All you need to know about Tax Deductions for Contributions
for the NRI in the US.
Giving Tuesday is said to be a day when individuals and businesses are helping the needy by making various charitable contributions. This would also increase the possibilities by which the tax bills of NRIs can be trimmed before the year 2020 comes to an end. The Giving Tuesday this year would be even more special as a lot of people are having genuine needs due to the adverse impact of the pandemic COVID-19. However, it is also necessary to understand which organization would qualify as a charitable organization.
NRIs in the US are aware of the concept of donating for charity and then writing off the donations made. However, there seems to be some confusion related to the exact concept behind this. Some Americans consider that contributions made to any organization can be deducted. Some others feel that the value of time that has been spent on volunteering can be deductible. But, the concept behind both these ideas is not true. Let us check out the real concept underlying the tax deductions related to charitable contributions and their functioning.
According to the IRS, charitable contributions occur for an NRI when he donates money which can include securities, goods/services, or business ownership to a particular organization. The market value of the contributions made would be deducted from your income tax returns.
The IRS has specified that for any particular donation or contribution to be qualified as charitable it must be made to a qualified organization. If contributions are made to any political parties, individuals, and any other candidates then those contributions are not tax-deductible. In general, the only deductible charitable donations are those contributions that are being made to a scientific, literary, educational or religious organization that has a 501(c) (3) status obtained from the IRS. NRIs can use the IRS Search Tool to have a clear understanding of which organization qualifies as a charitable organization.
Different categories of contributions
In addition to money, other things which can be donated or contributed are:-
- Valuable items
- Any of these above-mentioned items contributed would qualify for a tax deduction.
- In case, if the value of the contributions made is $250 or more than that then a written acknowledgement has to be obtained from the charitable organization about the donation.
- In case, if the value of the charitable contributions which are non-cash is more than $500 then the NRI would have to mention some information about the charitable organization and the donation that was made while the income tax return would be filed.
Many NRIs consider the time which they have spent in volunteering can make them eligible for tax deductions. However, this is not legal according to the guidelines of the IRS. The value of a particular person’s time is completely different from the value of another person’s time and it is difficult for the IRS to verify the worth of a particular person’s time. It is also not feasible to deduct any of your expenses related to volunteering for taxes. However, costs like the cost of gas, oil, uniform, air/bus transport, etc. which is related to your volunteering work can be deducted for tax.
- When making charitable contributions and using them for availing tax deduction is the intent then the paperwork is the most necessary thing.
- Any kind of cash/non-cash contribution which is of the value of $250 or more will need a written acknowledgement from the organization to which the charity has been made.
- Also, IRS Form 8283 must be included along with your income tax returns for the non-cash donations which are more than $500 in value, and for the non-cash property which is more than $5000 in value.
- Moreover, the qualified appraisal would also be needed for any non-cash property or non-cash donations that have been made by an NRI.
Deduction of charitable donations
- If an NRI is donating to a qualified charitable organization, the contributions made can be eligible for tax deduction only when the deductions are itemized and are not claimed as Standard Deduction.
- According to the guidelines of the CARES Act, a new charitable deduction of up to $300 would be permissible on the taxes of 2020 if cash donations are made for a 501(c) (3) organization and the deductions are not itemized.
Hence, charitable donations made to proper charitable organizations would be helpful from the tax deduction point of view. The NRIs must have a clear view of the rules associated with charitable contributions and tax deductions to avail the benefits easily.