Deducting Your Donations

Donate Accessories Poster by net_efekt

This week we would like to go over a deduction category that is often under used as well as confusing for people.  We’d like to cover donations.  Did you know that you can deduct donations or gifts to qualified organizations that are religious, charitable, educational, scientific, or literary in purpose?  It’s true. You can also deduct donations that work to prevent cruelty to children or animals.

When making donations, it is important to make sure that the organization you are donating to is a qualified organization.  Every year we get clients who ask if giving their neighbor their old baby clothes is a donation or if sending money to their niece who is struggling financially is deductible.  Unless you donate through a qualified organization it is not tax deductible.  If you are not sure, you can ask the organization and they should be able to provide you with proof of their charitable status.  The IRS also provides a list of organizations on their website.  If you stick with a church or the more well known organizations you can be sure it is valid donation.  Here are some examples of qualified exempt organizations:

  1. Churches, synagogues, mosques, temples, etc.
  2. Boy Scouts, Boys and Girls Clubs of America, Goodwill, Red Cross, Salvation Army, United Way, Etc.
  3. Fraternal orders if the gifts are used for the charitable purposes we already mentioned.
  4. Veterans and certain cultural groups
  5. Nonprofit schools, hospitals, and organizations whose purpose is to find a cure for or help people who have debilitating defects or diseases
  6. Federal, state, and local governments if the donation is solely for public purposes

Also, it is important to note that there are three ways you can make a donation that is tax deductible.

  1. Cash
  2. Property
  3. Out of pocket expenses you paid to do volunteer work

For more information about how to deduct your donations check out our CD/MP3 “Itemized Deductions & Gabling Winnings.”  We cover the donations deduction in greater detail as we well as many other deductions you probably qualify for.

Also, check out our other resources at www.avoidbeingaudited.com!

Advertisements

Making the Most of Social Security

We often have people ask us about Social Security and how it works.  Though we have never been big promoters of paying into Social Security and don’t believe it is a good retirement plan, if you are close enough to the age to start receiving benefits, we feel you should be informed.  So here are some answers to commonly asked questions.

Photo by Dom Turner

Does it make a difference when I start taking Social Security?  Yes, what age you start taking Social Security can greatly influence how much you receive.  Most people start their benefits between the ages of 62 and 70.  Depending on how much and when you have paid into Social Security over the years determines the primary amount you will receive.  When you decide to take it can make your benefit vary anywhere from 75% to 132% of that primary amount.  A wrong decision could cost you tens of thousands of dollars in missed benefits.  It is a good idea to talk to someone who understands Social Security and  can give you your options.

Can I benefit from my spouses Social Security?  Yes you can!  Many people miss out on this extra benefit.  In addition to your own Social Security benefit, you can also have access to up to 50% of your spouse’s benefit.  It goes both ways –a wife has access to her husband’s and a husband has access to his wife’s.   With some proper planning, smart strategizing and when taken at the right time and for the right amount, a couple can potentially increase the overall benefit by using one or both spousal benefits.

If I’m divorced, how can I maximize my Social Security?  It is a little know fact that a divorced spouse has access to up to half of his or her ex-spouse’s Social Security benefit while he or she is alive and all of it when he or she dies.  There are certain rules and requirements that must be met to qualify.  But, while it may not be popular with the ex, it may be a wise and prudent thing to do. Keep in mind that increasing your Social Security benefits by having been married to someone at one time does not affect the ex-spouses benefits, so there is really no reason not to pursue it.

If I feel I’ve taken my Social Security too early, do I have any recourse?  Yes, there may be a way to redo and increase the amount of Social Security income you receive if you feel you have made a mistake.   As a matter of fact, it is also penalty and interest free if you qualify.

Is it true that I pay taxes on my Social Security benefits?  It is possible that you may have to pay taxes on all or a part of your Social Security.  It seems ridiculous to pay taxes on money that you paid taxes on when you paid into it, but it can happen.  The amount of your other income determines if you have to pay on any of your benefits.  When tax planning, it is important to ask your tax preparer if you will have to pay on any of your Social Security because there are strategies that you can implement that can help you avoid paying the extra tax.

Social Security is complicated and confusing.  If you have questions about your situation or want to start strategizing now to maximize your benefits, contact us and we will help get you answers.

What is an IRS Audit?

Photo provided by Bark via Flickr.com

This week we’d like to take a close look at IRS audits.  IRS audits are probably one of the most feared events for Americans.  There are two major reasons.  First people don’t know what an audit is.  And second, people are afraid of the IRS as an authoritative figure.  It is hard to debunk the IRS as an authoritative figure.  They just are, but there is something you can do to lower the fear.  That is by knowing what an IRS audit actually is.

An IRS audit, simply put, is when the IRS selects a tax return to review in order to make sure everything is done correctly.  This can happen for two reasons.  One, the IRS chose you randomly.  Two, your tax return had something out of the ordinary, which is called a red flag.

So what happens when you get audited?  First things first, the IRS will contact you letting you know that you are being audited.  This will always happen via letter.  The IRS never calls, emails, or faxes.  The letter will tell you what year you are being audited for, what information they will be asking for and they will give you a number to call.  Beyond this initial letter, three different types of audits can happen.  1) Correspondence Audit: In this type of audit, you will communicate with the IRS via standard mail.  You will send in your information and they’ll review it.  2) Office Audit: In this type of audit you will be asked to go to the IRS building to meet with an auditor and go over the tax return in question.  3) Field Audit:  In this type of audit, the auditor will come to your home or business if you own one.

Regardless of which type of audit you go through, you can expect the IRS to go through every detail of your tax return.  This can often feel very invasive because there is a lot of personal information on a tax return.  You should also expect to be prepared to defend all of your deductions.

During the audit the IRS agent will sit down with you and go over your tax return with you, although sometimes they may do a spot check with specific deductions.  It really depends on the auditor and the reasons for the audit.  You will then receive the results for the audit.  Depending on how the audit goes you will either be given a bill for the taxes you owe from deductions that were denied, be given a refund if the auditor found deductions you should have taken (a very rare occurrence), or you’ll find out your return was correct and neither owe nor receive anything.

There is a lot that you can do to prevent and/or prepare for an audit.  Visit Avoidbeingaudited.com to learn more about audit protection and help.  We have a CD/MP3 designed to tell you all about audits as well as many other resources.

8 Medical Expenses You Should NOT Deduct on Your Taxes

A few weeks ago we discussed “7 Medical Expenses You Should be Deducting on Your Taxes.”  We hope this gave you some zeal towards adding up those medical expenses to save on your taxes.  The Medical Expense is a great deduction, but there are a lot of rules and a lot of things you might think you can deduct but you can’t.  We actually see a lot of people trying to claim medical related expenses on their taxes that are not actually deductible.  This is bad news because this creates red flags that will cause the IRS to audit you.

In this post we are going to show you a majority of the medical related expenses that you cannot deduct on your tax return.  Here are 8 medical related expenses you shouldn’t try to deduct on your taxes.

Photo by Steve Snodgrass via Flickr.com

  1. The cost of diet food.
  2. Cosmetic surgery that is not to correct a deformity caused by a birth defect, accident, or illness.  In other words, if you get in an accident and need surgery to fix your face, it is deductible.  If you want a face-lift to make you look younger, it is not deductable.
  3. Life insurance or income protection policies.
  4. Medicare taxes that are withheld from your paycheck or that you pay as part of self-employment taxes.
  5. Imported drugs that are not approved by the FDA or foreign versions of US drugs.
  6. Nonprescription medications including nicotine gum and over the counter patches.
  7. Travel your doctor told you to take for a rest or relaxation.
  8. Funeral, burial, or cremation costs.

These are only a few of the things you should not be deducting on your medical expenses.  Check out our CD “Itemized Deductions and Gambling Winnings” to learn more about the medical expense deduction as well as other deductions you might qualify for.  Also, check out our other resources designed to help you save taxes and avoid being audited.