Today’s retirees engage themselves in a wide variety of activities, from travel and adventure to volunteer work to full-fledged employment in a new business or career. Some of these activities generate income, which may be partially or wholly tax-exempt because of special status granted to the retiree or the employing organization. If you’re working, especially if you’re setting up your own business or organization or are working overseas, be sure to research the tax implications, as they may be favorable to you.
Federal and State Tax Exempt Certificate
Some retirees who pursue charitable activities find it beneficial to establish their own organizations, or at least assume a more prominent role in an existing charitable organization. In the United States, the Internal Revenue Service exempts most charitable and religious organizations from federal taxes — and such organizations are likewise exempt from most state taxes. There is a list of nearly thirty types of organizations that may be tax-exempt; if you’ve established such an organization or are otherwise managing one, you must apply for tax-exempt status with the IRS, which will then issue a tax exemption certificate. Generally, you must also apply separately with your state’s revenue department, which will issue its own tax exemption certificate for state taxes.
Apart from religious and charitable organizations, many other types of associations may be tax-exempt. Examples include social welfare organizations, social clubs, labor organizations, political groups, fraternal societies, veterans organizations, agricultural and horticultural organizations, trade associations, employee benefits associations, and more. Educational institutions may also be at least partially tax-exempt. If you’re operating a small school or training center, you may qualify. And, although the IRS grants exemption from income, your organization may still be liable for excise taxes or payroll tax. So be sure to consult with an attorney who specializes in tax issues for nonprofits.
Charitable Contributions As Tax Deductions
If you contribute money rather than labor to your favorite charity, your contributions are of course tax deductible. Contributions do not lower your tax directly, but lower your taxable income. In order for your contributions to qualify, you must itemize your deductions when you file your taxes (rather than taking the standard deduction), and the beneficiary organization must be a qualified tax-exempt organization, having received 501(c)(3) status from the IRS. (Religious organizations generally are not required to obtain such status in order to be legitimately tax-exempt.)
You must claim your charitable contributions on Form 1040, Schedule A of your tax return, and any contribution worth more than $250 must be verifiable, with a canceled check or letter of acknowledgment from the beneficiary organization. If you donate property, the beneficiary will often have a form receipt in which you fill out the items donated and their value. The IRS works on the basis of “fair market value” of the exact item(s) donated, not replacement value. If the donated items is valued at more than $5,000, you must have a written appraisal.
For further information on charitable contributions, refer to IRS Publication 526, “Charitable Contributions,” and Form 8283, which provides instructions for handling noncash contributions.
If you retire overseas and work there, your earned income is at least partially tax-exempt. When you file your taxes with the IRS, you must claim the total of your overseas income, but generally you can exclude $95,100 of it (as of 2012; the threshold amount is adjusted upward each year). If you earn more than the threshold amount overseas, you’ll pay tax on the overage as regular income, regardless of whether you’ve already been taxed on this income by your local jurisdiction.
Retirement has its benefits, many of which are financial in nature. The above discussion applies to taxpayers of all ages, but retirees often find themselves with fewer resources at their disposal to provide advice and assistance. Don’t sell yourself short by paying taxes you don’t owe!
Income Tax Calculator
An income tax calculator is a great online calculator that can give you a rough estimate of how much money you will have to pay in taxes at the end of the year. While it will not give you the exact number that you will get from the IRS, it will get you close enough that you will be able to plan to make the payment. This can help you budget all year long so that paying your taxes is quick and easy.
Using The Calculator:
It is not difficult to use the income tax calculator. You will need to enter all of the requested information in the fields. In order to get the correct amounts for the required fields, make sure you take into account the details below. The number that this financial calculator gives you is then the amount of money that you should expect to pay.