tax time

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Americans donate billions of dollars each year to nonprofits — both at home and abroad. That money is essential to helping those nonprofits carry out their missions.

But how do you know that money will be used the way you want?

If you’re donating money to a charity, take a minute to make sure you know where your money is going first.

3 Things to Consider Before Donating Money to a Charity

If you have the money to make donations — or even if you don’t, but feel strongly about a certain cause — it’s important to evaluate the charity first.

Are donation dollars helping support a worthy cause — or supporting high administrative costs?

You want to get the most out of your donation dollars. Here are some tips to help.

1. Make Sure You’re Donating to a Legitimate Organization

It never hurts to check out the charity’s profile on a watchdog site such as Charity Watch or Charity Navigator.

You can search the organization and find its address, mission statement, tax filing status and total expenses vs. total contributions.

Charity Watch will also tell you how much it cost the charity to raise $100, which can be a sign of the organization’s efficiency (or lack thereof).

Charity Watch gives organizations a letter grade, like A, B or C. Charity Navigator rates organizations on a scale of one to four.

2. Know Where Your Money Is Actually Going

You don’t want your hard-earned money to go into someone else’s pockets — unless that’s who you donated it to.

The number that can help you understand where your money is going is called the program efficiency or expense ratio.

Higher efficiency ratios are a good thing. They illustrate a charity’s productivity in providing services in line with its mission.

A general rule of thumb: The most efficient organizations spend at least 75% of their budgets on programs and services, with the rest going toward administration and fundraising costs.

Finding the spending ratio is super simple. Go to Charity Watch and search for an organization. You’ll see a “program expense ratio” that reflects the total expenses a charity spent on programs relative to overhead.

3. Take Note of the Group’s Nonprofit Status for Your Taxes

When you make a donation, check to see if it’s tax deductible. This is important to some donors because donation dollars can be deducted from taxable income. That means it won’t be taxed.

To determine the status of your monetary contribution, look for the charity’s tax status.

You can find an organization’s tax status on Charity Watch or Charity Navigator. Or simply go to the organization’s website, the IRS or GuideStar.

The two most common tax statuses for charities are 501(c)(3) and 501(c)(4).

A 501(c)(4) donation is generally not tax deductible, while donations to 501(c)(3)s are.

As a result, if you’re trying to get a tax break, look for a 501(c)(3) organization before you make your donation.

The IRS has a great resource about charitable donation deductions for those looking to save money at tax time. Read up!

But remember: You can only claim charitable donations if you itemize your taxes. And most Americans don’t itemize.

According to The Tax Foundation, about 87% of Americans took the standard deduction in 2019 instead.

For the 2022 tax year, the standard deduction is $12,950 for an individual, $25,900 for married couples and $19,400 for heads of household.

That means your deductible expenses — including your charitable donations — will need to equal more than $12,950 (or $25,900, if you’re married and filing jointly) to be able to take advantage of a charity tax benefit.

For many of us, that will not be the case.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. Carson Kohler is a former staff writer.

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Source: thepennyhoarder.com

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By Peter Anderson 7 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited January 11, 2012.

Last week I talked about a new Lending Club video training course that was just launched by Peter Renton of Social Lending Network. The course goes in depth about how to make wise investing decisions when using Lending Club, and how you can optimize your holdings to get the best possible returns.

If you follow his advice to the T, I’m pretty sure that you’ll be seeing some good positive returns in your account.   If you do in fact make interest and fees in your account, one thing you’ll need to think about is how you’ll be paying taxes on that interest income when it comes to tax time. Remember, you DO have to pay taxes on those earnings!

I’ve been thinking about this lately as I have made more with my account this year than in previous years. Figuring out how much you’ll need to pay in taxes on those earnings can be confusing. So today I thought I’d look at Lending Club and taxes.

Lending Club: Is It Taxable Income?

If you’re using Lending Club, the first question we need to ask is whether or not the interest income is taxable at all.  The easy answer is that yes, the income is in fact taxable.  Depending on when your loans in your account originated, you may be getting a 1099-INT or a 1099-OID to report it.  You may not be getting either of those forms – which is where this gets confusing.  We’ll go into which loan types and origination dates have which reporting forms in a moment.

To get started, however, you’re going to need a few things from your Lending Club account’s statements page.

  • Your monthly account statements
  • Your yearly account statements
  • Your tax statements

Lending Club Taxes

Lending Club Taxes

How Will Interest Income Be Reported For Lending Club?

Depending on when your loans originated you could be receiving either a 1099-INT or a 1099-OID.

  • If you’ve been investing for a while and your loan(s) originated prior to October 14, 2008, you will receive a 1099-INT if the total interest you earned in 2010 for all these loans was greater than $10.
  • If your loans originated after October 14, 2008 you will receive a 1099-OID (Original Issue Discount) to report interest income received on notes where the total interest on that note is in excess of $10.

Here’s where things can get confusing. If you have diversified your holdings across a variety of $25 loans like I have within your Lending Club account, you may not receive either a 1099-INT or 1099-OID at all as you may not have reached the $10 threshold on interest earned on that particular loan.  That, however, doesn’t mean that you shouldn’t be reporting that interest income.  Just that you won’t be getting a 1099 to give you a quick and easy number to report doesn’t mean the IRS won’t come after you if the unreported income comes to light.

How To Report Interest Income From 1099-OID

If you do in fact receive a 1099-OID, you’ll need to report that income on your taxes.

You can report it on Schedule B, Line 1. Want more details about reporting that income, you can find specific details in publication 1212. Page 6 has a section called “how to report”.

Once you get the 1099-OID you’ll want to reconcile the numbers on that form with your year end statement mentioned above to make sure they match.  If they don’t  (and they probably won’t if you invest in individual $25 loans like I do) you’ll need to add on any additional earnings to Schedule B that weren’t reported when you do your taxes.

How To Tabulate Net Earnings

So how do you tabulate your net earnings from your Lending Club account?  You need to take the total of your interest income (reported and non-reported) plus income from fees,  minus losses from charged off loans and minus the servicing fees.

  • Taxable earnings = Interest income + late fees – defaults or charge offs – servicing fees.

To figure out your taxable earnings you’ll just need your year end statement  to get the interest income, late fees and defaults.

The servicing fees, however, aren’t included on the year end statement. For that you’ll need to go to each of your monthly account statements (page 2) and get the servicing fees from there.  It would be nice if they reported that on the year end statement as well, but they currently don’t.

If you had charge-offs (which I don’t), I’ve read elsewhere that you can claim the capital loss on Schedule D by reporting it as a bad personal debt.  As with anything – verify this information for yourself before completing your taxes.

Haven’t Opened A Lending Club Account Yet? Do It Here.

Have you reported interest income on a Lending Club loan before? Tell us your experience in the comments.

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Source: biblemoneymatters.com

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Save more, spend smarter, and make your money go further

Maybe you just graduated college, or you scored your first “grown-up” job, and now you’re looking for a car that suits your transportation needs. Whatever your situation is, there are a lot of factors to think about before purchasing your first car — the most important one being your budget. Be sure to consider these five things to help you decide whether you can fit the cost of a car into your new monthly budget.

1. Your income

The most important factor that affects your bottom line when it comes to purchasing your first car is your monthly income — especially if you’re buying a brand-new ride. Car payments can be pretty hefty, and if you’re not sure about what you can foot out of pocket each month, it can spell trouble down the line.

It’s a good idea to pay as large a down payment as you can comfortably afford so that you can score lower monthly payments. Experts recommend a down payment of at least 20 percent of the vehicle’s total cost.

Before you head to the dealership, think hard about how much you can realistically budget for your car payment each month, in addition to how much you can set aside for routine maintenance and repairs. Even if you’re buying an older, inexpensive car without a monthly payment, it’s still imperative to have some savings in case issues crop up.

2. Your credit score

If you’re new to this whole “being an adult” thing, you might not have much credit. But establishing a solid credit score is crucial to your car budget, since it directly affects your interest rates when financing your first vehicle. Scoring a good interest rate can save you hundreds — if not thousands — of dollars.

If you don’t have any credit, or you have a credit score that needs some improvement, be wary of dealership salespeople who may try to talk you into a longer financing term. You’ll end up paying significantly more interest over the course of the term, which can negatively impact your future finances.

3. Your financing options

If you’re not purchasing your first car outright, you’ll have to finance it in some way. It might seem strange to shop for loans before you go car shopping, but it’ll give you a better idea of what kind of interest rate and loan amount you can expect once the time comes to secure a financing option.

Compare rates from your bank or credit union to other lenders to see who offers the best option for you. If possible, it’s smart to get pre-approved for financing before you walk into the dealership — that way, you know the cards are stacked in your favor.

If you have little or no credit, you may find that it’s best to wait on your car purchase until you’ve improved your score so that you can get a better interest rate. You’ll be able to better afford your vehicle in the long-term.

4. Your research

While researching cars that you’d like to take a look at and test drive, it’s wise to focus on practicality versus the latest sports car. In other words, prioritize what you absolutely need out of a vehicle rather than what you want. This keeps your car payments lower and helps reduce other ownership costs, such as routine maintenance, repairs and fuel expenses.

Look for vehicles that have a solid track record of safety, reliability and inexpensive maintenance. Reference trustworthy sources, such as Edmunds.com, Kelley Blue Book, J.D. Power and Consumer Reports, to find honest reviews and helpful information.

Make sure you also compare prices across multiple dealerships for each vehicle you’ve got your eye on to ensure you get the most bang for your buck.

5. Insurance rates

Once you’ve narrowed down a list of vehicles to shop around for, call around or go online to compare car insurance quotes for each one. It’s key to incorporate your monthly insurance cost into your budget. Not only is liability insurance required in the vast majority of states, but most lenders also require that you carry comprehensive and collision coverages (a.k.a. “full coverage”) for the life of the loan.

To get the most accurate auto insurance quotes, there are a few pieces of information you should have handy:

  • Year, make and model of each vehicle you’re getting quotes for
  • Your social security number, which allows insurers to pull your credit-based insurance score
  • Your driving record and insurance history (if you have one)
  • Your coverage and deductible needs, plus any optional coverages you’d like to carry
  • Purpose of the purchase — whether you’ll be using the car for business, commuting or pleasure
  • Safety and security features on each vehicle, which can score you discounts
  • Vehicle identification numbers (VINs), if possible
  • Address where you’ll be garaging the car (usually your home address)

Though this may seem like a lot to consider when deciding how to include your new car purchase in your monthly budget, it’s best to think about these things ahead of time. You’ll be sound in your purchasing decision and sound with your finances — a win-win!

Haden Kirkpatrick is the director of marketing strategy and innovation at Esurance, where he is responsible for all initiatives related to product and service innovation. He manages the annual planning processes for the marketing and service business units. Haden is an innovator who is constantly thinking about how IoT, blockchain and machine learning will impact the insurance industry. He is also a mobile guru, aspiring yogi and mixed martial artist.

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Tax season has just come to an end, but that doesn’t mean you shouldn’t be preparing for next year. In fact, if you organize yourself throughout the year, you will have less work to do next year, and you will be more likely to plan for credits and deductions that can help you reduce your tax liability. (Of course, before you make any tax moves, you should consult a tax professional who can help you determine what might be best for your situation.) If you are a freelancer, it is especially important that you consider your tax situation, and remain organized throughout the year. Here are some tax tips for freelancers to consider:

Separate Business from Personal

The first thing you have to do as a freelancer, whether you are a sole proprietor, or whether you set up some sort of a business (LLC or S-Corp.), is recognize the difference between business and personal. If you want to deduct something as a business expense on your taxes, you had better make sure that it is, in fact, a business expense.

If you are using it for something else part of the time, it is not a business expense. One of the few exceptions to this real is your Internet service, in which case you can estimate how much of the Internet time in your home is used for business activities and use that percentage to figure your business expense related to online use.

It is a good idea to open a separate account for business purposes. Some banks won’t let you open a business account unless you are a registered as a business organization. But, even if you are a sole proprietor, you can open a second personal account and use that for your business activities. Even if you use your freelancing as your income, it is a good idea to have your freelance earnings deposited first into the account you designate for business, and then move the money (by writing a check or some other transfer) into your personal account. Make business purchases for supplies, travel and other business expenses, using your business account, and do not make personal purchases using your business account.

Keeping all of this separate will show that you are conscientious, and if an IRS audit does happen, it will be easier to document your business expenses.

Use Financial Software

One of the best ways to get organized is to use financial software. Most financial software programs allow you to keep track of multiple accounts. You can use the financial software to track how you move money from your business account into your personal account, and you can use category tags to help you keep track of specific expenses, making your Schedule C form easier to fill out. Here are the most common expense categories that freelancers come across, as listed on Schedule C (which you use if you are a sole proprietorship — if you are an S-Corp. or LLC, you will use another form):

  • Advertising
  • Insurance (not health)
  • Legal and professional services
  • Supplies
  • Travel
  • Utilities
  • Repairs and maintenance
  • Other Expenses

There are other categories on Schedule C; look over them and set up the expense categories on your financial software to correspond with what’s on the tax forms. Note that health insurance premiums can be deducted above the line on the front of your Form 1040, if you are paying for individual insurance yourself. (If you are reporting a net profit of zero or a loss, you will have to itemize your health insurance premiums instead of using line 31.)

Keep Documentation in One Place

Have a specific file for business expenses. Keep receipts and other documentation in this file, keeping it all together, throughout the year. If you write reviews, and bought a movie ticket, make sure to keep the receipt, and then print out a copy of the review to show that you did use the experience as part of your freelance work. The same rules apply for conference attendance and related expenses. Make sure that you have something to back up the receipt.

Keeping your business expense documentation in one file makes it easy to retrieve it at tax time, and it will help you keep an eye out for proper deductions. When your tax return is filed, keep your documentation with your copy of your tax return. I like to put it all in one large manila envelope labeled with the tax year.

This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.

*Please consult tax advisor for advice on specific situations.

Source: goodfinancialcents.com