“PAY IT FORWARD” DEDUCTION

Many of us do not take advantage of one of the best tax savings deductions available to all tax filers in some form. That is the charitable donation deduction. Not only does the charity benefit, but you could enjoy tax savings by deducting part or all the contributions for doing something you also will feel good about doing. The donation can be cash or non-cash items. The tax treatment of a charitable donations varies according to what is contributed and the tax-exempt status of the recipient organization. Rules differ for individuals, businesses, and corporate donors. Also, the amount of the deduction is subject to standards and ceilings. The main thing to remember is the tax law requires that deductions are allowed only for contributions that serve a charitable purpose.

Taxpayers must keep detailed records to substantiate their charitable deductions. The type of record depends on the type and amount of the contribution: cash, non-cash, and out-of-pocket expenses while donating your services.

Generally, the charitable donation deduction is reserved for tax filers who itemize their deductions. Before the major tax change of 2017 with the TCJA this included many filers. However, after the tax change, the high levels for the standard deduction and the ceiling on state and local tax deductions, many taxpayers realize more significant tax savings by claiming the standard deduction rather than itemizing. But For tax years 2020 and 2021 there was the availability of the cash donation for single tax filers who claim the standard deduction on their tax returns to deduct up to $300 of charitable contributions made in cash. Married couples filing joint returns could claim up to $600 for cash contributions. Unfortunately, these tax benefits will not apply after the 2021 tax year unless Congress amends the law, which as of July 10, 2022, it has not. This does not mean the benefits of the charitable donation deduction no longer exist for all tax filers. It just means some tax filers may find it could be beneficial to combine or “bunch” 2022 and 2023 charitable contributions into one year (2022), and itemize on their 2022 tax returns, and take the standard deduction on 2023 taxes.

So, make sure you are making donations often. Clean out that closet, that garage and donate those non-cash items, support the local, nationwide and global wide charitable organizations. Keeping records of all donations big and small.

The important factor is to remember that paying it forward with charitable donations within the requirements of the tax law can have positive effects on both your life and your tax return.