The 2018 tax year brought about some significant changes to how many people filed their tax returns. Standard deduction amount increased, mortgage interest deduction became limited, and state and local taxes were limited to $10,000 (SALT deduction). The increase of the standard deduction caused many people to go from itemizing to taking the standard deduction. Many people could no longer write off mortgage interest, property taxes, state and local taxes and charitable contributions. The amount was not large enough to get over the new standard deduction amounts. The changes from 2018 continue currently.
Due to COVID -19 this year, the CARES Act allows people to write off up to $300 of charitable contributions while still taking the standard deduction. You do need receipts, canceled checks, text messages or if a cash or property donation of $250 a letter from the organization showing the donation amount, and they must be charitable organizations. You must have documentation to prove contributions.
For-profit institutions, individuals, lobbying groups, civic leagues, sports and social clubs, homeowners’ associations, and political organizations are not charitable organizations. If you are unsure if the organization is a charitable organization, you can visit IRS.gov and use their Tax-Exempt Organization Search tool to see if the organization is considered a charitable organization.
Did you know that you can write off your charitable mileage? This includes mileage you drive to charitable events, volunteer opportunities, and mileage you used to bring items to a donation center. If mileage is something you can write off, you need to remember to keep a mileage log. This log should contain the date, where you traveled, event name or purpose, and number of charitable miles.
Many people have taken advantage of being home during COVID-19 to clean out their houses, yards, attics, and basements. If the value of items you want to donate is more than $5,000, you need to have an appraisal done before donating the items. Without the appraisal, you will be limited to $5,000, regardless of the actual value you donate.
Donations to food banks during COVID-19 have increased. If you donate to food banks, you need to keep the receipt for the items that you donated. $250 or less you need the original receipt, write the date donated and the organization donated to on the receipt. Goods valued $250 – $500 you will need to get a written acknowledgement from the food bank that includes a description of the donation and a statement that you did not receive anything in return for the donation. Larger donations will require you to state when and where you obtained the goods and how you determined the donation value. The fair market value of goods donated is the price you paid for the goods.
Do you have a car that you cannot sell or do not want to deal with getting it ready to sell? Donate the car. There are many charitable organizations out there like Kars4Kids and Vehicles for Veterans who will take your vehicles. When you donate a vehicle to a charitable organization worth more than $500, the organization will send you a 1098-C as the written acknowledgement of your donation containing all information required for the charitable deduction.
Another way you can take advantage of charitable deductions is to donate stock. If you have stock that has increased in price since you purchased it, you can donate the stock to a charity. You will get a deduction equal to the fair market value and never pay capital gains tax on the increased value. If you find yourself over-weighted in one particular stock but do not want to pay tax on gain when you sell it, this may be a great way to do some good and not pay capital gains taxes.
Many people ask about whether or not buying Girl Scout cookies and Boy Scout popcorn are tax deductible? If you buy the cookies or popcorn and donate them back to the Girl or Boy Scouts or to another charitable organization, you can write off the entire price that you paid. If you take the cookies or popcorn home to consume, you can write off the price above fair market value only as a charitable contribution. This is true of all items you purchase as part of a fundraiser for a charitable organization.
Many people do not see the $300 as a substantial tax savings. For people who are generous and claiming the standard deduction, it helps reduce their tax liability, even just a little. This is especially important now, while COVID-19 is happening. More and more of our neighbors, friends, and even family members are struggling being unemployed, having reduced hours, being unable to work because kids are not in school or even sick. Many people continue to donate even when income is tight or even when they cannot afford to, it is nice to know there is a little bit of a tax break for being generous.
