 Income tax 2022-2023, itemized deductions, gifts to charity, tax software examples. Let's do some wealth preservation with some tax preparation. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website broken out by category. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Here we are in our example Form 1040 populated with LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov. Starting point as usual, we've got the single file or Mr. Anderson W-2 wages 100,000, 12,950 on the standard deduction 87,050 for the taxable income mirrored over here in our tax software tax formula 100,000, 12,950. Let's get into the 87,050 page 2 doing the calculation of the tax, 14774, 15,000 withheld to get to the bottom line of 226 mirrored over here as well. However, we're focused up top on the calculation of the taxable income and focusing in on the itemized deductions and the particular deduction of the charitable contributions. Now remember, the charitable contributions are going to be in the itemized deduction area. You might have remembered in a prior year where they basically tried to kind of move some charitable contributions on the first page of the 1040, but now we're back to basically where we were before that, that all the charitable contributions are in the itemized deduction area. Therefore, you're only going to get a benefit generally from the charitable contributions if you're doing the itemized deduction. So remember, you're going to only itemize if you have itemized deductions that are adding up to greater than the standard deduction of 12,950 for single filers, 25,900 for married filers. If you're talking with people or yourself filing tax returns that are nowhere near that threshold, it might not be worth your time to track all the information that you're giving to charity in as much detail if you're only doing that for your tax records because you might not be getting a benefit for your tax records. Now you would also want to check out your state as well. Sometimes state regulations, if you have an income tax, might have some benefit from charitable contributions as well. We're focused on the federal tax side of things at this point in time. So also note what's the main thing that usually pushes people over to be taking the itemized deductions owning a home because that's where they have the real estate loan. The loan's going to have the interest on it typically and they're going to have the property taxes. Those are the two big ones that push us over. Once we are over the threshold, once we are already itemizing, then picking up anything else we can would be good, such as the medical, although they also have that floor, such as now the charitable contribution. So now they're going to kick in and be helping us out if we're over the threshold. So let's first imagine we're not over the threshold and we plug in some itemized deductions. I'm going to most jump on over this way. I'll just go right into it here. Deductions and we're going to say itemized deductions and we're going to say contributions. Now generally we're going to be, for most of them, I'm going to be plugging into the 60% limitation up top. And I'm going to say that these are going to be the normal kind of categorizations, which would be things like cash contributions for churches, mosques and so on. The scouts, boys and girls clubs and so on, the normal type of charitable contributions. It'd be good if we can list out the actual charities here. But I'm just going to put various, various charities and I'm going to put, you know, I'll say 500 into various charities. And I'm going to say okay, and then bring it on back to the forums. Now we've got the 500, but the only other thing that has been included up top is I got to get rid of those points is going to be the taxes you paid. So that means even with the points here that I'm going to remove, that's still way under nowhere near the close enough to get us to where we need to be to clear even the single file or standard deduction of the 12,950. So for most people, the charitable contributions aren't going to be the thing that does it. It could be if they had an outstanding, they just gave a lot of money one year, but that's kind of rare. That's not usually the thing that's going to be kicking people over. So what is going to kick people over, let's add the home information and then we'll tack on the charitable contributions and we'll have a better benefit. Okay, so now I have added, I've removed the charitable contributions for now and just added the big item, which is the interest on the home. Let's say it was $12,1098 mortgage interest and then the property taxes of $3,000 and I'm just going to add the $1,017 for the state tax. So let's put that over here and mirror that in our worksheet. I'm going to say Schedule A, mortgage interest $12,000, real estate taxes $3,000. The system is calculating the state tax at $1,017. $1,017, that brings us up to the $1,617. Is that what shows here? $1,617, that pulls into page one of the Form 1040. So that's going to be pulling into the $1,617 because it's greater than the standard deduction of the $12,950. As we see in our worksheet here, we can see the $100,000, the greater of itemized deductions $1,617 over the $12,950. Therefore, pick it up the $1,617 to get us down to the $83,983. And then we've got the taxes. Let's let the software do the tax calculation, which is the $1,492. So we're going to say, all right, $1,409, $2. Okay, I'm going to delete this for now. And now we can add the charitable contributions and they should give us some more benefit at this point. So we're going to go, okay, let's add the charitable contributions. Now we're going to say this is going to be the various items. Let's just put $500. And then now it's worthwhile for us to track that stuff, make sure we have the receipts and whatnot from the charitable organizations. And we get that oftentimes shoebox full of charitable contribution type of stuff. And it's worth going through and adding those up to get the $500 because that's going to add a little bit more benefit here, right? So now it's tacking on because we're already itemizing. So I can go back on over here and say, let's go to the gifts charity $500 is going up. That brings us to the $16,517. Is that what we have here? Yep. Let's go to the page one of the 1040 10 for Roger that Roger out. So there's the 100,000 the 16 517 and that gets us to the 83 483. And then if I let the software do the calculation 13982. So we were at we were at this 1409. And now we're at the 13982. So there now we've got a benefit lower in the taxes by 110. If I did that right 13982 from the charitable contributions. So that's how that's the general process there work if they're nice easy cash contributions. Now there is a limit on the contributions and it's based on the AGI limit here, right? So if I put in a whole lot of contributions, which would be somewhat unusual for me to put like what 80,000 contributions in. Let's say when I made 100,000. So so now I made 100,000 I put 80,000 contributions and we're going to go down and say that it's been limited to the 60,000. And you can go to the worksheets to see the limitations, but it's pretty straightforward that it was a 60% of AGI limitation. AGI being not the income number typically, but remember most of these phaseouts are based on the AGI. So if I had any above the line deductions, then they're usually they're based on the AGI or a modification of the AGI. That being the kind of like the baseline when we have these phaseouts. Now also remember that we would of course want to have the documentation from the charitable organizations in general and we don't attach those to the return usually. But instead if there was an audit, we want to have those ready and available so that we can have the evidence related to them. Okay, so the other common thing we might have if I go back on over here and say we have our gifts. These are gifts by check. If you made any gift of 250 or more, see instructions and then 12 other than cash or check. So if you made any gift of 250 or more, see the instructions. You must attach form 8283 if over $500. So if they're under $500, you might be able to get away with populating it right directly in there. So let's go back on over for example. And say that we're going to say boom, let's get rid of that one and say we have the non cash contributions. And you can see right here it says use screen 26 for total non cash contributions over $500. So no deduction is allowed for contributions of clothing or household items that are not in good use condition or better. So again, that's a hard to determine exactly what that means good use condition or better. In addition, a deduction for any item with minimal monetary value may be denied. So if we're under that threshold, then I can go here and put that put that item in and there's the there's the 300. Otherwise, we would have to go to that form 8283. So let's look at the form 8283, shall we? So I can go down here and jump there. Let's go to 8283. And this is going to be non cash charitable contributions. Attach one or more forms 8283 to your tax return if you claim a total deduction of $500 for all contributed property. So then you've got your information down below name of the donate information on the donated property. If donated property is a vehicle so on description and so on. So I'm going to jump to the data input. It won't let me jump to the data input. Well, let's do it this way. I'm going to go back on over here and I'm going to say let's then say it's going to go to screen 26. So I could find screen 26 and that's I could do that by going here and say I'm going to say non cash contributions screen 26. And so now I need the name of the organization. And so let's say we good old good will good will I'm just going to make up the organization we need the address of the organization. Typically we would have to have some kind of receipt from the organization. Usually the receipt will be fairly blah mundane saying hey here's our organization name. Here's a description of what you gave household goods or something like that right. So deduct amount determined from Schedule C taxpayer deduct. Delete this year. Now I'm going to say description of and condition of property description. So I'm just going to say I'm just going to be very generic household goods. Something like that description and condition of property continued. Obviously you can get more descript on what it is that was contributed vehicle identification number. If it was a vehicle that was contributed rules can be a little bit different on contribution of a vehicle. Date of contribution let's say 0606 2 2. Obviously it has to be in this year the taxable year date date acquired. We may not know the date required because it was sometime before that. So I'm going to I'm going to put a negative 0100. And so that'll put a various I think in the software for this particular software. How you required it was it purchase gift inheritance exchange. I'm just going to say purchased donor's cost or basis. We may not know that so we could try to estimate what we paid for it when we bought it possibly when it was new. So I'm going to say it was let's say let's say it was $2000 when it was new and the fair market value. So again how do we know the fair market value. It's going to be difficult to say you might do some kind of calculation with it and say well. And you could there's a lot more appraisal tools that you can kind of kind of use these days to get a fair market value. But if I took 2000 I'm just going to say divided by five and say that you know it's been a long time or whatever it's been. I'm going to say fair market value based on the item selection. High based on I'll say medium fair market method determined. Then we can try to give the method appraisal thrift shop value catalog comparable sales. So I'll say like comparable sales or maybe a thrift shop value let's say and then contribution deduction. This is an override and the AGI limit. So I'm going to put the fair market value up here at 400. So that's why I'm going to put the fair market value. All right so if I pull that over then this is what we have thus far in the software. We've got the added form 8283 which is now being populated. We've got the name address household good as the description and then down here the date of contribution should be in 2022. Various notice I put a negative number in the date and this particular software that's puts various because obviously we might have a bunch of bag of goods or whatever that we gave or something. We're going to say that we purchased them donors. Donors cost I said 2000 and then 400 for the fair amount value. This determination of the fair value is of course subjective because the only way you really know what the fair market value is is if you actually sold the stuff which you're not doing you're giving it away. So coming up with an appropriate fair value number is agonizingly painful to try to figure out. And then we said it was the thrift shop value. So this of course then pulls into the schedule a stuff I go to the schedule a then and we move on down to the gifts to charity. Now we've got the 400 that is down here. It's under the 500 so I probably should have put a value over 500 to make it to make it so we had to do that. But 600 so there's the 600 so that pulls over like so. So there's that one. And then the other thing that could come up is you might have a carryover. Now the carryovers are not likely because like we like I saw before when we when we had too much and we had to carry it over. Let's let's first look at that scenario again. So if I go back to my income on deduction on the schedule a and we said that we deducted like 80,000 or whatever. And so now we deducted way too much or more than it's going to be allowed. And it restricted us that I changed it to 80,000 up top. So then then the question well what am I going to do? What do I do? I just lose that carryover. Do I lose that deductibility? Well normally you get to carry it over. So now you've got line 13 would be a carryover from a prior year carried over into this year. And if we got a carryover if we deducted too much this year then theoretically we would be able to carry it over into the next year. Now here's a worksheet summary of it. We have the 80,000 and then the 600 and then the carryover before before conversion to NOL amount. So this is the carryover to next year the 20,000 and the 600. So that's how the carryover would work. Now note that if you're doing this in practice, if you take on a new client and the new client has a more complex return, which I would think anyone that has a schedule A because they're probably more high income individuals would have a more complex return than it might be worthwhile then to spend the added time and possibly money to get off on the right foot by taking the prior year tax return and populating that information into the prior year software. In this case, 2021 so that you can that you can input the rollover properly into the current year. Let the software help to calculate the rollover and then double check it instead of instead of trying to populate all the rollover information into the current software. So that's just a recommendation. I'm going to go back on over and remove this one and let's remove this for now and say, okay, let's say there was a rollover from the prior year in the schedule A and so I'm going to say there was a rollover. Let's jump to that data input and I'll just do the 50 and then prior year. Let's do it here and let's say there was last year. We didn't get to deduct, you know, 3000 because we were over the over the limit. Then this one's pulling in from the prior year. So those rollovers get a little bit messy because of the timing, you know, the timing differences and whatnot. So oftentimes again, the software is quite helpful to pick that up. If the software wasn't able to pick that up, then you would have to be very, you'd have to make sure you pick your notes from year to year to be very precise that you didn't get the deduction last year. You do get it this year. And like I say, it's, it's quite nice then to populate the prior year return into the 2021 so the software can help you to determine those rollovers. And then, and then you, you know, you have double, you have two checks as to whether the rollover is being picked up or not. So I would do that for any kind of return personally that's over a certain level of complexity, which often is indicated by having a schedule A or schedule C, for example. So that's the general concepts for the charitable contributions.