deductions

Guide to Charitable Deductions Under New Tax Laws

May 30, 2019 By Kathryn Vercillo Leave a Comment

There are so many great reasons to give to charity. Being passionate about a cause motivates many people to give. However, the fact that you can get charitable deductions has always helped a bit. You get to benefit on your taxes when you give to others, provided you follow certain rules in your giving.

However, the tax laws have changed. As a result, fewer people are itemizing their deductions. If you don’t itemize, then you don’t take your charitable deductions into account at all on your taxes. Should you still keep giving to charity? If you do, can you benefit on your taxes at all now? Find the answers below.

Why Do You Give to Charity?

Before we get into the nitty-gritty of how the new tax laws affect charitable deductions, let’s take a moment to consider why we give to charity in the first place. If you’ve gotten so wrapped up in the tax benefits, then you’re really missing the point.

Of course, yes, those tax benefits are nice. However, they’re the icing on the cake. If I’m having trouble deciding between two different places to give my money, then I might choose the one that has non-profit status and therefore allows me to take charitable deductions. However, if I am passionate about a particular cause, I’ll give to it whether I get a tax break from it or not.

Common Reasons People Give to Charity

So, first things first, consider your priorities. People give to charity for all different types of reasons. Common reasons people cite include to:

Gain a sense of empowerment over sometimes seemingly-hopeless issues
Give back to an organization that has helped them in times of need
Help after a particular story moves them
Participate in a community as part of their spiritual beliefs
Provide help to people who need it because it’s the compassionate thing to do; a sense of duty
Reduce guilt over a particular situation
Support a cause the individual really believes in
Support something a loved one says is important to them
Teach children how to help others

Additionally, it feels good to give to others when you have the resources to do so. Undoubtedly, sometimes egoism is also at play; people give because they want others to see them giving.

It’s helpful to know what motivates you. Think about it and put that at the forefront of your mind when it comes to donating in the year to come.

Tax Reform Has Increased Standard Deduction

When it comes to charitable donations, people give in part because they get back. Specifically, they get a break on their taxes. However, you have to take itemized deductions in order to benefit from charitable deductions.

Changes in tax law radically altered the standard deduction. The new reforms started with 2018 tax filing and will continue through 2025. With the new rules, the standard deduction has increased dramatically. Individuals can take a $12,000 standard deduction. Couples who are married and filing jointly can deduct $24,000.

One report indicates that this has had a dramatic impact on the number of people bothering to take itemized deductions. Tax Foundation reports that among people earning between $10,000 and $200,000, standard deductions will decrease by between 63% and 70%. In other words, the majority of taxpayers will not itemize deductions, at least not for the next eight years.

Two Aspects of Tax Reform Encourage Charitable Deductions

There’s something really important to remember here. You do not have to take the standard deduction. You can still opt to itemize deductions. Although many people are opting to take the standard deduction, you can still review both options and choose the one that makes the most sense for you.

If you are passionate about charitable giving, then you might find that it’s actually best to continue to take the standard deductions. If you do, then you can still get the charitable deductions that you’re used to from the past. In fact, two huge changes within the new tax reform rules actually provide an incentive to continue donating to charity.

You Can Now Deduct More for Charitable Giving

First off, you can actually now deduct more for charitable donations than you could in the past. Prior to the tax reform, you could donate in cash up to 50% of your adjusted gross income. If you donated more than that in cash contributions, then it didn’t count toward your deduction.

However, the new rules bump that up another 10%. So, you can now deduct up to 60% of your adjusted gross income if you give that in cash contributions. Be sure to check the exact rules as they apply to your situation. There are certain regulations and limitations on this new part of the law.

You Can Now Itemize More Deductions

If you do decide to itemize your deductions, you’re not going to be capped in the way that you were in the past. Prior to the tax reform, there was a limit on your total itemized deductions. However, until the end of 2025, that limit has been lifted. You can take as much as you’re legally allowed as far as deductions go.

As for charitable giving, this means that whatever you give, you can deduct. In the past, you might have realized that you were capped out and chosen not to give anything more to charity until the next year. However, if you have the funds, you can donate them, because you’re now allowed to count them all towards your itemized deductions.

Should You Give to Charity Despite Changes in Tax Law?

If tax deductions are a primary motivator for giving to charity, then you have to weigh the pros and cons of donating under the new law. People who can give a lot then take itemized deductions will see the tax benefits that they’re seeking.

If you’re like most people, though, the tax benefits are only one reason that you give to charity. If you look at all of the other good reasons to give to others, then you might determine that it’s worth donating even if you do end up taking the standard tax deduction next year.

5 Tax Deductions You Probably Did Not Know About

March 24, 2016 By Jennifer Clark 1 Comment

Each year, whether employee or employer (or even self-employed), citizens across the nation are responsible for filing their taxes. While you can’t run away from the Internal Revenue Service (IRS) without facing the consequences, you can reduce the amount that is taken from your gross income.

It is easy to miss the tax breaks you have a right to when you are in a rush to meet the filing deadline; however, before you run to your accountant’s office, you should review these 5 tax deductions you probably did not know about:

State sales tax. Depending on the state in which you reside, you can choose to deduct your state and local sales taxes over the state income tax; however, you may only pick one, and the list must be itemized when filing. If you live in a state with higher income tax rates, you will be better off choosing to skip filing your sales tax deductions. There are limitations, though, such as amount allotted for the discount and a higher salary.
Charitable gifts and donations. Providing monetary donations to non profits and causes throughout the year do count as subtractions on your records. You might remember to note this with your accountant, but make sure to also note any supplies you purchased or contributed toward a group. These count as itemized charitable donations. While the time you spend cannot be accounted for from your fees, you can deduct 14 cents to the mile for any time spent driving as well as costs for cleaning any uniforms and the like.
Moving expenses and job hunting. You may be aware that certain expenses accrued from relocating for a new job can be considered a tax write-off, but it does not stop there. We have good news for you recent college graduates: Your first position is permitted by the IRS to be written off if your first job is an exceptional distance (more than 50 miles) from where you currently live including parking fees and tolls. Additionally, those with existing jobs can deduct costs associated with searching for a new occupation as long as you itemize. As with anything, there are some restrictions along with key notes to keep in mind. You can learn about those here.
Retirement tax savings. If you have been holding off on investing funds into a retirement fund, you may want to start now. In an effort to encourage low-income and moderate tax payers to save money, the retirement savings contribution credit (otherwise known as the saver’s credit) was put into place. Individuals may receive up to 50% in tax savings for the first $2,000 placed into a retirement account, whether individual or through your workplace.
Certain medical expenses. For most taxpayers with many medical expenses, including travel costs to and from appointments and the like, these itemized charges must exceed 7.5 percent of your adjusted gross income in order to be deducted. It can be difficult to reach this threshold even when you include the premium you pay on your insurance. However, if you are self-employed and pay for your own insurance plan, you are granted to dock 100 percent of your premium cost off your gross income.

These are just a few of the deductions you may not have known about. Others include tuition and higher education fees for yourself, spouse or dependent; child care credit; and refinancing mortgage points. Be sure to speak with your accountant about all of the above and any others for which you may qualify.

If you’ve already filed for this year, make it a goal to start tracking more deduction opportunities for the remainder of 2016.

IRS Interest Rates To Remain The Same

March 17, 2016 By Alexa Mason 2 Comments

Many people have filing their taxes on their minds. With Tax Day approaching, this is pretty normal. However, if you are an owner of a business or pay quarterly taxes (on property, etc.), you may be looking for next quarter’s IRS interest rates and wondering if they are changing.

As you know, interest rates are always subject to change, but it is important to stay up-to-date with changes so that you know what rates you must pay. Keeping up-to-date with IRS changes is the responsibility of every tax-paying American.

Earlier this week, the Internal Revenue Service (IRS) has announced the interest rates for the next calendar quarter (starting on April 1) will remain the same. Rate will remain at the following:

3 percent for overpayments [2 percent in the case of a corporation];
0.5 percent for the portion of a corporate overpayment exceeding $10,000.
3 percent for underpayments; and
5 percent for large corporate underpayments.

IRS Code has determined that interest rates must be announced on a quarterly basis. The rates are subject to change each quarter, however, they do not always change.

Taxpayers outside of corporations pay the federal short-term rate plus 3 percentage points for overpayment and underpayment. If a corporation has underpaid, the rate is the federal short-term rate plus 3 percentage points. The overpayment rate for corporations is the federal short-term rate plus 2 percentage points. Large corporate underpayments must pay the short-term rate plus 5 percentage points. Corporate overpayments over $10,000 will receive the short-term rate plus 0.5 of a percentage point.

Interest rates by the IRS are computed by the federal short-term rate that is decided in January of each year to take affect in February of each year. These rates are based on a daily compounding. This yearly number is adjusted for inflation and cost-of-living.

Rates are also discussed each year at year’s end for individual taxpayers, married couples, couples filing separately and heads of households. The biggest change moving into 2016 were tax brackets and rate changes. However, for corporations, there will be no rate changes in the next quarter.

If these tax rate changes affect you or your company, you should make sure to keep up-to-date with the IRS rate changes. Rates for companies can change up to four times every year. However, these rate changes will not affect every American, so be sure to know what each tax change means to you.

Other rates that continue to change are mileage rates approved by the IRS, tax rates for property, tax rates for small business and items eligible for deduction. Before you file your taxes for 2015, make sure you review the 2015 tax rates, allowances and deductions to make sure that you are paying the correct amount (or getting the right amount back).

If you have a question about filing your taxes, paying taxes or receiving returns, you can always call your tax preparer. If you prepare your taxes yourselves, you can also call the IRS. Be prepared for a longer-than-usual hold in the phone if you call though. It is tax season and the phone lines will be busy.

Photo: Flickr: GotCredit

Is Sales Tax On A New Car Deductible?

March 15, 2016 By Jennifer Clark 1 Comment

The time of year has arrived: the start of warmer weather, the appearance of flora and Easter decor, daylight savings, and filing your income taxes.

Green is finally in the air again, and in more ways than one. If you have not yet filed your 2015 taxes and you purchased a new car before January 1, 2016, your acquisition may qualify for a deduction.

Sales tax can be a (not so) funny thing, especially when buying a big ticket item like a new vehicle. In states that do enforce a sales tax, you are obligated to pay this fee when making your purchases where the tax applies. For cars specifically, whether leasing or buying to own directly, you can do so separately or roll it into the total loan balance.

While you may have already been aware of this sales tax situation, you may not realize how the tax deduction for your new set of wheels works.

First, it is important to understand that this is a part of the American Recovery and Reinvestment Act of 2009, which is particularly important if you live in a state that does not inflict a state income tax. The Internal Revenue Service (IRS) quote, “permits taxpayers to take a deduction for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles.” This does does not include rentals or leased vehicles.

However, there are a few things you need to know as well as some limits. These consist of:

You cannot deduct sales tax and state income tax. The IRS will only allow you to pick one to discount.
You can only take a one-time deduction for your purchase even if you finance the cost. The lifespan of the loan does not equal the amount of times you can claim a write-off. Additionally, any interest that comes with the credit also does not count toward the subtracted total.
The deduction is limited for local and state sales taxes paid up to $49,500.
When filing, you must itemize your deductions. Thus, you will need your receipts to back up your claims. You will cite these on Schedule A of your Form 1040. You can either claim the exact amount of taxes you paid or you can receive the standard sales tax deduction determined by the IRS through a table based on your state, family size and income.
If your state imposes a higher tax rate on motor vehicles, you can only deduct at the general rate that applies to other purchases.
If you live in a state with higher income tax rates, such as California and New York, you will be better off choosing the income tax deduction instead of the sales tax.
If you reside in one of the income tax-free states, like Alaska, Florida and Nevada, or in a low-income tax rate state, this is the best option for you.
In order to qualify for this adjustment, you must be the first owner of the vehicle; used car purchases will not be considered. However, the year of the car does not matter.
Taxpayers with higher incomes unfortunately do not apply. The IRS website also states that the deduction is reduced for “taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.”

If you’re interested to getting an idea of your state’s tax rates, the IRS has a handy calculator that shows what residents can deduct.

In summary, as you prepare to file, be sure to speak with your accountant about the paperwork you’ll need. They will hopefully (and should be able to) provide you with the guidance to make the best decision for your tax return.