Sep 24, 2020
94 Views
0 0

How To Make Money Paying Virginia Income Tax

Written by

In previous years we suggested purchasing Virginia Land Preservation Credits. A dollar of tax credit might be purchased for 75 or 80 cents saving a significant amount of cash on state taxes. In recent years however all these credits were challenged. Some of the people who purchased them had to redo their tax returns

 

Now 88 cents is one of the best prices available. You continue to have to pay short-term capital gains on what you save. Accordingly we are not recommending them this year. Instead we endorse the Virginia Neighborhood Assistance Program (NAP). Virginia offers tax credits in exchange for donations to nonprofit organizations serving the truly needy

 

Greater than 200 charities have been designated as NAPs. Donors to NAPs can receive a Virginia tax credit for 65% of the cost in their total contribution an increase from the former 40%. To illustrate a present of $100 000 to a NAP qualifies for a $65 000 Virginia tax credit. For some taxpayers a donation to a NAP may yield total federal and state tax savings worth greater than the amount they gave away

 

NAPs provide health care education housing job training and food to the poorest people in our communities. Well-known organizations such because the Virginia chapters of Habitat for Humanity Boys & Girls Clubs and the Salvation Army are included in addition smaller ones just like the Soho Center for Arts and Education and the Church Hill Activities and Tutoring

 

PROMOTED UNICEF USA BRANDVOICE | Paid Program
Why COVID-19 Is Hitting Black And Hispanic Children Especially Hard
Civic Nation BRANDVOICE | Paid Program
VT Engage Rally The Youth Vote On Campus
Grads of Life BRANDVOICE | Paid Program
Business Has A Role In Dismantling Racism: 3 Takeaways From Our Conversation With Dr. Manuel Pastor And Amelia Ransom To be eligible for the 65% Virginia credit you should contribute at least $500

 

A $500 gift to a NAP is eligible for a $325 Virginia tax credit. You can donate cash or marketable securities. Gifts of merchandise services or real estate are not eligible. Remember that a tax credit is far more valuable than a deduction because it reduces your total tax bill dollar for dollar

 

Taxes have soared on the most productive small business owners. Thus tax savings are more critical than ever. Virginians in the top federal tax bracket can donate $100 000 to a NAP and receive the equivalent of $110 350 in total federal and state tax savings. Let s assume Mr. Biz has shares of highly appreciated stock worth $100 000

 

Because his business profits flow onto his personal tax return he’s in the highest tax bracket. For most capital gains taxes are 0%. Others pay only 15%. But if Mr. Biz tried to sell the stock he would owe a 23. 8% federal capital gains tax. He would also owe a 5

 

75% tax to Virginia. After paying these taxes he will be left with only $70 450. Rather than selling the stock and paying the capital gains tax Mr. Biz gives the stock on to charity. By transferring the stock to a NAP he avoids paying any federal capital gains tax. He can take a deduction of $100 000 against his income saving him $39 600 on his federal income taxes and $5 750 on his Virginia state taxes

 

But his tax savings don t stop there. He receives a $65 000 tax credit from the NAP. In all Mr. Biz receives a complete of $110 350 in tax savings. What would have only been worth $70 450 if he had tried to cash it bought him $110 350 in tax savings. It isn’t unusual for small business owners to owe $65 000 in Virginia income tax

 

If their company s profits are $1. 2 million they will owe over $65 000 in Virginia income taxes whether they put most of that profit into long-term capital purchases. Capital projects can t be expensed. So the money is still taxed in the year it truly is earned. At least with NAP credits they can get some of that tax money back

 

Nowhere other than the tax code can you get an instant 56. 6% return on your investment only for giving money to charity. Whether you’re in a lower federal tax bracket your tax savings should still be significant. For most middle-class Virginians the whole tax savings generated through a present to a NAP might be worth nearly up to the gift amount s cash value

 

To receive tax credits for your donation first contact the charitable organization and determine if it has any remaining tax credits to allocate for your gift. If tax credits are still available fill out the Contribution Notification Form and send it to the organization. The charity will facilitate the transfer of the tax credits to you

 

After submitting the paperwork you’ll receive a tax credit certificate. At tax time attach the certificate for your return. The Department of Social Services and the Department of Education manage the transfer of the credits. Each qualifying charity is assigned a group variety of credits annually. Your donation would possibly not receive a credit if the charity has already given away its share

 

But if you receive more tax credits than you need this year you can carry them forward to future years. So one can make charitable donations to a NAP don t wait until the tip of the year. Applying for the tax credits does require some extra effort. Your gift and the corresponding paperwork should be complete by year-end to receive the credit for 2013

 

Charities receive their credits on July 1 and often have donors already lined up. For links to the charities that qualify as NAPs visit our website at www. emarotta. com/nap. Give generously this year to aid Virginians in need and save money at the same time. Don t hesitate to profit from this tax code oddity

 

Megan Russell co-authored this article. Subscribe and receive free presentation: How To Read Your 1040!

Article Tags:
· ·
Article Categories:
Make Money

Leave a Reply