The Clock Is Ticking

Time is running out on year-end tax planning

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Time is running out to make contributions to charities in order to qualify for credits on your 2007 tax returns.

The Arizona Charitable Tax Credit is applied as a reduction to an individual's final tax bill. The tax credit comes right off the top of your state tax bill, lowering the amount of money that you must pay.

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A contribution to the Credit for Kids program at any of the Rim Country's schools not only benefits the donor, but it is a gift to the future, enhancing the education of the community's young people. Donations can be made to individual schools, specific programs or to the school district, to be used where they are most needed.

There are a number of programs to which Rim Country residents can contribute.

A couple of the groups that can benefit from these year-end contributions are the Credit for Kids program and Payson Area Habitat for Humanity.

Credit for Kids is known universally around Rim Country as a "good deal.

Credit for Kids is actually Payson School District's name for a tax credit allowed by the Arizona legislature for donations to public schools of up to $400 for extracurricular activities.

Arizona taxpayers may donate up to $400 to Payson schools for the extracurricular activities of their choice and take a dollar-for-dollar credit off their Arizona state income tax liability. The Credit for Kids donation may also count as a tax-deductible donation on the federal tax return. Please see your tax professional for more information.

Over the last six years, Credit for Kids has made many extracurricular activities and projects possible:

  • After-school enrichment and intervention programs at all elementary schools
  • Career and cultural exploration trips at Payson Center for Success
  • Athletic team uniforms, equipment and trips at the middle and high schools
  • Stadium upgrades, including a first-class all-weather track, at Payson High School
  • Plays, musicals, concerts and competitions for Fine Arts students
  • Group activities for SADD, Student Government, Hike and Ski Club and others

Payson Schools accepts Credit for Kids donations from September through December each year. Use the Credit for Kids form to make your donation. Just be sure we receive it by midnight Dec. 31, so you can take the tax credit in the current year.

Donors may give money to an individual school, club, team or activity.

Payson Education Center also accepts Credit for Kids tax donations.

PEC is a non-traditional county school that gives teens another chance at receiving a high school diploma.

The school's goal is to raise $1,600 this year, Carol Moore, the principal at PEC, said.

The Credit for Kids categories at PEC are: field trips, art supplies and supplemental instructional materials.

PEC is located at 1100 N. Beeline, Suite G, Payson, AZ 85541. Donations may either be mailed or dropped off.

"We are happy to accept donations in any amount," Moore said.

The Payson Area Habitat for Humanity is a certified charity with the state. A contribution to PAHH may be claimed, in addition to other types of tax credits, such as Credit for Kids.

All gifts to PAHH are tax deductible as it is a 501(c)(3) nonprofit.

Older residents with Individual Retirement Accounts that are at the age where mandatory withdrawals are required can also make non-taxable contributions to charitable programs.

Last year, the Pension Protection Act of 2006 drew a lot of attention for its efforts to strengthen the private pension system. But this legislation contained a number of other provisions -- one of which, in particular, may be of great interest to you if you are over 70-1/2 and you'd like to make a sizable contribution to a charity.

Specifically, the Pension Protection Act allows you to transfer money from your traditional or Roth IRA to a charitable organization. You can donate up to $100,000 per year, and the IRA distribution will be tax-free. (If you are married, and your spouse also has an IRA, the two of you can contribute up to $200,000.) However, if you're interested in making this move, you'd better act fast, because the ability to make these transfers expires at the end of 2007.

Apart from providing you with a tax-advantaged way to make sizable charitable contributions, the IRA provision of the new pension laws gives you some added flexibility in another area: required minimum distributions (RMDs). As you may know, once you turn 70-1/2, you have to start taking distributions from your traditional IRA -- whether you need the money or not. And these distributions will be taxable. (The required minimum distribution rule does not apply to Roth IRAs.) But the provision allowing you to transfer IRA distributions to charities can help you meet the RMD requirement. For example, if you are required to withdraw 5 percent from your IRA for 2007, you can send the entire amount to a charity to satisfy the RMD requirement -- and your distribution will be tax-free.

The IRA-to-charity provision may also benefit you if you aren't planning to itemize deductions on your tax returns. That's because your IRA distribution will eliminate the need to claim a charitable deduction. On the other hand, if you are close to "maxing out" on your income tax deductions because you are bumping up against the rule limiting deductions to 50 percent of your adjusted gross income, you might find that the IRA transfer rule can help you give more to charities than you would otherwise be able to make.

Review Retirement Income Before Taking Action _Clearly, the IRA-to-charity transfer can benefit you as far as making tax-advantaged contributions to support the charitable organizations of your choice. But before you decide to send your IRA distributions to a charity, make absolutely sure you won't need the money to help support your retirement lifestyle. Your financial adviser can help you review your income needs and the various sources of income you can count on.

You'll also need to consult with your tax adviser before you choose to send your IRA distributions to a charity. This move may well benefit your tax situation, but keep in mind that everyone's situation is different -- so get the professional guidance you need before making a move.

Once you've met with your financial and tax advisers and you've determined that a charitable IRA rollover is appropriate for you, don't wait too long to act. No one can predict future legislation, but, as of now, the clock is ticking on your ability to make this type of transfer. So, if this action sounds like something that would interest you, contact the charity you wish to support for the paperwork you'll need -- and get the ball rolling.

Editor's note: Information for this article was provided by Ross Hage of Edward Jones; Payson Unified School District "Credit for Kids" Web site; and the Payson Area Habitat for Humanity Sept. 2007 newsletter, "The Homesteader."

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