 Income tax 2021-2022, software example, gifts to charity. Get ready to get refunds to the max, diving into Income Tax 2021-2022. Lister tax software, you don't need tax software to follow along, but you might wanna have the Form 1040, which you could find in the IRS website at irs.gov, irs.gov, starting point single, Filer, Adam Smith, Livin' and Beverly Hills 90210, W2 income at the 100,000, 12,550 standard deduction that gives us the 87,450 for the taxable income, jumping on over to our equation format in Excel, 100,000 income, standard deduction, 12,550, we got the 87,450 taxable income here as well. Back to the tax return, we rely on the return, second page to calculate the tax, currently at the 1515, which we're mirroring in our equation as well. That's the starting point, going back to page one, we're focused in on the itemized deductions for the charitable contributions, but before we dive into the itemized deductions, just note that you have the charitable contributions here as well, if someone is taking the standard deduction in kind of a funny spot, it's kind of funny the way they put it, they kinda shoved it in here onto page one, and that's funny because you would think that if it wasn't on the itemized deductions, it would be on like the Schedule One deduction, like an above the line deduction that would be flowing in to line 10, so I'm not sure, maybe they didn't want it to adjust the gross income or something like that, but they stuck this added line here down here on 12B, so if someone is taking the standard deduction, they have a very limited amount of charitable contributions that they could take, so let's just take a look at that real quick, if I jumped on over to the deduction here, let's say I put in like 10,000, which is gonna be over the cap, and I have a single filer at this point in time, so if I go back on over, it's gonna cap it off at the 300, if they were married, it'll double it to 600, let's check that out real quick, go back on over and say what if Adam got married to Eve, and we're gonna say then, now it's gonna be jumping it up to 600, so 600 on the deduction for pretty low cap that you have if not itemizing, if itemizing, it goes up a lot, so let's go back on over and say let's bring it back to the single filer, single filer, and back on over to the forms, and let's go then to the schedule A, schedule A, the itemized deductions, we're looking at the gifts to charity section, and notice we have that 10,000 in here, the software's helping us out to determine whether we're gonna take it on an itemized deduction or whether we're gonna take it on the first page of the form 1040, and realized that we put the 10,000 here, which is a significant amount, we got to 10% of his 100,000 or whatever, and it's still not gonna push him over because the charitable contributions are not usually the things that push people over to being able to itemize, it's usually owning a home because the home has the mortgage interest and the property taxes in conjunction with the state taxes, income tax or sales tax usually are the things that push people over, and once done, the gifts to the charity now is open more broadly up to get more benefits from it at that point in time. So obviously if they give a more significant amount, if we bump that gift to charity up to like 15,000, and so we're gonna say deductions, itemized deductions, and say we're given to charity at the 15,000, and then pull that on over, so now we're over above the threshold, we're including it to the sales tax that we had up top and we have points, I'm gonna get rid of those points, let me get rid of those points, there we go, those are just confusing things, muddy in the water, I don't want too much mud in the water, the water should be clear, so there's the 15879, we're gonna go back on up to the form 1040, so now the 15879 is being pulled over, we can mirror this then on our software over here or in our formula kind of example by going to the itemized deductions, saying itemized deductions, and we put in the contributions to charity, which I don't have that category yet, let's add the category, I'm gonna add a couple rows down here, I'm gonna say insert, insert, and we're gonna call it then, what did we call it? Just get the name, gifts to charity, I already said that. Gifts to charity, and then let's make that black and white for the header, black and white on the name, and then we'll put some blue stuff here, now you might list out all the different gifts or you might sum them up into categories for them, so I'm gonna just add a little bit of space, let's add one more row, one more row, well that one's blue now, I want a non-blue row, let's put one down here, insert, let's put my borders down on this one, and so this is gonna be the total gifts to charity, and then we'll sum this up in the blue area, summing up the blue part, and that's gonna be then, we said how much 15,000 we put in, because we're charitable folk, round here 15,000 to charity, and so then we also have the state taxes that always kind of muddies the water, but not too bad, it's not too muddy, I can still see my toes through the water that I'm standing in, so there's gonna be 879, 879 on the taxes, so 879, and so, and that was actually the sales tax, but that's cool, that'll work, so we're at the 15879, that pulls over to the first page of the Form 1040, 15879, taxable income, 84121, 84121, Form 1040, is that what's on the software, is that what the software says? 84121, it does indeed, let's go to the second page, not just in non-deeds, not just talking, it does it in action indeed, 14256, so there we have that one, so that's the general idea, again, just realize that when you have the notices from a practical standpoint, when you're entering this into the Schedule A, that you don't have this information basically from the third party, oftentimes you might, so for example, if you had somebody that worked, that gave all their money or all their charitable contributions to like a church or something like that to one entity, then that one entity they'll give you the statement, that'll be pretty straightforward, but if they give charitable contributions to a whole bunch of different entities, then you're hoping that they sum that up or add that up for you in the documentation and try to give you a recap of all their contributions and then you're not gonna attach all those kind of things to the tax return, but you're gonna say to the client, well, you need the documentation because in the event that there's an audit, which they could do just randomly, you're gonna have to basically provide that documentation. Note that charitable contributions you would think are one area that the IRS is gonna be more skeptical of because they don't have the supporting documentation like they do with a W-2 or 1099s where they already have that information and they're just basically double checking when you put the information in. They don't have it for charitable contributions, which makes it a little bit difficult to take that added step to gather that information and you would again think it might be a little bit more skeptical on the IRS side and so you wanna make sure that you have the supporting documentation related to it. Now notice that there's an AGI limitation here that most people don't hit, but just let's just consider it like we could say we got the 100,000 adjusted gross income and let's say that our deduction or the contributions we made were quite high compared to the income because we're like, we got money, not just our income money but we've got, and it's been a tough year so we're gonna give like 90,000 to charity. Now that doesn't happen too often unless you're a well-off individual that has money beyond just obviously the income that you're making in the current year. So in that instance, it could very well happen and then we're gonna have, and so note that we have this kind of exception to the rule that we've now qualified the gifts into a qualified contributions and if so, then we don't have that same kind of limit and this was implemented a few years ago in order to kind of deal with the fact with the problems taking place and possibly try to incentivize people to put more money into the gifts. So the qualified contribution election is not available for contributions to an organization described in IRC 509A3. So let's just say, let's put the 90,000 here and just see this carry forward situation as well just so we can kind of get an idea of this carry forward. So notice now it's been capped at the 30,000 in this case. We're still picking up the 30,000. Notice that we're not itemizing in this case because we're below the threshold. So what I'd like to do is go over the, I'm sorry, we are item. 30,000 of it and now we've got this kind of carry forward type of situation that we want to be aware of and it could be, this could take effect in a couple different areas. This concept of like a carry forward type of situation. So if we're disallowed a deduction, for example, in this area, then we might be able to take it in future time frames. So this software has a nice worksheet over here to kind of give an idea of that. So it gives you a little bit of a calculation. Here's the 90,000, so here's the AGI and then here's us basically calculating the cap on it. And then we got the carryover of the 60,000 possibly being able to take in future time period. So we want to keep in mind that kind of thing and notice that anytime like you can't get a deduction because of some kind of cap, like a loss deduction or something like that, it's another common area. Then the question is, well, can I carry it forward or possibly backwards, oftentimes forwards to see if I can take it against future income in the future. And typically you can do that here, I believe for five years in the event that you hit that cap, but for most tax payers you're probably not going to hit that cap too often, but for well-off taxpayers you quite well could. So what if we had non-cash contributions? You can see in the software here, they give you the note here, use screen 26 for total non-cash contributions over 500. So that's that kind of limit where they're going to want more information. So we can put the non-cash contributions, let's put the 500 in here so that we have the 500 for the non-cash contributions. And then I'm going to jump on over to the, well, let's go to the other screen and if we have to add the more detail then, we're going to have to go to more detail. So the information we put in here would be something like, it's we're going to say it's goodwill, for example, goodwill and not badwill, goodwill. This is goodwill, this is the good one of the wills. So this is 132 South, you need the address, glassel, street and then it's going to be street, the city will say is Orange, California and we'll put nine two eight six six. So you typically need the information for that for this added over the 500 deduction. And okay, so I'm going to say then the date of the contribution we're going to have there. And we might get documentation, remember from something like goodwill, but the goodwill documentation's not going to give us too much. They're going to say, well, there's three bags of clothing and household goods or something like that. So we might not get a whole lot of description, but we get the date and the verification. They're also not a thrift shop. So in that they're not going to try it, they're not generally going to try to value, you know, the actual value of the goods. So we're going to have to basically value the goods on our own to be able to take the deduction. I'm going to put the date acquired as a negative here because that puts various in the tax return because I don't know exactly when they were purchased because there's a couple bags of stuff. And then we're going to say that we purchased it and the donor's cost or basis, what we purchased it for, way back when, who knows really at this point. So we're going to estimate how much it cost, all that stuff. We got to estimate kind of how much we paid for it. And then we're going to give the fair value, which how do we calculate the fair value? Well, we don't really know because we didn't actually sell it. So I took a third, I basically took a third of the cost. And when you're talking to a client or if you're trying to think this out yourself, that's how you got to kind of think it out. You got to say, okay, well, how much did I pay for this like way a long time ago? And now, you know, what would be the cost at this point in time? If I was basically to sell it and you could try to look at basically comparable items. So you could pick multiple methods that you could think of to kind of figure that out. You can have an appraisal, but an appraisal basically gives the indication that you hired a third party to do the appraisal, which would be worthwhile if you had a high dollar amount item that you are deducting because you want an accurate appraisal. It would be worthwhile to pay someone in that case to do it. But if not, then you might have a thrift shop value or comparable sales values, for example, or catalog kind of value to try to determine what the value would be. So I'm gonna take one, I'm gonna take a third of it in here. We're about a third. I could take, you know, 3,333, right? And then I'm gonna say, so there it is. So then I can go back on over and say we're gonna say now if I go back to the forms, so we've got the other 3,333 that has now been added here. And we can see the detail for that one on the form. It now tells us to look at form 8238 and just note from a tax preparing standpoint that whenever you have to fill out a form like 8238, it's kind of a double-edged sword because on the one point you're saying, I don't wanna fill out another form. It's gonna be a tedious type of thing. But at the other side, sometimes people pay, sometimes you charge basically per form. So the agony of filling out the other form might give you, you know, it gives you, it makes a tax return more complex. And if you bill by form, then you could bill out the fact that it takes you longer to add this other form, which is the 82383 form. If we go up top, this is going to be the non-cash charitable contributions. So here's the added information, the goodwill, they need the address. They've got the clothing, household goods. And then scrolling down, we've got the date on the 615, the donation date. That one will be straightforward. We will know that. Notice when I put a negative number in here, it put various. That's why I put the negative in the software. Different software will have different things, but obviously one date will cover it. If you've got a bag of stuff that they covered that you've been purchased for the last, you know, 10 years or something. And so the purchase, how you purchased it, donors cost 10,000. And then the 3,333. And we're gonna say it's the thrift shop method. That's the method that we used. So there is that. And that of course pulls into the schedule A. So there's the schedule A. Now the one other thing to just keep in mind here is this other carryover information. Note that if you're talking about more complex returns, usually larger income returns, that we talked about kind of the problem with this state tax refund, where you can have issues with that and the software can help you to kind of deal with that. If you have an NOL, net operating loss, those type of carryovers and this type of carryover, if there's some kind of carryover from the prior year and anytime in my opinion, if you're picking up a new client and they have a schedule A, that's an indication that their tax return is a little bit more complex. Maybe I wanna put the information into the prior software in putting their whole tax return into 2020 and then rolling it forward, which will take a lot more work, but it'll hopefully get things off to the right start. So you pick everything up that you want, that you should and the software helps you out for the rollover kind of information. And so that's just a logistical suggestion. But if there was a carry forward because there was some kind of limit from the prior period, which is less likely now because of the new rule for them to be able to categorize and take more of the deduction that was there for a couple of years ago, but let's just pretend that there was another 10,000 that wasn't able to be deducted last time and then we roll that over, that's gonna be a deductible item this time. So those carryover things can be somewhat confusing. So like I say, it's useful to have the software help you and then it'll usually do that kind of stuff and then you deconstruct it so you understand it to make sure it's done right and so you can explain it to somebody. Now all this would of course be summed up we're at the 29212 pulling over to the first page of the form 104029212.