Charity and Taxes

The tax code in the United States contains many provisions to promote certain behavior. One area of behavior is the promotion of giving to qualified charities.

Giving To Charities – Tax Deductions and Such

In the rush to get tax returns prepared and filed, many people absentmindedly forget to include deductions for contributions to charities. If you itemize deductions on your tax return, this can be an expensive omission.

Pursuant to relevant provisions of the tax code, you can take significant deductions if you donate money or goods to a qualified charity. A qualified charity is one that is registered with the IRS as a 501c3 entity. The 501 designation refers to the relevant section of the tax code.

Importantly, not all charitable organizations are qualified with the IRS. You can go to the IRS web site and search through a list to see if a particular group is included. If they are not, red flags should go be raised.

Before claiming your deduction for donations, there are a couple of things to keep in mind:

1. Politics – You may feel strongly about certain political ideologies, issues or candidates. You can contribute to the causes, but you can’t deduct the contributions as charitable giving.

2. You can only deduct contributions actually made for the year in question. If you forgot to claim donations on your tax return for the 2004 year, you cannot claim them on a 2005 return. Instead, you should go back and amend the 2004 return.

3. If you make a contribution for a good or service, you can only deduct the amount you contribute which is in excess of the fair market value of the good or service. For instance, many charitable groups will hold auctions to raise money. If your winning bid for a two night hotel stay is $800, you can claim a deduction for the bid amount minus the normal cost. You cannot just write off $800.

4. In general, donations of stock or property should assigned the fair market value, not an arbitrary figure based on your opinion. Big ticket items should be supported with an appraisal.

5. The rules for donating automobiles have changed. The charitable group should have sent you correspondence regarding the amount it was able to sell the vehicle for. This is the amount you can deduct, not the blue book amount previously allowed. If the charity has not sent you anything, call them to get written confirmation. They know it has to be done under new IRS regulations.

Donating to charities is positive moral step. Make sure to claim your deductions to reap savings on your taxes.

Preparing Your Taxes Online

When it comes to preparing our taxes, many of us could use some help. The following websites offer guidance and information that may assist you in learning about how to get the most out of filing your returns.

Recommended by, sia tax site dedicated to helping investors file their taxes correctly, offering a Tax Help Center and guidance when dealing with Roth IRAs, capital gains, and financing for college.

Although not affiliated with, this site suggests online tax programs you can use for filing your return; info about extensions, deductions, and refunds; and Hot Topics, such as Tax Scams.

MSN Money

MSN Money's Tax Estimator helps you prepare to file this year's taxes with information about tax law changes. A tax terms glossary helps you decide what forms you need to file, and tax attorney Jeff Schnepper answers questions you post in the Tax Corner message board.

A directory of tax and accounting websites, provides links for state tax agencies, legal information, organizations, and government sites for each state.

United States Tax Court

The U.S. Tax Court lets you dispute tax-related offenses. This site describes the process the court uses, presents FAQs about what's involved when a case goes to tax court, and gives contact information for court offices and judges.

Yahoo! Taxes

The giant search engine's Taxes page includes Tax Tips, a Tax Guide For Investors, Tax Education, and resources that can help users find an accountant or talk with others on the Yahoo! message board.

The Fair Tax | Why Is It Important to Me?

The U.S. Federal Income Tax Code is a tax on the income of American companies and citizens enacted by the government. The U.S. Constitution gives Congress the power to impose taxes, duties, imposts, and excises.

The purpose of the Tax Code is to provide income for the operation of the government. The Tax Code is found in Title 26 of the U.S. Code of Federal Regulations (CFR).

Any U.S. citizen who has filled out a federal tax return knows how confusing the current U.S. Tax Code is. Additional layers of complexity appear if the taxpayer itemizes deductions, deducts home business expenses, or has a profit or loss due to investments.

When the convolutions of corporate tax law are considered, it is no wonder that companies hire teams of accountants to prepare their income tax returns.

What Is The Fair Tax?

The Fair Tax is a proposed income tax system intended by its founders to replace the current Tax Code. The Fair Tax Bill was proposed by Representative John Linder (R-GA) in July 1999 to the 106th Congress.

One definition of the Fair Tax is "a proposed change in United States tax laws to replace all federal personal income taxes, payroll taxes, corporate taxes, capital gains taxes, self-employment taxes, gift taxes and inheritance taxes with a national retail sales tax and monthly tax rebate to all households."

At the time of this writing, the Fair Tax proposes to apply a tax of about 23% on purchases. This purchase tax would replace the current income tax paid by Americans. Generally, those who spend or purchase more would pay more taxes. Conversely, those who spend less would pay less or even nothing.

Differences Between The Tax Codes

The current Tax Code is based on the income of a person or corporation. The proposed Fair Tax would be based on the purchases of a person or corporation. The expectation of the proposed Fair Tax is that those who are more wealthy generally purchase more, and will therefore would likely pay higher taxes than they do now.

Another major difference is the complexity of the two Tax Codes. As the Fair Tax Bill sponsor Representative Linder states on his website:

"I would also encourage everyone to review the Fair Tax, as it is only 132 pages, which stands in stark contrast to the more than 50,000 pages of tax code laws and regulations currently in effect."

Furthermore, the proposed Fair Tax Code would be administered by the States. Most states already enact a state income tax, and therefore have the infrastructure in place to collect the Fair Tax revenues. This would also mean greatly reducing, or even eliminating, the Internal Revenue Service (IRS)!

Monthly Tax Rebate Checks

Under the Fair Tax plan, each household would receive a monthly tax rebate check, paid in advance. The amount of the check would be estimated as the amount of Fair Tax owed on poverty level spending. The goal of the monthly rebate check is to prevent anyone from being taxed on household necessities, especially those under the poverty level.

Will The Fair Tax Provide Enough Government Income?

The feasibility of the proposed Fair Tax is the topic of endless discussion. On one hand, the entire taxation process would be greatly simplified. Wealthy persons and corporations would pay a greater share of taxes.

On the other hand, a Tax Code change of this magnitude will require massive reeducation of the public. People are resistant to change, and would no doubt cry foul at being denied many of their usual tax deductions.

Finally, the only way to accurately assess the effectiveness of the proposed Fair Tax Code is to see it in action over a period of years. That does not look likely in the very near future, although the Fair Tax proposal is gaining support.

Tax Your Brain

Whether you are for it or against it, you must agree that the proposed Fair Tax would represent a dramatic shift in U.S. taxation policy if enacted. Proponents and opponents of the Fair Tax Bill will no doubt continue to generate tax estimates that are supportive of their arguments.

It is up to you as an American taxpayer to become educated on the Fair Tax Bill. Determine whether the proposed changes and tax payment methods would benefit you and the country more than the current system.

Once you've made a decision about the proposed Fair Tax, contact your Senators and Representatives and tell them how you feel about it. Regardless of the tax system in place, you are still paying their salary.

The website below provides free information about income tax preparation tips and tax assistance articles and resources.


About the Author:
Doug Smith provides free income tax tips and other income tax preparation assistance at . Visit today - it's never too late to find another deduction!

Tax Software Reviews

The medium is the message, it's sometimes said. Think of Franklin D Roosevelt and his “fireside chats” to the nation. In a pre-TV era, the radio was the perfect medium to “have a conversation with the American people”. He could get his reassuring message right into folks' homes, and become a part of the family. A different medium, for example a grandstanding speech, wouldn't have got the message across as effectively as an intimate radio chat. The medium most surely was the message.

But let's come back to the 21st.century and something close to all our hearts: tax preparation, or, to be exact, tax preparation software. Unfortunately, this particular medium seems to be giving out mixed messages, although software programmers and vendors would reassure us that we can complete tax programs quickly and accurately, click “print” and produce a tax return destined to meet the IRS's requirements.

Seems clear enough, so why the mixed messages? One of the main criticisms leveled at tax preparation software is its “one-size-fits-all” approach. Its critics, businessmen in the main, ask how it's possible to condense an extraordinary number of codes and regulations into a half-hour interview process. Irrespective of the claims made by software programmers, critics point out that only the most general set of credits and deductions can be incorporated into tax software, which means that you'll be the loser. It's these sins of omission, or the questions they don't ask, which work to your detriment and the advantage of the IRS.

Imagine this scene for a moment. A medium is holding a séance. She's trying to put you in touch with the other side who also want to get in touch with you. She'll ask leading questions and, reading between the lines, make statements general enough to apply to anyone, but those present will interpret them as applying to themselves as unique individuals. A “plant” in the audience will bolster her authenticity further and convince you that the entire process will bring you good news from the other side.

How a charlatan operates in a séance is exactly how critics see the operation of tax preparation software. These programs are designed for all businesses but with the same basic tax deduction questions being asked, albeit modified slightly, in every case. You might think you're being treated as a unique individual as you're asked to state the nature of your business before beginning the interview process. This isn't the case, however, even though software vendors try and plant in your mind that, by purchasing their top-notch programs, you will be able to check all credits and deductions.

Believe that, say the critics, and you'll get what you think is good news in terms of credits and deductions. But, as with the self-fulfilling prophecy of the charlatan medium, you're only getting what you're looking for. You need to think “out of the box”, and hire the services of a professional who really can read between the lines to ensure you don't overpay your taxes. So, the critics' verdict on tax preparation software as a medium? - “I'll be getting in touch... with my accountant”.

For some folks, then, all tax preparation software is bad. If you think they're good then you're thinking yourself out of thousands of dollars. An active investor, running his own business and having a substantial portfolio of stocks, might disagree. There are very good programs available, either web- or PC-based, which can handle multiple entries very effectively. Only in exceptional circumstances, that is in unique tax situations, would it be necessary to get a tax accountant to do the job for you. For investors, the software or medium is essentially good, it's more a question of “means well but not quite all there”.

If you're filing straightforward tax returns, and perhaps you're in receipt of dividends from mutual funds and W-2s from your job, tax preparation software is readily available to calculate your returns quickly and accurately. Your returns are calculated, and you're informed of any possible problems. Good tax software will enable you to e-file a federal and state return for less than $16. You can happily tick the boxes as a unique individual who's not in a unique tax situation.

Things can turn very ugly, though, when the tax preparation software you're using doesn't provide easy-to-follow, in-depth help for the new or relatively inexperienced tax filer. The help needs to be as jargon-free as possible, and a good program will provide the necessary tools and capabilities enabling you to complete the return accurately. This means the program should have helpful drop-down menus and icons, together with a quick and easily-accessible online service. The best-documented programs should offer a combination of helpful customer service and useful financial tax tips and advice.

Unfortunately, using some of the free tax preparation software available, suitable mainly for folks filing simpler tax returns with adjusted gross income of $34,000 or less, can be a self-defeating exercise. While some are fast and easy to use, with both interview-style and forms-based input, others are not. When you buy tax software the vendor often provides technical support to the purchaser, but this key element is missing in the free software. Users of free software tend to be less computer-literate and are, therefore, more likely to find things turning ugly. Their verdict on this indifferent medium? - “means well but has lost the plot”.

So, good, bad and ugly: the messages are mixed for tax preparation software. Take out the ugly, and most would agree that this method of filing your tax return is fast, accurate and practically error-free. For some die-hards, though, this software will never be the medium of choice for communicating with the IRS.