Why charitable giving is so appealing in December: your checklist for the biggest tax break


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Charitable giving during the holiday season this year takes on a happier new meaning when it comes to tax deductions.

Typically, most people are not able to get tax relief when they donate to a charity if they claim the standard deduction on their federal income tax returns. And nearly nine in ten taxpayers take advantage of this standard deduction these days.

Still, pandemic relief in Congress created a special but temporary hiatus to donate money to a qualified charity that applies to people who don’t itemize.

A married couple receiving the standard deduction can claim up to $ 600 for cash contributions made to qualifying charities in 2021, if they file a joint return. This is a temporary break, which is due to expire on January 1.

A single person, including married people who file separate returns, can claim a deduction of up to $ 300 for cash contributions.

If this sounds familiar to you, it is.

In 2020 federal income tax returns, cash donations of up to $ 300 made to qualifying organizations were considered deductible for those who did not itemize.

“The difference this year: Those who file a joint marriage declaration are entitled to a direct deduction of up to a combined total of $ 600,” said Mark Steber, director of tax information at the channel’s Jackson Hewitt national tax preparation.

Why giving in December makes sense

News like this may make you more likely to stop shopping for not-so-perfect gifts and instead choose to donate money to a charity that has special meaning for a special someone on your gift list.

This tax break might even make you more willing to tell close friends that instead of freebies this year you would like them to give money directly to your favorite charity or cause.

Tax savings can be from $ 30 to $ 222

How much you save, of course, will depend on how much you donate, your taxable income, and your tax bracket.

“With tax rates ranging from 10% to 37%, a deduction of $ 600 would be worth $ 60 in reduced taxes for someone in the 10% tax bracket and $ 222 for someone in the bracket. 37%, “said Mark Luscombe, senior analyst at Wolters Kluwer. Tax Accounting.

Likewise, a $ 300 deduction would be worth $ 30 for someone in the 10% tax bracket and $ 111 for someone in the 37% tax bracket, he said.

Understand the rules

Remember that there are limits and restrictions for this deduction for those who do not detail.

You can deduct cash contributions made by check, credit card, or debit card. But the IRS notes that “cash contributions do not include the value of volunteer services, securities, household items, or other property.”

So cleaning the house and donating furniture are not going to be enough for this one-time tax break.

“It has to be a cash donation – not property or your time – and given to an IRS-approved organization, not just a friend who does a good job in the community,” Steber said. .

Obtain documents to justify the deduction

And you want to prove.

A voided check is enough to support a charitable donation, Luscombe said. If you are donating real money, you need a written letter from the charity to confirm the contribution.

If you are giving $ 250 or more to a group at a time, you need written communication to indicate whether the donor has received anything of value in return.

How about giving more money?

If you itemize, you can make a larger deduction for charitable contributions, including donations of clothing, cars, securities, and larger items.

It’s also good to know that pandemic relief in Washington has temporarily removed some restrictions on the amount of cash contributions you can deduct, if you itemize, according to Lisa Greene-Lewis, TurboTax CPA and tax expert.

Usually, the cash donations you can deduct are limited to 60% of your adjusted gross income, but this limit has been temporarily removed for returns for tax year 2021, just like for 2020.

As a result, “taxpayers can claim a charitable deduction of up to 100% of their adjusted gross income or AGI in 2021,” said Susan Allen, senior director of Tax Practice & Ethics at the American Institute of CPAs.

Just because you can donate a lot of money doesn’t mean it’s the best tax planning strategy.

Some are better off by donating stocks that have been held for more than a year and have accumulated great value directly to a charity to avoid capital gains tax.

It is best to speak to your tax professional. (You can claim a charitable deduction for non-cash assets held for more than one year, up to 30% of the AGI. But the IRS allows a carry forward for five tax years if your charitable deduction exceeds the limits. AGI in a given fiscal year.)

“The gift of valued stocks can be particularly beneficial because you can get a deduction for the fair market value of the donated stock without having to realize the gain on the stock as a taxable capital gain,” Luscombe said.

Are you going to detail or not?

Now is a great time to think about what donations you would like to make. But again, you have to take into account whether you are going to detail or not.

“If you are donating non-monetary items, you must be eligible for itemized deductions,” Greene-Lewis said.

Your itemized deductions, she noted, for expenses such as mortgage interest, property taxes and charitable contributions must amount to more than your standard deduction, which is $ 12,550, separate or single deposit; and $ 25,100 for joint filing in 2021.

For heads of families, the standard deduction is $ 18,800.

Many people do not detail the deductions, especially after the tax rule changes came into effect in 2018 and the standard deduction doubled.

Higher inflation will also increase the standard deduction by several hundred dollars for 2022 tax returns, which will be filed in 2023.

The standard deduction for married couples making a joint claim increases by $ 800 for 2022.

For single taxpayers and married people filing separately, the standard deduction increases by $ 400 for 2022.

For heads of households, the standard deduction increases by another $ 600 for 2022.

Is it a qualified charity?

If you are making a last minute donation, you want to be sure that the charity you are considering is a qualified charity so that you can qualify for tax relief.

“Taxpayers often try to claim deductions for contributions to organizations that are not qualified charities, such as political candidates or lobbying organizations,” Luscombe said.

Giving someone the personal effort of GoFundMe usually isn’t going to cut it.

Still, donations made to certified GoFundMe charitable fundraisers are tax deductible and will automatically receive tax receipts from the charity partner, PayPal Giving Fund, according to a GoFundMe spokesperson.

The donation platform offers specific GoFundMe Cause programs including Justice & Equality, Pride, Mental Health, and Basic Necessities.

Keep your documents to justify your deduction and do your homework ahead of time.

“Every year there are court cases where the IRS has refused an individual’s charitable contributions due to lack of required documentation, incorrect assessment or lack of assessment, if necessary,” he said. Allen said.

Be careful about simply handing over money to any request during this donation season.

“There are, unfortunately, a lot of scammers looking for ‘donations’ this time of year,” Steber warned.

The IRS offers an online search tool to find an organization’s tax-exempt status on IRS.gov.

Being careful now – and making last-minute cash donations by December 31 – may make sense, as many people who don’t detail are considering a tax benefit with a limited life span.

Susan Tompor is a personal finance columnist for the Detroit Free Press. She can be reached at [email protected].

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