It is the time of year that we think of others. By “others” I am referring to our favorite charities, loved ones and the IRS. Sounds interesting to place the IRS in the same sentence as charities and love ones, doesn’t it? I offer that this particular government agency should always be a part of any discussion for gifts and donations.
Many people confuse the requirements that qualify charitable donations for deductibility purposes. A particular section of the Internal Revenue Code specifies the types of recipients (donees) that qualify for charitable deduction. Typically, a contribution to your local church may qualify for a charitable deduction in the year it was given. This means that you can generally contribute to your church’s building fund or other designated use funds for your church and claim the contribution on your individual income tax return for the year. Substantiation should be received from the charitable organization, in written form, that discloses the date of receipt of the gift, the amount received as a gift (unless it is other than a check or cash which would require the donor to assign a reasonable fair market value), the name and address of the charitable organization and a statement as to no services or goods given to the donor for the donation.
Unique for most taxpayers, that do not itemize deductions on their individual returns, the tax law changes signed by President Trump in March, 2020, allows for a deduction of $300 of charitable deductions for cash contributions to qualified charities. This deduction is claimed “above the line” which will lower the adjusted gross income of the filer resulting in lowered taxes owed. Highly recommend everyone to take advantage of this opportunity to help qualified charities during this difficult pandemic.
You may not realize but your Christmas gifts to loved ones actually fall within the requirements for reporting purposes to the IRS. You guessed it – gift taxes may apply! Talk about Scrooge, right? Consequently, the IRS wishes to know of any transfers of property for less than full value to another party to determine the amount of gift given to the party. Good news is that the IRS doesn’t require that you report the clothing, toys or other gifts given to your children if the total given for the year is less than $15,000 per donee for 2020.
If you add up all of your gifts to Cousin Eddie, a reference to one of my favorite Christmas movies, and the amount is greater than $15,000 for 2020, you will need to consult with your tax advisor as to the filing of a gift tax return by April 15, 2021. Although a gift tax return may need to be filed, you will, generally, not remit any tax due to a unified gift and estate tax exemption of $11,580,000 per person. So, be generous this year!
Individuals are typically calendar-year taxpayers. This means that you lose some opportunities to lower your 2020 income taxes after December 31, 2020. It is critical that you review your current tax deductions for 2020 and accumulate those needed receipts to provide your tax preparer. Be proactive this year and contact your tax preparer now to book your appointment for receiving tax preparation services.
Lastly, remember those that have suffered during the pandemic. Families in our community may have little to enjoy the basic living needs of life much less Christmas with their loved ones. Disregard the IRS for a moment and let’s focus on our community. Reach out to families that may need a hand up, not a hand out, this Christmas Season. Put some joy in your life by giving to those in need.