Charity begins at home, but should not end there. – Thomas Fuller

In addition to money, many people give ‘stuff’.  Used clothing.  Outgrown toys.  The old couch.  As with money, as long as you give it to a qualifying organization, ‘stuff’ can qualify as a charitable contribution and be taken as a deduction on your income taxes.

Many people give their used stuff to Goodwill.  I think this is because the folks at Goodwill Industries have gone out of their way to make it easy for us to find them.  There are many other organizations that accept donations of stuff.  There is one that is very good at sending a truck to pick up, but according to my clients, fairly bad at providing any kind of receipt.  Be careful.

Ask not what your country can do for you, ask what you can do for your country. – John F. Kennedy

What exactly is a 501c3 organization?

This is IRS code for a properly registered and functioning charitable organization here in the United States of America.  You can look up most IRS qualifying charities with their Exempt Organizations Select tool.  “Most” is as close as you can get because a) the list is ever-changing, b) not all churches are registered because they are automatically tax exempt, and c) governmental units don’t have to register.

Real charities issue receipts, or acknowledgement letters, often disguised as mushy thank you notes.  The letter needs to specifically state the value of your charitable donation.  It needs to state something like “no goods or services were received in exchange for the donation.”  If possible, it will also state that the organization is a 501c3 organization.  Oh – and it has to have a date, and be issued before the taxes are due.

We make a living by what we get, but we make a life by what we give. – Winston Churchill

It happens every tax season.  I ask a new taxpayer about their charity, and I get, “Put me down for the maximum.”  Folks, I hate to have to tell you this, but there is no maximum.  There is no standard amount for charity that you can just use as a default, absent of any documentation or even actual giving.  I confess I sometimes wonder if it might be years and years of systematic abuse of line 19 that has driven the IRS to such nitpicking specificity for the documentation of this one deduction.

Let’s start at the beginning.

Here in the USA, a lot of taxes are paid, and in a variety of ways.  For income taxes, folks are still allowed a deduction for charitable giving.  This deduction is taken on Schedule A, lines 16, 17, 18 and 19.

It’s better to give than to receive.
– My mother (and possibly yours), transliterating Acts 20:35

Charity is people with more than they need, giving that ‘more’ to other people who don’t have enough.  Charity is recognizing that no matter how high you push the thermostat, you aren’t going to get more comfortable; no matter what you pay for your steak, the plate will be clean in 20 minutes; no matter how much gas your vehicle guzzles, the tank will soon be empty, and furthermore, recognizing there are plenty of other people with no heat, no food, and no way to get around – and then giving of your own time and/or money to do something about it.

Charity is sharing.

When start-up expenses don’t count

You know the perfect new business. It’s right up your alley. You spend nearly a thousand dollars on a fancy lawyer who registers your name, gets you a federal ID, and establishes you in Delaware (for tax purposes, of course!) as well as your home state. You even spring for a p.o. box and slick business cards. Maybe even buy a slim new top-of-the-line laptop.

But then life gets in the way. You meant to run ads. You wanted to hire a salesman. You were going to order inventory. Heck, you were going to make Real Money so you could quit the day job. But after three or four years…nothing.

Consider this. Let’s say I dig a foundation intending to build a house, but I never do anything beyond arranging for the delivery of several dozen pallets of block. Or I buy a dress pattern and cloth intending to make a dress, but after I lay it out on the table, I never even cut the cloth. Or I take books out of the library but don’t open them. Or I register for classes but never show up.

How to head off under-withholding penalties

Let’s say you run a business, and take a small salary.  And let’s say you had a great year!  If your business is an LLC or S Corp, or even a sole proprietorship, that great year is going to find its way to your personal 1040, and you’re going to have to pay tax on it.

But you’re already contributing with withholding from your small salary, right?  Isn’t that good enough?  Well, if it’s been enough in prior years, and this year is especially good, then probably not.  And not only will you owe income tax and self-employment tax, but you may be subject to underpayment penalties.

The IRS (and the State of New Jersey, as well as most other taxing jurisdictions) expects you to contribute “ratably” throughout the year, just like a W2 employee.  It goes like this:  a W2 worker has taxes withheld every time he or she gets paid.    If the paycheck is large, the government gets more.  If the paycheck is tiny, the government gets less.  But either way, the government gets its cut way before April 15.  And they want this from the self-employed community, too.

Are you ready?

Haunted Hayrides.  Reruns of creepy classics.  Grocery store clerks dressed up as Frankenstein.  It must be the scariest time of the year, right?

No.  The scariest time of the year, for way too many people, is tax season.  This is because way too many people fail to plan for the inevitable.  That’s right:  you’re going to pay taxes whether you like it or not, so why not take control of the situation?  Find out in advance what it’s going to look like.  See if there’s anything you can do, now, to ameliorate the situation.