‘Tis Better to Give than to Receive…

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…Especially When Giving Back Can Lessen Stress and Your Tax Bill!

I recently read an article on how to deal with anxiety due to all the changes that have occurred in 2020 due to the COVID-19 threat. One of the suggestions was to give to your favorite charity/charities.

It appears that people who give back through donations of cash, items, or their time are much happier and less anxious than they were before they donated. With that thought in mind, I wanted to recap the current charitable donation rules to help you reduce your tax bill, have more money to donate, and possibly even reduce your stress level.

In 2020, taxpayers have new opportunities for tax savings when they donate even if they take the standard deduction.  Prior to 2020, taxpayers who took the standard deduction (approximately 85% of all taxpayers) received no benefit for charitable contributions.  However, for the 2020 tax year, taxpayers who take the standard deduction are allowed to take a deduction for cash donations up to $300 (it is still unclear if married filing joint would be up to $600).  Those who itemize their deductions can now deduct contributions up to 100% of their adjusted gross income in 2020 instead of the 60% limitation in 2019.  This means that taxpayers could wipe out their entire income tax liability in 2020 through charitable donations.

Here are the rules to make sure that your charitable contributions are tax deductible.

  1. Be sure to give to a qualified organization.   To determine if an organization is a qualified entity, you can simply ask the organization.  They should be able to tell you since they are required to apply to the IRS in order to be qualified.   You can check the status by going online at irs.gov/charities or by calling the IRS at 1-877-829-5500.  NOTE: It cannot be a contribution to a particular individual or family.
  2. For cash contributions under $250, you need to have your cancelled check or a receipt from the charity stating the charity name, amount and date of the contribution.
  3. For cash contributions over $250, in addition to the above, you need to have a written acknowledgement from the charitable organization that includes the following:
  • The name and address of the charity
  • The date and the amount of the contribution
  • Whether you received any goods or services as a result of the contribution and if so, what you received and the value of what was provided. If the only benefit was an intangible religious benefit, the acknowledgement must state that benefit.

This acknowledgement MUST be received on or before the due date including extensions of your tax return that includes the deduction for the charitable contribution.

  1. For noncash items under $500, you also need to retain your receipt. Be sure the receipt has the name of the organization, the date and location of the contribution as well as a description of the property donated.
  2. Keep a detailed list of the items donated and an estimate of their value. Some of the charities, such as the Salvation Army, have a listing of clothing/household items with a range of suggested values that you can use to determine the worth of your donated goods.  There are also apps available for little or no cost that will help you value your contributions.
  3. For non-cash contributions over $500, but under $5,000, additional information is required for reporting on the tax return such as the property’s cost or basis, and how and where the property was acquired.
  4. For non-cash contributions over $5,000, an appraisal of the item as well as all of the above detail is required.
  5. Out of pocket expenditures for providing services require documentation. You must have records to prove the amount of the expenses incurred, and if you have an expense that exceeds $250, you need a written acknowledgement from the organization with the requirements as reported above.

These requirements may seem cumbersome or excessive, but the price of not following these rules can be the loss of the tax deduction resulting in more tax owed plus interest and penalties.    Giving is good for the soul, but giving more than required to Uncle Sam is just unnecessary.

 

 

 


Kathi Koenig, CPA
Partner – McGowen Hurst Clark Smith
p. 515.288.3279
e. KKoenig@mhcscpa.com

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Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen Hurst Clark Smith (MHCS) celebrates 70 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and financial planning expertise.

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