It’s the time of the year when charity abounds and, at the same time, tax returns loom ahead.
Yes, you can help others AND, sometimes, yourself with year-end giving. But you might need to plan how to give, especially with tax reforms now solidly in place.
Briefly, the only way for individual taxpayers to claim a federal tax deduction for charitable contributions is to itemize on Schedule A. That schedule basically adds together list of expenses ranging from medical insurance premiums to interest on home loans for deduction on the tax return. Charitable donations are among them.
But here’s also where many taxpayers willingly pass up the chance to deduct. The most recent tax reforms increased the standard deduction, which is an automatic benefit, to $12,200 for a single taxpayer or $24,400 for a married couple filling a joint return. If itemized deductions on Schedule A don’t reach those levels, taxpayers generally will pay less in taxes by taking the standard route. On the other hand, if their itemized deductions do exceed the standard, taxpayers usually will pay less tax using Schedule A’s values.
Many charitable deductions are more flexible than other expenses. You might be able to hasten or delay your contributions a few weeks in order to limit taxes. “If (you’re) at or over (the standard deduction on Schedule A), take items in this year,” EricJohn Ltd. owner Eric Buechler says. If you’re well under, it might pay to wait and bunch up two years of donations in January to help reduce taxes for your 2020 return.
Eric, who is an enrolled agent recognized by the Internal Revenue Service, can help taxpayers decide when charitable contributions make the best impact in lowering income taxes
The IRS also offers some tips about charitable contributions themselves. For example, in the upcoming year, most political groups – even if they are structured as non-profit organizations – won’t qualify for charitable deductions. We’ll pass along some of those guidelines in the next week.