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My kids go to a private school that's attached to a religious congregation. As far as paying tuition, they offered me a choice between these 2 deals:

  1. $1296 per month (for 12 months).
  2. $1156 per month (for 10 months) + plus make a one time $4000 tax-deductible donation to the congregation.

My stats (e.g. how much I make, etc...) are here. Which deal makes more sense when applying the deduction to my tax situation?

Additionally, I'll be applying to pay less in child/spousal support, since the kids are pretty much with me full time. So declaring one amount vs the other might make a bit of a difference (donations don't count though) - I don't know exactly how that's gonna play out. So only apply this variable if you know what it actually comes out to.

  • If you are taking 2, don't forget to itemize! – MoneyCone Sep 15 '11 at 20:26
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The total outlay in 1. is $15552 and in 2. is $15560, so if you had the $4000 (and ignoring forgone interest which is very low at the moment), then you'd only need $8 of savings from the tax deduction for it to be worthwhile - I suspect they set it up so that the numbers would be the same modulo rounding errors.

From your stats you probably don't have the $4000 up front, so you'd have to borrow it. Let's guess it might mean a 25% interest rate given your poor credit situation, and that you'd pay most of it back in the last 2 of the 12 months, so it'd cost you about $1000. I guess your tax bracket may mean that the savings from the tax deduction still make that worthwhile, but I'm not familiar enough with US tax to be sure.

  • 2
    Good answer. My advice - if you have to borrow, just don't do it. It's messy, risky, etc. etc., as well as financially depressing. If you don't have borrow, the deductible $4000 up front sounds like a great deal. – Nicole Sep 15 '11 at 19:39
  • I posted my stats in January and I've been able to save a bit. But still it would really hurt - the tuition went up from 10k to 15k due to my kids being in higher grades. – NeedAdvice Sep 16 '11 at 5:41
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Does making the $4,000 contribution relieve you of other donations or volunteering to the congregation that you are customarily expected to make?

I don't know how the IRS would look at something like this. Is option 2 really a bona-fide deduction? Feels like something that could blow up in your face, particularly with an ex in the picture. Without an opinion from a qualified tax advisor, I would probably prefer option one.

  • It looks like it was designed to be fuzzy. The money is basically the same either way, but the two month window makes it harder (but by no means impossible) to directly argue there's an implied discount. Still kinda sketchy. – jldugger Sep 15 '11 at 21:36
  • It's a real-deal deduction with a letter thanking me for the tax deductible donation. A lot of religious outfits do this. – NeedAdvice Sep 16 '11 at 5:44
  • That doesn't make it actually legal! – Ganesh Sittampalam Sep 16 '11 at 11:01
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I agree with Ganesh's answer.

Regarding the tax code, I don't see anything deductable in your finances--I think alimony is a direct subtraction, not a deduction. So if you itemize ONLY to claim the $4000, it will not rise to the level of the $5800 standard deduction, and thus will provide you no benefit tax-wise.

  • I do deduct a bunch of stuff - mostly related to my side jobs - I've been doing itemized deductions for the past 10 years or so. – NeedAdvice Sep 16 '11 at 5:39

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