Tag: deductions

Deductible Donations for Non-Itemizers in 2020

A tax deduction is not the only reason to donate to the charity of your choice. Many people are happy to give to charity, even if no tax savings is involved. Donating to charity and paying less in taxes would make those people extra happy. So, the special provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act for non-itemizers to make deductible charitable donations of up to $300 will make those generous people ecstatic.

Non-itemizers are taxpayers who take the standard deduction instead of itemizing deductions on their federal income tax return. Nearly nine in ten taxpayers take the standard deduction because it results in lower taxable income and lower income tax. However, only taxpayers who itemize their deductions can typically deduct donations to a qualified charity.

Under one of the CARES Act provisions, individual taxpayers who take the standard deduction can claim a deduction of up to $300 for cash donations made to a qualified charity during 2020. Unless it’s extended, the deduction disappears in 2021. “Cash donations” means those made by check, credit card or debit card. Donations of securities, household items, or other property are not included.

Not all donations to organizations that do good work in the community are tax deductible. The organization must be considered a qualified tax-exempt entity by the IRS. Before making a donation, check the Tax Exempt Organization Search (TEOS) tool on IRS.gov to make sure that the organization is a qualified tax-exempt entity, and that donations are eligible for a tax deduction.

Check Publication 526, Charitable Contributions, and the TEOS tool for more information about qualified charities, donation limits, and how to report donations on your federal income tax return. More information about the special tax deduction for cash donations up to $300 in 2020 is at https://www.irs.gov/newsroom/special-300-tax-deduction-helps-most-people-give-to-charity-this-year-even-if-they-dont-itemize. That site also has the special recordkeeping rules for claiming a tax deduction for a charitable donation.

The CARES Act, passed by Congress last spring, included several temporary tax provisions that may not be well known. One was designed especially for people who do not itemize deductions on their income tax return and who donate to a qualified charity. The deduction of up to $300 for cash donations made to a qualified charity is only available during 2020, unless extended by Congress. Non-itemizers will want to jump on this one-time opportunity to donate to charity and pay less in taxes.

Tips for Nonprofits during Giving Season

Thanksgiving is the traditional start of Giving Season. To mark the date, I blogged a couple of weeks ago about “Which, Who, What, and How” individuals can deduct charitable donations. Nonprofits receive a large portion of their total donations in the last few weeks of the year. Large donation volumes require protections to prevent some of those funds from “disappearing”.

 

Nonprofits work hard to raise funds. Plus, they have fiduciary responsibility for donor funds, starting when they are received. So, in the spirit of equal time, this week’s blog gives some tips to nonprofits, similar to tips that I gave in November to taxpayers planning to make year-end donations.

 

Four best practices for nonprofits to protect their donations:

 

  1. Segregate Duties

Separate tasks to ensure that funds are protected at all times, and nothing “falls through the cracks”. For example, separate the tasks for receiving and depositing funds. Bank account reconciliations and other verification procedures should be performed by someone who is not involved in receiving or depositing funds.

 

  1. Standardize and Automate

Establish and follow a routine process for each donation method. Define non-routine activity, how to detect it, and how to address it. Investing in automation generally reduces overall cost through efficiency and cost-effective controls. Automation facilitates reporting to track activity and detect/address issues and anomalies.

 

  1. Verify and Reconcile

Independent and regular donation verification is one of the most important protections for your donations. Automated tools are available for bank account and credit card reconciliations. Up-front technology investments generally pay for themselves quickly. Donations that are restricted by the donor for a specific purpose should be verified separately.

 

  1. Manage Donation Channels

All donations should be protected. Priority should be given to donation channels that bring in the largest dollar amounts. Identify your donation channels, such as direct mail, online, events, or walk-ins. Determine the dollar amount and donation volume from each channel. Prioritize protection activities on donation channels that bring in the larger percentages of total dollars. Encourage donors to use less expensive, well-protected donation channels.

 

Following these best practices is not everything nonprofits should do to protect donations, but it’s a start.  What is your nonprofit doing to make sure that your donations are protected?

Year-end Donation Time is Here!

Tomorrow is Thanksgiving, the beginning of Giving Season and that annual scurry to make charitable tax deductions before year-end. Non-profit organizations typically receive a large percentage of their donations in November and December. So now is a great time to remember four important facts about charitable tax deductions, before you write that check or click “Donate” on that website.

 

Whatever charity your heart tells you to support, you also expect to save some tax money. But how can be sure that your donation is deductible? Just in time for Giving Season, here are answers to four common questions about charitable donations – Which, Who, What, and How:

 

Which Donations are Deductible?

You can only deduct donations to qualified charities that meet IRS non-profit status requirements. Qualified charities include humanitarian, religious, educational, scientific, and cruelty-prevention organizations. A list of qualified charities is posted on the IRS’ “Exempt Organizations Select Check” tool.

 

Who Can Take a Deduction?

Under current tax law, donations to qualified charities can only be deducted by taxpayers who itemize their deductions using IRS Schedule A. Donation deductions could be limited if your adjusted gross income exceeds a specified amount, based on your filing status.

 

What Documentation is Needed?

You must maintain a bank record or other written communication from the charity. Documentation must contain the name of the organization, the date of the donation and the amount. Donations of $250 or more must be acknowledged in writing by the charity stating the date and amount of the donation. Your deduction could be reduced by the value of anything you received in return, such as the cost of a fundraising dinner.

 

How about Property Donations?

Donations don’t have to be monetary. You can also donate items such as clothing, household goods, vehicles, stock, or real estate. Property donations are subject to more reporting rules than monetary donations. Donated vehicles valued at more than $500 and donated real property and other items valued over $5,000 are subject to even more rules and documentation requirements.

 

Want more information? Consult a qualified tax professional or check out the IRS website at here.

 

The Facts about Home Office Deductions

New tax clients ask me all the time about taking a home office deduction. It’s is a popular idea, but it doesn’t work for everyone, even if you have your own business. Lots of rules and your exact circumstances dictate what you can do. It can be pretty confusing.

So let’s “un-confuse” it: When can you take a deduction and how much?

When can you take a home office deduction?

1. Exclusive and Regular Use: Space used for a home office must be used exclusively and regularly for business operations. No non-business activity can be conducted in the home office. That means no personal items in the home office.

2. Principal Place of Business: Your home must be used to substantially and regularly conduct your business. It’s okay if you also carry on business at another location, but your primary activities must be in your home office.

3. Employees: Wage earners may be able to deduct a home office if #1 and #2 apply AND it’s for the employer’s convenience, such as teleworking to reduce the employer’s real estate footprint.

What home expenses can be deducted?

4. Indirect Expenses: Expenses for keeping up and running the entire home, such as insurance, utilities, and general repairs are deductible based on the Business Use Percentage. A percentage of mortgage interest and real estate taxes can also be deducted.

5. Business Use Percentage: The business percentage equals the area of the home used for business divided by the total area. The most common method to calculate the percentage is dividing the square footage used exclusively for business by total square footage. Shared spaces, like hallways, cannot be included in office space.

6. Direct Expenses: Expenses that benefit only the area exclusively used for business, such as painting or repairs in the home office, are direct expenses that are fully deductible.

7. Unrelated Expenses: Expenses for the part of the home not used for business, such as lawn care or painting a room not used for business, are not deductible.

8. Simplified Option: A standard deduction is allowed of $5 per square foot used exclusively for business, limited to 300 square feet.

Qualifying for a home office deduction can really help reduce your tax liability, especially for business owners. The basic rules are outlined above. More rules are more on the IRS website. Check them out here.