Giving Tuesday is the kickoff of the season of charitable giving. The IRS encourages taxpayers to research charities before donating and to familiarize themselves with the expanded tax benefits that may come with giving to causes that mean something to them.
Taxpayers may be able to deduct donations to tax-exempt organizations on their tax return. As people are deciding where to make their donations, the IRS has a tool that may help. Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for charities. TEOS provides information about an organization’s federal tax status and filings.
Here are some facts about the Tax Exempt Organization Search tool:
- Donors can use it to confirm an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
- Users can find out if an organization had its tax-exempt status revoked. A common reason for revocation is when an organization does not file its Form 990-series return for three consecutive years.
- TEOS does not list certain organizations that may be eligible to receive tax-deductible donations, including churches, organizations in a group ruling, and governmental entities.
- Organizations are listed under the legal name or a “doing business as” name on file with the IRS. No separate listing of common or popular names is searchable.
Taxpayers can also use the interactive tax assistant, Can I Deduct my Charitable Contributions? to help determine if a charitable contribution is deductible. They should get a written acknowledgement for any charitable contributions of $250 or more.
Expanded tax benefits
The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don’t itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.
Qualified charitable distributions
Taxpayers age 70 ½ or older can make a qualified charitable distribution, up to $100,000, directly from their IRA, other than a SEP or SIMPLE IRA, to a qualified charitable organization. It’s generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. A qualifying deduction may also count toward the taxpayers required minimum distribution requirement for the year.
Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:
- Made to a supporting organization
- Intended to help establish or maintain a donor advised fund
- Carried forward from prior years
- Made to most private foundations
- Made to charitable remainder trusts
These exceptions also apply to taxpayers who itemize their deductions.
Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.
Depreciation is an annual tax deduction that allows small businesses to recover the cost or other basis of certain property over the time they use the property. It is an allowance for the wear and tear, deterioration or obsolescence of the property.
Small businesses can depreciate property when they place it in service for use in their trade or business or to produce income. The business stops depreciating property when they have fully recovered their cost or other basis or when they retire it from service, whichever happens first.
What property is depreciable?
Small businesses can depreciate machinery, equipment, buildings, vehicles, and furniture. They cannot claim depreciation on personal property. If a business uses an asset, such as a car, for business or investment and personal purposes, the business owner can depreciate only the business or investment use portion. Land is never depreciable, although buildings and certain land improvements may be.
Businesses may depreciate property that meets all these requirements. The business must:
- Own the property. The business is considered to own property even if it is subject to a debt.
- Use the property in a business or income-producing activity. If the property is used to produce income, the income must be taxable. Property that’s used solely for personal activities can’t be depreciated.
- Be able to assign a determinable useful life to the property. This means that it must be something that wears out, decays, gets used up, becomes obsolete or loses its value from natural causes.
- Expect the property to last more than one year. It must have a useful life that extends substantially beyond the year a business places it in service.
• Not depreciate excepted property. Excepted property includes certain intangible property, certain term interests, equipment used to build capital improvements, and property placed in service and disposed of in the same year.
Gather and organize tax records
Organized tax records make preparing a complete and accurate tax return easier. It helps avoid errors that lead to processing and refund delays. Individuals should have all their tax information available before filing to ensure the return is complete and accurate. They should notify the IRS if their address changes and notify the Social Security Administration of a legal name change.
Remember, most income is taxable. Recordkeeping for individuals includes:
- Forms W-2 from employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan
- Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy
- Form 1099-INT for interest received
- Other income documents and records of virtual currency transactions
Income documents can help individuals determine if they’re eligible for deductions or credits. Additionally, people who need to reconcile their advance payments of the Child Tax Credit and Premium Tax Credit will need their related 2021 information. Those who received third Economic Impact Payments and think they qualify for an additional amount will need their stimulus payment and plus-up amounts to figure and claim the 2021 Recovery Rebate Credit.
Taxpayers should also keep end of year documents including:
- Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance Child Tax Credit payments
- Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage