Take My Money, Please

This is the second part of a three-part series about the money to which people say, “No, thank you.” You’d never say no to money, right? Keep reading and see.

Dependent Care Spending Account

Remember the scenario in which people turned down a 20-30% discount on childcare? Or said no to making $1,000 – $1,500 for six hours of work? This is what people are doing that don’t take advantage of their company’s dependent care spending account.

I can’t tell you the number of people that have told me they won’t sign up for their company’s dependent care flexible spending account because they don’t want to complete the paperwork to get their reimbursements. They would rather pay an extra $1,000 to $1,500 in taxes to our government than do some paperwork.

In a nutshell, a dependent care flexible spending account allows you to elect to have money taken out of your paycheck on a pretax basis that you can then use to reimburse yourself for your eligible childcare expenses. Because the money is taken out before payroll and income taxes are calculated, it lowers how much you pay in taxes. I won’t delight you with an illustration that will require a disclaimer, I’ll just say wouldn’t it be nice to not have to pay taxes on up to $5,000 of your income?

Every reimbursement cycle (usually coinciding with payday), you would need to submit proof that you paid for childcare, and then you would be reimbursed (up to the amount you had taken from your check). I know a lot of people worry about having it taken out of their pay AND paying for childcare, but beyond the very first deduction, if you are timely about submitting receipts, it’s more or less an in-and-out.

Unlike your healthcare expenses, you have a much better idea of what your childcare expenses will be throughout the year, and it’s not inconceivable that your expenses will exceed the maximum $5,000 annual election. Why not save a few bucks? Surely you can make better investment choices for your money than the US government!

Disclaimer

Okay, I guess there’s going to be a disclaimer after all.

This is not intended to be a comprehensive explanation of flexible spending accounts. The IRS doesn’t give you something for nothing; there are a number of rules about eligible dependents and eligible expenses, family status changes, and the like. Talk to the benefits representative at your company, your personal financial advisor, or your tax preparer to make sure you understand the plan.

Charitable Donations

I think most people that itemize deductions on their tax returns are probably saving receipts/letters when they make a monetary donation to a charitable organization. That’s pretty straight-forward. But what about donations of used clothing and other household items? What about charitable mileage? Granted, the recording-keeping for non-cash donations can be tedious, and the deduction for charitable mileage is pretty small, but I don’t want to pay more in taxes than I have to, so I take the time.

Even though it doesn’t feel like we buy a lot of “stuff” relative to other people, with a family of seven, we’ve managed to fill dozens and dozens of trash bags with clothes to donate to local charity-run thrift stores. By tracking these donations we’ve saved hundreds of dollars on taxes. The trick, of course, is to have records of what was donated and to establish what the fair market value of those items is. I won’t say that’s not time-consuming, because it is. I use It’s Deductible by Intuit, but you can track things yourself. Keep a list of all the items you donated, and what the fair market value of each item is. Salvation Army and Goodwill both have guides to help you determine what the value of your donated items are.

If you don’t want to spend the time tracking this stuff yourself, why not have your teenagers do it themselves? Chances are most of the items in those bags is stuff they didn’t want to put away the last time they cleaned their room any way. Or have a garage sale and donate the proceeds to your favorite charity.

You probably know that you cannot claim the value of your time when you volunteer for a non-profit organization, but did you know that you can claim “charitable mileage”? The standard rate is only 14 cents/mile, but if you volunteer on a regular basis, why not take a minute and note your mileage? If you’re driving for a Boy Scout field trip, or you’re regularly meeting your “Little Sister” several miles from your home, it could add up. If you really like a challenge, you can track your actual expenses, but that would take a lot more effort.

The folks at Volunteer Spot are campaigning to get the charitable mileage deduction increased. Use POPVOX to let your congressional representatives know you support H.R. 387 to increase the charitable mileage deduction.

Shameless Plug

Since it’s Girl Scout cookie time, I thought I would include a little bit about the deductability of Girl Scout cookie purchases.

First I feel compelled to remind my dear readers that when they buy those delicious mint cookies, they are supporting an organization that “builds girls of courage, confidence, and character, who make the world a better place.” In San Diego, Girl Scout cookies are now $4/box, and if you think of your donation as merely purchasing a box of delicious cookies, then it will seem a bit exorbitant. Instead, you should understand that less than half that is the actual cost of the cookies and the rest supports Girl Scouting in your area.

If you take the cookies home with you and enjoy them, the purchase price is not considered a charitable donation. But if you buy cookies to support a community project, then it is a charitable donation. Here in San Diego, for example, girls collect donations for Operation Thin Mint®. We have huge Naval and Marine bases here, so there’s a lot of community support for sending cookies to service men and women overseas. When I buy boxes to support that project, that is considered a charitable donation. The girls have receipts for those kinds of donations, so be sure to ask for one.

Another Disclaimer

I am not a CPA or tax advisor. IRS Publication 526 is a good resource for information on charitable donations, as is your tax advisor or financial planner.