We have put it off until very late in the year, but today our family is rounding up clothing and household items to donate to charity.

Besides helping out with a good cause, the donation will give us a tax deduction.   Note: if your non-cash donation is greater than $500 you will be required to file a separate form 8283 with your tax return.

It is important to have a detailed record of the items you donate, both to obtain a receipt from the charity to whom you are making the donation, as well as for audit purposes.

The IRS only permits deductions for the fair market value of the items.  There is no official chart that you can consult for item valuation, but you should be prepared to back-up your numbers.

We will be contributing items to The Salvation Army and, their website provides a handy valuation guide for donations.  We will be using this to determine the value of our donated items.

The Salvation Army will provide you a receipt for your items in one of three ways:

1. If you drop off a donation at a local Salvation Army Family Thrift Store or Corps (worship and community center), the clerk or receptionist will be happy to provide you with a receipt.
2. If your items are dropped off at an unattended Salvation Army drop-box, an itemized list is required to receive a receipt. Your local Salvation Army Corps or Family Thrift Store can have a receipt made out for you once you bring this list to them. Please itemize your donations with the value next to them to claim them for your taxes. Your tax consultant will be the best resource for advice on how to itemize and submit this information.
3. If you have your donations picked up, the truck driver will provide you with a receipt.

Here is The Salvation Army’s chart for determining the value of donated items:

Originally posted on pfhacks.com: Valuing Donation Items

Times up!  Well, almost.  If you haven’t even started work on your 2007 tax return, it may be time to consider filing an extension.  The good news is that it is fairly simple and will buy you some additional time to get your act together.

The first thing you should know is that by filing an extension, you will get an additional six months to file your return.  This means that your filing deadline is moved forward from April 15, 2008 to October 15, 2008. 

Very important:  Filing an extension gives you extra time to get your tax return to the IRS, it does not give you more time to pay any amounts owed.  If you think you owe, send a check for the estimated amount with the extension.

With that little warning out of the way, lets take a quick look at the penalties you could face for not paying on-time.  You can be charged 5% per month on any amounts owed, up to a maximum of 25%.  If you do not pay taxes you owe when you file an extension, the penalty is 0.5% per month, plus interest.  As you can see, even if you don’t have the funds available to pay the taxes you owe, it is still in your best interest to file an extension.

You will file your extension using IRS Form 4868.  Here is a link to the IRS publication: Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return. 

Most tax preparation software can help you complete the form, or you can fill it out by hand and mail it in (it’s short).

Disclaimer:  The author of this post is not a tax professional, and the information provided, while believed to be accurate, is for educational purposes only.  Everyone’s tax situation is different, please consult a tax professional before acting on any advice on this site.

Originally posted on pfhacks.com: How To File An Extension

Here are some highlights:

The Department of the Treasury, Financial Management Service (FMS) will begin issuing approximately 130 million Economic Stimulus Payments on behalf of the Internal Revenue Service in early May 2008. The majority of the payments will be issued to eligible taxpayers during an 11-week period starting May 2nd and concluding on July 11th.

Approximately 30 to 45 million of the payments will be made by Direct Deposit to taxpayers who file a 2007 tax return and provide bank account information. Taxpayers who do not provide bank account information on a 2007 tax return will receive payment by paper check.

The majority of Economic Stimulus Payments by Direct Deposit will be completed by May 16, 2008, although payments by Direct Deposit will continue in smaller volumes through the end of calendar year 2008.

So, if you filed your 2007 tax return electronically, you should look for your stimulus rebate to be deposited directly into your checking account.

When will you receive your stimulus rebate? That depends on the last two digits of your social security number. Here is the IRS schedule for transmitting, or mailing, rebates:

DIRECT DEPOSIT

PAPER CHECK

Originally posted on pfhacks.com: Details On Economic Stimulus Payments

You have nine days left (coounting today) to get your 2007 taxes filed. It can definitely be hard to get started, but you don’t want to be staying up until midnight on the 15th trying to make the deadline.

Bankrate.com has a great 7-day plan to get you taxes filed on time, without overwhelming you with too much daily work. Here are the steps:

Day 1 – Gather data.
Day 2 – Reduce taxable income.
Day 3 – Find your forms.
Day 4 – Fill out your forms.
Day 5 – Take a break.
Day 6 – Check your work.
Day 7 – Sign, seal and deliver.

For details on each step, check out the full article on Yahoo! Finance.

Originally posted on pfhacks.com: Get Your Taxes Filed With This Seven Day Plan

Short Answer: NO.

I have read a lot of misleading stories on the rebate portion of the Stimulus Bill.  For instance, Liz Pulliam Weston, writing in MSN Money writes:

To produce this cash, Congress created a one-time tax credit to reduce taxable income for most taxpayers this year.

Normally, you wouldn’t see that cash until the spring of 2009, when you filed your 2008 return. But Congress wants to speed that money to you now, so checks will start going out in May.

Remember, this is your money you’re getting back, and the rebate checks are basically an advance on your 2009 refund. When similar rebates were sent out in 2001, said tax expert Mark Luscombe, "a lot of people were upset to see their (next) refund reduced."

While technically true, I find it misleading because this is not a deduction we were expecting.  It’s not like we are getting an advance on an existing credit.  This is a one time credit for the express purpose of putting more cash into consumers hands earlier. 

I found the best explanation in an article on CNNMoney.com:

Your rebate is a one-time tax cut – an advance on a credit you’ll receive on your 2008 return.

It’s based on your 2007 income initially. If it turns out that your 2008 income and number of children would have qualified you for a larger rebate than the one you received, you’ll be sent the difference. If it turns out your 2008 income was lower than in 2007 and you should have gotten a lower rebate, you get to keep the difference.

"If you were supposed to receive a larger payment than you did, you will get the extra money," said Treasury spokesman Andrew DeSouza. "If you received more than what you should have gotten, you will not be penalized."

Originally posted on pfhacks.com: Do We Have To Pay Back The Tax Rebate?

The final plan will cost an estimated $168 billion versus the $150 billion cost of the House plan.   The Senate plan included rebates for senior citizens and disabled veterans. 

Here’s the final breakdown:

• Most single filers will receive rebates of $600 while couples will receive $1,200, plus $300 per child under the age of 17.
• Rebates will begin to phase out for those with an adjusted gross income of $75,000 for single filers and $150,000 for those filing jointly.
• Anyone with an earned income of at least $3,000 will receive a check for $300.
• Senior citizens drawing Social Security will receive $300, even if they paid no income tax.

Additionally, the stimulus plan will include tax breaks for businesses that will cost an estimated $50 billion.  The business benefits include: accelerated deprecation for equipment purchases and the ability for small companies to write off a greater number of expenses.

Originally posted on pfhacks.com: Details on Final Stimulus Bill

The Senate failed to pass their expanded version of the House stimulus plan last night.

From The Wall Street Journal:

Supporters of the Senate bill fell one vote short of the 60 needed to advance it, as most Republicans stuck together to oppose a plan for rebate checks of at least $500 to an estimated 135 million households in this election year. Eight Republicans broke with their leadership and supported the bill, including four who are up for re-election.

In order for the Senate to meet their goal of presenting a bill to President Bush by mid-month, it now appears they will need to more closely align their package with the one passed by the House.

The Senate bill had proposed expanding the benefits to $205 billion over two years, from the House plan that would cost an estimated $161 billion. The added proposals would have provided additional benefits for Social Security recipients and disabled veterans, as well as extending unemployment insurance and giving tax breaks to companies with operating losses.

Originally posted on pfhacks.com: Latest News On The Stimulus Bill

As a follow up to my details of proposed stimulus bill post, the Wall Street Journal is reporting that changes passed by the Senate Finance Committee, including tax breaks for renewable energy and struggling businesses, are not expected to have enough votes to pass the Senate.

Another amendment proposing funding for food stamps and extensions of unemployment benefits is also likely to fail, the Journal reports.

This means that the original House plan will main largely intact, as this legislation continues to move forward at a brisk – for Washington, at least – pace.

Originally posted on pfhacks.com: Stimulus Bill Likely To Be Unchanged By Senate

UPDATE: The House and Senate have passed the final version of the Stimulus Bill. You can read the details in this post: Details on Final Stimulus Bill.

Congress and President Bush appear to have made a final agreement on the contents of the forthcoming economic stimulus bill.

Highlights:

• Tax rebates of at least $300 to anyone earning a paycheck, including low income earners that pay little to no income tax.
• Families with children would receive an additional $300 per child, capped at $1,200.
• Rebates would also only go to families with incomes less than $150,000, and individuals earning less than $75,000.
• New Business tax deductions including:
  • Advantageous changes in depreciation of assets.
  • Rule changes to allow small businesses to recovery previous taxes paid, if they are currently suffering losses.
• And here’s the really big one to me: Allow Fannie Mae and Freddie Mac to purchase home mortgages greater than their current limit of $417,000. This limit would be increased up to $700,000 in areas with the highest home prices. This would be great news for those living in areas with very expensive real estate markets, as it should lower the cost of borrowing, and provide more liquidity.

Conclusion:

It looks like both sides compromised on this deal. The Democrats wanted to extend food stamps and unemployment benefits, while the Republicans did not want rebate checks going to individuals and families that didn’t pay income tax in the first place.

Personally, I’m very concerned about the costs. My understanding is that the budget deficit for 2008 is estimated to be $250 billion before the stimulus package. This agreement, in its current form is estimated to cost $140 billion. That means the US will need to borrow $390 billion this year to fund its spending. Oh, and don’t get me started on the unfunded Social Security or Medicare liabilities.

While I’m not an economist, I have to wonder from a common sense point of view, if it makes since for an individual, or a government, to continue to borrow from tomorrow, to pay for today.

Originally posted on pfhacks.com: Details of Proposed Economic Stimulus Bill

I would like to propose that you should also apply similar thinking to your income. You should “Earn smarter, not harder”.

I recently read a post on My Money Blog, titled: Save More vs. Earn More: A Dollar Saved Is Two Dollars Earned. In it, the author points out that due to regular income taxes, a person in the 25% tax bracket can expect to keep around $0.58 for every dollar earned. This means that for every dollar this person spends, they would need to earn two dollars. The message here is saving is a good thing, and I agree.

That being said, earning more money is also good thing. Unless the tax rate is 100%, the more income you take in, the more money you have to save and invest.

To earn smarter you should, over time, focus on earning an increasing percentage of your income from sources that offer the lowest tax rates. Here are some ways to earn smarter:

Roth IRA – Contributions to a Roth IRA are made with after tax dollars, and the earnings grow tax free. After tax dollar value of income earned in a Roth IRA:

$1 Earned = $1 Retained

Dividend Income: The current qualified dividend tax rate (set to expire in 2011), on all but the lowest tax brackets, is 15%. After tax dollar value of dividend income:

$1 Earned = $0.85 Retained

Long Term Capital Gains - A capital gain, is the profit you make, when you sell an asset, such as real estate, or a stock, for more than its purchase price. If you held this asset for longer than one year, the gain is taxed at the long term capital gain rate. That rate is currently 15% (which is also set to expire in 2011). After tax dollar value of long term capital gain income:

$1 Earned = $0.85 Retained

As you can see, earning income from these three methods is more preferable than earnings provided by regular income.

As with all things tax related, exceptions always apply. Please speak with your tax advisor before embarking on any investment plan.

Originally posted on pfhacks.com: Earn Smarter, Not Harder