Haitian Relief Contributions Made Before March 1, 2010 Can Be Deducted in Either 2009 or 2010
Written by Doug Beecher, MBA, CPA
President Obama signed Public Law 111-126 on January 22, 2010 allowing individuals who make cash charitable contributions for relief of Haitian earthquake victims to choose to claim a tax deduction in either 2009 or 2010, giving donors the opportunity to choose which year will give them a bigger tax savings.
In addition, the normal rules requiring documentation for charitable contributions have been relaxed. Donations can be made by check, credit or debit card, or even by text message. A cancelled check, credit card statement, or telephone bill will satisfy the IRS recordkeeping requirements for Haitian earthquake relief contributions if it shows the name of the donee organization, the date, and the amount of the contribution.
Increasing Your Tax Deductions for Medical Expenses
Written by Doug Beecher, MBA, CPA
Only a few people get to take the traditional medical deduction on their tax returns. First it requires itemizing deductions. Next, you have to subtract 7.5% of your income from your out-of-pocket medical expenses. If there is anything left when you are done subtracting, you get a tax deduction for only the difference. For example, if you itemize deductions and have $3,500 in medical expenses and $40,000 of income, your medical expense deduction will be $500. This is because 7.5% of $40,000 is $3,000, which leaves $500 when subtracted from your total medical expenses of $3,500.
There are several opportunities to claim car or truck expense as a deduction on your income tax return. Most people are familiar with the standard mileage rates, which for the 2009 tax year were 55 cents per mile for business, 24 cents for medical or moving purposes, and 14 cents per mile for charitable purposes. In many cases, you may be able to claim a bigger car write-off than just what the standard mileage rates provide.
That is a personal decision, depending mostly on how much you need the tax write-off now. But consider a person in the 25% tax bracket who starts an IRA at age 40 and contributes $3,000 a year until age 70. Assuming an average 8% annual return, the IRA will grow to over $300,000. Over the years, you will pay about $23,000 in taxes on the income you put in the Roth. If you choose a traditional IRA, you can expect to pay about $89,000 in taxes on your withdrawals at retirement.
I have created a Microsoft Excel spreadsheet that allows me to put in the specific facts for you such as tax bracket, annual contributions, years remaining to retirement, and estimated annual rate of return. This spreadsheet will then calculate the expected taxes under both a Roth and a traditional IRA. Please call or e-mail us if you would like to schedule a time to discuss your options with us personally.
One of the reasons I recommend that you have sufficient money on reserve for emergencies is that it helps you avoid the temptation to take an early withdrawal from your traditional IRA when one of the unexpected events of life hit you. In most cases, if you are under age 59 1/2, you must pay ordinary federal and state income tax, plus a 10% additional tax, on any distribution from your traditional IRA. If you have to file a California tax return for any reason (sometimes even as a non-resident), you will probably have to pay that state a 2 ½ % additional tax on top of everything else. I have seen way too many cases where people have 20% of their distribution withheld for tax, thinking that is a lot, but at least their tax is covered. Then when the actual tax works out to be 40% or even 50% of their IRA distribution, they owe thousands more when they file their tax return, which they don’t have.
I urge you to find other ways to pay for life’s unexpected events besides taking money out of your IRA early!
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President Obama signed Public Law 111-126 on January 22, 2010 allowing individuals who make cash charitable contributions for relief of Haitian earthquake victims to choose to claim a tax deduction in either 2009 or 2010, giving donors the opportunity to choose which year will give them a bigger tax savings.
