Frying Pan

I usually tell people that they should be putting money into their IRAs or 401(k)s to save for retirement. And while for many people I still think that’s a good idea, after this past tax season, I’m having second thoughts. Here’s why:

If you are not retired you should not be receiving income from your IRA or 401(k).

Now I understand life happens and sometimes people need to tap into those funds. But if you need to tap into your retirement funds for something other than retirement, then it means that you don’t have enough funds in your regular savings.

Here’s what happens—people tap into their 401(k) when they wind up in financial trouble. It doesn’t really matter how they got there, maybe its medical bills, maybe it was a tornado. The point is they needed money and the retirement fund was all that was available.

They get hit with taxes on the money they withdraw and they also get dinged with a penalty for early withdrawal of the funds. So they wind up being double taxed when they’re already in financial dire straits. Often, the withdrawal bumps them into an even higher tax bracket, making the hit even worse. If they would have had that money is a savings account that they could access—then there would have been no tax implications for getting at that money.

Okay I can hear you now, “Look, Sherlock, I already tapped out my savings account before I went to the IRA. I’m not stupid, I was desperate.” And yes, I do hear you. Where I’m coming from is that as a country, we all don’t put enough money into savings. We all, as a nation, are better at putting money into our IRAs and 401(k)s. We get tax incentives to do it. Sometimes our employers sign us up without our even realizing it. And it makes the IRS happy because they wind up getting more money out of us by giving us a tax break.

What’s that? Yes, the IRS makes more money off of us by giving us a tax break on our 401(k)s because we break into them so often. The sales pitch is put money into your 401(k) and you don’t pay tax on that money. Then, when you take it out, you’re supposed to be in a lower tax bracket so you “win”. The reality that I’m seeing these days is—people are putting their money into their 401(k)s while in the 25% tax bracket and taking it out while still in the 25% tax bracket and paying an additional 10% penalty on the money. The only winner I see here is the IRS!

So what’s the solution? Put money into a savings account. A real savings account—not a “this money is for our Disney vacation account“ — I mean this money is for “Dorothy and Toto blew away with the house and Auntie Em is in the hospital” account.

Savings accounts aren’t sexy. You don’t get any tax incentives to have one. Heck, you don’t even get a toaster anymore! (I still use a frying pan that my mom got for opening a bank account back in the late 40’s or early 50’s. It’s a great frying pan.)

But if it makes you feel better, think of your savings account as your way of cheating the IRS out of a little unearned bonus money. That might be all the incentive you need.

Posted on April 2, 2013May 31, 2016 by Jan Roberg

The Tonight Show Tax Credit

Photo by bernie.levine (new year, new beginning) on Flickr.com

I usually write about Missouri tax credits, that’s my state, but today I get to talk about New York. I love New York, it’s a wonderful place, but this new tax credit proposal has me shaking my head.

Have you heard about it? New York’s new state budget has a tax credit for (and I’m going to quote directly from the New York Daily News) “A talk or variety program that filmed at least five seasons outside the state prior to its first relocated season in New York.” There are more requirements here; the show has to be filmed in front of a studio audience of at least 200 people and has to have an annual production budget of at least $30 million.

Can you say, “Tonight Show?” Honestly, can you think of any other show that even meets that criteria?

This new tax credit will pay for 30% of the production costs of the show. Do the math here—the show has to have an annual production budget of at least $30 million, and the state will pay 30 percent of the budget—that’s a lot of money.

In fairness, New York has had tax credits for the film and television industry for years. The New York State film production credit program has helped hundreds of projects get made in New York and that film production has generated millions of dollars of revenue to New York. The cost of the tax credit to New York is around $420 million in lost tax revenue annually. One of the key provisions of the old bill was that the film or television projects had to originate in New York.

But this new credit—well it sounds a bit targeted. Really targeted. NBC has already started building Jimmy Fallon a new studio over at 30 Rock—supposedly for his Late Night show—NBC has not announced that it will actually move the Tonight Show from California.

Call me crazy, but if New York wanted to pay me $9 million to move my business over there, I’d be packing my bags in a heartbeat.

I recognize that states are vying to pull businesses from other states to boost their economies during this economic downtime. State legislatures all over the country are playing games with tax credits. I don’t really think it’s good for the country as a whole, but I can’t stop it either.

But a Tonight Show Tax Credit? Is this really in the best interests of the people of New York State? I’m not seeing it. Maybe it’s because I’m still from Missouri, and you’ll have to “show me.”

Here are two great links to check out:

http://www.nydailynews.com/entertainment/tv-movies/exclusive-tentative-state-budget-jimmy-fallon-tax-credit-article-1.1295513

http://theweek.com/article/index/241792/should-new-york-use-tax-credits-to-woo-jimmy-fallon-and-the-tonight-show