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Thursday, January 28, 2010

Make Your Tax Dollars Work for You - Take the Credit!

Make Your Tax Dollars Work for You - Take the Credit!It’s tax time again, and every day I hope my W-2 will come in the mail. I am anxious to see how much my husband and I owe the state of Arizona, especially since we didn’t pay any state taxes in 2009. Rather than having state taxes deducted from our paychecks, we decided to give that money to the elementary school run by our church. That’s right – we donated our tax dollars to a school! The money we donated will be used to provide tuition assistance to students in need. We love the school and believe in the work that it does, which is more than we can say about many of the government programs run by the state.

We were able to do this through something called the CTODP - Catholic Tuition Organization of the Diocese of Phoenix. Arizona allows residents to donate up to $500 ($1,000 for married couples filing jointly) to a Catholic school of their choice and get a tax credit. The first time we heard about the CTODP it was late in the year, so we didn’t participate because we had already been paying state taxes all year and couldn't shell out more money. The next year, however, we changed our withholdings so that no state taxes were withheld, and the extra money in our paychecks we donated at the end of the year. We know we might owe Arizona some money if our tax liability is more than the $1,000 we donated, but we are prepared for this. And even though we might still owe a little, we were able to help kids who wouldn’t otherwise be able to attend a great private school, rather than funding the state government. Now that’s using my tax dollars the way I want to!

Until hearing of the CTODP, I didn’t know what a tax credit was; I was only familiar with deductions, and I never contributed enough to itemize at the federal level. However, I have learned that there is a significant difference. Tax credits are much more beneficial to taxpayers than deductions. It works like this:

Deductions reduce the amount of income on which you pay taxes. If you make $60,000 and deduct $1,000 for a charitable donation, you will then be taxed on an income of $59,000. Though helpful, this won't make a huge dent. A credit, however, is applied after your taxable income is calculated, and reduces the amount of taxes you actually owe. So if you make $60,000 and owe the state $600 in taxes, and you have donated $500 to a qualified charity, you will then owe the state only $100. You’re shelling out the same amount of money, but you’re getting to choose where it goes, and you’re paying that much less in taxes. (Credits like this currently seem to only be available at the state and local levels, and not at the federal level. Charitable contributions can be deducted at the federal level, though to do this, taxpayers need to itemize deductions greater than the standard deduction determined by the IRS.)

Arizona also offers the Charitable Tax Credit, sometimes referred to as the Working Poor Tax Credit, where you can donate to many different charities and get a dollar for dollar state tax credit - up to $200 for individuals, and $400 for married filing jointly. A list of qualifying organizations can be found at http://www.azdor.gov/TaxCredits/CharitableTaxCredit.aspx. You can get both the CTODP and the Working Poor credits – what a great way to redirect your tax dollars to organizations you want to support! It also seems possible to donate to other private non-Catholic schools in Arizona, though you’d need to investigate this.

Though my experience has been in Arizona, other states offer such credits, to varying degrees. In my research I have come across Idaho, Michigan, and North Carolina, though one article I read claimed that about 20 states offer them. There are restrictions on the types of charities you can support – most are required to help the poor – so if your state offers a credit, get a list of qualifying organizations before donating somewhere. To learn about what your state offers, ask your tax professional, or if you’re doing your own taxes, the IRS has a link to each state web site at http://www.irs.gov/businesses/small/article/0,,id=99021,00.html. If you are in Arizona, information about the CTODP is at http://www.ctodp.org/, and information about the Working Poor Tax Credit can be found at http://www.azdor.gov/TaxCredits/CharitableTaxCredit.aspx.

It may be obvious, but state tax credits like this only benefit you if you pay state taxes. It’s important for you to know your tax liability, because the credit will only benefit you to that extent. For example, if you are only required to pay $350 in state taxes, and you donate $500 to a qualifying charity, you will not get that extra $150 back. In Arizona, however, you can carry forward any unused credit for up to five years. If your income has remained steady, you can look at last year’s state tax return to get an idea of what your tax liability is this year.

If your state offers credits you qualify for, this is a good time to change your paycheck withholdings since we just started a new year. It’s also a good time to make a resolution to support some good work!

If you’re curious about the history of this type of tax credit, some articles of interest can be found at http://pewforum.org/publications/articles/charitytaxcredits.pdf or http://learningtogive.org/papers/paper63.html.

Take the credit!

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Friday, January 08, 2010

Heart + Sweat = Cutting Student Debt

Heart + Sweat = Cutting Student DebtFor five years in my late twenties, I didn’t work what most people refer to as a “real job” (though the emotional and sweat equity I expended begs to differ). I was a volunteer in Arizona, and the work I did was as real as it gets! I lived and worked with pregnant women who were homeless or alone, serving as a staff member of a wonderful community called Maggie’s Place. Day after day, I had the extraordinary privilege of watching expectant mothers grow – and not just in their middles! Women came to us uncertain and scared, often having experienced violence, substance abuse, abandonment, or other forms of suffering. In the shelter of our welcoming home, made up of 20+ women and up to eight babies, mothers who lived at Maggie’s Place could learn about parenting, health, education, employment, housing, budgeting, communication, setting boundaries, and a myriad of other subjects in which skills are needed to make it as a single mom. These mothers were the strongest women I had ever met. How was I so blessed to get to share in their lives?

In 2004, I was three years out of college, and growing restless at my job in Pennsylvania. I knew I was fortunate to have grown up in a stable home, and I wanted to do something to help others who hadn’t. I had considered volunteering somewhere full time after high school or college, but didn’t know how it would be financially possible; I had about $13,000 in student loans. I also wasn’t sure where my skills could best be used. However, after several years of feeling unfulfilled in my work, I decided to finally give volunteering a shot.

Though not sure where to start, I discovered a web site for Catholic Network of Volunteer Service (http://www.cnvs.org/), an organization that matches volunteer hopefuls with places that need volunteers. Shortly after I submitted a profile about my background and the type of work I sought, a staff member from Maggie’s Place contacted me. I couldn’t believe it - the community sounded perfect for me! It was in the southwest (I needed a break from the northeastern winters), and seemed to offer most of what I was looking for. The application process began, and I was invited to fly out to Phoenix for an interview in April 2004. The five days in Arizona solidified my desire to volunteer at Maggie’s Place, and upon my return to Pennsylvania, I arranged for a year-long leave of absence from my job. I was sure that I would get the volunteer bug out of my system within that year. Little did I know that I would stay with the Maggie’s Place community for five years!

After a busy summer of tying up loose ends, I loaded down my ’93 Saturn for the long-dreamt-of drive across the country with my best friend. Our week on the road was everything such adventures should be, and I arrived in Phoenix refreshed and excited for this new chapter in my life.

The work of Maggie’s Place was right in line with my values, and my gifts were a good match for the young and growing organization. I loved working with the moms and babies, and I knew I was truly making a difference. Mothers and their babies could stay in our homes for up to six months after the babies were born, so there was time for the moms to really get on their feet. I had thought I was the one who had something to teach, but I learned so much from the moms of Maggie’s Place! Our community was rich and diverse, with each member bringing a unique flavor to the mix. The other volunteers came from around the country, each wanting to use her abilities for the good of others. I was surrounded by a supportive community of people who shared my goals and ideals, and each day brought new joys. The work was hard – don’t get me wrong – but it was meaningful, and I went to bed each night knowing that I had given all I could to whatever challenges the day had presented.

Occasionally I was able to fly back east for family gatherings. Each holiday I was home, relatives would ask how on earth I could afford to be a volunteer. After all, I didn’t earn a salary, I had no 401K, and I had student loans to pay off. What was I thinking? How did I buy stuff? Wasn’t I wasting my hard-earned degree in English education? How could I live without a job? When was I going to rejoin society?

Despite my best attempts to explain, I don’t know if my extended family ever completely got my situation. While volunteering is not possible for everyone, it is often a more viable option than most people think. Here’s how it can work:

The country is full of non-profit organizations that provide services to various populations – families, youth, children, elderly, women, and men; people who are homeless, abused, hungry, disadvantaged, or in crisis due to any number of circumstances. There are projects in education, health and medicine, disaster relief, environmental protection, and community and economic development. There is more than enough work to go around.

Many of these non-profits are run primarily by volunteers, individuals from various backgrounds who commit to work for the organization for a certain amount of time – typically ten to twelve months. If both the volunteer and the placement site desire, these commitments often can be extended. In exchange for their work, volunteers do not earn a salary, but rather receive living stipends. These stipends can range widely, depending on the other benefits the organization offers - I have heard of monthly stipends from $50 - $800 - but basic needs are provided for, one way or the other. If an organization provides housing and transportation for its volunteers, the stipends might be lower. If volunteers are expected to pool their money for a shared apartment and utilities, their stipends will be higher.

For example, during my volunteer time at Maggie’s Place, my monthly stipend was $350. In addition to that, I received room and board, health insurance, access to community vehicles, and auto insurance while driving those vehicles. My only monthly bills were for my cell phone, personal car insurance (since I had chosen to bring my car), and asthma medication. Granted, there weren’t wads of cash left over, but I was still able to afford a few plane tickets home and the occasional meal out. The community was committed to living simply, so it didn’t matter that I couldn’t buy the latest trends or newest gadgets. I was living with formerly homeless women who might have given birth on the street if not for Maggie’s Place; how could I complain about what I didn’t have? Besides, with so many housemates, we could always borrow from someone!

Clearly, I did not choose to volunteer for the financial perks. However, volunteering offered one huge bonus that I wasn’t initially aware of – AmeriCorps Education Awards. AmeriCorps is a federal program in which non-profits can participate, allowing a year or two of full-time volunteering to be possible for many people. At the end of a ten to twelve month term of service, AmeriCorps members are eligible to receive an Education Award of up to $4,725. This money is a voucher that can be used to repay federal and state student loans (Stafford and Perkins loans are common ones), and you may receive two awards in your lifetime - a total of $9,450! This amount is for full-time service; smaller awards are available for part-time service.

You may ask “How do I pay my student loans while I volunteer?” Most federal and state loans qualify for forbearances, which means the borrower doesn’t make payments while volunteering. And while interest accrues while you volunteer, the government will pay that interest when your loan comes out of forbearance. So with two AmeriCorps Awards, plus over $600 of interest that was paid, I was able to knock over $10,000 off my student loans! After applying that money, my loans were paid up for the next seven years, and my remaining balance was quite manageable. Additionally, my husband Jim, whom I married after my first two years of volunteering, served as an AmeriCorps member in the Maggie’s Place office after our wedding. The combined $20,000 off our student loans made it possible for me to continue serving with the community long after I thought I could.

If you have gotten by without student loans, or if you haven’t been able to afford higher education, AmeriCorps Education Awards can also be used to pay for schooling after you have completed your volunteer time. And some schools will even match your award! Not a bad deal, eh?

Before you quit your job, ignore that student loan bill, and commit to your favorite cause, you’ll need to do your homework. Know that:

  • Not all non-profits have volunteer programs or offer AmeriCorps Education Awards, so investigate.

  • There are requirements on the number of hours of work volunteers must log, and regulations on the types of work that can count as AmeriCorps hours; these should be explained to you by the organization you go through to volunteer. I was required to log at least 1700 hours between 9-12 months of service; getting those hours was not a problem.

  • AmeriCorps Awards typically cannot be used to repay private loans, so know who your lenders are.

  • Education Awards are considered taxable income in the year you use them, so be prepared to part with a bit of the money.

  • Awards must be used within seven years of earning them.

  • You don’t have to use the award all at once, and you can split the money between different lenders and/or schools. Full information about AmeriCorps programs can be found at http://www.americorps.gov/.

As a volunteer, my days were full, often with tasks I never thought I could do. I managed a fleet of used, donated vehicles; sorted hundreds of maternity and baby donations; became equally comfortable with the wealthy and the impoverished; assembled and disassembled all kinds of furniture; grew in public speaking, problem solving, and time management; learned all about the social services in the greater Phoenix area; pulled off great celebration parties with little money and donated items that always arrived at the right time; witnessed the births of three babies (and even gave birth to my own!); and saw some of the best and worst characteristics of humanity. Though we did not grow rich monetarily, Jim and I grew rich in so many other ways.

Don’t know where to start searching for a service site that matches your interests? In addition to the AmeriCorps web site, I recommend visiting http://www.cnvs.org/ and http://www.pallotticenter.org/. If you choose the hard but rewarding road of service, you won’t regret it. Happy hunting! All the best.

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