5 Things to Know About Tax Deductions and Charitable Giving
While the prospect of tax deductions shouldn’t persuade or hinder you from making donations, it is a legitimate resource you don’t want to skip over – particularly in these difficult times. Here are five things you should know about tax deductions and charitable giving.
#1: Don’t Forget the Temporary Changes Due to The CARES Act
A temporary provision under the CARES Act allows for cash donations of up to $300 to be deductible when people file their taxes in 2021, which will expire on December 31, 2020.
Although the final day is December 31, you can still donate on the last day of the year and qualify for the special tax deduction. Should you give this January, you won’t be able to claim a deduction until the following year.
Additionally, the CARES Act temporarily eliminates the limit (which is typically 60% of your adjusted gross income) on the number of cash contributions you can deduct should you itemize your deductions.
#2: Always Confirm that the Charity/ Organization is Registered
Before donating, you must check the Tax-Exempt Organization Search (TEOS) tool on the IRS website to confirm that the charity/ organization is eligible for tax-deductible donations.
If you do not confirm that the organization you are donating to is a registered 501©(3) organization, you will not be able to deduct your contribution if you itemized your deductions.
Remember: there is a temporary exception under the CARES Act that allows you to make a tax deduction up to $300 on your 2020 taxes even if you don’t itemize your deductions.
#3: You Can Determine Tax Deductions Based on the Amount You Contribute
Whenever you donate, whether it be via check, cash, or some other means, the amount of your potential deduction is determined by the amount you contributed.
However, donating furniture or household items requires you to get a rough estimate of the item’s worth from a thrift store or various online calculation resources.
Furthermore, if the charity gives you something, such as a gift card, you must subtract that amount from your tax deduction; nevertheless, many organizations will provide you with a summary of your tax-deductible amount.
#4: Keep Good Records
By law, special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Remember to always keep financial records when giving to charity.
Before filing a return, be sure to archive receipts or acknowledgment letters from the charity you donated to. Also, retain any canceled checks or credit card receipts.
For more details on the recordkeeping rules, refer to Publication 526 on the IRS website.
#5: Confirm When a Donation is Considered Deductible
Donations are considered tax-deductible the year they are made out to a charity or organization. For example, here are the rules for checks, text messages, and credit cards.
Check donations are tax-deductible the day you mail the check – not when the organization cashed it. Contributions completed over a text message are tax-deductible the year you sent the message. Additionally, donations done via credit card are deductible the year you made the charge.
Refer or Contact TaxRise
The economic unrest that has devastated our country will see a rise in taxpayers who have unfiled and unpaid back taxes. Many experts predict a spike in IRS collection activity in 2021 – undoubtedly correlated to their reopening and the thousands of new delinquent taxpayers.
Any new or systemic Liens and/or Levies will also be suspended for the time being.
For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.
The IRS will not forward any new delinquent accounts to private collection agencies at this time.
Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.
Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.
The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.
Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.
“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”
Learn how easy it is to qualify for tax savings.