Tax Deductions for Charity and Donations this Christmas available to NRI’s in the US.

by | Dec 16, 2020 | Charitable Contributions, Charitable Deduction, charitable donations, Foreign Trust Schemes

Tax Deductions for Charity and Donations this Christmas available

to NRI’s in the US.

If you are an NRI and are planning to make donations for this Christmas, then your charity and donations would definitely have an impact on your tax deductions.

You should not be influenced by the scammers in light of the charitable opportunities that have occurred due to the various events being triggered throughout the year. You must ensure that the charity or donations done by you during Christmas are done to a 501(c) (3) non-profit organization. 

Qualified organizations would include non-profit organizations that are educational, charitable, religious, scientific, or literary. The IRS website would help you in determining if the organization to which you are donating is a qualified one or not.

Due to tax reforms, there have been various changes introduced in the itemized deductions, but the deductions related to charitable donations remain mostly the same with a few changes. If you are making any donations of money or goods this Christmas, then you can claim your donations by itemizing your tax deductions. In general, if you are opting for a Standard Deduction then you would not be able to claim any deduction for your donations but there have been certain changes under the CARES Act.

As per the guidelines of the CARES Act, there would be an addition of a new charitable deduction up to $300 on your taxes for this year if your donations have been made to a 501(c)(3) organization and even if your tax deductions are being itemized. You must keep this in mind as most of the NRI taxpayers claim the standard deduction and do not itemize thus, making it infeasible to deduct the donations under the tax reforms.

There have been certain changes made to the provisions related to tax reforms. These changes would include the below-mentioned points: –

  1. The percentage limit of the cash contributions which have been made for public charities has increased from 50% to 60% of your AGI (Adjusted Gross Income). But, the CARE Act would eliminate the limit placed on the deductions availed for cash contribution if you are itemizing your deduction.
  2. While you would be able to claim around 80% of the donation made for seat rights like tax reforms, you would not be able to claim any of these donations as a tax deduction.

 Standard Deductions and Itemized Deductions. 

Due to the tax reforms, around 90% of the NRIs would now opt for Standard Tax Deduction which was around 70% during the previous years. For the tax year 2020, the standard deduction has been increased to $12,400 for those who are filing returns as single individuals or has increased to $24800 for those who are married and filing their tax returns jointly. In case, if you are filing the tax returns as the Head of the Household then the permissible Standard Deduction is $18,650. You can either claim your Standard Deduction or itemize the tax deductions based on your expenses which are tax-deductible.

It might happen that you might be in the category in which the standard deduction is more than the itemized deduction and you would choose Standard Deduction.  

If you are closer in proximity to the Standard Deduction threshold it is feasible to increase your tax deductions and then itemize your deductions if the charity is done towards the end of the year. By doing so, you would be helping someone who might be in need and also would increase your tax returns. 

For example, state and local taxes to be paid are around $10,000, $8,000 for mortgage interest, and $2,000 for the charitable contributions, which totals to $20,000 of itemized deductions. If you are filing your tax returns as a single individual, you would prefer to itemize your deductions since $20,000 is greater than $12,400 which is the standard deduction. However, if you are filing as a married couple you will be claiming the standard deduction of $24,800 instead of itemizing your deductions unless you end up with about $5,000 more in itemized deductions.

 Conclusion 

Hence, you should not worry about the standard deduction threshold or itemizing deductions. You can follow the IRS guidelines and know in detail about these changes related to the deductions and itemizing.

All You Need to Know About Tax-Deductions on Charity

by | Nov 30, 2019 | Charitable Deduction, income tax, Standard Deduction, tax filing, Tax Liabilities, taxes

All You Need to Know About Tax-Deductions on Charity

A lot of taxpayers plan to do charity by the end of the year or during the festival season. If you have any such plans, it is only natural to wonder how the new tax laws will have an impact on your donations or Tax Deductions on charity.

While donating to charities, it is essential to be cognizant of the organization that you are donating to. Since there are a lot of scammers who do not miss an opportunity to collect charity in the wake of a natural disaster.

Making donations towards a qualified non-profit organization is the right way to go. Thequalified non-profit organization includes groups that are educational, charitable, religious, literary or scientific. Or any organization that works towards reducing cruelty towards children and animals. The IRS provides enough information on their website regarding all the organizations that are qualified. So that your contributions are directed to the right resources.

Though there have been new tax laws, it doesn’t bring a lot of changes for charity. They are still tax-deductible. The new laws have made some changes to itemized deductions but with minor changes, charity remains tax-deductible. You can still contribute money towards charity or items as long as you itemize them.

Updates for Charitable Deductions

The following are the two major changes for charitable deductions.

  • The earlier law allowed taxpayers to claim up to 80% of donations towards a seasonal ticket for college as tax deductions. However, under the new law, you cannot make any such claims. This is applicable from the year 2018 onwards, or the filing year 2019.
  • The limits when it comes to cash contributions to public charities have been hiked from the current level of 50% to 60%.

Itemized Deductions and Standard Deductions

The new tax laws have increased the standard deduction limits and it might impact the way you claim or do not claim your donations towards charity. Though there is no direct correlation between them, the IRS believes taxpayers are more likely to take the standard deduction.

For 2019, the IRS has hiked the standard deduction to $12,200 for single taxpayers and $24, 400 for jointly filing taxpayers. Taxpayers who are the head of the family can claim up to $18,350 as a standard deduction. The thing which hasn’t changed is your decision to take the standard deductions or itemize your deductions. Of course, you still must assess which option gives you a better tax option.

As mentioned, predictions show that a lot more taxpayers will now have their standard deductions a bit higher than itemized deductions. Thereby, leaving them with the option to go with the standard deduction and not itemized deductions. Consider this, you are liable to $8,000 as state and local taxes, $5,000 as mortgage interest and have made charitable contributions of $2,000. If you are filing as a single taxpayer, these itemized deductions sum up to $15,000 which is higher than the standard deduction of $12,200.

However, taxpayers filing jointly have a higher buffer of $24,400 and are more like to take the standard deduction instead of itemizing their deductions.Taxpayers who are close to the upgraded standard deduction limits can choose to contribute towards a charity of their choice during the festival season and claim it under Itemized deductions.

There are a couple of benefits of doing the same. For starters, you will be bringing a positive impact in someone’s life during the festive season and boost your tax refunds at the same time.

While both the options are still available, a taxpayer must do a quick assessment as to which method saves the most amount of taxes for them.