This is the sixth and final article in a series about the various approaches that some groups and individuals use for justifying not paying federal income tax to the Internal Revenue Service (IRS).  The first five articles in this series addressed objections to the paying of federal income tax based on the following areas:

• the “voluntary” nature of paying federal income tax,
• the definition of income in the Internal Revenue Code,
• the meanings of various terms in the Internal Revenue Code
• potential conflicts within constitutional amendments, and
• the first part about the IRS’ basis for authority to collect tax.

Keep reading to learn more about the fifth basis for objections to paying federal income tax.  After reading each of these articles, if you have questions about any of the objections outlined in these articles, any other area of federal income tax law, use of a tax credit, or your own federal income tax return, you should speak to a tax attorney.

Fifth Argument Against Paying Federal Income Tax:  Basis for Authority

As noted above, this write-up is the second of a two-part subseries about how some believe the Internet Revenue Service (IRS) has no authority to collect or enforce the collection of federal income taxes under the Internal Revenue Code.

People can complete “untaxing” packages so they are no longer obligated to pay federal income tax to the Internal Revenue Service (IRS)

This approach claims that you can buy and complete a package of materials that “untax” you, meaning you will be removed from the Internal Revenue Services’ (IRS’) systems and will no longer have to pay federal income tax.

But such packages are really just a way for some to make a quick buck off of others at their expense.  These packages claim many of the various approaches outlined in this series of articles, all of which are illegal and will not get you out of paying federal income tax but rather will leave you paying additional taxes and interest.

A special type of entity known as a “corporation sole” or “ministerial trust” can be created that has legal ownership of your income and is not taxable

In the case of this argument, a “corporation sole” or “ministerial trust” are actual entities that are designed for religious leaders to hold property and conduct religious activities.  But people use these entities in an attempt to avoid paying taxes by claiming to be religious leaders or other persons, whose income is that of the corporation sole and therefore not taxable as a 501(c)(3) organization.

But a corporation sole is for use by a legitimate religious organization, not an individual, and such attempts by people to use a corporation sole to avoid federal income tax have not proven successful.

The fuels tax credit is available to reduce the tax burden of anyone who did not purchase and use fuel for an off-highway businiess

This approach supports that a section 6421 fuels tax credit is available to many people who do not qualify based on their occupation, level of income, type of vehicle, use of vehicle, and amount of use.

While the section 6421 fuels tax credit is a legitimate tax credit, it is available only to off-highway business using certain power and construction equipment.

Form 1099-OID can be used to pay debts or otherwise obtain money from the Treasury

Those who support this approach believe that Form 1099-OID, Original Issue Discount, can be used to satisfy debts they owe by tapping into a secret fund created by the Treasury Department.

But the purpose of Form 1099-OID is to report the original issue discount of holders of certain OID obligations such as certificates of deposit, bond, time deposits, and like vehicles with a term of more than one year.  Form 1099-OID is not a legitimate method of paying debt or withdrawing money from the Treasury, as the Treasury does not maintain such accounts on behalf of individuals.

Legal Assistance

If you need help with your federal income tax returns, get the help you need by speaking with a tax attorney.  As you can understanding after reading this series of articles, there is a lot of inaccurate information out there about federal income taxes and what you can and cannot do legally.

Related articles

• Charitable Contributions and Federal Income Tax, Part 2 (taxlawhome.com)
• Federal Income Tax: Reducing the Amount you Pay (taxlawhome.com)
• Itemized Deductions and Federal Income Tax (taxlawhome.com)
• Federal income tax significant events, Part 9 – Bankruptcy (taxlawhome.com)
• Self Employed Individual and Income Tax (taxlawhome.com)

Need Help with your Unpaid Taxes?

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This is the fifth write-up in a series about the various approaches that some groups and individuals use for justifying not paying federal income tax to the Internal Revenue Service (IRS).  The first four articles in this series addressed objections to the paying of federal income tax based on the following areas:

• the “voluntary” nature of paying federal income tax,
• the definition of income in the Internal Revenue Code,
• the meanings of various terms in the Internal Revenue Code, and
• potential conflicts within constitutional amendments.

Keep reading to learn about a fifth basis for objections to paying federal income tax.  If you have questions about any of these objection areas or other areas of federal income tax law, you should work with a tax attorney to get answers to those questions.

Fifth Argument Against Paying Federal Income Tax:  Basis for Authority

This article is the first of a two-part subseries about how some believe the Internet Revenue Service (IRS) has no authority to collect or enforce the collection of federal income taxes under the Internal Revenue Code.

The Internal Revenue Service (IRS) is a private entity or corporation and as such does not have the authority to enforce the Internal Revenue Code

This argument claims that the Internal Revenue Service (IRS) was not created by an act of Congress and therefore it must be a private corporation.  As such, the Internal Revenue Service (IRS) is not a government agency and cannot legally enforce the Internal Revenue Code or collect federal income tax.

However, the Internal Revenue Code gives the Secretary of Treasury the authority to enforce the laws of the Internal Revenue Code.  The Secretary of Treasury created the Internal Revenue Service (IRS) to carry out enforcement of these laws.  Therefore, the Internal Revenue Service (IRS) is an agency of the federal government and has the authority to collect federal income tax.

The Paperwork Reduction Act of 1980 exempts a person from paying federal income tax, because instructions related to IRS Form 1040 do not have a number assigned by the Office of Management and Budget (OMB) as required by the Act

The goal of the Paperwork Reduction Act of 1980 was to limit the burden that federal agencies place on the public.  As part of this act, the Office of Management and Budget (OMB) assigned control numbers to all approved government documents.  However, such a control number has not been assigned to the instructions about how to complete IRS Form 1040 and as such, some contend completing IRS Form 1040 and filing federal income tax is not required.

However, courts have ruled that the Paperwork Reduction Act applies to forms, not instructions, and as IRS Form 1040 has an OMB control number, people are by no means exempted from paying federal income tax.

Africans Americans and other groups who were oppressed can claim special tax credits and exemptions on their federal income tax returns

Groups that were oppressed as a part of the development of the United States, such as African Americans and Native Americans, can claim special tax credits they are entitled to as reparations for the oppressive treatment.

However, the Internal Revenue Code does not provide for special tax credits for oppressed groups.  Available tax credits are specifically identified in the Internal Revenue Code, and such a credit for oppressed groups is not identified.

If you want to waive your right to Social Security benefits, you can request as a part of your federal income tax a refund of all Social Security tax payments you have made into the system

This argument puts forth that if you do not want to receive Social Security benefits when you retire, you can waive the right to those benefits and request a refund of the money you have paid into the Social Security system in the form of taxes.

However, there is no area of the Internal Revenue Code or any other law that provides for the option to opt out of Social Security benefits or to receive a refund of Social Security taxes paid.

Tax Attorney Information

If you have any questions about the filing of federal income tax, Form 1040, or other areas related to taxes, you should speak with a tax attorney rather than attempting to address the questions on your own, as making a mistake on your federal income taxes can have serious financial and possible legal consequences.  Therefore, work with a trained attorney to get your federal income tax return right from the start.

 

Related articles

• Self Employed Individual and Income Tax (taxlawhome.com)
• Charitable Contributions and Federal Income Tax, Part 2 (taxlawhome.com)
• Itemized Deductions and Federal Income Tax (taxlawhome.com)
• Charitable Contributions and Federal Income Tax, Part 1 (taxlawhome.com)
• State Income Tax Overview (taxlawhome.com)

Need Help with your Unpaid Taxes?

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This is the fourth article in a series dedicated to explaining the various arguments that some groups and individuals use for not paying federal income tax to the Internal Revenue Service (IRS).  The first three articles in this series addressed objections to the paying of federal income tax related to the following areas:  the “voluntary” nature of paying federal income tax, the definition of income in the Internal Revenue Code, and the meanings of various terms in the Internal Revenue Code.    Read on to learn about a fourth area of objections to paying federal income tax.  If you have questions about any of these areas or other areas of federal income tax, you should work with a tax professional to address your specific questions.

Fourth Argument Against Paying Federal Income Tax:  Constitutional Amendments

This article is dedicated specifically to how some interpret various Amendments to the Constitution of the United States in a manner such that those interpretations support not paying federal income tax.

First Amendment allows taxpayers to invoke religious or moral reasons for not paying taxes

This argument claims that people do not have to pay taxes because of religious or moral reasons, because they object to one or more of the projects that federal income taxes are spent on.  They consider this objection freedom of speech protected under the First Amendment to the United States Constitution.

Although the First Amendment provides for freedom of speech and prevents the government from establishing a state religion, it does not provide any room from legally objecting to the government by refusing to pay federal income tax.

Federal income tax is theft of property with due process per the Fifth Amendment

The Fifth Amendment to the United States Constitution protects people from the government abusing them through the use of their power.  Some groups argue that federal income tax is such an abuse of power, as it allows the federal government to take property without the consent of the taxpayer or through the course of a trial.

However, the Supreme Court has ruled that the United States Constitution does not conflict with itself, providing the authority to levy a federal income tax with the Sixteenth Amendment and taking away that authority with the Fifth Amendment.

Fifth Amendment protects taxpayers from being tried for a crime because it would require the taxpayer to self-incriminate themselves

Another argument is that being forced to file a federal income tax return or providing evidence of the numbers recorded on a federal income tax return is a violation of the Fifth Amendment, since providing such information could incriminate the taxpayer and thereby result in them receiving a fine, jail sentence, or other penalty.

But the Supreme Court has ruled that the requirement to file accurate federal income taxes and provide support for that information does not constitute self incrimination.

Forcing someone to pay federal income tax is basically a form of slavery in violation of the Thirteenth Amendment

The Thirteenth Amendment to the United States Constitution was passed to outlaw the practice of slavery and involuntary servitude.  There are some who claim that forcing people to pay federal income tax is a form of involuntary servitude.

However, the slavery and involuntary servitude referenced in the Thirteenth Amendment is of a different nature than the requirement that people pay federal income tax.  Therefore, the Supreme Court has ruled that the Thirteenth Amendment does not afford someone protection from paying federal income tax.

The Sixteenth Amendment providing the government the power to levy a tax was never properly passed and is therefore invalid

This argument is simply that the Sixteenth Amendment was not ratified properly to make it an amendment to the United States Constitution and therefore it does not grant the power to levy tax.

However, the Supreme Court has ruled otherwise.  The Constitution outlines that only three-fourths of the states are required to pass an amendment to the United States Constitution.  Although opponents question if enough states initially ratified the Sixteenth Amendment for it to pass, ultimately more than three-fourths of the states did vote for the passing of the Sixteenth Amendment, which means that the power to levy income tax is in effect.

The Sixteenth Amendment does not authorize a tax that is not based on the number of people in a given state or the United States as a whole?????

There are those who contend that even if the Sixteenth Amendment authorizes a federal income tax, it does not indicate that the tax can be on everyone without consideration to the size of the population.  Therefore, the federal income tax in its current form is not valid.

Howeve, various courts have ruled that the method of taxation employed by the Internal Revenue Services is appropriate and acceptable under the Sixteenth Amendment.

Tax Attorney Information

If you have questions about your federal income tax return, property taxes, or other taxes in general, you can speak with a tax attorney.  A tax attorney will have an understanding of the Internal Revenue Code and other tax topics, so that he can provide the right answers to any of your tax-related questions.

Related articles

• Federal Income Tax Legality, Part 2: Definition of Income (taxlawhome.com)
• Federal Income Tax Legality, Part 1: Voluntary Nature (taxlawhome.com)
• Charitable Contributions and Federal Income Tax, Part 2 (taxlawhome.com)
• State Income Tax Overview (taxlawhome.com)
• Itemized Deductions and Federal Income Tax (taxlawhome.com)

Need Help with your Unpaid Taxes?

Complete the Free Tax Case Evaluation form below and an experienced Tax Professional will contact you to discuss your situation. Don't Wait -- Get Help Today!

This is the third article in a series dedicated to explaining the various arguments that some groups and individuals use for not paying federal income tax to the Internal Revenue Service (IRS).  The first article in this series addresses the “voluntary” nature of federal income tax, while the second article speaks to the definition of income.  Read on to learn more on this topic, and as always, if you have questions about your specific tax situation, you should speak to a tax professional.

Third Argument Against: Meaning of Terms

This article is dedicated specifically to the various terms used in the IRS’ Internal Revenue Code, as depending on the definition of or interpretation of these various terms, people should not have to pay income tax.

Taxpayers are not citizens of the United States.

This argument claims that people are citizens of the state or territory they live in, not citizens of the United States as a whole.  Therefore, people are free from paying taxes to the federal government of the United States on their income.

However, the Fourteenth Amendment to the Constitution of the United States defines a citizen of the United States as anyone who is born in the United States or who chooses to become a citizen of the United States.  Therefore, since the Fourteenth Amendment identifies people born in a state of the United States as a citizen of the United States, not just of that state itself, then these people are subject to paying income tax.

States are not a part of the United States.

Another argument is that states are sovereign territories that are not part of the United States, since the United States technically includes only the District of Columbia and federal territories.  Therefore, those who live in states, not being part of the United States, do not have to pay federal income tax to the United States on their income.

But the Internal Revenue Code clearly identifies those living in states as being subject to income tax.  This stance is also supported by the Sixteenth Amendment to the Constitution of the United States, which gives the government the power to tax those in the United States.

Taxpayers are not people as defined in the Internal Revenue Code

Some claim that the definition of people in the Internal Revenue Code is such that it does not apply to them.  Therefore, their income is not subject to federal income tax as defined in the Internal Revenue Code.

However, the Internal Revenue Code has defined a person as an “individual, trust, estate, partnership, or corporation.”  As such, those in the United States clearly fall within the definition of person in the Internal Revenue Code and are therefore subject to paying income tax.

Only employees of the government are subject to federal income tax.

This argument puts forth that the federal government only has the power to tax those who are employed by the federal government.  As a result, the income of the vast majority of those living in the United States is not subject to federal income tax put forth by the federal government.

Although the Internal Revenue Code does specifically reference employees of the federal government as being subject to federal income taxes, the Code does not specifically exempt others from paying federal income tax.

Tax Attorney Information

If you need help completing your federal income tax return or simply have questions about you taxes, speak with a tax attorney who has knowledge of the Internal Revenue Code and can speak to how the law applies to your situation.

Related articles

• Federal Income Tax Legality, Part 1: Voluntary Nature (taxlawhome.com)
• State Income Tax Overview (taxlawhome.com)
• Federal income tax significant events, Part 7 – Purchasing a Home (taxlawhome.com)
• Federal income tax significant events, Part 1 – Birth (taxlawhome.com)
• Charitable Contributions and Federal Income Tax, Part 2 (taxlawhome.com)
• Charitable Contributions and Federal Income Tax, Part 1 (taxlawhome.com)

Need Help with your Unpaid Taxes?

Complete the Free Tax Case Evaluation form below and an experienced Tax Professional will contact you to discuss your situation. Don't Wait -- Get Help Today!

This is the second in a series of articles dedicated to explaining the various arguments that some groups and individuals use for not paying federal income tax to the Internal Revenue Service (IRS) (the first article in this series addresses the “voluntary” nature of federal income tax).  Read on to find out whether any of these arguments have merit and will keep you from having to pay federal income tax, or if they will only result in you owing back taxes and having tax lien or wage garnishment handed out by the IRS.

Second Argument Against: Definition of Income

This article is specifically dedicated to the various beliefs that the definition of taxable income and gross income is unclear and therefore federal income tax should not be paid.

Wages, tips, and other money received for work is not income.

This argument claims that when a person receives money for work—whether that money is classified as a salary, hourly wage, tip, or other—there is no taxable gain to the person, because the person has given away or exchanged their skill and labor for that money.  The belief under this argument is that the Sixteenth Amendment did not create a tax on wages earned in exchange for work done at a fair market value but only on money received that is classified as a gain or profit.  Therefore, money earned for working is not taxable income.

But the definition of gross income and taxable income in the Internal Revenue Code not only includes money that is considered a gain or profit but also money earned in exchange for a service rendered.  And such payments are considered income whether paid in the form of cash or other property.

Income is only taxable if it is from a foreign source.

This argument states that the federal income tax is not directed at income from sources in the United States by citizens or residents of the United States but rather is only imposed on non-resident aliens and other foreign entities who earn income in the United States.  This argument is based on their reading of certain sections of the Internal Revenue Code.

However, the Internal Revenue Code clearly states that gross income includes income earned by all citizens and residents of the United States and the sections of the Code referenced in this argument are there to prevent double taxation of income by more than one country.  These sections of the Code do not exempt income earned in the United States by citizens or residents from taxation.

Use of paper money and coins is not taxable

This arguments claims that as the current “money” used in the United States—paper bills and coins—are not gold, which was at one time the standard for determining value in our economic system, then the use of paper bills and coins is not taxable.

While states are prohibited from printing money, the federal government has the power to determine what constitutes money.  As such, as the current paper bills and coins created by the federal government are assigned value, they constitute money and are therefore taxable.

Military retirement pay is not considered income

Some claim that payments from the military to retired persons are not taxable income.

However, the Internal Revenue Code defines gross income as income regardless of the source, including pension income paid to retired persons.  Military retirement pay is considered pension income under this definition and is therefore subject to taxation.

Tax Attorney Information

If you have questions about what money is considered taxable income or gross income, or you need help completing your federal income tax return, you should seek the help of a tax attorney who can answer questions related to your specific situation.

Related articles

• Tax return: Do I need to file taxes for 2011? (taxlawhome.com)
• Federal Income Tax: Reducing the Amount you Pay (taxlawhome.com)
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• Charitable Contributions and Federal Income Tax, Part 2 (taxlawhome.com)
• Itemized Deductions and Federal Income Tax (taxlawhome.com)

Need Help with your Unpaid Taxes?

Complete the Free Tax Case Evaluation form below and an experienced Tax Professional will contact you to discuss your situation. Don't Wait -- Get Help Today!

At times, you may hear about various groups and individuals who argue that the federal government and Internal Revenue Service (IRS) do not have the right to require those in the United States to pay federal income tax or to use approaches such as tax liens to collect those taxes.  They believe the Sixteenth Amendment does not give the federal government the power to levy tax.  What are the various reasons that some people believe federal income tax is illegal?  And do any of these arguments have validity?

Following is the first in a series of articles dedicated to explaining the various arguments against the payment of federal income tax and whether these arguments have any merit.

Establishment of Federal Income Tax System

The Sixteenth Amendment to the United States Constitution established the right of the federal government to levy a federal income tax.  The Sixteenth Amendment reads as follows:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

The Sixteenth Amendment went into effect on February 3, 1913.

First Argument Against: Voluntary Nature

Even with the Internal Revenue Code created based on the authority of the Sixteenth Amendment, their are many who do not believe the authority is valid.  The arguments against the legality of federal income tax fall into five broad categories.  The first of these categories relates to the “voluntary” nature of the federal income tax system.

Filing a federal income tax return is voluntary.

This argument claims that the filing of a federal income tax return is voluntary.  The IRS uses the word “voluntary” in the instructions of Form 1040.

However, various court cases have ruled that the word “voluntary” in context of filing a federal income tax return simply means that the individual taxpayer has the right to determine the amount of tax that he owes and to file a federal income tax return for that amount.  The alternative would be for the IRS to simply dictate to every taxpayer the amount of tax they owe.

Paying federal income tax is voluntary

This argument states that the payment of federal income tax is voluntary.  As the federal income tax system is voluntary in nature, then the payment of federal income tax is voluntary, as there is no law that specifically requires that people pay federal income tax.

But contrary to this argument, various sections of the Internal Revenue Code clearly state that the payment of taxes is not voluntary but rather is required.  And the Internal Revenue Code has the power of law to enforce the payment.

A “zero return” reduces tax liability

Another approach to not paying federal income tax is to file a tax return reporting no income and requesting refund of any taxes withheld by their employer, even though the taxpayer does have income defined as taxable per the Internal Revenue Code.

However, the Internal Revenue Code defines what constitutes income and courts have supported that filing a tax return reporting no income is not a legal method for avoiding federal income tax.  Taxpayers who file such returns that are considered frivolous are also subject to penalties and interest on the unpaid tax liability.

The IRS is responsible for preparing returns for taxpayers who do not

Some believe the wording of the Internal Revenue Code creates an obligation for the IRS to file a tax return for anyone who does not file a return.  Therefore, anyone who does not file a return is not subject to penalties and interest.

However, the wording in the Internal Revenue Code merely allows the IRS to prepare a federal income tax return for someone who does not prepare one; it does not free taxpayers from filing a federal income tax return themselves or clear them of penalties and interest in the event they do not file a federal income tax return.

Responding to an IRS administrative summons is voluntary

This argument puts forth that the IRS does not have the authority to summon a taxpayer in the event they do not file a federal income tax return.  Therefore, the taxpayer can ignore such a summons.

However, the IRS is authorized by statute to use a summons to call witnesses or obtain documentation related to the filing and payment of federal income tax.  Courts have supported the use of an administrative summons by the IRS.

Tax Attorney Information

If you are behind on paying your federal income tax or need help in resolving a federal tax issue related to any matter, you should seek the help of a tax attorney.

Related articles

• Charitable Contributions and Federal Income Tax, Part 2 (taxlawhome.com)
• Charitable Contributions and Federal Income Tax, Part 1 (taxlawhome.com)
• Federal income tax return penalties and what to do next (taxlawhome.com)
• Itemized Deductions versus Tax Credits (taxlawhome.com)
• Federal income tax significant events, Part 10 – Death (taxlawhome.com)

Need Help with your Unpaid Taxes?

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In addition to having to pay federal income tax each year to the Internal Revenue Service (IRS), a majority of states in the

United States have a state income tax as well.  State income tax is simply a tax charged by a state on the income that people in that state earn.

Each state has the authority to levy an income tax and to choose the manner in which they determine the tax rate.  As of the writing of this article, forty-one states impose some form of income tax on individuals.  The nine states that do not have any form of income tax on individuals include Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming.

As each state has the authority to determine the tax rules it will use, the tax rules can vary a great deal from state to state.  For example, some states use a graduated method of calculating income tax, where the taxpayer pays at a higher tax rate with the more income he earns.  However, other states charge a fixed percent as a tax rate regardless of the amount of income earned.

Common Characteristics

Even so, there are common characteristics generally shared by many of the states when it comes to state income tax.  These common characteristics include but may not be limited to the following:

• Gross income usually incomes all sources of income, with a few exceptions commonly including the income from local, state, and federal bonds, as well as Social Security benefits
• Employers are expected to withhold estimated amounts needed to pay state income tax
• It is up to the individual to determine the amount of state income tax they owe and to file a state income tax return
• States have their own taxing authorities that are responsible for determine the tax rules of that state and for collecting state income tax owed
• The filing date for state income tax is April 15 for most states
• People who earn income in a state are subject to paying income tax of that state, whether the person is a resident of that state or is simply working in that state but resides in another state
• States will charge interest and impose penalties on taxpayers who do not file their state income tax return on time or who are found to owe additional state income tax once the state taxing authority has had the opportunity to review the return
• An individual’s income is only subject to state income tax one time, so if you work in another state that has state income tax, then you receive a tax credit for that amount when you report the income on your home state income tax
• State income tax paid is deductible from federal income tax

If you have questions about state income tax, need help filing your state income tax return, or owe back state or federal income taxes you cannot pay, you should contact a tax attorney who is familiar with the tax laws of the state where you live.

Related articles

• Charitable Contributions and Federal Income Tax, Part 2 (taxlawhome.com)
• Charitable Contributions and Federal Income Tax, Part 1 (taxlawhome.com)
• Itemized Deductions versus Tax Credits (taxlawhome.com)
• Federal income tax significant events, Part 7 – Purchasing a Home (taxlawhome.com)
• Federal income tax significant events, Part 3 – Job Change (taxlawhome.com)

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Following is a second blog entry with details about charitable contributions and federal income tax.  Additional information about charitable contributions is also available on the Internal Revenue Service’s (IRS’) web site under Publication 526.

In the previous entry, we covered the types of organizations that are considered qualified organizations—that is, organizations where the IRS will allow an itemized deduction as a charitable contribution when a taxpayer gives money or property to.  In this entry we will cover specific items that can and cannot be deducted as a charitable contribution.

In general, money or property that you give to a qualified organization can be deducted as a charitable contribution on your federal income tax.  It is generally easier to note the specific items or circumstances that make a donation note deductible from federal income tax as a charitable contribution.  These circumstances include but may not be limited to the following:

• Donations made to specific individuals rather than to a qualified organization.
• Donations made to organizations that the Internal Revenue Service does not consider a qualified organization.
• Donations made to the extent where you receive a benefit in return for the donation.
• Donations of your time.
• Personal expenses you incur related to making a donation.
• Expenses related to determining the value of donated property (as these are miscellaneous itemized deductions).
• Donations of part of your interest in property you own.

In addition, even if your donation would otherwise qualify as a charitable contribution under the points noted above, the ability to deduct the donation may be limited by your adjusted gross income.  Deductions for charitable contributions are generally limited to no more than 50% of the taxpayer’s adjusted gross income in a given tax year.  However, there are situations where charitable contributions may be limited to only 30% or 20% of a taxpayer’s adjusted gross income.

Charitable contributions are only deductible up to 50% of a taxpayer’s adjusted gross income if the donation is to a qualified organization that is considered a 50% limit organization.  These organizations generally include qualified organizations except for veterans organizations, fraternal societies, non-for-profit cemeteries, and private non-operating foundations.  For these organizations, charitable contributions are limited to 30% of a taxpayer’s adjusted gross income.

In addition, charitable contributions of capital gain property may be limited to 20% of a taxpayer’s adjusted gross income.

The Internal Revenue Service provides a worksheet known as Worksheet 2 for calculating the deduction limits of your charitable contribution.

If you have charitable contributions that are not allowed because of the adjusted gross income limitations as outlined above, you can deduct the charitable contributions for the next five years.  These carry-forward deductions, along with any new charitable contributions in the next tax year, are likewise limited to the adjusted gross income limitations as noted above.

If you have made donations that you believe are charitable contributions or you are considering making a donation and you want to be sure it is done in such a way that it qualifies as a charitable contribution for federal income tax purposes, you should speak with a tax attorney.  A tax attorney can let you know with certainty what donations qualify as charitable contributions, as well as be sure your federal income taxes are calculated and filed properly.

Related articles

• Itemized Deductions and Federal Income Tax (taxlawhome.com)
• Federal Income Tax: Reducing the Amount you Pay (taxlawhome.com)
• Federal income tax significant events – Disasters and Theft (taxlawhome.com)
• Federal income tax significant events, Part 7 – Purchasing a Home (taxlawhome.com)
• Itemized Deductions versus Tax Credits (taxlawhome.com)

Need Help with your Unpaid Taxes?

Complete the Free Tax Case Evaluation form below and an experienced Tax Professional will contact you to discuss your situation. Don't Wait -- Get Help Today!

When it comes to a taxpayer calculating federal income tax, one of the most common itemized deductions are charitable contributions.

Charitable contributions for federal income tax purposes, as defined in Publication 526 of the Internal Revenue Service (IRS), are gifts given by a taxpayer to a qualified organization for that organization’s use, without the taxpayer receiving or having the expectation to receive anything of value in return.

Charitable contributions are a popular itemized deduction because they are fully deductible on a taxpayer’s federal income tax up to the value of the donated money or items, generally so long as the total charitable contributions in a single tax year do not exceed 50% of the taxpayer’s adjusted gross income.  Charitable contributions are only deductible in the tax year when the charitable contribution is made to the qualified organization.

If a taxpayer’s charitable contributions exceed 50% of the taxpayer’s income, the excess amount may be carried forward for deduction on future tax returns for up to five years, until the excess amount is used up.

The Internal Revenue Service (IRS) defines five types of organizations that can be considered qualified organizations:

1. An organization in the United States or one of its possessed territories (such as Puerto Rico) that exists solely for one or more of the following purposes: religious, charitable, educational, scientific, literary, and/or the prevention of cruelty to children or animals.
2. An organization in the United States or one of its possessed territories that exists for the benefit of war veterans.
3. An organization in the United States that operates under the lodge system, so long as contribution to that organization are solely for one or more of the following purposes: religious, charitable, educational, scientific, literary, and/or the prevention of cruelty to children or animals.
4. Not-for-profit cemeteries, so long as the contribution is not earmarked by the taxpayer for the care of a specific lot or crypt.
5. The United States, a state, the District of Columbia, or a possessed territory of the United States, so long as the contribution is for public purposes.

Qualified organization include but may not be limited to the following types of examples:

• Churches and other religious bodies or organizations
• Not-for-profit charitable organizations such as The Salvation Army or The United Way
• Not-for profit educational organizations such as The Boys Scouts of America, colleges, museums, and daycares if essentially all the childcare is provided to allow parents to be employed.
• Not-for-profit hospitals and other medical organizations
• Emergency energy funds of utilities, when such funds are for emergency energy needs of individuals
• Not-for-profit volunteer fire departments
• Public parks and recreation facilities
• Civil defense organizations

In addition, under treaties in place between the United States and Canada, Mexico, and Israel, certain contributions made to not-for-profit and other organizations within one or more of these three nations may be used as an itemized deduction as a part of charitable contributions for federal income tax.

If you have questions about if certain donations are charitable contributions you can claim on your federal income tax, you should speak with a trained tax attorney.  A tax attorney can advise you on whether gifted amounts are charitable contributions and help you calculate your federal income tax.

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When you are calculating your federal income tax, there are two broad categories of items that commonly help taxpayers reduce the amount of tax they owe.  These two items are itemized deductions and tax credits.  But there is often confusion about the difference between itemized deductions and tax credits and what makes one of these categories better than the other when it comes to reducing the amount of tax that a taxpayer owes.

An itemized deduction is an amount a taxpayer can include in their federal income tax return that will help decrease their taxable income by a percentage equal to the income tax rate the taxpayer is paying.  Taxpayers are allowed to take either a standard deduction or their itemized deductions, whichever is greater.  Determining which is greater will obviously vary from taxpayer to taxpayer, depending simply on if a given taxpayer has enough expenses that qualify as itemized deductions such that the total amount of itemized deductions exceeds the amount of their standard deduction.

Itemized deductions commonly include but may not be limited to amounts paid for medical expenses, state and other taxes, mortgage interest, and charitable contributions.

A tax credit is an amount a taxpayer can include in their federal income tax return that will help decrease the amount of actual tax owed dollar for dollar.  Common tax credits include but may not be limited to earned income credits, credits for the elderly, mortgage interest credits, child credits, and credits for energy improvements.

We can consider an example using itemized deductions (rather than the standard deduction) and tax credits to help make the difference between these two categories clearer.

We will use the following dollar amounts for purposes of this example:

Income – $10,000

Itemized Deductions – $2,000

Effective Tax Rate – 25%

Tax Credits – $2,000

Federal income tax is basically calculated as follows:

(Income – Itemized Deductions ) x Effective Tax Rate – Tax Credits = Federal Income Tax

Using the dollar amounts noted above, when we plug them into the tax calculation, we come up with the following:

($10,000 – $2,000) x 25% – $2,000 = $0

Even though few of us are likely to be so blessed as to owe no taxes, even so, we can still use this example to under the impact of itemized deductions and tax credits (and which is better).

If a taxpayer has $10,000 in income and is paying an effective tax rate of 25%, the taxpayer will owe $2,500 (or $10,000 x 25%).  When we factor in the itemized deduction of $2000, the taxpayer will now owe only $2,000 (or ($10,000 – $2,000) x 25%).

In this example, the $2,000 itemized deduction only saves the taxpayer $500 (or $2,000 x 25%) in tax owed.

When we take the $2,000 that the taxpayer owes (or ($10,000 -$2,000) x 25%) and apply the tax credit of $2,000, the taxpayer is left owing no tax (or $2,000 – $2,000).  This is because each dollar of a tax credit actually eliminates a dollar of tax owed.

Therefore, in summary, it is ideal if you have both itemized deductions and tax credits that you can claim on your federal income tax, as there is no reason that a taxpayer cannot receive the benefit from both categories.  But if a taxpayer has the option to take an equal dollar amount of itemized deductions or tax credits (but not both), the taxpayer will be better off taking the tax credit, because the tax credit reduces tax owed dollar for dollar rather than an amount that is only a fraction based on the effective tax rate.

If you have questions about your federal income tax, whether it is about understanding the itemized deductions and tax credits that you can take or simply getting help with preparing and filing your federal income taxes, you should contact a tax attorney.

Related articles

• Medical Expenses and Federal Income Tax (taxlawhome.com)
• Federal Income Tax: Reducing the Amount you Pay (taxlawhome.com)
• IRS audit: Five steps to avoid a tax audit (taxlawhome.com)
• Federal income tax significant events, Part 10 – Death (taxlawhome.com)
• Itemized Deductions and Federal Income Tax (taxlawhome.com)

Need Help with your Unpaid Taxes?

Complete the Free Tax Case Evaluation form below and an experienced Tax Professional will contact you to discuss your situation. Don't Wait -- Get Help Today!