The Team at Wisdom CPA would like to wish our clients, community, friends & family a happy Thanksgiving and safe travels over the holiday. As we approach the Thanksgiving & Christmas seasons (in the strangest year on record), we recognize many of you make monetary & food donation contributions to various organizations.
In order for charitable contributions to be deductible, the organization must be a nonprofit organization that is approved by the IRS. The IRS maintains a regularly updated Charities & Non-Profits A-Z List if you choose to verify the organization you regularly donate to.
Due to Covid-19, there has been a Suspensions of Limits on Charitable Contributions & an Increase in Limits on Contributions of Food Inventory for 2020. Important tax details are below:
The amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 60 percent) of the taxpayer’s adjusted gross income (AGI). Qualified contributions are not subject to this limitation. Individuals may deduct qualified contributions of up to 100 percent of their adjusted gross income. A corporation may deduct qualified contributions of up to 25 percent of its taxable income. Contributions that exceed that amount can carry over to the next tax year.
To qualify, the contribution must be:
• a cash contribution
• made to a qualifying organization
• made during the calendar year 2020.
There is a special rule allowing enhanced deductions by businesses for contributions of food inventory for the care of the ill, needy or infants. The amount of charitable contributions of food inventory a business taxpayer can deduct under this rule is limited to a percentage (usually 15 percent) of the taxpayer’s aggregate net income or taxable income.
For contributions of food inventory in 2020, business taxpayers may deduct qualified contributions of up to 25 percent of their aggregate net income from all trades or businesses from which the contributions were made or up to 25 percent of their taxable income.
Charitable contributions are not subject to an adjusted gross income floor. This means that if you are eligible to itemize, you may be able to deduct 100% of your qualified charitable contributions. However, the total amount you can deduct in one year is limited to 50% of your adjusted gross income, with the excess carried forward into future years.
Charitable contributions can also include items other than cash, which are deducted at their fair market value. Donations of common household goods to organizations such as Goodwill, Salvation Army, and BCDS qualify as charitable contributions. There are valuation guides published that can help you determine the fair market value of non-cash contributions.
For all donations, you must have a canceled check, bank record, or a receipt with the charity’s name and donation amount. For donations over $250, the donor must obtain a written acknowledgement from the organization, stating whether goods or services were provided to the donor in exchange for the donation.
Reach out to Wisdom CPA with your questions about this year’s changes to Charitable Contributions or contact us for an appointment.