 Income tax 2023-2024, itemized deductions, gifts to charity. Get ready and some coffee because we need to save some money for a vacation with the help of income tax preparation. 2023-2024. Most of this information can be found in the instructions for Schedule A Tax Year 2023, which you can find on the IRS website at irs.gov, irs.gov. Looking at the income tax formula, we're focused on what I would call the below-the-line deductions, more specifically the itemized deductions. Remember in the first half of the income tax formula is in essence a funny income statement. Most income statements having income minus expenses resulting in net income here having income minus various deductions resulting in taxable income. Remembering that deductions for taxes are good. We're typically looking for more of them. The primary difference between the above-the-line deductions or adjustments to income and the below-the-line deductions being that the adjustments to income do not have to clear a hurdle before you get a tax benefit from them, whereas the itemized deductions do have to clear the hurdle of the standard deduction before they are typically beneficial to the taxpayer. This is the first page of the Form 1040 focusing in on Line 12 where we deduct the greater of standard deduction or itemized deduction. If taking itemized deductions, we're going to be attaching that Schedule A. Schedule A is the itemized deductions. The major category is listed on the left although this is only a partial page of the Schedule A. Noting that we have to clear the standard deduction which is primarily tied to the filing status and the filing status is if single then will be $13,850 that we would need to clear to be able to itemize and get a benefit doubling that if married filing joint. 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If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com 27,700 head of household in between 20,800 and if they're either over a certain age and or blind we have other standard deductions which would be higher single could have one or two of those conditions met the increased standard deductions on the right married filing joints could have one to four of those conditions met two conditions and two taxpayers and the corresponding increases to the standard deduction on the right. Keep in mind that we're going to the gifts to charity. Now this is probably one of the first things that kind of come to mind as a type of deduction but remember for federal income taxes it's an itemized deduction so for giving to charity we might not get a tax benefit from it unless we're able to clear the standard deduction and we're taking the itemized deductions remembering the general idea concept of deductibility for an income tax system would typically be those types of things you have to expend in order to generate revenue most clearly seen on the schedule C where we have an income statement income minus expenses business deductions in other words to get to net income or taxed on net income so most of the stuff on the schedule A however our personal items that we get to deduct for one reason or the other you can see the argument for charitable organizations that being trying to nudge us to chair to give to charity from a more cynical standpoint most likely from lobbyists of charitable organizations that want to stimulate money going to their particular types of charity and so on and so forth so that's what we have here on the itemized deductions typically only being able to get a benefit for giving to charity and I mean a tax benefit obviously from my perspective I think we actually gave more to charity as a country and a percentage of income before we had the deductibility of charity and you know but for taxes you get a benefit from deducting the charity if you own a home typically because the ownership of the home is the thing that usually pushes people over from standard to itemized deduction given the fact that you're able to take possibly the home mortgage interest and the property taxes once over that threshold then other itemized deductions become available to us possibly for example giving to charity so you can deduct contributions or gifts you give to organizations that are religious charitable educational scientific or literary in purpose you can also deduct what you give to organizations that work to prevent cruelty to children or animals so clearly most charitable organizations will be structured as a charitable organization they will usually inform you quite loudly that they are structured thusly and that's why they're basically asking you for money and so on remember that just because something is structured as a charity however doesn't mean they can't have a scammy kind of situation laid out to it or it certainly doesn't mean that they are efficient in using the money to the charitable ends that they proclaim to be using the money for so make sure to do the homework so that you're basically giving your money to charity that will qualify so hopefully you can take the deduction but also charities charities that are efficient in what they're doing and noted I'm not it's hard to be an efficient charity because there is no market incentive to drive charities to be lean and mean meaning to trim the fat meaning notice that some charitable organizations might be set up just basically to pay salaries of people that are in the charitable organization and the question is how much of your money is going to that purpose versus the charitable goal that the money is designed towards right how efficient is the use of the money in any case certain well wailing captains may be able to deduct expenses paid in two thousand twenty three for native Alaskan subsistence bay head whale hunting activities obviously that is a very specific area that might be for certain individuals if that's for you that's publication five to six to verify an organization's charitable status you can check with the organization to which you made the donation so clearly when you make a donation usually the charity if they're legitimate and have charitable status with the IRS will tell you about it and hopefully give you documentation you're going to need that documentation not typically to file the return but in the event of an audit remembering that the IRS will typically act in a similar way as other kind of laws like traffic laws in that they're not going to you're not going to get caught all the time you speed or every time you put something on the return that you don't have documentation for but if they catch if they do random checks and they catch you the penalty is designed to be high enough that you're going to not want to do that again is kind of the design of of the law typically so the organization should be able to provide you with verification of its charitable status so use our online search tool at IRS dot go forward slash to ease to see if an organization is eligible to receive tax deductible contributions so that's another tool that you can look at noting if an organization is pressuring you to give them money especially if they're doing it publicly then I I would certainly say no I'm going to look at it myself to at least verify that they have charitable organization status and then to verify whether or not they're efficient or not in the use of the money because again just having charitable organization status certainly does not mean that they are actually good at what they do right so examples of qualified charitable organizations the following list give some examples of qualified organizations see publication five to six for more examples you've got churches mosques synagogues temples and other religious organizations scouts bsa boys and girls clubs of america care girls scouts goodwill industries red cross salvation army and united way fraternal orders and the gifts I will be used for purposes listed under gifts to charity earlier you've got veterans and certain cultural groups we've got nonprofit hospitals and medical research organizations most nonprofit educational organizations such as colleges there certainly not very efficient these days on how they're using the money I don't know if I give to them they keep on having protests about I don't know anyway but only if your contribution isn't a sub substitute for tuition or other enrollments so obviously if you're giving them money and they're giving you classes there they're allowing you to attend their college then that doesn't look like a charitable contribution looks like a market exchange so federal state and local governments in the gifts are solely for public purposes again the whole point of giving to charity these days is so hopefully you can get a tax deduction and give it to somebody who could be a little bit more efficient than the government who's clearly not efficient right but if you just want to give it to the government then you can do that as well but hopefully you can do you could do better you could do better than that the government should be keeping us safe and then staying out of our business because they they're lame at doing stuff that's the problem that's why they need to be small and out of the way in the corner unless there's an attack right away amounts you can deduct contributions can be and cash property or out-of-pocket expenses you pay to volunteer work for the kinds of organizations described earlier so if you drove to and from volunteer work you can take the actual cost of gas and oil or 14 cents a mile so if there was driving involved then you've got the auto that you have to deal with the actual cost is typically if you can track it going to be higher you would think possibly here because notice that this 14 cents per mile is a mileage method which you might be familiar with or most people are more familiar with with relation to a schedule seed but the rates don't always increase at the same rate so this rate often is lower than what it would be if it was a business mile versus a charitable mile calculation so add parking and tolls to the amount you claim under either method so if you if you're going to a charitable organization you might want to speed there because if you get a ticket or toll I don't know I'm just kidding and parking and tolls that you might have in there so but I don't think you can deduct a speeding ticket I'm just kidding but don't deduct any amounts that were repaid to you obviously if they've repaid it to you you didn't really pay it and so you don't get to deduct it gifts from which you benefit so what if I benefit and this happens because oftentimes part of the the money is going for something and the amount above it is the charitable gift so if you go to a dinner they're giving you a dinner but you're paying like $5,000 for it which it seems is higher than the cost of the dinner right so if you made a gift and received a benefit in return such as food entertainment or merchandise you can generally only deduct the amount that is more than the value of the benefit so but this rule doesn't apply to certain membership benefits provided in return for an annual payment of $75 or less or to certain items or benefits of token value so usually if a charitable organization puts together a benefit hopefully they can give you an idea of how much value you're getting from the benefit and how much of what you are giving is a charitable donation that you can deduct but for more information you can see publication 525 526 which you can find on the iris website example you paid $70 to a charitable organization to attend a fund raising dinner and the value of the dinner was $40 you can deduct $30 are you sure the value of that dinner was $40 I think they just cooked it in the microwave for crying out loud anyways that's the idea you get the idea so gifts of $250 or more you can deduct a gift of $250 or more only if you have a contemporaneous written acknowledgement from the charitable organization showing the information in one and two next so the amount of any money contributed and a description but not value of any property donated so if there was a contribution of money well then it's pretty straightforward because money is by its definition easy to count right but if you donate property such as most common example to goodwill clothing and that kind of stuff then the organization the charitable organization isn't upon shop they're not an expert at giving you the value of what you're giving them they're not giving you anything in exchange but they can at least say they gave me this property they gave me a bike or something in your good whatever and tell you the date that the transaction took place so whether the organization did or didn't give you any goods or services in return for your contribution so if you did receive any goods or services a description and estimate of the value must be included if you received only intangible religious benefits such as admission to a religious ceremony the organization must state this but it doesn't have to describe the value of the benefit in figuring whether a gift of $250 or more didn't combine separate donations for example if you gave out your church $25 each week for a total of $1,300 treat each $25 payment as a separate gift if you made donations through payroll deduction treat each deduction from each paycheck as a separate gift see publication five to six if you made a separate gift of $250 or more through payroll deduction so once you go over that dollar threshold for that individual gift then you've got that level up of verification possibly so to be contemporaneous you must get the written acknowledgement from the charitable organization by the date you file your return or the due date including extensions for filing your return whichever is earlier don't attach the contemporaries written acknowledgement to your records instead keep it in your records why because the iris is not currently requiring that you actually give that to them at this point in time but they are requiring that you have it in the event that is an audit happens which is similar to say a police officer pulling you over and and basically asking you know your questions that's what the audit is doing although in the case of a police officer they probably clocked you in as already speeding you've already been caught but in the case of an audit they might randomly pick you in order to see the verifications and then you're expected to have this information and that's how that's one way that that they could basically we can regulate you know what is going on and have penalties sufficient so limit on the amount you can deduct see publication 526 to figure the amount of your deduction if any of the following applies your cash contributions or contributions of ordinary income property are more than 30% of the amount on form 1040 1040 SR line 11 so we're comparing things now to generally your income level which usually is tied to the adjusted gross income level and now we're in this 30% category so your gifts of capital gain property are more than 20% of the amount online 1040 or 1040 SR line 11 so this again usually isn't the case for most people because you're not going to usually run into this problem because if you didn't make much money you're probably not going to be giving a very large donation you know you it's going to be comparable to your income but in some cases you might have these situations where the charitable contribution goes over these thresholds in which case then you're going to have you run into these possibly ceilings and then the question is can you make the deduction and if you can't make the deduction do you get to take the deduction in some other period either taking it backwards or typically going forward to the next year possibly being able to carry forward the charitable deduction so you gave gifts of property that increased in value or gave a gift of the use of property now note these more complex situations will might happen more likely to happen of course with higher income individuals because they are the individuals more likely to itemize in the first place which is where we would be taking these deductions and because they're more likely to have those situations where they might be given a large charitable contribution for example and if you're doing more higher income tax returns and they're itemizing you might want to then enter the tax information into the prior year making sure that you're using the same software so that if there are any carryovers and that kind of thing the software can help you with those calculations so amounts you can't deduct so certain contributions to charitable organizations to the extent that you receive a state or local tax credit in return for your contribution so now you've got a substantial credit on the state side so that would probably be again a situation that would apply to certain more well-off individuals you would think generally you can see publication five to six for more details and exceptions and amount paid to or for the benefit of a college or university in exchange for the right to purchase tickets to an athletic event in the college or university's stadium this is one of the problems when we're trying to add things as deductible on the schedule a which are not things that are strictly natural to an income tax system such as those things we needed to expend to generate revenue even that is difficult enough to make sure the categorization is correct but when you say you get to deduct charitable contributions you get these funny things where it's like people try to structure something as though it's a charitable contribution but there's really an exchange going on and if there's an exchange you're just buying tickets to a football game don't pretend like you're not just because you gave them something other just because you categorized it as a as a gift that you can't do that or you're not supposed to do that so travel expenses including meals and lodging while away from home performing donated services unless there was no significant element of personal pleasure recreation or vacation in the travel so we see this also with business type of things when travel is involved what's the personal side versus the business side and then what's going to be the deductibility how can we separate those two things out political contributions so political the government wants to separate out political contributions from the taxes because if we were to allow political contributions that could you know distort the whole kind of election process so like if you're buying oil paintings or something from certain political actors out there and you're clearly paying vastly more than the than the value of the painting you can't really call it a contribution or or something for charity because it's clearly at least a political contribution if not like a bribe or something which is also not typically deductible anyway dues fees or bills paid to country club lodges for turtle orders or similar groups so now of course you're paying for dues which are giving you access to the country club or whatever group it is which of which you assume would are giving value in and of themselves by being part of the group or whatever so cost of raffle bingo or lottery tickets but you may be able to deduct these expenses on line 16 C line 16 later for more information on gambling out losses so we talked a little bit about winnings and the win in the income side of things you might be able to deduct the losses up to the amount of the winnings when you're talking about gambling situations but typically gambling is not something that would be charitable in nature although you can imagine that certain fundraising for charitable organizations might use like bingo and stuff like that but in case value of your time or services so notice that when we were talking about the time we put in you might say hey look I went and I contributed my time to to a charity but typically if it's unprofessional time something that you can't really bill for meaning you went to a soup kitchen or something and you helped out in that way then generally you can't really deduct that and you can see kind of why because you would think that that would be difficult to value I mean how much could you deduct what's the rate that you should be deducting maybe like the minimum wage or something or something like that so but possibly if you're doing if you're doing work in exchange that's professional in nature legal work or something like that then that could be a different situation value of blood given to a blood bank so the transfer of future interest in tangible personal property generally no deduction is allowed until the entire interest has been transferred this is another way to for people to try to skirt past the cutoff meaning you have to actually on a cash based system have transferred the property or made the payment in the year 2023 if you promise to do something well then you haven't really done it but that's a way to you can imagine people would try to structure something to get the deduction in one year versus another year for example possibly because they have more income in one year versus another year and therefore their tax rates are higher due to the progressive tax system gifts to individuals and groups that are operated for personal profit so if it's for personal profit operation you would think that would not be deductible for charitable gifts to foreign organizations however you may be able to deduct gifts to certain us organizations that transfer funds to foreign charities and certain Canadian Israeli and Mexican charities so clearly we're looking at us tax law it gets complicated when we're talking about organizations in other countries because by definition charitable organizations for taxes are structured under the us tax law and they can't be because they're not subject to us tax law if they're in other countries so how can I give to other countries charitable organizations which might be good but aren't under the same laws well maybe there are some organizations that can be set up in accordance with us laws that help you to funnel the money in through those charitable organizations to other ones that are doing good work elsewhere possibly for more information you can see publication five to six for details gifts to organizations again engaged in certain political activities that are a direct financial interest to your trade or business so clearly if you're giving to political activities and you're saying like if you if you're given to certain politicians and you're benefiting from the things that they are arguing for you're basically acting as a lobbyist and you shouldn't get you shouldn't get to deduct the fact that you're manipulating politicians not out of a spirit of charity but rather out of a lobbying spirit now you would think again the taxes in and of themselves the fact that we're getting the deduction is already kind of skewing the line if we're giving it out of a heart of charity but but obviously if you're benefiting directly then that you shouldn't get so gifts to groups whose purpose is to lobby for changes to a law so again if if you're given to some someone said I've given to this charitable organization that's trying to influence the law because if the law changes my stocks going to go up well you clearly that's not doesn't sound charitable so gifts to civic leagues social and sports clubs labor unions and chambers of commerce so value of benefits received in connection with a contribution to a charitable organization you can see publication five to six and cost of tuition however you may be able to take an education credit so if you give to a university and they give you tuition you can't typically deduct it but you might get a benefit because the government is subsidizing education in many different ways possibly the main one being the education credits which we'll talk about in the credits section