Donations to qualified charities are tax deductible expenses which can reduce your taxable income and therefore reduce the amount of taxes you pay. Unfortunately, not everyone is able to deduct their donations and not all donations are able to be deducted. If you file a Schedule A (Itemized Deductions) “long form” you will be able to include your contributions to qualified charities. Once you conclude it is to your advantage to file a Schedule A, the next step is to determine if your contributions qualify according to the Internal Revenue Service (IRS). The following criteria must be met before your contributions are considered deductible:

• You must have actually donated cash or property to the charity and not just pledged to do so in the future.
• Your contributions must have been to qualified tax-exempt organizations which include charities with a 501(c) (3) tax-exempt status, churches and other religious organizations.
• Your donations must meet the IRS record keeping regulations. The requirements for a cash donation consist of saving the receipt which can be a canceled check and/or a letter from the charity acknowledging the donation.
• You must be able to substantiate the fair market value of any non-cash donation as well as keep the written acknowledgement from the charity. Any non-cash donation over $500 requires you to complete IRS Form 8283 to include with your income tax return. Additionally, any donated property over $5,000 requires an appraisal for the property in addition to the receipt from the charity.

Please don’t let these regulations stop you from donating to your favorite charity as the regulations are not difficult to satisfy. The IRS’s criteria are easily met as long as you keep the receipts for your contributions, any acknowledgement letters from the charities, and remember to get any non-cash donation over $5,000 appraised.

Submitted by Kathy Shrader

Credit scores are already complicated enough to figure out, without having to consider small things most people do not even relate to credit. The following are some of the smaller things you must take into consideration when thinking about how your credit score was determined:

• Your cellphone bill – Did you recently change cell phone carriers before your term or contract was up and incur an early termination fee? If so, make sure you or in some cases your new provider takes care of this fee before it appears on your credit report. Even if you are able to get a better deal with a new carrier, if you end up paying a large termination fee plus any potential late fees, your savings was just eliminated.
• A past-due library book – Not as many people borrow books from a local library as in years past but if you do make sure you return them in a timely manner. An unpaid fine can be turned over to a collection agency which will show up on your credit report.
• Parking fines – Do you have a parking fine you have been meaning to pay but keep putting it on the back burner. Well move it to a front burner and get it paid as these also can be turned over for collection and if so will appear on your credit report.
• Property tax – Are you behind on paying your property taxes? If so, these have the potential of being sold to a debt collector which is bad news for your credit report.
• Only paying cash – Are you averse to putting purchases on a credit card and typically pay cash for all your purchases? If so, it is more difficult to build a credit record as there has been no debt which you paid. In this case, it would be advisable to maintain a credit card, use it but pay it off with the cash you would have initially used to make the purchase. Cash only does not leave a paper trail or create a record of how responsible you are with paying your debt. Proper credit card usage is an excellent method to establish and maintain a good credit report and a good score.

These are just some of the more common little things that can adversely affect your credit. The bottom line and most important message is to pay all your bills on time and make sure you do have some credit established, use it and then pay it off each month!

Submitted by Kathryn Shrader, Postema Accounting Solutions

Making consistent timely payments on your credit card is always a plus and is critical to maintaining a good credit score. The problem comes in when you charge more than you pay each month and your balance increases, the amount of interest you are charged increases and your minimum payment increases. As your balance becomes higher in relationship to your limit it can and will affect your credit score.

Credit utilization or the relationship between your available credit and how much you have used comprises 30% of your total credit score. Therefore, as you continue to only pay the minimum payment while adding to the balance your credit utilization increases. The ideal utilization according to the Fair Isaac Corporation (FICO) is 7 to 10% but definitely not more than 30%. For example, if the overall limit on your credit cards is $5,000 do not carry more than a $1,500 balance.

Ideally, from a financial standpoint, you should pay off each card every month so no interest is paid. Also, from a financial standpoint, the only time it is okay to carry a balance is when the purchase is at a 0% interest rate, but be very careful to monitor the end of the 0% promotion so you make sure to pay the balance in full or all of the accrued interest will become due. In this case all you saved by buying your purchase on sale is gone because of what you will be paying in interest charges!

Additionally, more and more lenders are paying closer attention to how you pay your credit card bills and credit card issuers are reporting more information to the credit bureaus. Increasingly, the issuers are reporting how much of your bill you pay, whether you pay just the minimum, the entire balance or something in between. If you show a steady pattern of just paying the minimum while your balance increases lenders might assume you are struggling and unable to pay more. This pattern of activity will cause lenders to shy away from lending you additional money just when you might need the money for an emergency. The best course of action not only for your wallet but for your credit score and borrowing abilities is not to charge more than you can pay off each month and then to make sure you pay off your balance each and every month.

Submitted by Kathryn Shrader, Postema Accounting Solutions

If you want to cancel a credit card due to a situation such as a divorce or you just think you have too many credit cards open, there is a proper procedure to follow to ensure it does not negatively impact your credit score. First you need to make sure you truly want to cancel the card as cancelling your account could negatively impact your credit score even if you do follow the proper procedure.

Approximately 35% of your credit score is based on your credit utilization ratio, meaning how much of your available credit limit you are using. For example, if you have two cards and each has a $4,000 limit; one paid off and the other with a $2,000 balance, you are using 25% of your available $8,000. If you close the paid off card, your utilization percentage will increase to 50% as you would be using $2,000 of your remaining $4,000 limit. This could definitely hurt your credit score as the recommended ratio is 30%. Additionally, a portion of your credit score is based on the age of your cards. If the card you want to cancel is older than the card you intend to keep, it could lower your credit score.

If after considering the above information you still want to cancel the credit card follow these steps to ensure you minimize any potential impact on your credit score. First, make sure the card is actually paid off. Check your statement to see if there is a zero balance, wait a week or two then call the company or check your balance online if you have set up your account online.

After verifying your credit card balance is zero, call the customer service number on your monthly statement or the number on the back of your card. Again confirm you have a zero balance then tell the representative you are cancelling your card. Make note of the representative’s identification as well as the date and time of the call. Verify the address to send your written notification of cancellation. Then send a short letter stating you are cancelling your account and want your credit history to state you requested the account be closed. Send your letter certified mail and request a return receipt so you have proof your request was received.

The last step is waiting at least 30 days and checking your credit report to verify the account has been closed and it shows “closed by customer”. You can check your credit report for free on AnnualCreditReport.com and if everything is reported correctly you have successfully closed your account. If not, contact the company’s customer service and explain the problem following up with a written letter explaining the problem. Wait another month and check again. This might seem like a complicated process but you do not want to negatively impact your credit score so make sure you close your account correctly!

Submitted by Kathryn Shrader, Postema Accounting Solutions