Please tell me if these things are deductible?

Question

*Contributions to Perpetual Perpetuity Catholic Church
*Tuition to Perpetual Perpetuity Catholic School for son
*Contribution to an educational savings account

Answer 1

Contributions to a church are normally deductible, but you need to be aware of the change last year in the substantiation requirements -- that is, proving your donation.

For donations of money (different from donation of goods), contributions over $250 require an acknowledgement letter from the charitable organization (i.e., the church). All churches should be prepared to do this, since it is now part of the law. Donations of $250 or less are only deductible if you have either bank records (like a cancelled check) or a written acknowledgement from the charitable organization, documenting the amount and the date of contribution(s). So, it is far better to use a check than to make a cash donation in church.

Regarding tuition and educational savings accounts, instead of looking for a deduction (since none is allowed for either tuition or an ESA investment), consider why you would set up this kind of arrangement. "Contributing" to an ESA is really just making an investment -- it's not an expense. (There are also "Sec 529 Plans" that are educational savings accounts, with somewhat different benefits and requirements.)

The big advantage of funding an ESA is that you've made an investment that can earn income and grow in value, and you don't have to pay tax on that income if you use it for payment of educational expenses. (That is equivalent to getting a deduction for the educational expenses, if you pay them from taxable income.) This tax benefit is similar to the benefit of a Roth IRA for retirement and other long-term saving -- no deduction for the money you invest, but all that you take out later is tax-free.

In your case, since your son is going to a private school that charges tuition, you can use the earnings of an ESA tax-free to pay that tuition and other costs, including expenses like buying a computer for the student to use, as well as paying tuition. Most of the education-related tax benefits are only for tuition and expenses of college or graduate school. But the ESA benefit -- taking the earnings and gains out tax-free -- is available for high school costs also. (That's not true of a Sec 529 plan.)

So, congratulations on having the foresight to set up an ESA, to ease the cost of private school tuition without paying taxes on the earnings.

A lot of information about both charitable contributions and educational savings plans is available on the IRS web site, or in the IRS publications that you can get. Check out Publication 526 on Charitable Donations, with a special section on what's new for 2007. See also Publication 970 on Tax Benefits for Education, with section 7 on ESAs.

Answer 2

Not sure on the first, whether it has the proper IRS designation to be tax deductible. I've never heard of this group and can't seem to find any information on it. Is this part of the Roman Catholic or Orthodox church?.

Tuition for son, and contribution to educational savings account - no, not deductible.

Answer 3

1. If it's a duly recognized church, yes.
2. No, secondary school tuition is never deductible.
3. Contributions to a 529 plan accumulate gains tax free but are not deductible.

Answer 4

First one is, as long as you have receipts. Second two no. Check with a financial planner however on the third one. There are several options that will allow you to pay taxes going in, but not when the money has been withdrawn.

Answer 5

The third question refers as what is commonly known as ESA's (Coverdell's)

IRS TAX TIP 2007-59

A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.

Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

Source: http://www.irs.gov/newsroom/article/0,,id=107636,00.html

If we review http://www.olphshrine.com/donate.shtml we see that a donation to this our lady of perpetual help shrine totally 10)% deductible as a charitable contribution. Much the same as perpetual things wth cemeteries for example as show by the IRS. Many religious organizations now have them.

Does it mean we have heard of them before. Perhaps not. Does it mean they are not allowable as a tax deduction; not necessarily so and not necessarily no. It always will depend as to whether the IRS considers them to be classified as a true non-profit. That is the key issue. Are they a non-profit that you can donate too; perpetual or not many are. This is in relation to your first question. But beware as I have checked IRS site and cannot find any account for the donor organization and keep in mind the following mentions later relating to revenue rulings and the Supreme Court.

To the Second one about the Catholic School for Son, based on the following which is a sore spot to IRS, the answer is obvious to the intent of the gift. The Schooling of the son would be a benefit of the gift and in our opinion not deductible at all. Regardless the charitable factors. The courts seem to agree.

The key here is this. Which is considered under IRC (Internal Revenue Code Section) § 170, the contribution must be a gift. With no expectation more or less of any return under it. In particular review (A transfer to a charitable organization is not made with charitable intent if the transferor expects a return commensurate with the amount of the transfer or in your case the expectation to send your son to school. See, Hernandez v. Commissioner, 490 U.S. 680, 690 (1989) at 690; see also U.S. v. American Bar Endowment, 477 U.S. 105, 117-18 (1986) (citing Rev. Rul. 67-246, 1967-2 C.B. 104, with approval) at 116). Both US Supreme Court Cases that obiously agree with revenues positions on the matters.

Generally, to be deductible as a charitable contribution under § 170, a transfer to a charitable organization must be a gift. A gift to a charitable organization is a transfer of money or property without receipt of adequate consideration, made with charitable intent. See U.S. v. American Bar Endowment, 477 U.S. 105, 117-18 (1986) (citing Rev. Rul. 67-246, 1967-2 C.B. 104, with approval); Hernandez v. Commissioner, 490 U.S. 680, 690 (1989); Hernandez at 690; see also American Bar Endowment at 116.; and IRC § 1.170A-1(h)(1) and (2) of the Income Tax Regulations. A transfer to a charitable organization is not made with charitable intent if the transferor expects a return commensurate with the amount of the transfer. Again in your case, the expectation to be able to send your child to school.

These matters must be reviewed as Revenue continuously disallows on these grounds and is continuously warning people of this problem. Thus why they make it so under charitable giving that vehicles must now apply to certain rules and the donor can only deduct the auctioned value of the vehicle for example. In such case they receive a donne statement from the charitable donor organization. In many cases you must, at certain limits get these statements and you must also at times get appraisals as well.

Failure to apply even the basic rules of charitable giving will, in the majority of cases (aka - when the prongs of giving are not followed, will usually give revenue a means and reason to dis-allowance of any donation claimed. Of course as with all donations there are subject limits to income and otherwise.

Many cases clarify for every one of these points and agree with such sections under IRC. See IRS.GOV Revenue Rulings if you require further clarification.

Ask for a statement from the Donor organization. If they claim to be one and they are not qualified under revenue rulings and IRS regs, then most likely IRS will deal with the problem; nevertheless, my ultimate summation to you is check with the IRS to clarify before you spend something you may never get back.

Good luck and I trust this helped you. I know it is complex to understand but it is a complex system of laws that comprise the IRC.

Wayne