Donations are Not Always Deductible

picture of someone in white sweather holding out crumbled euro dollars
Photo by Christian Dubovan on Unsplash

Under the new tax law, donations to a qualified charity are still deductible for taxpayers who itemize their deductions using IRS Schedule A. Taxpayers who take the standard deduction because it is higher than itemizing don’t get a tax benefit from their giving.

Based on the tax returns I’ve prepared so far this season, taxpayers have not changed their level of generosity, but they don’t always know when their giving could be deductible. There’s a lot of confusion about the meaning of terms like “qualified charity” and “donation”. To help clarify, this week’s blog is dedicated to charitable donations and when they are – or are not – deductible.

What is a Qualified Charity?

Qualified charities include humanitarian, religious, educational, scientific, and cruelty-prevention organizations. Crowd funding, political contributions and association dues are not included. Except for religious organizations, qualified charities must apply for and be granted Tax Exempt Status by the IRS. Tax Exempt organizations have annual IRS reporting requirements. A list of qualified charities is posted in the IRS’ “Tax Exempt Organizations Search” tool at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search.

What is a Donation?

Donations can be financial or non-financial items such as clothing, household goods, vehicles, stock, or real estate. Financial donations to a qualified charity are a deductible, reduced by the value or anything received in exchange, such as a meal. In general, clothing and household items can only be deducted if they are in good usable condition. The deduction amount is based on the “thrift shop” value. Donated vehicles, art work and other non-financial donations valued at more than $500 are subject to more rules and limits.

What Donations are Deductible?

Financial and non-financial donations must be acknowledged contemporaneously in writing by the charity. Acknowledgements reflect which organization received the donation and when to support any deduction taken. Donations of $250 or more must be supported by a letter from the charity stating the date and amount of the donation, the charity’s reduced by the value of anything in received by the donor in return, such as a fundraising dinner.

Many taxpayers continue to donate to charity, whether it’s deductible or not. Knowing what donations qualify for a deduction helps maximize those tax benefits that are still eligible under the new tax law.

Arlington Library Helps Businesses Learn About Tax Changes

Picture of a MacBook Pro displaying a pink screen on a desk. A silver cup of coffee on the left side with a pile of papers and a silver pen on the right. The background is a clutered desk with a wall full of notes.

Picture of a MacBook Pro displaying a pink screen on a desk. A silver cup of coffee on the left side with a pile of papers and a silver pen on the right. The background is a clutered desk with a wall full of notes.

Photo by rawpixel on Unsplash

The Arlington County Public Library showed its love and support for local business last week by hosting my workshop, “Your Business and the 2017 Tax Cuts and Jobs Act”. They really packed the house with business owners who had lots of fantastic questions. My job – provide equally fantastic answers.

The new tax law is jammed with changes that businesses need to be aware of. We only covered a few changes that impact “pass-through” businesses – sole proprietorships, partnerships, or Subchapter S corporations. We had to be pretty general. Based on the evening’s discussion, attendees left armed with even more detailed questions to ask their own tax preparers.

I can’t replicate the energy in that library conference room here, but I can share a few facts from the workshop that you can use for your business:

  • Qualified Business Income Deduction – Qualifying pass-through businesses may be eligible for a deduction of 20% of qualifying net business income (i.e., excluding interest and other income not derived from sales or fee revenue). For owner/employees with income over $315K (married filing joint) or $157.5K (all other filers), the deduction could be limited.
  • Higher Asset Depreciation Limits – For assets placed in service after 2017, businesses can elect to expense any section 179 property in the year the property is placed in service.  The maximum deduction is increased from $500K to $1 million, and the phase-out threshold is increased from $2 million to $2.5 million.
  • Employer Deduction for Fringe Benefits – A number of employer deductions are disallowed, including activities generally considered to be entertainment, amusement, or recreation; membership dues for clubs organized for business, pleasure, recreation, or other social purposes; and expenses associated with transportation fringe benefits or for commuting.
  • Pass-through Loss Limits – For some taxpayers, losses from pass-through businesses after 2017 cannot be used to offset other income, such as investments, Starting in 2018, the net operating loss deduction is limited to 80 percent of taxable income.

My evening at the Arlington County Public Library was a lot of fun for me. I hope that everyone else also had fun and felt more aware of business tax law changes. Thanks to the Library Staff and incredible Research Librarian for making this event happen for the community!