Tuesday, January 26, 2010

Certain Donations for Relief in Haiti to be Deductible for 2009

The Haiti Assistance Income Tax Incentive Act was enacted on Friday, January 22, 2010. It allows US taxpayers who give to charities providing earthquake relief in Haiti to claim these donations on their 2009 tax returns. Qualified contributions must be made after January 11, 2010 and before March 1, 2010. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

Only cash contributions are eligible, as opposed to contributions of property. Taxpayers must keep proof of payment as typically required for charitable contributions, however, an exception was made for amounts donated via text message in that the cellular bill showing the name of the charitable organization, date, and amount will satisfy the requirements.

Taxpayers must itemize deductions in order to benefit. Qualifying contributions must be made to a US-based organization that is assisting with relief efforts. IRS Publication 78, Cumulative List of Organizations, can be used to help identify qualified organizations.

Sunday, January 10, 2010

H&R Block and TurboTax Have It Wrong

Driving to the office early on a Sunday January morning, you hear lots of radio commercials for H&R Block and Turbo Tax with a very common theme: We get you the maximum refund possible!

They've got it all wrong.

I can get you the maximum refund possible too. Have 100% of your paycheck withheld so that everything goes to taxes will get you the maximum refund possible. If you want to go beyond the maximum, then you can make quarterly estimated tax payments too. Come tax time you'll get all of the excess you paid in back. Which means you made an interest free loan to the government, by the way.

The idea is to pay the least amount of tax legally possible. It is actually better to pay on April 15 the largest amount possible while avoiding any penalties. That way you hold onto your money longer, and earn some interest off of it too.

You also do that through planning major transactions, ideally with the assistance of a qualified professional. The money you pay the professional will be far less than the tax savings you will realize.

Now don't get me wrong. H&R Block and Turbo Tax provide a valuable service to the American taxpayer. But they are not providing a good service when they misinform people on the real goal.