5 Things You Didn’t Know About Taxes and Nonprofits

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Tax Facts

Whether you’re a regular employee, a volunteer, or starting your own nonprofit, charitable work can be rewarding well beyond a paycheck. However, there are some misconceptions about the tax deductions available to those who assist nonprofits. Check out these things that you may or may not have known about your local (or national) nonprofit.

Volunteers can deduct expenses while volunteering

Nonprofits often rely on two forms of assistance: charitable contributions and volunteers. If you don’t have money to spare, volunteering is a great way to contribute to a nonprofit. As a volunteer, you can deduct travel expenses, clothing or uniform costs, and other out-of-pocket expenses.

Not all nonprofits are tax exempt

Nonprofits are all tax exempt, right? Actually, some organizations such as public schools and churches are not required to apply for tax-exempt status.

Not all tax-exempt organizations can receive tax-deductible contributions

Isn’t that confusing? Generally 501(c)(3) and private foundations can accept tax-deductible donations. However there are 30 different types of tax exempt status, and not all of them can receive tax-deductible contributions.

Employees and officers pay the same taxes as everyone else

Although volunteers are able to deduct their out-of-pocket expenses, regular employees are subject to the same taxes of employees of for-profit companies and not for profit organizations.

Not all financial donations are deductible

Charitable, financial gifts to 503(c)(3) organizations are often deductible, but it’s worth noting that not all donations can be claimed. Perhaps the most infamous example being lottery tickets: if you attend a fundraiser event for a nonprofit and purchase a lottery ticket or raffle ticket the cost of the ticket is not deductible.

Thinking about starting a Nonprofit? Know Your Orgs

Historically the 501(c)(3) was the standard for entrepreneurs who wanted to operate a business with a greater purpose than financial returns to investors. However there are more options available to entrepreneurs who want to give their work a social or environmental purpose. Here are a variety of other options for consideration.

Nonprofit

Simply put, a nonprofit is an organization from which those who run it cannot earn a profit. This is not to say that a nonprofit cannot earn a profit, however all profits must go back into the organization–there is no profit sharing among controlling members. 501(c)(3) status is often known as the “charitable tax exemption,” which allows exemption from federal corporation and income taxes on most types of revenue. Further, 501(c)(3) organizations are able to solicit tax deductible contributions and their volunteers are able to deduct their out-of-pocket expenses.

Not For Profit

Although you may often encounter this distinction, there’s no technical difference between the “not for profit” and “nonprofit” — the two are often used interchangeably. However the IRS has made one distinction: “not for profit” refers to an activity, in contrast to an organization established for purposes other than generation of profit. In sum, you cannot deduct expenses incurred in the pursuit of a not for profit activity.

B Corp (Social Action Corp)

Benefit Corporations are still a fairly new classification. B corps differ from regular corporations in that their investors and entrepreneurs are not committed solely to maximizing the profits of shareholders. Rather, B corps have a legal framework that requires the corporation to also account for environmental and social factors. B corps are not, as it may seem, a for-profit/nonprofit hybrid: a company still elects to be taxed as a C or S corp. B corp status only affects the requirements of corporate accountability, purpose, and transparency. That being said, it’s worth noting that B corps do not qualify for the tax deductions that are specific to nonprofits.

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The Primary Tax Breaks for Military Families

Serving in the military comes with challenges for both the service member and his or her family. Because of these challenges, military families get certain tax breaks which are not available to others. In this article we will cover some of the tax benefits which are available specifically to military families.MilitaryFlag

More Time to File

If you were serving in a combat zone during the time you were supposed to file your taxes, you have to file within 180-days from the last day you were in the combat zone. Additionally, if you were hospitalized as a result of being in the combat zone, you have to file within 180-days from when you were released from the hospital.

First-Time Homebuyer Credit

Most people are unable to claim the first-time homebuyer credit if they bought their home after 2011. However, under certain circumstances, military families may be able to claim the first-time homebuyer credit if they bought a home during 2011.

Home Sale Tax Break

Civilian homeowners usually need to live in their homes between two to five years in order to claim tax free profits of either $250,000 if filing single or $500,000 if married and filing jointly. Military families only have to live in their homes two of the preceding ten years if they meet certain qualifications. They have to be on qualified extended duty or living in government housing in order to qualify for this tax break.

People who serve in the military make numerous sacrifices. These tax breaks are designed to help balance out the sacrifices these brave men and women make for our country.

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Tips for Deducting Job Searching Expenses

Job searches can turn into expensive ventures. Nevertheless, the IRS gives you the chance to make tax deductions on the cost of searching for a new job. Before you begin deducting travel expenses, here are some tips to make sure you are deducting only what’s valid.JobSearchPic

Current Occupation

Job search expenses can only be deducted if it’s related to your current occupation. It can’t apply to a career change, so you have to be searching for the same job in a different company. Anything else is invalid.

What Can You Deduct?

For a full list, consult a tax advisor or visit the IRS website. Here’s a brief overview, though:

  • Preparing and sending resumes.
  • Travelling to and from interviews.
  • Creating and preparing a website.
  • Printing business cards.

Agency Fees

Employment agency fees are fully tax deductible while searching for a job in your current occupation. However, you must declare whether your new employer refunds these fees or not.

Travel Expenses

Travel expenses can be deducted, but only if the trip is purely to find work. You can deduct lodging, 50% of the meal expenses and entertainment expenses. However, do be careful because the IRS is really clamping down on vacations to Vegas because you were ‘searching for a job.’

Break Time

If you took a substantial leave between jobs, you’re unable to claim any tax breaks on searching for a new job. This is where there’s a significant gray area, so do consult with an expert if you did take a short break between jobs.

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How Tax Benefits are Calculated When Twins are born in Different Years

The beginning of 2016 is here and some families are welcoming twins into the world. Nevertheless, what if they are in that small minority whose children were technically born in two different years? This is what the hospital will put on the birth certificate. So how does that influence your tax benefit calculations?BabyTwins

The Tax Exemption System

You can claim a tax exemption on your new children. Both twins would qualify for tax exemptions, but because they were born in different years, the twin born in 2016 doesn’t qualify for 2015.

Are there any special rules?

The situation is so rare that there are no special rules to take into account. Unfortunately, a family in this scenario has no choice but to go without a separate tax credit for the year 2015. It’s a tough break, but those are the rules.

What Can You Do?

Unfortunately, there’s nothing you can do. In the eyes of Uncle Sam, it’s a big deal that the two children were born in separate years.

This is not just a problem for that first year. It becomes an issue later when claiming other tax benefits. It will mean the child born in 2016 will always be one tax exemption behind the child born in 2015 because of the way their birthdays fall.

It’s just another quirk in the tax system that leaves families defenseless. The best thing you can do is opt for strict and accurate financial planning.

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Five Middle Class Tax Breaks

The middle class of America is the perfect spot to be in if you’d like to benefit from a range of tax breaks. Addressing every tax break aimed at the middle class would be impossible because there are far too many; however, below are five of the best.One dollar bill

  1. IRA Contributions

Save for retirement and you could save a lot of money on your tax returns by meeting the contribution limit (over $5,000) each year. This could reduce your earned income by 5% or more.

  1. Energy Efficiency Upgrades

The federal government, and every state government, has rules on making your home more efficient. Spend money to upgrade your home on insulation and energy saving devices and this will lead to another tax break.

  1. Homeowner’s Bargain

The government has a scheme in which you are given $8,000 when you buy your home. This is to help people climb the housing ladder. They will either cut a check or reduce your tax bill. It’s not much for the wealthy, but for the middle classes it’s a nice bonus.

  1. Child Tax Credit

For each child you have, you can get a $1,000 tax break. This keeps on giving annually until your son or daughter turns 17.

  1. Child Care Tax Break

Up to $3,000, you can get a 35% reduction on the cost of childcare. This includes anything from nurseries to summer camps.

Moreover, this applies for all your children. Beware that the percentage you can claim back decreases as your income increases.

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