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The issue of a charity having operations in a foreign country is rather complex, one that involves oversight not only by the Internal Revenue Service, but also by the Department of Homeland Security. It is fraught with pitfalls that can only be avoided if you understand the rules. The Foundation Group has worked with thousands of 501(c)(3) clients with foreign activities…and each situation is different. I can only scratch the surface in this article, but my goal is help you understand some of the challenges associated with foreign country activities.

This subject can best be divided into two primary scenarios: 1) direct activities and 2) charitable giving. Let’s look at each in order:

Direct activities. Direct activities is defined as a domestic (US) tax-exempt organization operating some or all of its programs physically in a foreign country. There are many examples of this: schools, clinics, economic development programs, orphanages, etc.. This can involve US citizens living in and operating the program in the foreign country, a program fully staffed by foreign nationals, or a combination of the two. The biggest challenge in maintaining an IRS-compliant foreign country program is the same as for any 501(c) organization, that is, the program must satisfy a charitable purpose. What is different is the ever-changing landscape of international relations.

One of the key issues here is OFAC – the Office of Foreign Asset Control. As explained at US Treasury website

“The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.”

In a nutshell, OFAC determines where you can and cannot go and with whom you can and cannot deal with. While technically it is a Treasury Department program, Homeland Security is directly involved. It is imperative that any US charity that intends to put programs in place in a foreign country know what OFAC is saying. It is difficult enough to learn how to acclimate to a unique culture. You certainly do not need the headache of running afoul of Homeland Security.

Charitable giving. This activity usually involves a US charity financially supporting the efforts of a foreign charitable organization. This topic may seem more straight-forward on the surface, but it is actually treated with greater scrutiny by the IRS than are direct activities. For example, a US charity gives money to a poverty relief program based in New Delhi, India. In principle, this is OK, so long as the foreign country or agency is not on any OFAC list (see above). The problem is the lack of direct, fiduciary responsibility for the expenditure of funds by the US organization. In our example, the US charity must ensure that the program being supported qualifies as one that would be recognized as 501(c)(3) if it were in the US. In addition, the US charity must require a detailed accounting of the expenditure of funds in order to monitor compliance with 501(c)(3) related expenditures. Should the domestic organization find out that money is not being spent in a way that would be acceptable by the IRS, the donations to that foreign organization must cease immediately.

Also, the IRS will not allow a domestic charity to be simply a “money conduit” to a foreign organization. US law does not allow such direct-affiliate organizations. In other words, a US charity cannot exist for the sole purpose of financially supporting a specific foreign charity. A US charity must be organized for specific charitable purposes that it alone is responsible for, one of which may be the support of foreign charitable work. It is best when that support is not tied to any specific foreign charity on an exclusive basis. For a new organization it is OK to name the foreign charities to be supported initially, but it would be a big mistake to make the support of those named charities the sole purpose. The IRS would probably deny the application for 501(c)(3) status. Revenue rulings 63-252 and 66-79 deal with some of these issues directly.

If your NPO currently has foreign activities, or plans to in the future, get educated. Your success or failure is at stake.

For 10 years the estate tax was set in law to be abolished in 2010. If congress didn’t act to keep it abolished or modify it for 2011 and beyond, then the 2011 estate tax would just revert to that of 2000. Now congress is considering retroactively imposing an estate tax for 2010 later in 2010. This article updates you on the present rates and explains that this retroactive change is unconstitutional.

Just so you know, there’s no estate tax and generation skipping (GST) tax in 2010 by law. Since estate, GST, and lifetime gift taxes generally tax value above an exemption amount, we can say that the 2010 estate, GST, and lifetime gift taxes have exemption levels of unlimited, unlimited, and $1 million, respectively. The value of gifts beyond the $1 million exemption level is taxed at up to 35%.

Without congressional action, the 2011 estate, GST, and lifetime gift taxes exemption levels will go to $1 million, $1 million (including lifetime gift), and $1 million respectively. The top rates of each of these are 55%. But that’s all liable to change either before 2011 turns the corner of after.

Changing 2010 taxes retroactively should be considered unconstitutional

Congress in its audacity may change the 2010 estate tax laws late 2010 retroactively to Jan 1, 2010. Some consider this retroactive change constitutional. They cite Supreme Court case law in U.S. vs Carlton (1994) that deals with a complicated estate tax deduction for an ESOP transaction. A retroactive law affecting this situation was upheld by the court to maintain the intent of the original law – and that no improper motive for upholding the retroactive law was found.

But, the operation of the 2010 estate tax law reflects no mistaken intent of those who fashioned and passed that law. The clear intent of the law was to do away with estate tax. It left it to legislators to review what should be done for years following 2010. The reversion to the 2000 law was just to leave an estate tax law in place for abolishment or modification.

But for 10 years, the legislature has done nothing about estate tax laws beyond 2010. This is a disgrace in itself. That’s because estate taxes can rob a wealthy estate of up to half its value. And it takes several years – and often far more – to put effective estate planning into effect. And now, well into 2010, legislators are considering retroactively changing the 2010 estate law.

There’s no justification of retroactively changing the 2010 law not only because the original intent of the law is consistent with its operation, but there are reasons that changing it may possibly serve improper motives (an issue brought up in the Supreme Court case law above) of congressman.

Motives – proper or not – may be associated with contribution money to their election campaigns from special interest groups who seek influence on how the laws should be changed. Laws that require imminent action frantically draw special interests to donate that much more. The more congress can keep the carrot dangling, the more campaign contributions which may be forthcoming. Clearly, congress has created this circumstance by their own inaction.

If you recognize the unconstitutionality of this retroactive change in the 2010 estate law, you ought not to support any congressman who votes for it. The unconstitutionality of retroactive laws should be obvious to them – not to mention the average citizen. Trying to pass such laws undermines justice and fairness – no matter what reason they proffer. Proper or improper motives for passing retroactive laws may reap them benefits – but it’ll be at the expense of the citizenry – even if it’s later overturned by the Supreme Court.

Paying taxes is a part of life, it’s something that we can not avoid. But the amount you pay makes a big difference! There are ways to reduce the amount you owe at tax time, and this article will list three ways for you to start.

1. Make use of tax credits. Everyone knows that tax credits are better than tax deductions. Tax credits can lower the amount of money you owe to the IRS. If your child is currently studying in college, you can claim the education tax credit. You can open a Coverdell education savings account, you can put at least $2000 into an account especially for your child’s educational expense.

Parents can also opt to use the HOPE tax credit, also known as the Lifetime Learning tax credit. If you have paid expenses during the calendar year for your child or dependent, you can claim this tax credit. The earned income tax credit is for both singles and married who live in low to medium income homes. More credit is gained if you have qualifying dependents, but that doesn’t mean you won’t qualify without them.

2. Itemize your deductions. Do you have a home office, or care for an elderly relative who lives with you, or have you contributed to charity? If so, you would be better off if you itemize for your tax return rather than taking the standard deduction. Although this process is time-consuming, but it’s worth the effort as you could be paying less taxes in the end.

If this is the first time that you have tried to itemize, you should hire a tax consultant. They will be able to help you with better advice and help you lower your taxable income significantly.

3. Use your status to your advantage. Did you know that you have a choice in filling your status? If you’re married, you can choose to file Jointly or file Separately. If you’re a single parent, you can choose to file as Single or as Head of Household. If you file as Head of Household or Jointly, you will get a larger standard deduction. But at the same time, this filing status determines your tax exemptions. For example, as a Head of Household you can claim yourself and your children.

Don’t take the easy way out and file only the standard deduction each year, you could save a lot of money if you look around and do some research.

It’s that time of the year again. Time to gather your receipts and documents in preparation for tax filing season. This year, perhaps more than ever, taking advantage of every tax deductible expense is not just legal — it’s smart. Waiting until the last minute can cost you big time. So, get started early.

Some 46 million Americans itemize deductions on our 1040s — claiming nearly $1 trillion worth of deductions. Another 85 million taxpayers claimed more than half a trillion dollars’ worth of standard deductions. Some of those who took the easy way out probably shortchanged themselves.

However, millions of taxpayers overpay their taxes every year by overlooking just one of the money-savers listed below. Here are 10 of the most-overlooked tax deductions. Claim them if you deserve them, and cut your tax bill to the bone.

1. State sales taxes. While every taxpayer has a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax.

2. Out-of-pocket charitable contributions. The big charitable donations or gifts you made during the year by check or payroll deductions are hard to overlook. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good works. If you drove your car for charity in 2008, remember to deduct the per mile limit.

3. Medical expenses. In addition to what you’ve spent on doctors, hospitals and medicine, other tax-deductible items include health insurance premiums, prescription eyeglasses and contact lenses, hearing aids, medical transportation, equipment for disabled people, and nursing home expenses.

4. Long-term care insurance premiums. Eight million Americans now own long-term care insurance policies and premiums may be tax deductible for individuals and self-employed. Many people still overlook this deduction for themselves or when assisting a parent with their own tax filings. And, note that States are increasingly allowing tax deductions or credits for the purchase of long-term care insurance.

5. Unreimbursed out-of-pocket job expenses. Tax-deductible expenses include vehicle expenses (other than commuting), travel expenses, uniforms, union dues and continuing education expenses.

6. Student loan interest paid by Mom and Dad. When parents pay back their child’s student loan, the IRS treats it as though the money was given to the child, who then paid the debt. So, a child who is not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.

7. Moving expense to take first job. Don’t forget that job-hunting expenses incurred while looking for your first job are not deductible; but moving expenses to get to that first job are. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new locale.

8. Child-care credit. A credit is so much better than a deduction: It reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.

9. Refinancing points. When you buy a house, you get to deduct points paid to get your mortgage. However, when you refinance a mortgage, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year when it’s a 30 year mortgage. That’s $33 a year for each $1,000 of points you paid.

10. Jury pay paid to employer. Does your employer pays your full salary while you are doing your civic duty but ask that you turn over their jury fees to the company? The IRS demands that you report those fees as taxable income. You always have had the right to deduct the amount, so you weren’t taxed on money that simply passed through your hands. But now tax forms include a line dedicated to this deduction.

For information on the 2008 and new 2009 tax deductible limits and rules for long-term care insurance visit the Consumer Learning Center of the American Association for Long-Term Care Insurance and click on the box labeled Tax Deductible.

When you bought your home you might have had a wonderful job with great benefits, a company car, and maybe even an inheritance that helped you with the down payment. Now, your financial situation has changed and perhaps you have gotten married or become a parent, the great job was outsourced and you had to settle for something else, the company car is gone and you have a car loan, and at the end of the day there does not seem to be enough money to go around. You might have begun to rely on credit cards and in some ways you are robbing Peter to pay Paul every month but you can tell that this kind of financial planning is catching up with you. Mortgage arrears are just around the corner and you are afraid of what will happen when you cannot pay that high mortgage payment anymore.

Probably the best way to head off possible mortgage arrears is to get a clear picture of your financial health. Writer down every penny that comes in and every penny that goes out. Next, you will need to shift your priorities. For example, while it might be nice to have cable television, you can live without it. Your mortgage always needs to be the top priority and it needs to be paid before you pick up any other bills for payment. Some bills may be for goods and services that are redundant or perhaps not as important as they were when you signed up for them. After cutting your cable, take a look at your car insurance. Obviously, you will need car insurance, but do you really need the same kind of coverage you had when the car was new six years ago? You may be able to free up some funds by adjusting the services to which you subscribe.

If you have cut and pruned your budget but there is still a foreseeable shortfall, you will need to seek ways to increase your income. Obviously a second job is a good idea, but perhaps there are other avenues as well. Are you able to qualify for tax refunds that you have not explored? Are there write offs that you might be entitled to but have not applied for? Are you getting the homeowner exemption you should have? Are your taxes too high because the taxing authority has overvalued your home? Asking these questions may help you to find ways to keep more of your hard earned money.

Similarly, do you have a hobby that perhaps you could turn into a little freelance business? For example, if you enjoy making pottery in your spare time, you might be able to sell it online for a bit of extra income. If you dedicated a room in your home to this effort, you may even qualify for a new tax exemption! As you can see, mortgage arrears can be kept at bay if you take a diligent look at your financial health before it becomes ill!