 Income tax 2021-2022. Gifts to charity part number four. Get ready to get refunds to the max diving into income tax 2021-2022. Most of this information can be found on the Schedule A Instructions Tax Year 2021 on the IRS website at irs.gov, irs.gov. Looking at the itemized deductions. Keeping them distinct in our mind from the adjustments to income. Otherwise known as the above the line deductions, the Schedule 1 deductions, the deductions for adjusted gross income. Also noting that the itemized deductions need to be greater than the standard deduction to get a benefit from them. Page 1 of the form 1040 focused on 12A line standard deduction or itemized deduction. Here looking at the Schedule A itemized deductions, those categories listed on the left hand side. If the categories are greater than the standard deduction, then we would be pulling them into line 12A back to page 1 of the form 1040. Also note we're focused on the charitable contributions, which if you're itemizing, you typically have an extended amount or more capacity for charitable contribution deductions. That's what we're focused on here. However, if you are taking the standard deduction, you may still get some charitable contributions deduction here on line 12B. So in other words, if not itemizing, you might get some benefit here on the charitable contributions line 12B. If itemizing, then you would want to put those contributions on the itemized deduction Schedule A, which is our focus at this point in time and typically have a larger capacity to put amounts in there. We also want to keep in mind the standard deduction so that we can give an idea as to whether someone would be itemizing or not. So we have qualified contributions and we're continuing on with the contributions here now going to the qualified contributions. In general, you can elect to treat gifts by charity or check as qualified contributions if the gift was paid in 2021 to a qualified charitable organization. This election isn't available for contributions to an organization described in IRC 509A3 or for the establishment of a new or maintenance of an existing donor advised fund. So we have another kind of caveat here and this is another area where you can often see if someone has a lot of money and they're trying to put money into somewhere and get a benefit from it. They're reluctant to release the control of the money. So if they still maintain control of the money as they put it somewhere else, you would think that you're less likely to get a benefit from it because you didn't really give it as a gift at that point in time if you still have control over what you do with the money. For details in that instance, you could take a look at publication 526. Qualified contributions are not subject to a limit based on a percentage of adjusted gross income. However, certain limits may apply if your qualified contributions are more than the amount on form 1040 or 1040 SR line 11. That's your AGI adjusted gross income, which is often used for these kind of phase out issues. Minus all other allowable contributions for detail, you can see publication 526 include any contributions that you elect to treat as qualified contributions and the total amount reported on line 11. Indicate the election by also entering the amount of your qualified contributions on the dotted line next to line 11 entry space other than by cash or check. So now you're talking contributions that are a little bit more complex and that you didn't give the cash or check those being easy because of course we know the value of what you gave if you simply gave cash. If you give something other than cash gets a little bit more complex because now we have to value the thing that was given to determine the capacity of the deductible amount. So enter online 12 the total value of your contributions of property other than by cash or check unless a limit on deducting gifts applies to you. So also just realize that this is one of the we looked at it in a prior presentation. The requirements of the person that you're giving the money to the charitable organization, they should give you some documentation on what you gave them. But they're not in a pawn shop. They're not in the business of valuing random things that are given to them as basically gifts. So you got the documentation then possibly of the date and a description from the organization. But then we have to come up with of course the value to deduct it for more information about the limits on deducting gifts. See limit on the amount you can deduct earlier. If your deduction is limited, you may have to carry to next year see publication 526 for more information. Same kind of limiting deductions apply. Not usually the something that's going to take place for most people. But remember there's that AGI limitation. So if you go over that amount, then you might be limited in the current year and possibly still get a benefit for the deduction in following years. Other than by cash or check continued deduction for gifts other than by cash or check limited. If your deduction for the contributions of property other than by cash or check is limited, you can see publication 526 to figure the amounts you can deduct. Only enter online 12 the deductible value of your contribution of property other than cash or check valuing contributions of used used items. So now we've got used items. This is quite common that we're going to be giving away and it's going to be complex to figure the value of it because obviously we didn't exchange it. So how do we know what the value is? We only know what the value is when we purchased it. So that's going to be the problem. So if you gave used items such as clothing or furniture deduct their fair market value at the time you gave them fair market value is what a willing buyer would pay a willing seller when neither has to buy or sell. And both are aware of the conditions of the sale. So how do we value something? We try in a free market to use the market to value something. Therefore, if you were able to sell something in both sides of the negotiation on the free market, basically had all the information in order to make the sale, then that would be the price. That's how we determine the price. However, it's a lot easier to say that without actually making the sale. You don't really know what that is, right? So I get that in concept. That's the value that I could sell it for. If I was able to, you know, sell on a free market, everyone had the information, but we're not actually doing that. So that still makes it difficult to figure out what the value is. So for more details on determining the value of the donated property, you could see publication 561 deduction for more than $500. If the amount of your deduction is more than $500, you must complete an attached form 8283. So if it's less than 500, still fairly straightforward. The IRS is saying, okay, you know, we're going to take you're going to basically take your word for it and so on. But if it goes over that amount, then you want another form that's going to give them more detail of the information that is being donated. So for this purpose, the quote amount of your deduction in quote means your deduction before applying any income limits that could result in a carry in a carryover or contribution. So contributions of motor vehicle, boat or airplane. So those get a little bit more complex if you're given someone your car, your old car, a boat or an airplane. If you deduct more than $500 for a contribution of a motor vehicle, boat or airplane, you must also attach a statement from the charitable organization to your paper return. So that means you actually have to have the ad paperwork as opposed to simply having it available to you in the event of an audit. The organization may use form 1098C to provide the required information. If your total deduction is over $5,500 for certain contributions of clothing and household items discussed next, you may also have to get appraisals of the values of the donated property. So now you're talking an appraisal, which is trying to give an outside opinion of the value of the property because the IRS is saying, hey, wait a second, this is getting quite high. We know that the concept is that it's going to be valued at the fair market value, but without an actual sale, how do you determine that? We'll let you estimate that if it's below a certain level, but if it goes above a certain level, we want a professional to put their name on the line to actually come up with an official appraisal, which should basically be an attempt to approximate the fair market value without actually having a market sale. So you can see form 8283 and its instructions for detail there, contributions of clothing and household items. A deduction for these contributions will be allowed only if the items are in good used condition or better. So again, what is good use condition or better? That sock has a hole in it. Well, you can mend it. So, however, this rule doesn't apply to contributions of any single item for which a deduction of more than $500 is claimed and for which you include a qualified appraisal in form 8283 with your tax return. Record keeping. If you gave property, you should keep a receipt or written statement from the organization you gave the property to or a reliable written record that shows the organization's name and address, the date and location of the gift and description of the property. Now, oftentimes you'll get this from the organization, but once again, remember, the organization may give you a pretty, pretty not, not too descript kind of thing. They might say, yeah, they gave us two bags of stuff, two bags of household goods, right? Two bags of clothes or something like that. So you want to have, you know, possibly more detailed records in that and they're also not again upon shop. So the charitable organization is not going to try to value the stuff. Oftentimes you're going to have to do that basically on your own. So you want to have a pretty good idea or better records possibly of what you gave and how you're coming up with basically the fair value of the things that you gave for each gift of property. You should also keep written, you should also keep reliable written records that include how you figured the property's value at the time you gave it. So you're going to give some kind of estimate of what you believe the fair market value is or whatever calculation you use to determine what the fair market value is. If the value was determined by an appraisal, keep a signed copy of the appraisal. So obviously if you had to have a third party actually give an appraisal on it, you probably had to pay them to do that. You want to make sure that you have the record keeping of that in the event that there's an audit. The cost or other basis of the property if you must reduce it by any ordinary income or capital gain that would have resulted if the property had been sold at its fair market value, how you figured your deduction if you choose to reduce your deduction for gifts of capital gain property, any conditions attached to the gifts. So if there's any other kind of conditions that might be future conditions that are attached to the gifts, you have to have that on the record keeping as well. If the gift of the property is $250 or more, you must also have a contemporaneous written acknowledgement from the charity. See gifts of $250 or more earlier for more information. We talked about that earlier. The form 8283 doesn't satisfy the contemporaneous written acknowledgement requirement and a contemporaneous written acknowledgement isn't substitute for other records you may need to keep if you gave the property. So you would give the property you still want to basically get the information from the charity at that point in time if it's over the $250 and then you're still going to be most likely if it's property recording the form 8233. 8283 to give more detail about it. And then we've got the carryover from the prior year. So notice that we talked about these restrictions that you might have a cap on how much you can have. There's an AGI limit in essence on how much you can put in. Again, most taxpayers that aren't going to hit that limit, but there could be circumstances in which like they give a large thing or certain well off individuals might have a low income tax year, but they give a lot of money to charity or something like that. And that event, if you don't get the charity deduction in the current year, possibly then you can take it into the future year. And if you had a charitable organization that went above the cap in the prior year, you might have a carry forward going into the current year. Now remember, if you have a carry forward, that complicates things because now you've got to basically have that connection to the prior year tax return. So it's easier to do carry forwards and carry backs and more complex returns which may have them. If you do the tax returns in the same software or if taken on a new client, you enter the prior return completely into the prior software and then roll it over having the software help you with the carryover from a practical standpoint. So you may have contributions that you couldn't deduct in an earlier year because they exceeded the limits on the amount you could deduct. In most cases, you have five years to use contributions that were limited in earlier years, meaning you roll it forward and then you take it against the AGI cap limitation in essence in the next year, which should be sufficient. And if it's not sufficient, you still hit the cap again, then you got five years to roll that thing forward and hopefully you could take it at some point. The same limits apply this year to your carryover amounts as applied to those amounts in the earlier year. So you roll over the carryover and then you got the same kind of limits in terms of how much you can cap out with the AGI limitation in essence this year. And then if you hit the cap, then you roll it over possibly in the next year after applying those limits into the amount of your carry forward that you are allowed to deduct this year. This year, see publication 526 for more details on it.