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Our tax practice mission is to help small businesses as well as individuals to achieve maximum growth potential by assisting them with their tax compliance needs and business advice. We provide a full range of services including individual and corporate tax compliance, payroll and sales tax services, audit representation and negotiation, and Quickbooks support as well as maintaining the annual books. Global Tax and Accounting Services, Inc. will help you in making the right choices which will ensure the profitability and future success of your business.



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Tax Center

Tax Saving Strategies: Frequently Asked Questions

What’s the best way to borrow to make consumer purchases?

For homeowners, it’s the home equity loan. Other consumer related interest expenses, such as from car loans or credit cards, is not deductible.

Interest on a home-equity loan can be deductible. So avoid other nondeductible borrowings and use a home-equity loan if you plan to borrow for consumer purchases.

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What special deductions can I get if I’m self employed?

You may be able to take an immediate expense deduction of up to $500,000 for 2016 (same as 2015), for equipment purchased for use in your business, instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE IRA plan and deduct your contributions (investments).

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Can I ever save tax by filing a separate return instead of jointly with my spouse?

You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:

  • One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
  • The spouses’ incomes are about equal.

Separate filing may benefit such couples because the adjusted gross income “floors” for taking the listed deductions will be computed separately.

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Why should I participate in my employer’s cafeteria plan or FSA?

In 2016, medical and dental expenses are deductible to the extent they exceed 10 percent of your adjusted gross income (AGI). As such, many people are not able to take advantage of them. There is, however, a way to get around this if your employer offers a Flexible Spending Account (FSA), Health Savings Account or cafeteria plan. These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars.

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What’s the best way to give to charity?

If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and you can obtain a tax deduction for the full fair-market value of the property.

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I have a large capital gain this year. What should I do?

If you also have an investment on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

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What other tax-favored investments should I consider?

For growth stocks you hold for the long term, you pay no tax on the appreciation until you sell them. No capital gains tax is imposed on appreciation at your death.

Interest on state or local bonds (“municipals”) is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipals will often be greater than from higher paying commercial bonds after reduction for taxes.

For high-income taxpayers, who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax.

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What tax-deferred investments are possible if I’m self-employed?

Consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting businesses. Several types of plan are available: the Keogh plan, the SEP, and the SIMPLE IRA plan.

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How can I make tax-deferred investments?

Through the use of tax-deferred retirement accounts you can invest some of the money you would have otherwise paid in taxes to increase the amount of your retirement fund. Many employers offer plans where you can elect to defer a portion of your salary and contribute it to a tax-deferred retirement account. For most companies these are referred to as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available.

Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.

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What can I do to defer income?

If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you’re self-employed, defer sending invoices or bills to clients or customers until after the new year begins. Here, too, you can defer some of the tax, subject to estimated tax requirements.

You can achieve the same effect of short-term income deferral by accelerating deductions-for example, paying a state estimated tax installment in December instead of at the following January due date.

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Why should I defer income to a later year?

Most individuals are in a higher tax bracket in their working years than during retirement. Deferring income until retirement may result in paying taxes on that income at a lower rate. Deferral can also work in the short term if you expect to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.

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Tax Saving Strategies: Frequently Asked Questions

What’s the best way to borrow to make consumer purchases?

For homeowners, it’s the home equity loan. Other consumer related interest expenses, such as from car loans or credit cards, is not deductible.

Interest on a home-equity loan can be deductible. So avoid other nondeductible borrowings and use a home-equity loan if you plan to borrow for consumer purchases.

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What special deductions can I get if I’m self employed?

You may be able to take an immediate expense deduction of up to $500,000 for 2016 (same as 2015), for equipment purchased for use in your business, instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP or SIMPLE IRA plan and deduct your contributions (investments).

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Can I ever save tax by filing a separate return instead of jointly with my spouse?

You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:

  • One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
  • The spouses’ incomes are about equal.

Separate filing may benefit such couples because the adjusted gross income “floors” for taking the listed deductions will be computed separately.

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Why should I participate in my employer’s cafeteria plan or FSA?

In 2016, medical and dental expenses are deductible to the extent they exceed 10 percent of your adjusted gross income (AGI). As such, many people are not able to take advantage of them. There is, however, a way to get around this if your employer offers a Flexible Spending Account (FSA), Health Savings Account or cafeteria plan. These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars.

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What’s the best way to give to charity?

If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and you can obtain a tax deduction for the full fair-market value of the property.

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I have a large capital gain this year. What should I do?

If you also have an investment on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).

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What other tax-favored investments should I consider?

For growth stocks you hold for the long term, you pay no tax on the appreciation until you sell them. No capital gains tax is imposed on appreciation at your death.

Interest on state or local bonds (“municipals”) is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipals will often be greater than from higher paying commercial bonds after reduction for taxes.

For high-income taxpayers, who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax.

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What tax-deferred investments are possible if I’m self-employed?

Consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting businesses. Several types of plan are available: the Keogh plan, the SEP, and the SIMPLE IRA plan.

all_botnav_arrow_off

How can I make tax-deferred investments?

Through the use of tax-deferred retirement accounts you can invest some of the money you would have otherwise paid in taxes to increase the amount of your retirement fund. Many employers offer plans where you can elect to defer a portion of your salary and contribute it to a tax-deferred retirement account. For most companies these are referred to as 401(k) plans. For many other employers, such as universities, a similar plan called a 403(b) is available.

Some employers match a portion of employee contributions to such plans. If this is available, you should structure your contributions to receive the maximum employer matching contribution.

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What can I do to defer income?

If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you’re self-employed, defer sending invoices or bills to clients or customers until after the new year begins. Here, too, you can defer some of the tax, subject to estimated tax requirements.

You can achieve the same effect of short-term income deferral by accelerating deductions-for example, paying a state estimated tax installment in December instead of at the following January due date.

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Why should I defer income to a later year?

Most individuals are in a higher tax bracket in their working years than during retirement. Deferring income until retirement may result in paying taxes on that income at a lower rate. Deferral can also work in the short term if you expect to be in a lower bracket in the following year or if you can take advantage of lower long-term capital gains rates by holding an asset a little longer.

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Avoiding Scams: Frequently Asked Questions

How can I spot a rip-off?

By taking the following precautions, you can spot a scam and avoid being ripped off.

  • Don’t allow yourself to be pushed into a hurried decision. At least 99 percent of everything that’s a good deal today will still be a good deal a week from now.
  • Always request written information, by mail, about the product, service, investment or charity and about the organization that’s offering it.
  • Don’t make any investment or purchase you don’t fully understand. Swindlers try to convince individuals that they are making an informed decision.
  • Ask what state or federal agencies the firm is regulated by, and contact the agency. If the firm says it’s not subject to any regulation, you may want to act cautiously.
  • If an investment or major purchase is involved, request that information also be sent to your accountant, financial advisor, banker, or attorney for evaluation and an opinion.
  • Before you make a final financial commitment, ask for a copy of the refund policy and make sure it’s in writing.
  • Beware of testimonials that you may have no way of checking out.
  • Never provide your credit card number and bank account information over the phone.
  • If necessary, hang up or walk away. If you hear your own better judgment whispering that you may be making a serious mistake, just say good-bye.

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What should I know about Internet fraud?

Internet crime such as identity theft and online fraud racked up an estimated $782.1 million in losses in 2013 according to an Internet Crime Complaint Center (IC3) estimate, underscoring the fact that both legitimate businesses and scam artists alike have equal access to the Internet.

How can you avoid being snared by Internet fraud? Simple. If it sounds too good to be true, it is. Claims of “quick profits”, “guaranteed returns”, “double your investment”, or “risk-free investment” probably indicate a fraudulent investment.

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What are some of the Internet scams I should watch out for?

Here are a few of the scams making the rounds on the Internet these days.

Refund Scam. This is the most frequent IRS-impersonation scam seen by the IRS. In this phishing scam, a bogus e-mail claiming to come from the IRS tells the consumer that he or she is eligible to receive a tax refund for a specified amount. It may use the phrase “last annual calculations of your fiscal activity.”

To claim the tax refund, the consumer must open an attachment or click on a link contained in the e-mail to access and complete a claim form. The form requires the entry of personal and financial information. Several variations on the refund scam have claimed to come from the Exempt Organizations area of the IRS or the name and signature of a genuine or made-up IRS executive. In reality, taxpayers do not complete a special form to obtain their federal tax refund — refunds are triggered by the tax return they submitted to the IRS.

Lottery winnings or cash consignment. These advance fee scam e-mails claim to come from the Treasury Department to notify recipients that they’ll receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it.

Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees. In reality, the Treasury Department does not become involved in notification of inheritances or lottery or other winnings.

Romance Scams. Scammers sometimes use online dating and social networking sites to try to convince people to send money in the name of love. In a typical scenario, the scam artist creates a fake profile, gains the trust of an online love interest, and then asks that person to wire money, typically to a location outside the United States.

Warning signs of a romance or online dating scam include wanting to leave the dating site immediately and use personal e-mail or IM accounts, claiming feelings of instant love, planning to visit, but being unable to do so because of a tragic event, and asking for money to pay for travel, visas or other travel documents, medication, a child or other relative’s hospital bills, recovery from a temporary financial setback, or expenses while a big business deal comes through.

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How can I prevent the illegal use of my credit card or Social Security number?

Do not subject yourself to fraud by allowing a merchant to write your credit card number on your personal check or your personal information on a bank credit card sales slip. Do not divulge your social security number if you can avoid it.

“Application fraud” occurs when a thief uses your name, Social Security number, address and, perhaps, credit references to apply for credit. They can get much of this information from public sources (e.g., Who’s Who Directories), from someone who has access to credit files (e.g., employees of car dealerships, department stores, or credit bureaus), from personal checks, or from stolen wallets. Credit thieves may be aided by “credit doctors” who are paid hundreds of dollars for finding a good credit record for the thief to use.

Another form of application fraud involves the interception of pre-approved credit card offers in the mail. The thief fills out the application and either changes the address or steals the credit card out of your mailbox when it arrives at your address.

Tip: If you find a bill that you do not believe belongs to you on your credit report, check it out immediately. First contact the creditor to find out if they have an account in your name. Ask to see a copy of the original application if they say you do.

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How trustworthy are “credit clinics” and other organizations that claim to help me out of financial trouble?

Consumers with credit problems have paid millions of dollars to firms that claim they can “remove negative information”, “clean up credit reports”, and allow consumers to get credit no matter how bad the credit history. Consumers should beware of the following promises by credit clinics:

  • “Based on little-known loopholes in Federal credit laws, we can show you how to clean up your credit report!”

The loopholes are the provisions of the Fair Credit Reporting Act (FCRA), under which you have the right to challenge information in your credit report you believe incorrect.

  • “We can show you how to remove negative information from your file–including judgments.”

No matter how quickly you may pay off outstanding bills, creditors are under no obligation to remove negative information from your file.

  • “We can get you a major credit card–even if you’ve been through bankruptcy!”

You will have to “secure” the card first by putting a deposit in the bank and getting a bank card with a credit limit based on a percentage of that deposit. Why should you pay the credit clinic just to provide an application and deposit slip?

Check with your state attorney general’s office to determine if your state has laws that protect consumers against credit clinics and contact your state Attorney General, consumer protection agency, or Better Business Bureau to check an organization’s reputation.

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How honest are ads touting “federal government surplus” sales?

Advertisements touting access to little-known sources of federal government property are simply selling the names and addresses of the federal government agencies, which you can get from the federal government or by contacting the agency’s local or regional office. Furthermore, the information sold by these businesses may not be accurate or up-to-date. Information about federal sales programs is available for free or at low cost from the federal government by visiting: Government Sales and Auctions.

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How can I protect myself from penny stock scams?

Penny stocks are common shares of small public companies that trade at less than $1.00 per share. They are considered to be highly speculative and high risk and are traded over the counter and are prime targets for price manipulation. Here is how penny stock scam might operate:

Example: Mrs. G got a call from Mr. S, who told her he wanted to help her out with a “little-known” investment bonanza. These penny stocks’ price could rise by 25 percent in a few months. After she was told to act before the opportunity vanished, Mrs. G invested $5,000 in the penny stocks. Result: She is still trying to get back her $5,000.

Although she was told during the first few weeks that the stock was going up, within a month the seller was not returning her phone calls. She could not check the price of the stock because penny stocks are not traded on an exchange, but over-the-counter.

Further, the price of the penny stock was not published anywhere. Mr. S’s company was the only seller of these particular penny stocks and had been engaging in price manipulation. Eventually, Mrs. G. turned the case over to her attorney. Half of her $5,000 went in markup of the penny stock’s actual price and hidden commissions.

Penny stocks can be a legitimate investment opportunity if you learn to be alert, but with the proliferation of the Internet, these stocks are often quite risky for the average investor. Learn the following warning signs investigate before you invest.

Warning Sign #1: Unsolicited Telephone Calls

Beware of a salesperson who promises you quick profits with little or no risk.

Warning Sign #2: High-Pressure Sales Tactics

These tactics include the following statements by a salesperson:

  • The salesperson has “inside” information on a stock and that you should purchase now, before the information becomes public
  • For only for a short period of time, a stock sells at a special or below market price
  • Due to a series of increases in a stock’s price, you should purchase immediately
  • You may buy a particular stock only if you agree to buy stock of another company

Warning Sign #3: Inability to Sell Your Stock and Receive Cash

Fraudulent penny stock brokers may become inaccessible when you want to sell, or they may refuse to sell your stock unless you buy another one.

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How can I protect myself from a pyramid scheme?

The best way to protect yourself is to understand how pyramid schemes operate, as this example shows:

Example: Frank L. was phoned by a friend and offered an opportunity to “get in on the ground floor” of a business involving selling products to the public. He was told he would get a 50 percent return on his money within a month and how his friend had made thousands of dollars on a $1,000 investment. Frank L. quickly accepted the offer and gave his friend $1,000 to buy a “distributorship” in this business.

What Frank didn’t know was that his friend had fallen victim to a pyramid scheme. Such schemes work as follows: A promoter offers investors “distributorships” at $1,000 each. The distributorships give the investor the right to sell other distributorships to friends and neighbors for $1,000 each, and also a right to sell some sort of product. Whenever an investor sells a $1,000 distributorship, he or she must give a percentage, usually half, to the promoter, and can keep the rest.

The tricky thing about pyramid schemes is that, for the first ten or twenty investors, they work. But, the pyramid scheme could continue to provide returns only in a world where there are infinite numbers of investors willing to invest $1,000, and willing (and able) to sell distributorships to others. Returns depend totally on new investors making an investment rather than on any business venture.

Result: Because Frank had no sales ability, he was unable to unload even one distributorship, and thus the $1,000 was lost. He is currently trying to get his money back and has reported the investment to the SEC.

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How can I protect myself from a Ponzi scheme?

Named for Charles A. Ponzi, who defrauded hundreds of investors in the 1920s, a Ponzi scheme pays off old “investors” with money coming in from new “investors.”

Example: Investor A gives Promoter (“P”) $1,000 on P’s promise to repay $1,000 plus $100 “interest” in 90 days. During the 90 days, P makes similar promises to Investors B and C, receiving $1,000 each from them. At the end of the first 90 day period, P may offer to pay A the $100 “interest” and to return the original $1,000.

More likely, he will invite A to “re-invest” the $1000 plus the $100 “interest” for a similar, or higher, return at the end of another 90 days. Thereafter, A, believing s/he can receive a good return on the investment, is likely to bring other investors to P.

P collects a pool of money that he pays out to those wishing a return on their invested money. Eventually, P. either disappears with all the “investments” or reveals that the investments went “sour.”

A major factor in the eventual collapse of a Ponzi scheme is that there is no significant source of “income” other than from new investors.

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How can I protect myself from travel scams?

Since travel services usually have to be paid for in advance, disreputable individuals and companies try to sell travel packages turn out to be different from what was presented. If you receive an offer by phone or mail for a free or extremely low-priced vacation trip to a popular destination (often Hawaii or Florida), there are a few things you should look for:

  • Does the price seem too good to be true? If so, it probably is.
  • Are you asked to give your credit card number over the phone?
  • Are you pressured to make an immediate decision?
  • Is the carrier simply identified as “a major airline”, or does the representative offer a collection of airlines without being able to say which one you will be on?
  • Is the representative unable or unwilling to give you a street address for the company?
  • Finally, you are you told you can’t leave for at least two months? (The deadline for disputing a credit card charge is 60 days, and most scam artists know this.)

If you encounter any of these symptoms, ask for written information and time to think it over. If they say no, this probably isn’t the trip for you. Furthermore, if you are told that you’ve won a free vacation, make sure you don’t have to buy expensive hotel arrangements in order to get it.

If you are seriously considering the vacation offer, compare it to what you might obtain elsewhere. The appeal of free airfare or free accommodations often disguises the fact that the total price exceeds that of a regular package tour. Get written confirmation of the departure date. If the package involves standby or waitlist travel, or a reservation that can only be provided much later, ask if your payment is refundable if you want to cancel. If the destination is a beach resort, ask the seller how far the hotel is from the beach. Then ask the hotel.

Determine the complete cost of the trip in dollars, including all service charges, taxes, processing fees, etc. If you decide to buy the trip, paying by credit card gives you certain legal rights to pursue a charge-back (credit) if promised services aren’t delivered.

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When buying a used car, how can I avoid buying a “lemon?”

Laundered lemons-used cars with serious defects, sold to unsuspecting new buyers are still being sold in alarming numbers. To avoid buying a “laundered lemon”, take these steps.

Do your research. Check Consumer Reports and Edmunds online. Both publish car reviews and are good sources for finding out whether a vehicle is reliable and has been trouble-free.

Check for defects, repairs, and recalls. Visit the federal government’s databases to find out whether the vehicle (make and model) you’re interested in has been recalled, as well as service bulletins, safety investigations, and owner complaints. Check with your local dealer’s service department to verify that the problem (if there was one) was taken care of.

Inspect the Vehicle. Conduct a thorough visual inspection inside and out. Look for signs of rust, mildew on carpeting, fluid leaks, bodywork repairs such as mismatched paint, and wear on tires. With the engine running check the exhaust smoke color and smell. Verify that the horn and lights are all working properly. Finally, have a reliable mechanic look it over. While it might cost a few bucks, he will be able to spot things you can’t.

Vehicle History Report. If you know the car’s VIN (Vehicle Identification Number), visit CarFax and enter it into their database to obtain a vehicle history report. The report will show you whether there are title problems, what the ownership history of the vehicle is, service records, and whether the vehicle has been involved in any accidents. The VIN is located on the driver’s side dashboard.

Also consider the following:

  • Beware of used cars with low mileage. These may be described as demo models or program cars, but may in fact be lemons.
  • Try to get in touch with the previous owner, via the car’s title. In some states, the title will tell you whether the car was a lemon-law vehicle.
  • Beware of cars that come from another state.

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How can I avoid being ripped off by auto mechanics?

It is estimated that anywhere from one-quarter to one-half of the $90 billion Americans spend every year on car repairs is wasted on the following scams:

    1. Only dealerships can perform maintenance. This is not true. As long as you keep thorough records and the mechanic uses the correct fluids for your make and model, car maintenance can be performed by any mechanic without affecting your warranty. The only dealership-required service is warranty-related repairs and recalls.
    2. XYZ part will cost you $900. If a mechanic tells you that you need an extensive repair or any large component, get a second opinion or two.
    3. Being charged to replace different parts to fix the same problem. This usually indicates that the mechanic is having trouble diagnosing the problem. That may be the case, but you shouldn’t be charged for it.
    4. The Secret Warranty. Always ask a dealership service department whether a problem is covered by a manufacturer’s warranty. (A manufacturer that discovers a widespread defect will often notify a dealership that repairs of the defect will be covered by the manufacturer.) There are only five states–California, Connecticut, Maryland, Virginia, and Wisconsin-in which it is illegal for a dealership not to tell you a repair is covered by a warranty.

Tip: If the defect is safety-related, you can call 800-424-9393 for a list of warranties and recalls or visit SaferCar.gov

  1. Flushing the engine. In general, the engine doesn’t need to be flushed except for routine coolant replacement associated with normal maintenance.
  2. The $9.95 Tune-Up. A common scam is to lure customers with an extremely low-priced oil-change or other service deal, and then to discover nonexistent problems while the car is on the lift.
  3. Double Billing. You might be told, for example, that you need repairs done on your brakes, and then discover that you have been billed for several extra items, which are actually part of the brake repair job.

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How can I avoid being pick-pocketed?

These tips on how to avoid becoming the victim of a con artist or pickpocket are provided by the New York City Police Department’s Special Frauds Squad.

  • Use handbags that have a zipper and locking flap and carry them securely with the flap side close to your body.
  • Carry wallets inside your coat or side trouser pockets, never in your back pants pocket.
  • Beware of loud arguments or commotions in crowded areas. Thieves working together may stage these incidents to distract you while your pocket is picked.
  • Be aware that a pickpocket may bump or crowd you on public transportation.
  • If your pocket is picked, call out immediately to warn the driver or conductor. Alert everyone that there’s a pickpocket on board, and don’t be afraid to shout.
  • Avoid crowding in the area of the subway car doors when entering or exiting.
  • Be on guard if a stranger directs your attention to a substance or stain on your clothes.
  • Be on guard while doing your banking at an automatic teller machine.
  • Be suspicious if you are approached by a stranger who claims to have just found an envelope full of money or tells you he has a winning lottery ticket with him. This could be the first step in a confidence crime, with you as the victim. Never discuss your personal finances with strangers, and don’t draw money out of the bank at a stranger’s suggestion in order to build trust in such a situation

Being aware of the most current scams is the best way to prevent falling prey to them. If you or someone you know has been a victim of a con artist, call your local police precinct immediately.

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“Nanny Tax” Rules: Frequently Asked Questions

What kinds of household workers are covered by nanny tax rules?

Household workers include anyone who does work in or around your home such as babysitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers. In addition, the worker must be your employee, which means you can control not only what work is done, but how it is done.

It does not matter whether the work is full-time or part time, or that you hired the worker through an agency. On the other hand, if only the worker can control how the work is done, the worker is not your employee, but is self-employed.

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What must I do if I think my worker or worker-to-be isn’t a U.S. citizen?

It is unlawful for you to knowingly hire or continue to employ an alien who cannot legally work in the United States.

When you hire a household employee to work for you on a regular basis, he or she must complete the employee part of the Immigration and Naturalization Service (INS) Form I-9, Employment Eligibility Verification. You must verify that the employee is either a U.S. citizen or an alien who can legally work here and then complete the employer part of the form. Keep the completed form for your records.

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What are my tax duties if I have a household employee?

You may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax, or you may need to do both.

  • If you pay cash wages of $1,900 or more in 2016 to any one household employee, withhold and pay Social Security and Medicare taxes.
  • If you pay total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees, you must pay unemployment tax.

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If I hire teenagers as babysitters or for yard work, must I withhold and pay tax for them?

When figuring whether you paid an employee $1,900 or more in 2016 to babysitters or others, you generally don’t count wages paid to an employee who is under age 18 at any time during the year.

If the employee is a student, providing household services is not considered his or her principal occupation. However, you should count these wages if providing household services is the employee’s principal occupation.

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Are there ways to pay my household employee that minimize the employment tax?

Wages subject to employment tax do not include the value of food, lodging, clothing, and other non-cash items you give your household employee. However, cash you give your employee in place of these items is included in wages.

If you reimburse the amount your employee pays to commute to your home by public transit (bus, train, etc.), do not count the reimbursement (up to $255 per month in 2016) as wages.

Further, if you reimburse your employee for the cost of parking at or near a location from which your employee commutes to your home, do not count the reimbursement (up to $255 a month in 2016) as wages.

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I’m not sure yet whether I’ll pay enough this year to require withholding. What should I do?

You should withhold the employee’s share of Social Security and Medicare taxes if you expect to pay your household employee Social Security and Medicare wages of $1,900 or more in 2016.

If you withhold the taxes but then actually pay the employee less than $1,900 in Social Security and Medicare wages for the year, you should repay the employee.

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Okay, I’ve withheld tax on the employee and I owe the employer’s share. How do I pay these amounts?

You pay withheld taxes as part of your regular income tax obligation. You don’t deposit them periodically. If you make an error by withholding too little, you should withhold additional taxes from a later payment. If you withhold too much, you should repay the employee.

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Do I have to reduce the worker’s take-home pay by the tax on that pay?

If you prefer to pay your employee’s Social Security and Medicare taxes from your own funds, you do not have to withhold them from your employee’s wages. The Social Security and Medicare taxes you pay to cover your employee’s share must be included in the employee’s wages for income tax purposes. However, they are not counted as Social Security and Medicare wages or as federal unemployment (FUTA) wages.

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In what cases do I owe unemployment tax?

The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. You may owe only the FUTA tax or only the state unemployment tax, or both. To find out whether you will owe state unemployment tax, contact your state’s unemployment tax agency.

If you pay cash wages to household employees totaling $1,000 or more in any calendar quarter of 2015 or 2016, the first $7,000 of cash wages you pay to each household employee in 2016 is FUTA wages. If you pay less than $1,000 cash wages in each calendar quarter of 2016, but you had a household employee in 2015, the cash wages you pay in 2016 may still be FUTA wages. They are FUTA wages if the cash wages you paid to household employees in any calendar quarter of 2015 or 2016 totaled $1,000 or more.

Do not withhold the FUTA tax from your employee’s wages. You must pay it from your own funds.

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Do I need to withhold federal income tax?

You are not required to withhold federal income tax from wages you pay a household employee. You should withhold federal income tax only if your household employee asks you to withhold it and you agree. The employee must give you a completed Form W-4, Employee’s Withholding Allowance Certificate. If you agree to withhold federal income tax, you are responsible for paying it to the IRS.

You figure federal income tax withholding on both cash and non-cash wages you pay. Measure non-cash wages by the value of the non-cash item. Do not count as wages any of the following items:

  • Meals provided at your home for your convenience.
  • Lodging provided at your home for your convenience and as a condition of employment.
  • Up to $255 a month in 2016 for bus or train tokens (passes) you give your employee, or in some cases for cash reimbursement you make for the amount your employee pays to commute to your home by public transit.
  • Up to $255 a month in 2016 to reimburse your employee for the cost of parking at or near your home or at or near a location from which your employee commutes to your home.

Any income tax you pay for your employee without withholding it from the employee’s wages must be included in the employee’s wages for federal income tax purposes. It is also counted as Social Security, Medicare and FUTA wages.

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What about Earned Income Credit (EIC)? What must I do?

Certain workers can take the earned income credit (EIC) on their federal income tax return. This credit reduces their tax or allows them to receive a payment from the IRS if they do not owe tax. You must give your household employee a notice about the EIC if you agree to withhold federal income tax from the employee’s wages and the income tax withholding tables show that no tax should be withheld. Even if not required, you are encouraged to give the employee a notice about the EIC if his or her 2016 wages are less than $47,955 ($53,505 if married filing jointly).

The employee’s copy (Copy B) of the IRS 2016 Form W-2, Wage and Tax Statement has a statement about the EIC on the back. If you give your employee that copy by January 31, 2017 (as discussed under Form W-2), you do not have to give the employee any other notice about the EIC.

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What federal tax forms must I file if I have a household employee?

Form W-2 and Schedule H of Form 1040. Specifically:

  • A separate Form W-2, Wage and Tax Statement, must be filed for each household employee to whom you pay Social Security and Medicare wages, or wages from which you withhold federal income tax. Give Copies B, C, and 2 to your employee by January 31, 2017, and send Copy A of Form W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration by January 31, 2017.
  • Use Schedule H (Form 1040), Household Employment Taxes, to report the federal employment taxes for your household employee if you pay the employee Social Security and Medicare wages, FUTA wages, or wages from which you withhold federal income tax.
  • File Schedule H with your federal income tax return. If you are not required to file a tax return, file Schedule H by itself.

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Saving for College: Frequently Asked Questions

When should I start saving for my child’s education?

This depends on how much you think your children’s education will cost. The best way is to start saving before they are born. The sooner you begin the less money you will have to put away each year.

Example: Suppose you have one child, age six months, and you estimate that you’ll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you’ll need to save $3,500 per year for 18 years (assuming an after-tax return of 7 percent). On the other hand, if you put off saving until the child is six years old, you’ll have to save almost double that amount every year for twelve years.

Another advantage of starting early is that you’ll have more flexibility when it comes to the type of investment you’ll use. You’ll be able to put at least part of your money in equities, which, although riskier in the short-run, are better able to outpace inflation than other investments in the long-run.

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How much will my child’s college education cost?

It depends on whether your child attends a private or state school. According to the College Board, average published tuition and fees for full-time in-state students at public four-year colleges and universities increased 2.9% before adjusting for inflation, rising from $9,145 in 2014-15 to $9,410 in 2015-16. Average published tuition and fees at private nonprofit four-year institutions increased 3.6% before adjusting for inflation, rising from $31,283 in 2014-15 to $32,405 in 2015-16. Undergraduates received an average of $14,210 in financial aid in 2014-15, including $8,170 in grants from all sources, $4,800 in federal loans, $1,170 in education tax credits and deductions, and $70 in Federal Work-Study.

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How should I invest my child’s college fund?

As with any investment, you should choose those that will provide you with a good return and that meet your level of risk tolerance. The ones you choose should depend on when you start your savings plan-the mix of investments if you start when your child is a toddler should be different, from those used if you start when your child is age 12.

The following are often recommended as investments for education funds:

    • Series EE bonds: These are extremely safe investments. They should be held in the parents’ names. If the adjusted gross income of you and your spouse at the time of redemption is at or under the amount set by the tax law, the interest on bonds bought after January 1, 1990, is tax-free as long as it is used for tuition or other qualified education costs. If your adjusted gross income is above the threshold amount, the tax break is phased out. In 2016, the exclusion ($76,000 indexed for inflation) begins phasing out at $77,200 modified adjusted gross income and is eliminated for adjusted gross incomes of more than $92,200. For married taxpayers filing jointly, the tax exclusion begins to be reduced with a $115,750 modified adjusted gross income and is eliminated for adjusted gross incomes of more than $145,750. The exclusion is unavailable to married filing separately.
    • U.S. Government bonds: These are also investments that offer a relatively higher return than CDs or Series EE bonds. If you use zero-coupon bonds, you can time the receipt of the proceeds to fall in the year when you need the money. A drawback of such bonds is that a sale before their maturity date could result in a loss on the investment. Further, the accrued interest is taxable even though you don’t receive it until maturity.
    • Certificates of deposit: These are safe, but usually provide a lower return than the rate of inflation. The interest is taxable. These should generally only be used by the most risk averse investors and for relatively short investment horizons.
    • Municipal bonds: Assuming the bonds are highly rated, the tax-free interest on them can provide an acceptable return if you’re in the higher income tax brackets. Zero-coupon municipals can be timed to fall due when you need the funds and are useful if you begin saving later in the child’s life.

Tip: Be sure to convert the tax-free return quoted by sellers of such bonds into an equivalent taxable return. Otherwise, the quoted return may be misleading. The formula for converting tax-free returns into taxable returns is as follows:

Divide the tax-free return by 1.00 minus your top tax rate to determine the taxable return equivalent. For example, if the return on municipal bonds is 5 percent and you are in the 30 percent tax bracket, the equivalent taxable return is 7.1 percent (5 percent divided by 70 percent).

  • Stocks: An appropriate mutual fund or portfolio containing stocks can provide you with a higher yield than bonds at an acceptable risk level. Stock mutual funds can provide superior returns over the long term. Income and balanced funds can meet the investment needs of those who begin saving when the child is older.

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What is the American Opportunity Tax Credit?

The American Opportunity Tax Credit (AOC) was made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH). The maximum credit, available only for the first four years of post-secondary education, is $2,500. You can claim the credit for each eligible student you have for which the credit requirements are met.

Income limits. To claim the American Opportunity Credit, your modified adjusted gross income (MAGI) must not exceed $90,000 ($180,000 for joint filers). To claim the Lifetime Learning Credit, MAGI must not exceed $60,000 ($120,000 for joint filers). “Modified AGI” generally means your adjusted gross income. The “modifications” only come into play if you have income earned abroad.

Amount of credit. For most taxpayers, 40 percent of the AOC is a refundable credit, which means that you can receive up to $1,000 even if you owe no taxes.

Which costs are eligible? Qualifying tuition and related expenses refer to tuition and fees, and course materials required for enrollment or attendance at an eligible education institution. They now include books, supplies, and equipment needed for a course of study whether or not the materials must be purchased from the educational institution as a condition of enrollment or attendance.

“Related” expenses do not include room and board, student activities, athletics (other than courses that are part of a degree program), insurance, equipment, transportation, or any personal, living, or family expenses. Student-activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. For expenses paid with borrowed funds, count the expenses when they are paid, not when borrowings are repaid.

Tip: The tax law says that you can’t claim both a credit and a deduction for the same higher education costs. It also says that if you pay education costs with a tax-free scholarship, Pell grant, or employer-provided educational assistance, you cannot claim a credit for those amounts.

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What is the “kiddie tax?”

In the past, parents would invest in the child’s name in order to shift income to the lower-bracket child. However, the addition of the “kiddie tax” mostly put an end to that strategy.

For taxable years beginning in 2016, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax” is $1,050 (same as 2015). The same $1,050 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax.” For example, one of the requirements for the parental election is that a child’s gross income for 2016 must be more than $1,050 but less than $10,500.

For 2016, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $2,100 (same as 2015).

Note: These rules apply to unearned income. If a child has earned income, this amount is always taxed at the child’s rate.

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What is a Coverdell Education Savings Account – Section 530 Program (formerly Education IRA) and who is eligible for one?

In 2016, you can contribute up to $2,000 each year to a Coverdell education savings account (Section 530 program) for a child under 18. These contributions are not deductible, but they grow tax-free until withdrawn. Contributions for any year (say 2016) can be made through the (unextended) due date for the return for that year (April 18, 2017).

Note: For the $2,000 contribution limit, there is no adjustment for inflation and therefore, the limit is expected to remain at $2,000 for 2013 and beyond.

Only cash can be contributed to a Section 530 account and you cannot contribute to the account after the child reaches his or her 18th birthday.

Anyone can establish and contribute to a Section 530 account, including the child, and you may establish 530s for as many children as you wish. The child need not be a dependent. In fact, he or she need not be related to you, but the amount contributed during the year to each account cannot exceed $2,000. In 2016, the maximum contribution amount for each child is phased out for modified AGI between $190,000 and $220,000 (joint filers) and $95,000 and $110,000 (single filers).

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If you have insufficient savings for your child’s education when he is close to entering college, what should you do?

Many families find themselves in the same boat. Fortunately, there are ways to generate additional funds both now and when your child is about to enter school:

  • You can start saving as much as possible during the remaining years. However, unless your income level is high enough to support an extremely stringent savings plan, you will probably fall short of the amount you need.
  • You can take on a part-time job. However, this will raise your income for purposes of determining whether you are eligible for certain types of student aid. In addition, your child may be able to take on part-time or summer jobs.
  • You can tap your assets by taking out a home equity loan or a personal loan, selling assets or borrowing from a 401(k) plan.
  • You (or your child) can apply for various types of student aid and education loans.

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What types of grants are available for college?

Grants-the best type of financial aid because they do not have to be paid back — are amounts awarded by governments, schools, and other organizations. Some grants are need-based and others are not.

    • The Federal Pell Grant Program offers federal aid based on need.

Tip: Don’t assume that middle class families are ineligible for needs-based aid or loans. The assessment of whether a family qualifies as “in need” depends on the cost of the college and the size of the family.

  • State education departments may make grants available. Inquiries should be made of the state agency.
  • Employers may provide subsidies.
  • Private organizations may provide scholarships. Inquiries should be made at schools.
  • Most schools provide aid and scholarships, both needs-based and non-needs-based.
  • Military scholarships are available to those who enlist in the Reserves, National Guard, or Reserve Officers Training Corps. Inquiries should be made at the branch of service.

Tip: Try negotiating with your preferred college for additional financial aid, especially if it offers less than a comparable college.

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What types of grants are available for college?

There are various student loan programs available. Some are need-based, and others are not. Here is a summary of loans:

  • Stafford loans (formerly guaranteed student loans) are federally guaranteed and subsidized low-interest loans made by local lenders and the federal government. They are needs-based for subsidized loans; however an unsubsidized version is also available.
  • Perkins loans are provided by the federal government and administered by schools. They are needs-based. Inquiries should be made at school aid offices.
  • Parent loans for undergraduate students (PLUS) and supplemental loans for students are federally guaranteed loans by local lenders to parents, not students. Inquiries should be made at college aid offices.
  • Schools themselves may provide student loans. Inquiries should be made at the school.

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How can I increase the amount of financial aid my child is entitled to?

Here are some strategies that may increase the amount of aid for which your family is eligible:

    • Try to avoid putting assets in your child’s name. As a general rule, education funds should be kept in the parents’ names, since investments in a child’s name can impact negatively on aid eligibility. For example, the rules for determining financial aid decrease the amount of aid for which a child is eligible by 35 percent of assets the child owns and by 50 percent of the child’s income.

Example: If your child owns $1,000 worth of stock, the amount of aid for which he or she is eligible for is reduced by $350. On the other hand, the amount of aid is reduced by (effectively) only 5.6 percent of your assets and from 22 to 47 percent of your income.

  • Reduce your income. Income for financial aid purposes is generally determined based upon your previous year’s income tax situation. Therefore, in the years immediately prior to and during college, try to reduce your taxable income. Some ways to do this include:
    1. Defer capital gains.
    2. Sell losing investments.
    3. Reduce the income from your business. If you are the owner of your own business, you may be able to reduce your taxable income by taking a lower salary, deferring bonuses, etc.
    4. Avoid distributions from retirement plans or IRAs in these years.
    5. Pay your federal and state taxes during the year in the form of estimated payments rather than waiting until April 15 of the following year.
    6. Since a portion of discretionary assets is included in the family’s expected contribution from income, reduce discretionary assets by paying off credit cards and other consumer loans.
    7. Take advantage of vehicles which defer income, such as 401(k) plans, other retirement plans or annuities.
  • Detail any financial hardships. If you have any financial hardships, let the deciding authorities know (via the statement of financial need) exactly what they are if they are not clear from the application. The financial aid officer may be able to assist you in explaining hardships.
  • Have your child become independent. In this case, your income is not considered in determining how much aid your child will be eligible for. Students are considered independent if they:
    1. Are at least 24 years old by the end of the year for which they are applying for aid
    2. Are veterans
    3. Have dependents other than their spouse
    4. Are wards of the court or both parents are deceased
    5. Are graduate or professional students
    6. Are married and are not claimed as dependents on their parents’ returns

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How can I save taxes on college savings?

If you decide to invest in your child’s name, here are some tax strategies to consider:

  • You can shift just enough assets to create $2,100 in 2016 (same as 2015) taxable income to an under-19 child.
  • You can buy U.S. Savings Bonds (in the child’s name) scheduled to mature after your child reaches age 18.
  • You can invest in equities that pay small dividends but have a lot of potential for appreciation. The dividend income earned when your child is under the age of 19 will be minimal with tax relief, and the growth in the stocks will occur over the long term.
  • If you own a family business, you can employ your child in the business. Earned income is not subject to the “kiddie tax,” and is deductible by the business if the child is performing a legitimate function. Additionally, if your business is a sole proprietorship and your child is younger than 19 years old, then he or she will not pay social security taxes on the income.

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Raising a Child: Frequently Asked Questions

How much will it cost me to raise a child?

We can’t tell you exactly what your child will cost, but we can provide you with estimates. Knowing what to expect will allow you to plan for the future. Here is a breakdown of the items you’ll need, and an estimate of their costs.

Note: These estimates are for a first child. Bear in mind that second or third children will cost less than the first since you will already have purchased many of the items you need. Typically parents with 3 or more children spend 22 percent less per child than those with just two children.

Government estimates say that a middle-income family in 2013, defined as having an annual income between $61,530 and $106,540, will spend a total of $245,340 to raise a child to age 17. This figure represents a 1.7 percent increase from 2012 and does not include expenses incurred beyond the age of 18. If you include the cost of college, whether public or private, that cost goes up significantly. And, families that earn more generally can expect to spend more on their children.

According to the USDA report, Expenditures on Children by Families, 2013, annual child-rearing expenses per child for a middle-income, two-parent family ranged from $12,800 to $14,970. The age of the child accounted for the annual variations. For example, child care expenses are greater in the first 6 years of a child’s life, but transportation costs are likely to be higher when a child hits her teen years.

About 30 percent of the amount spent in the government estimates goes to cover housing expenses relating to the new member of your household. Child care and education expenses account for the second highest percent. Other costs taken into account include transportation, food, clothing, health care, and miscellaneous expenses.

Families in the urban Northeast can expect their expenses to be higher than the rest of the country, but the urban West coast does not lag far behind. However, families living in the urban South and in rural areas experience the lowest expenses.

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What costs can I expect during the first year?

Here are the costs you can expect up to birth and during the first year.

  • Hospital Costs. According to the Transforming Maternity Care Partnership, in 2011, an uneventful hospital delivery, on average, in the United States cost between $10,657 (vaginal birth, no complications) and $23,923 (cesarean section birth with complications). The actual costs you pay, of course, vary depending on your health care coverage.
  • Layette. Before you bring the baby home, you’ll buy a crib, a changing table, and a swing or bouncy seat. The moderately priced versions of these three things will cost you about $1,200. You’ll also need at least one stroller that you can expect to pay about $400 for. A full-size infant car seat will cost you about $150-$200, and a full-size high chair will cost $150. Finally, you will spend several hundred dollars on washcloths, sheets, blankets, towels, undershirts, onesies, and other baby clothes. Also, think about whether you plan to use a diaper service, cloth diapers, or use disposable ones.
  • Feeding. The American Academy of Pediatrics recommends exclusively breastfeeding your baby for at least 6 months. Many women, of course, choose to breastfeed longer than that. Nursing mothers will have to invest in several good nursing bras and nursing pads (about $50) as well as a nursing pillow (about $25). If you plant to return to work after 3 months, consider investing in a hospital grade breast pump, which will run you about $400.

    In comparison, a year’s worth of ready-mix powder formula costs about $1,350. If you buy the ready-to-serve type of formula, the cost is, even more, running well over $2,000. You’ll also need a year’s supply of bottles, at about $90, and you’ll have to add another $40 to replace the nipples at least twice in a year.

    When your baby is ready for solid foods, you will also need to account for the cost of rice cereal and baby food.

  • Diapers and Gear. Diapers are another expense you need to consider. Cloth diapers are the least expensive option. Disposable diaper costs for the first year run about $850, and a diaper genie costs about $40.
  • Child Care. Child care in a day care center costs much less than a live-in nanny. A mid-priced day care center charges on average $975 per month for your infant’s care, or close to $12,000 per year.
  • Health Care. Your infant will visit the doctor about six times during his or her first year, including well-baby check-ups as well as the inevitable colds and fevers of infancy. How much you will spend for doctor visits during the first year depends on your health insurance.
  • Toys and Clothes. You’ll spend about $500 on toys and clothing during the first year.
  • Total for the First Year. Your total expenses for the first year run about $15,000-$18,000. The biggest variable is the cost of health care.

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How much will I spend on my child during ages one through six?

During these years, you’ll spend about $1,000 on toys and clothes, and about $2,200 a year on food. If your child attends daycare or pre-school, add in the cost of these services. Daycare will cost you an average of $12,000 per year, while pre-school costs vary widely. Again, health care costs depend on your health coverage.

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How much will I spend on my child during ages six through twelve?

This is the time when the overall expenses of child-rearing drop and families can save more. During these years, your child care expenses will drop drastically. Health care costs generally stabilize unless of course, your child begins orthodontia during this stage. Then, you’ll have to pay more.

You are likely to spend more than in the previous stage on clothing, toys, and entertainment, but your kids won’t be demanding the high-ticket clothing and other items of adolescence. The bill for food will be just slightly more than what it was in the previous stage.

On the negative side, now that your kids are in school, you’ll want to pay for all those extras that middle-class kids have: dancing and music lessons, sports participation, and so on. And, if you decide to send your kids to private school or to summer camp, these expenses will have to be added in.

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How much will I spend on my child during ages thirteen through eighteen?

During this stage, you can expect your child’s food, clothing, and entertainment bill to greatly exceed what it was during the previous stage. For instance, food costs will increase as a result of growth spurts in your adolescent and clothing costs are likely to rise as well as your teen takes more of an interest in his or her appearance.

Once your teen starts driving, your auto insurance will go up. The extra cost could be anywhere from $300 to $1,000, depending on your state of residence and whether your child is a boy or girl. If you intend to buy your child a car, add this expense in as well.

How can I teach my kids good financial skills?

Once they reach school age, children should start learning rudimentary financial skills.

You might start to teach your kids in the following areas:

The Allowance. Giving your child an allowance is a good start. Whether you pay your child a quarter or one dollar to perform weekly household chores, you are instilling a work ethic and a giving them an opportunity to learn how to save and spend their money wisely. You can make suggestions to them about what they should do with it, but allow them the final say on what happens to the money. Let them see the consequences of both wise and foolish behavior with regard to money. A child who spends all of his money on the first day of the week is more likely to learn budgeting if he is not provided with extras to tide him over.

Savings and Investment. Beyond the basics of budgeting and saving, you’ll want to get your child involved in saving and investing. The easiest way to do this is to have the child open his or her own savings account. If you want your child to become familiar with investing, there are a number of child-friendly mutual funds and individual stocks available.

Taxes. Many teens today have part-time jobs. Although they might not make enough to need to file a tax return, encouraging them to fill out a practice tax form is a good way to have them participate in the process–and get them used to the idea of submitting yearly tax forms.

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Your Estate and Taxes: Frequently Asked Questions

Will my estate have to pay taxes after I die?

It depends. The federal government imposes estate taxes at your death only if your property is worth more than a certain amount based on the year of death. By some estimates, this means nearly 99 percent of estates do not pay any estate tax. In 2016, the exemption limit is $5,450,000 ($5,430,000 in 2015). Estates worth more than $5,450,000 are taxed at 40 percent. For married couples, the exemption is $10.90 million. There are a couple of important exceptions to the general rule, however. All property left to a spouse is exempt from the tax, as long as the spouse is a U.S. citizen and estate taxes won’t be assessed on any property you leave to a tax-exempt charity.

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Do states also impose estate taxes?

Most states impose estate taxes of some kind. In many cases, there’s a state inheritance tax only where a federal estate tax would apply. But some states have estate taxes that are “uncoupled” from the federal tax, and some have inheritance taxes.

Inheritance taxes are paid by your inheritors, not your estate. Typically, how much they pay depends on their relationship to you.

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How can I minimize federal estate taxes?

There are several ways. One common way to do this is to leave your children, directly or in trust, an amount up to the estate tax exemption amount ($5,450,000 in 2016) and the balance to your spouse.

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Can I avoid paying state estate taxes?

In most states that base inheritance taxes on the federal estate tax, steps that avoid federal tax also avoid state tax. If your state imposes some other kind of estate tax, your professional advisor can help you minimize state tax by taking actions specifically adapted to that tax.

If you live in two states, for instance, Florida in winter and summer in New Jersey, your inheritors may be able to save on estate taxes if you make your legal residence in the state with lower inheritance taxes.

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Can I just give all my property away before I die and avoid estate taxes?

You can give up to $14,000 in 2016 (same as 2015) per person per year with no gift tax liability. Gifts exceeding that amount are counted against a gift tax exemption of $5,450,000. Gifts exceeding that exemption are subject to gift tax. At your death, these gifts could become your taxable estate (with a credit for gift tax paid).

There are, however, a few exceptions to this rule. You can give an unlimited amount of property to your spouse unless your spouse is not a U.S. citizen, in which case you can give away up to $100,000 indexed for inflation; the 2015 amount is $148,000 ($147,000 in 2015) per year free of gift tax. Any property given to a tax-exempt charity avoids federal gift taxes. Money spent directly for someone’s medical bills or school tuition, is exempt as well.

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Living Trusts: Frequently Asked Questions

Just what is probate?

Probate is the legal process of paying the deceased’s debts and distributing the estate to the rightful heirs. This process usually entails:

  • The appointment of an individual by the court to act as executor of the estate. Executors are sometimes referred to as “personal representatives.” Most people name an executor as part of their will. If there is no will, the court appoints an executor, most often a spouse if the deceased is married.
  • Proving that the will is valid.
  • Informing creditors, heirs, and beneficiaries that the will is probated.
  • Disposing of the estate by the executor in accordance with the will or state law.

The executor named in the will must file a petition with the court after the death. There is a fee for the probate process.

Depending on the size and complexity of the probable assets, probating a will may require legal assistance.

Assets that are jointly owned by the deceased and someone else are not subject to probate. Proceeds from a life insurance policy or Individual Retirement Account (IRA) that are paid directly to a beneficiary are also not subject to probate.

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What is a living trust?

A trust, like a corporation, is an entity that exists only on paper but is legally capable of owning property. However, a live person called the trustee must be in charge of the property. Further, you can actually be the trustee of your own living trust, keeping full control over all property legally owned by the trust.

Property held in trust that is actually “owned” by the trustees of the trust, subject to the rights of the beneficiaries. The trust itself doesn’t actually own anything.

There are many kinds of trusts. A living trust (also called an inter vivos trust) is simply a trust you create while you’re alive, rather than one that is created upon your death under the terms of your will.

All living trusts are designed to avoid probate. Some also help you save on estate taxes while others let you set up long-term property management.

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Do I need a living trust?

Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee, the person you appointed to handle the trust after your death, simply transfers ownership to the beneficiaries you named in the trust.

In many cases, the whole process takes only a few weeks and there are no attorney or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

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How does a living trust avoid probate?

Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee–the person you appointed to handle the trust after your death–simply transfers ownership to the beneficiaries you named in the trust.

In many cases, the whole process takes only a few weeks and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

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Is it expensive to create a living trust?

The cost of creating a living trust depends on what you want to achieve. The more complicated a living trust is, the more expensive it will be. Also important to note is that while the fees associated with creating a living will are paid upfront a living trust actually saves you money and time by avoiding probate court.

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Is a trust document ever made public, like a will?

A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate – inventories of the deceased person’s assets and debts, for example. The terms of a living trust, however, need not be made public.

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Does a trust protect property from creditors?

Holding assets in a revocable trust does not shelter those assets from creditors. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

After your death, however, property in a living trust can be quickly and quietly distributed to the beneficiaries (unlike property that must go through probate). That complicates matters for creditors; by the time they find out about your death, your property may already be dispersed, and the creditors have no way of knowing exactly what you owned (except for real estate, which is always a matter of public record). It may not be worth the creditor’s time and effort to try to track down the property and demand that the new owners use it to pay your debts.

On the other hand, probate can offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they’re out of luck forever.

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Do I need a trust if I’m young and healthy?

Probably not. At this stage in your life, your main estate planning goals are probably making sure that in the unlikely event of your premature death, your property is distributed how you want it to be and, if you have young children, that they are cared for. You don’t need a trust to accomplish those ends; writing a will, and perhaps buying some life insurance is sufficient.

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Can a living trust save taxes?

A simple probate-avoidance living trust has no effect on either income or estate taxes. More complicated living trusts, however, can greatly reduce your federal estate tax bill if you expect your estate to owe estate tax at your death.

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Charitable Deductions: Frequently Asked Questions

How can I find out if contributions to a particular charity are tax-deductible?

To obtain tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, an organization has to file certain documents with the IRS that prove it is organized and operated for specified charitable purposes.

Organizations with 501(c)(3) status are those that the IRS considers charitable, educational, religious, scientific or literary, those that prevent cruelty to animals, and those that foster national or international sports competition.

When the IRS rules positively on an application, the organization is eligible to receive contributions deductible as charitable donations for federal income tax purposes. The charity receives a “Determination Letter” formally notifying it of its charitable status. Older charities may have a “101(6) ruling,” which corresponds to Section 501(c)(3) of the current IRC. Churches and small charities with less than $5,000 of annual gross receipts (subject to the Gross Receipts test) do not have to apply to the IRS for exemption.

Tip: You can search the IRS database for a list of tax-exempt organization eligible to receive deductible contributions.

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What information can I obtain from the IRS about a charity?

You can obtain three documents on a specific charity by sending a written request to the attention of the Disclosure Officer at your nearest IRS District Office. The IRS will charge a per-page copying fee for these items. To speed your request, have the full, official name of the charity, as well as the city and state location.

These three publicly available documents are:

  • Form 1023 – the application filed by the charity to obtain tax-exempt status.
  • IRS Letter of Determination – the two-page IRS letter that notifies the organization of its tax-exempt status.
  • Form 990 – the financial/income tax form filed with the IRS annually by the charity. Charities with a gross income of less than $25,000 and churches are not required to file this form. Among other things, Form 990 includes information on the charity’s income, expenses, assets, liabilities and net assets in the past fiscal year. Form 990 also identifies the salaries of the charity’s five highest-paid employees. When contacting the IRS for copies, specify the fiscal year.

Tip: If your request for information involves only Form 990, you can get a faster response by writing directly to the IRS Service Center where the charity files its return. Contact your nearest IRS office for the address of the appropriate Service Center.

The charity registration office in your state (usually a division of the state attorney general’s office) may also have a copy of the charity’s latest Form 990, along with other publicly available information on charities soliciting in your state.

A charity’s application for tax-exempt status and its annual Form 990 must be made available for public inspection during regular business hours at the principal office of the charity and at each of its regional or district offices containing three or more employees. The charity is not required to provide photocopies of the return but must have a copy on hand for public inspection.

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What types of deductible contributions can be made to charity?

Generally, you can donate money or property to charity. A deduction is usually available for the fair market value of the money or property. However, for certain property the deduction is limited to your cost basis; inventory (some exceptions), certain creative works, stocks held short term and certain business-use property. You can also donate your services to charity, however, you may not deduct the value of your services. You can deduct your travel expenses and some out of pocket expenses.

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What types of organizations generally qualify for a charitable deduction?

The following types of organizations generally qualify for a deduction. Before making a donation, make sure to verify the organization’s status. You can do this by asking for evidence in writing or contacting the Internal Revenue Service.

  • Churches, synagogues, temples, mosques, and other religious organizations.
  • Federal, state and local governments if the proceeds are used for public purposes.
  • Nonprofit schools, hospitals and volunteer fire companies.
  • Public parks and recreation facilities.
  • Salvation Army, United Way, Red Cross, Goodwill, Boy Scouts and Girl Scouts.
  • War veterans’ groups.
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What types of organizations generally do not qualify for a charitable deduction?

The following types of organizations generally do not qualify for a charitable deduction:

  • Social and sports clubs.
  • For-profit organizations.
  • Lottery, bingo or raffle tickets.
  • Dues to social or recreational clubs.
  • Homeowners’ associations.
  • Individuals.
  • Political organizations.
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What is the limit on the deductibility of charitable contributions?

The amount of your deduction for charitable contributions is limited to 50 percent of your adjusted gross income and may be limited to 20 or 30 percent of your adjusted gross income, depending on the type of property you give and the type of organization you give it to. Before you make a donation, verify with your tax advisor which limit applies.

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Can I deduct contributions to tax-exempt organizations?

Not necessarily. Tax-exempt means that the organization does not have to pay federal income taxes while tax-deductible means the donor can deduct contributions to the organization. There are more than 20 different categories of tax-exempt organizations, but only a few of these offer tax-deductibility for donations.

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What should I look out for in my charitable giving?

Not everything the charity gets from you qualifies for deduction:

  • If you go to a charity affair or buy something to benefit a charity (e.g., a magazine subscription or show tickets), you cannot deduct the full amount you pay. Only the part above the fair market value of the item you purchase is fully deductible. For example, if you pay $500 for a charity luncheon worth $200, only $300 can be deducted.
  • Since contributions are deductible only for the year in which they are actually paid or delivered, pledges are not deductible until they are paid.
  • No cash or non-cash donation is deductible unless the taxpayer has a receipt from the charity substantiating the donation.
  • Since contributions must be made to qualified organizations to be tax-deductible, donations made to needy individuals are not deductible.
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Is federal gift or estate tax due on my charitable gift?

Charitable gifts made pursuant to your will reduce the amount of your estate that is subject to estate tax. Lifetime gifts have the same estate tax effect (by removing the assets from your estate), along with the current income tax deduction.

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Some charities talk about planned or deferred giving. What is that?

Usually they are ways whereby both you (or your family) and charity enjoy your property or its income. The most popular are:

Life Insurance

You name a charity as a beneficiary of a life insurance policy. With some limitations, both the contribution of the policy itself and the continued payment of premiums may be income-tax deductible.

Charitable Remainder Trust

You transfer assets to a trust that pays an amount each year to non-charitable beneficiaries (for example, to yourself or your children) for a fixed term or for the life or lives of the beneficiaries, after which time the remaining assets are distributed to one or more charitable organizations. You get an immediate income tax deduction for the value of the remainder interest that goes to the charity on the trust’s termination, even though you keep a life-income interest. In effect, you or your beneficiaries get current income for a specified period and the remainder goes to the charity.

Charitable Lead Trust

You transfer assets to a trust that pays an amount each year to charitable organizations for a fixed term or for the life of a named individual. At the termination of the trust, the remaining assets will be distributed to one or more non-charitable beneficiaries (for example, you or your children).

You get a deduction for the value of the annual payments to the charity. You keep the ability to pass on most of your assets to your heirs. Unlike the charitable remainder trusts above, the charity gets the current income for a specified period and your heirs get the remainder.

Charitable Gift Annuity

You and a charity have a contract in which you make a present gift to the charity and the charity pays a fixed amount each year for life to you or any other specified person. Your charitable deduction is the value of your gift minus the present value of your annuity.

Pooled Income Fund

You put funds into a pool that operates like a mutual fund but is controlled by a charity. You, or a designated beneficiary, get a share of the actual net income generated by the entire fund for life, after which your share of the assets is removed from the pooled fund and distributed to the charity. You get an immediate income tax deduction when you contribute the funds to the pool. The deduction is based on the value of the remainder interest.

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Charitable Contributions: Frequently Asked Questions

How can I spot a charity scam?

These are some common-sense suggestions for avoiding rip-offs:

  • Try to avoid making a cash contribution. If possible make your donation using a check or money order made out to the charity-never to the individual soliciting the donation. If you do pay cash always get a receipt. Cash donations are not tax deductible without a receipt.
  • Ask for written descriptions of the charity’s programs and/or finances.
  • Don’t allow yourself to be pressured to donate immediately. Wait until you are sure that the charity is legitimate and deserving of a donation.

    Tip: Don’t forget to keep receipts, canceled checks and bank statements so you will have records of your charitable giving at tax time.

  • Don’t be misled by a charity that resembles or mimics the name of a well-known organization–all charities should be checked out.

Before giving, check on all charities with the local charity registration office (usually a division of the state attorney’s general office) and with the Better Business Bureau (BBB).

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What should I watch out for with mail solicitations?

Many charities use direct mail to raise funds. While the overwhelming majority of these appeals are accurate and truthful, be aware of the following:

  • The mailing piece should clearly identify the charity and describe its programs in specifics. If a fund-raising appeal brings tears to your eyes but tells you nothing about the charity’s functions, check it out carefully before responding.
  • Beware of fund-raising appeals that are disguised as bills or invoices. It is illegal to mail a bill, invoice or statement of account that is, in fact, an appeal for funds unless it has a clear and noticeable disclaimer stating that it is an appeal and that you are under no obligation to pay unless you accept the offer.

    Note: Deceptive-invoice appeals are most often aimed at businesses, not individuals. If you receive one of these, contact your local Better Business Bureau.

  • It is against the law to demand payment for unsolicited merchandise-e.g., address labels, stamps, bumper stickers, greeting cards, calendars, and pens. If such items are sent to you with an appeal letter, you are under no obligation to pay for or return them.
  • Appeals that include sweepstakes promotions should disclose that you do not have to contribute to be eligible for the prizes offered. To require a contribution would make the sweepstakes illegal as a lottery operated by mail.
  • Appeals that include surveys should not imply that you are obligated to return the survey.

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What should I watch out for with door-to-door solicitations?

When you are approached for a contribution of time or money, ask questions — and don’t give until you’re satisfied with the answers. Charities with nothing to hide will encourage your interest. Be wary of any reluctance to answer reasonable questions.

  • Ask for the charity’s full name and address. Demand identification from the solicitor.
  • Ask if the contribution is tax-deductible. Contributions to tax-exempt organizations are not always tax-deductible.
  • Ask if the charity is licensed by state and local authorities. Registration or licensing is required by most states and some local governments.

    Tip: Registration, by itself, does not mean that the state or local government endorses the charity.

  • Don’t give in to pressure to make an immediate donation or allow a “runner” to pick up a contribution.
  • Statements such as “all proceeds will go to charity” may mean money left after expense– such as the cost of fund-raising efforts– will go to the charity. These expenses can be big ones, so check carefully.
  • When asked to buy candy, magazines, or tickets to benefit a charity, be sure to ask what the charity’s share will be. Sometimes the organization will receive less than 20 percent of the amount you pay.

If a fundraiser uses pressure tactics– intimidation, threats, or repeated and harassing calls or visits-call your local Better Business Bureau to report the actions.

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How can I maximize my tax benefit from charitable contributions?

Many donors are not aware that their contributions may not be deductible, or that deductions may be limited. Here are the general rules:

When an organization claims to be tax-exempt, it does not necessarily mean contributions are deductible. “Tax-exempt” means that the organization does not have to pay federal income taxes while “tax-deductible” means the donor can deduct contributions to the organization. The Internal Revenue Code defines more than 20 different categories of tax-exempt organizations, but only a few of these are eligible to receive contributions deductible as charitable donations.

Tip: When in doubt, call us or the IRS (800-829-1040) about the deductibility of a contribution.

If you go to a charity affair or buy something to benefit a charity (e.g., a magazine subscription or show tickets), you cannot deduct the full amount you pay. Only the part above the fair market value of the item you purchase is fully deductible.

Example: You pay $50 for a charity luncheon worth $30. Only $20 can be deducted.

Donations made directly to needy individuals are not deductible. Contributions must be made to qualified organizations to be tax-deductible.

Contributions are deductible for the year in which they are actually paid or delivered. Pledges are not deductible they are paid.

Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.

For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.

To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgment requirement for all contributions of $250 or more.

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What are the most tax-effective ways of donating?

There are many ways to give money to charity. In fact, much of many charities’ revenues come from the “planned or deferred giving” techniques. A planned or deferred gift is a present commitment to make a gift in the future, either during your life or via your will. Aside from assuring your favorite charities of a contribution, planned or deferred giving brings with it tax benefits.

Charitable gifts by will reduce the amount of your estate that is subject to estate tax. Lifetime gifts have the same estate tax effect (by removing the assets from your estate), but might also offer a current income tax deduction.

If you have property that has significantly appreciated in value but does not bring in current income, you may be able to use one of these techniques to convert it into an income-producing asset. Further, you will be able to avoid or defer the capital gains tax that would be due on its sale — all the while helping a charity.

Many variables affect the type of planned or deferred giving arrangement you choose, such as the amount of your income, the size of your estate and the type of asset transferred (e.g., cash, investments, real estate, retirement plan) and its appreciated value. Not all charities have the resources to be able to offer more sophisticated arrangements.

Tip: These gifts are complex, so be sure to consult with both the charity and your financial advisor to determine how to best structure your deferred gift.

Here are some examples of planned and deferred charitable gifts:

Life insurance

You name a charity as a beneficiary of a life insurance policy. With some limitations, both the contribution of the policy itself and the continued payment of premiums may be income-tax deductible.

Charitable Remainder Annuity

You transfer assets to a trust that pays a set amount each year to non-charitable beneficiaries (for example, to yourself or to your children) for a fixed term or for the life or lives of the beneficiaries, after which time the remaining assets are distributed to one or more charitable organizations. You get an immediate income tax deduction for the value of the remainder interest that goes to the charity on the trust’s termination — even though you keep a life-income interest. In effect, you or your beneficiaries get current income for a specified period and the remainder goes to the charity.

Charitable Remainder Unitrust

This is the same as the charitable remainder annuity trust, except the trust pays the actual income or a set percentage of the current value (rather than a set amount) of the trust’s assets each year to the non-charitable beneficiaries. Here, too, you or your beneficiaries get current income for a specified period and the remainder goes to the charity.

Charitable Lead Annuity Trust

You transfer assets to a trust that pays a set amount each year to charitable organizations for a fixed term or for the life of a named individual. At the termination of the trust, the remaining assets will be distributed to one or more non-charitable beneficiaries (for example, you or your children).

You get a deduction for the value of the annual payments to the charity. You may still be liable for tax on the income earned by the trust. You keep the ability to pass on most of your assets to your heirs. Unlike the two trusts above, the charity gets the current income for a specified period and your heirs get the remainder.

Charitable Lead Unitrust

This is the same as the lead annuity trust, except the trust pays the actual income or a set percentage of the current value (rather than a set amount) of the trust’s assets each year to the charities.

Here, too, the charity gets the current income for a specified period and your heirs get the remainder.

Charitable Gift Annuity

You and a charity have a contract in which you make a present gift to the charity and the charity pays a fixed amount each year for life to you or any other specified person.

Pooled Income Fund

You put funds into a pool that operates like a mutual fund but is controlled by a charity. You, or a designated beneficiary, get a share of the actual net income generated by the entire fund for life, after which your share of the assets is removed from the pooled fund and distributed to the charity.

You get an immediate income tax deduction when you contribute the funds to the pool. The deduction is based on the value of the remainder interest.

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Should I make a planned or deferred gift?

When determining whether to make a planned or deferred gift to a charity, ask whether you are ready to make a commitment to invest in a charitable organization; despite the tax benefits, you will still be “out-of-pocket” after the deduction.

Some questions you should consider are:

  • Is the charity viable, reputable, creditable, and reliable?
  • Do you wish to support its programs?
  • Does the gift fit into your estate and family plan?

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Is it wise to give my time to charity?

Volunteering your time can be personally rewarding, but it is important to consider the following factors before committing yourself.

First, make sure you are familiar with the charity’s activities. Ask for written information about the charity’s programs and finances.

Be aware that volunteer work may require special training devotion of a scheduled number of hours each week to the charity.

If you are considering assisting with door-to-door fund-raising, be sure to find out whether the charity has financial checks and balances in place to help ensure control over collected funds.

Tip: Although the value of your time as a volunteer is not deductible, out-of-pocket expenses (including transportation costs) are generally deductible.

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How do charity thrift stores work?

There are three major types of thrift store operations:

  • Conduit-type shops are run by volunteer church and civic groups. These thrift stores generally distribute most of their proceeds to various charitable organizations, often community-based.
  • The second category of thrift operations is represented by service organizations such as The Salvation Army and Goodwill Industries. Here, the thrift stores are operated as part of their program activities through the goal of “rehabilitation through employment.”
  • The third category involves charities that collect and sell used merchandise to raise funds for their own use. This arrangement is popular for a number of veterans organizations and other charities. Such arrangements generally work one of two ways: (1) the charity owns and operates the store, or, (2) more commonly, variously charities solicit and collect used items, which are then sold to independently managed store(s) for an agreed-upon amount.

Tip: The “fair market value” of goods donated to a thrift store is deductible as a charitable donation, as long as the store is operated by a charity. To determine the fair market value, visit a thrift store and check the “going rate” for comparable items. If you are donating directly to a “for-profit” thrift store or if your merchandise is sold on a consignment basis whereby you get a percentage of the sale, the thrift contribution is not deductible.

Tip: Remember to ask for a receipt that is properly authorized by the charity. It is up to the donor to set a value on the donated item.

Tip: If you plan to donate a large or unusual item, check with the charity first to determine if it is acceptable.

If you are approached to donate goods for thrift purposes, ask how the charity will benefit financially. If the goods will be sold by the charity to a third party, an independently managed thrift store, ask what the charity’s share will be.

Tip: Sometimes the charity receives a small percentage, e.g., 5 to 20 percent of the gross, or a flat fee per bag of goods collected.

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How are tickets to charitable events treated?

Dinners, luncheons, galas, tournaments, circuses, and other events are often put on by charities to raise funds. Here are some points to consider before deciding to participate in such events.

  • Check out the charity. The fact that you are receiving a meal or theater tickets should not justify less scrutiny.
  • Remember, your purchase of tickets to such events is generally not fully deductible. Only the portion of your gift above the “fair market value” of the benefit received (i.e., the meal, show, etc.) is deductible as a charitable donation. This rule holds true even if you decide to give your tickets away for someone else to use.

    Tip: If you decide not to use the tickets, give them back to the charity. In order to be able to deduct the full amount paid, you must either refuse to accept the tickets or return them to the charitable organization. In this way, you will not have received value for your payment.

    Tip: Make donations by check or money order out to the full name of the charity and not to the sponsoring show company or to an individual who may be collecting donations in person.

  • Watch out for statements such as “all proceeds will go to the charity.” This can mean the amount after expenses have been taken out, such as the cost of the production, the fees for the fund-raising company hired to conduct the event, and other related expenses. These expenses can make a big difference and sometimes result in the charity receiving 20 percent or less of the price paid.

    Tip: Ask the charity what anticipated portion of the purchase price will benefit the organization.

  • Solicitors for some fund-raising events such as circuses, variety shows, and ice skating shows may suggest that if you are not interested in attending the event you can purchase tickets that will be given to handicapped or underprivileged children. If such statements are made, ask the solicitor how many children will attend the event, how they will be chosen, how many tickets have been already distributed to these children, and if transportation to the event will be provided for them.

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