One of my well-paid physician clients was so bothered by the
extension of the Bush tax cuts back in December that he sent a check to the US
Treasury to apply towards the skyrocketing national debt. As it turns out,
that payment is tax deductible as a charitable donation, so he
ended up getting back one-third of the money he sent to the government as
part of his tax refund.
Most people are aware that they can deduct donations made to a charitable
organization. Did you know that
donations made to a local, state, or federal government count
too? According to the IRS in
Publication 526, Charitable Contributions, qualified charitable organizations include:
The United States or any state, the District of Columbia, a U.S.
possession (including Puerto Rico), a political subdivision of a
state or U.S. possession, or an Indian tribal government or any
of its subdivisions that perform substantial government
functions. Note. To be
deductible, your contribution to this type of organization must
be made solely for public purposes.
Example 1. You contribute cash
to your city's police department to be used as a reward for
information about a crime. The city police department is a
qualified organization, and your contribution is for a public
purpose. You can deduct your contribution.
Example 2. You make a voluntary
contribution to the social security trust fund, not earmarked
for a specific account. Because the trust fund is part of the
U.S. Government, you contributed to a qualified organization.
You can deduct your contribution.
Wondering how to make your payment to the national debt?
For starters, how much do you want to give? Let's assume
that each American wants to help pay down the US debt, and all 300 million people send in $100.
That would reduce our
$14 trillion debt by just $30 billion.
You would think so many people giving money to the government
would knock down the debt by more than 0.2%.
Even so, if you are equally apprehensive by the current situation
as my client is and are willing to make a small dent in the federal
debt, here are the instructions as provided by the federal
you make a contribution to reduce the debt?
are two ways for you to make a contribution to
reduce the debt:
You can make a contribution online either by
credit card, checking or savings account at
You can write a check payable to the Bureau of
the Public Debt, and in the memo section, notate
that it's a Gift to reduce the Debt Held by the
Public. Mail your check to:
Attn Dept G
Bureau of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188
case you're wondering:
population of 300 million and a debt of $14
trillion, each American now owes a whopping
$46,666.67. To quote Benny Southstreet from
Guys and Dolls, "That's a lot of lettuce."
As we wrote in our
June 2010 Monthly Newsletter, Congress enacted two new tax
breaks for small employers last winter. The first was the HIRE
Act, which exempted employers from paying the 6.2% social security match on wages paid to any qualified
employee between 3/19/10 and 12/31/10. This tax break equaled $620 for every
$10k of wages earned by qualified new hires.
The second tax credit is for small
employers who provide health insurance for their staff. This tax credit is
equal to up to 35% of the health insurance premiums paid during the year.
Which employers are eligible for the small business health care tax credit?
employers that provide health care coverage to their employees and that meet
certain requirements (“qualified employers”) generally are eligible for a
federal income tax credit for health insurance premiums they pay for certain
employees. In order to be a qualified employer, (1) the employer must have fewer
than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the
average annual wages of its employees for the year must be less than $50,000 per
FTE, and (3) the employer must pay the premiums under a “qualifying arrangement”.
4. Can a
household employer be a qualified employer, even if not directly engaged in a
trade or business?
A. Yes. For tax
years beginning in 2010 through 2013, an employer may still be a qualified
employer even though the employees of the employer are not performing services
in a trade or business.
employ a nanny and pay
health insurance for that employee, make sure to complete and attach a
to your federal tax return to take advantage of this new tax break. For more information about completing that
form, check out the
instructions to Form 8941 .
Did you convert all of your
IRAs to a Roth IRA during 2010? If so, don't forget to continue to contribute to
your non-deductible traditional IRA each year, and then immediately convert that
account to your Roth IRA.
Back in 2006, President Bush signed
the Tax Increase Prevention and Reconciliation Act into law. This Tax Act
included a provision that eliminated the income limitation for people looking to
convert their IRAs and other eligible retirement accounts to a Roth IRA as of
As we wrote in our June 2006
Limitation for Roth Conversions Disappears in 2010: Under the current
rules, you can only convert your IRAs to a Roth IRA if your income is less than
$100,000. The same threshold of $100,000 applies to single individuals and to
married couples alike. Starting in 2010, the income limitation disappears, and
anyone can convert their IRAs to a Roth IRA. For 2010 Roth conversions, you'll
also have the option to pay the taxes due in 2010, or to spread the tax
liability over two years starting in 2011.
What's interesting is that many
people misread this rule and figured that this opportunity would only be available
through the end of 2010. While the one provision that allows for you to
elect to split the income from the Roth Conversion over the following two tax
applies to 2010 only, there is no mention that the $100k income threshold
returns in 2011.
Starting in 2010, there is no rule
prohibiting high-income taxpayers from completing a Roth Conversion each year.
So while married couples who earn more than $179k and single individuals who
earn more than $120k can't contribute directly to a Roth IRA, those who have no
other IRA money can indirectly contribute to a Roth without owing any taxes.
Just make sure to first contribute
$5k into a traditional IRA, and then convert that IRA to a Roth IRA soon after.
As long as you have no other traditional IRA, SEP IRAs, or SIMPLE IRAs, you
shouldn't be taxed on this Roth Conversion.
I'm not sure that was the intent of
this provision of the Tax Act when issued back in 2006. But these
are the rules as they currently stand, so you might as well use this two-step
approach to fund your Roth IRAs until Congress decides to change this rule down
For 2010, the standard deduction for a single individual is $5,700 and
for a married couple is $11,400. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2010, the personal exemption is $3,650.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $106,800
for 2010 and 2011.
The standard mileage rateis $.51 per business mile as of
January 1, 2011, up from $.50 per mile for 2010.
The maximum annual contribution into a 401(k) plan or a
403(b) plan is $16,500 in 2010 and 2011. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for 2010. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2011 to make your 2010 IRA
In a shocking development, the IRS recently
announced that they will be honoring the FICA tax refunds submitted by
residency programs and individual doctors. The catch is that only FICA
taxes paid prior to 4/1/05 qualify.