Hello, I have a couple of questions that I wanted to verify. I live in the US (TN) and was wondering if donations made to me from my website are not taxed correct? Also, when I make a donation of my own, they say that is tax deductible. So does that mean if I owe $10,000 for tax for example, and make a $5000 donation to something, does that mean my tax will be brought down a lot more from $10,000?
It depends on if it is a tax credit or not...sounds like you need a tax person...that is always the safest thing to do. donations are different than tax credits....tax credits are taken off the bottom line, donations are factored in. Also, I think unless you are non-for-profit any donations may be seen as income...
Man it seems that noone understands the basics of taxes I just don't want to keep bothering my accountants with a million questions.
Tax credit - A tax credit reduces your taxes directly. If you earn $1000 at a 10% tax rate, you owe $100 in taxes. A $100 tax credit would reduce your taxes by $100. Tax deduction - A tax deduction reduces your taxable income. In the example above, a $100 tax deduction would reduce your taxable earnings by $100; but would reduce your taxes by only $10. (you would be taxed 10% on $900)
Basically, a Tax Credit is much more Valuable then a Tax Deduction. Say you make $10,000 TAX CREDIT OF $1000 or TAX DEDUCTION OF $1000 Tax rate of 10% ........... With the tax credit, you calculate your taxes, in this case 10% of $10,000 or $1,000. You then apply your $1,000 tax credit and would owe $0 in taxes. (the tax credit effectively saved you $1,000) With the tax deduction, you deduct $1,000 from the amount you made, and then calculate your taxes after the deduction. So $10,000 - $1,000, is $9,000. You take 10% of $9,000 and you owe $900 in taxes. (the tax deduction effectively saved you $100) Usually the value of a tax deduction is calculated by multiplying it times your tax rate. So if you are paying %28 in taxes, a $1,000 deduction is worth $280 in real savings to you. Hope that help some.
Thanks brown So a the phrase "tax writeoff" is considered a deduction correct? What qualifies as a tax credit? I never heard that term used before.
Tax writeoff usually means a deduction, like a business expense (telephone, office supplies, web hosting, etc.) Tax credits are things like the child tax credit, where you get a credit for each child you have under your care... http://en.wikipedia.org/wiki/Tax_credit http://en.wikipedia.org/wiki/Child_tax_credit