Taxpayer asks:
Hello there and thank you for answering my question.
I am self employed and contributed nearly $8,000 in cash/non cash donations this past year (goodwill, church, habitat for humanity). When my friend did my taxes on her computer program it did not reflect a deduction upon entering in the charitable donation information.
I hve all proper documentation but I am wondering if there is some place in particular she has to put the amount on the form when not filing a long form?
Taxgirl says:
The short answer is that you have to use the long form.
The short form (1040-EZ) is a basic tax form for taxpayers who report wages, use the standard deduction and plan to claim no credits other than the earned income tax credit (EITC). You cannot claim itemized deductions on a short form.
Charitable contributions are itemized deductions. You report itemized deductions on a schedule A on your federal form 1040 on lines 16-19 (see below):
If your itemized deductions exceed your standard deduction ($5,450 if single and $10,900 if married filing jointly), you’ll want to claim the itemized deduction to get the bigger benefit. You should consider other deductions that might be included on Schedule A such as medical expenses, other taxes paid, casualty losses, job expenses and miscellaneous expenses to maximize your available deductions.
More importantly, however, than the charitable deductions issue is that if you’re self-employed, you can’t use the short form. You must use a long form (federal form 1040) if you had net earnings from self-employment of at least $400. You’ll need to file a Schedule SE to figure your self-employment tax – and you will likely want to file a Schedule C to claim business expenses against your business income.
Make sure you’re using a good computer program, like TurboTax or TaxAct, to walk you through these forms. If it’s still too confusing, consider hiring a tax professional.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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In recent weeks, I’ve received a flurry of emails from parents asking about whether band uniforms, soccer cleats and other expenses related to children are deductible. I thought it might be useful to have a checklist of some child-related deductions that you may be overlooking.
1, Child tax credit. If your modified AGI (adjusted gross income) is $75,000 or less for a single person or head of household ($110,000 for married taxpayers) and you have a qualifying child, you may be eligible for the child tax credit of up to $1000.
2, Child care expenses. If you paid qualifying child care expenses, you may be entitled to a tax credit for those expenses. For more details about what constitutes qualifying child care expenses, see my prior post.
3, Hope credit for college expenses. You may be eligible for a tax credit for your dependents who are college students in their first two years of college, provided that you are responsible for paying those expenses. The credit is up to $1,650 on the first $2,200 of college tuition and fees and is available for students engaged in study at least half-time.
4, Lifetime Learning Credit. You may be eligible for a tax credit of up to $2,000 on the first $10,000 of college tuition and fees for your dependents, provided that you are responsible for paying those expenses. This credit is available for students who take at least one course; the students need not be engaged in study at least half-time.
5, Tuition and Fees Deduction. Expenses for tuition, registration fees, and other required fees for your dependents who attend eligible educational institution (for example, most colleges, universities and vocational schools) may qualify for the Tuition and Fees Deduction. The deduction is limited to $4,000 per year. Your modified AGI must be less than $80,000 for a single taxpayer or head of household and $160,000 for married taxpayers.
6, Adoption Credit. If you have out of pocket expenses relating to adopting a child, you may be eligible for a credit of up to $11,650 per eligible child. Out of pocket expenses include adoption fees, legal fees, court fees and travel expenses; you are not eligible to deduct expenses that are reimbursed to you from any organization.
7, Medical and Dental Expenses. If you paid medical or dental expenses for your dependents, you may be able to take a deduction for the expenses that exceed 7.5% of your AGI.
8, Investment Fees and Expenses. To the extent that you pay investment fees, custodial fees, trust administration fees, and other expenses for managing investments that produce taxable income that is reported on your income tax return, those expenses are deductible. This includes fees related to income reported on your income tax return for investments in the names of your dependents.
9, Charitable Donations. While tuition payments for private and parochial schools are not usually deductible, donations of goods and cash may be. In fact, most schools (private, public and parochial) have 501(c)(3) status – if you’re not sure, just ask. If you make a donation of cash and goods that would otherwise qualify for a deduction, and you do not receive a benefit in return, the value of that donation is tax deductible.
Of course, this is just a short list and the expenses and credits listed may be subject to phase outs, eligibility requirements and other limitations. If you’re not sure whether these expenses or credits apply to you, ask your tax professional!
Every year about this time, I get a lot of questions about deducting sales tax paid versus state and local income tax paid on your federal income taxes. Mostly, this comes up because your pockets are stuffed with receipts and you’re wondering whether you should keep them.
First, the important part: this option has been extended through 2007.
Here’s what to consider:
1, If you live in a state with a relatively high state income tax like Minnesota, North Carolina or Wisconsin, you’ll almost always choose the option to deduct your state income tax as opposed to your state sales tax. Of course, that depends on your spending habits.
2, If you live in a state with no state income tax, clearly you are going to choose the option to deduct your sales tax. Those states include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
3, Everyone else has to do the math.
You can use the IRS sales tax calculator to figure your average sales tax expended – or you can actually tally your receipts to make the determination.
When you use the optional general sales tax tables, which is what the calculator figures for you, no receipts are required. The IRS just uses the average spending in your geographic area to figure the tax. You can add the tax on big purchases such as a car or home renovation to the total to figure your tax.
In Philadelphia, where I live, sales tax is 7% – that’s 6% for Pennsylvania and an extra 1% tacked on by the City because… well, why not? State and local taxes on income are much higher, believe it or not. While the state of Pennsylvania is just over 3%, Philadelphia likes to ramp up our taxes by almost another 5%.
Since the numbers are nearly the same, it doesn’t take a genius to realize that you’d have to spend roughly the amount that you make in order to hit the equilibrium. Clearly, that’s not the norm, so I decided to figure the difference between the sales tax using the IRS calculator and state and local income taxes paid. I used $100,000 only because it’s a nice round number. And for my experiment, I also assumed two exemptions (a typical married couple). According to the calculator, the sales tax deduction using the tables would be $1,056. The income tax for PA for the same amount would be approximately $3,000 and the Philadelphia tax would be approximately $5,000. Clearly, in this case, you would opt for the state and local income tax deduction (I always do).
But that “special items” exception keeps things interesting. If you do significant spending in your state during the year, you actually get a tax break – for shopping! Oh yeah.
So in the interest of helping hubby out with his end of the year tax planning, I would suggest that if we used the experimental numbers (which don’t really apply to us for a number of reasons, not the least of which is that we have five exemptions – and if I count my daughter’s imaginary friend who has been destroying our house, we qualify for six), the following would apply: the difference between the sales tax as calculated by the feds and the income tax works out to about $7,000. At a sales tax rate of 7%, this means that we’d need to spend more than $100,000 in order to benefit from this tax incentive – since that’s clearly what it is, an incentive. Why let it go to waste?
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