As I’m finishing off 2022 tax filing for Douglas County clients who requested extensions — if you’re in the extension crowd and haven’t talked to me about this yet, schedule something right away — it’s got me thinking about what’s coming. Let’s take a look.
- 1099-K for you and you and you — I talked about this recently in a previous note, but the gist: If you use third-party payment apps like Venmo, CashApp, etc. whether for personal reasons or getting paid from your side job, you could receive a 1099. If you do, that’s something we should talk about.
- Beefed-up IRS — They’ve received a lot of new money, are hiring a lot of new employees, and have a lot of new computers. Plus, they’re beefing up compliance efforts (especially for the wealthy). This will make it even more important for us to look over your tax situation carefully and make sure you’re covered before filing time hits.
- The Corporate Transparency Act – New and existing business entities, including LLCs, will have new reporting requirements in 2024. The penalties for not complying with those reporting requirements are extremely painful and costly. My office and I can help you avoid any problems you might encounter with these new rules.
Don’t panic. I’m here to advise you on all these matters. If you want to discuss what’s trickling down in 2024, I’m right here:
But before we get to 2024, let’s look at the end of 2023. It’s the time when generosity can be seen everywhere. You, like most Castle Rock people, are more prone to give to worthy causes. Generally speaking, you’re not really giving to get something out of it, except maybe some warm fuzzies.
But also, there are tax deductions you can claim for those charitable deeds.
As far as this goes, things have changed in the last few years. So, let me equip you with some of that knowledge today.
Getting into Giving: The Castle Rock Taxpayer Guide
“No one has ever become poor by giving.” – Anne Frank
Picture this: You’re a retired couple who has always had a special place in your hearts for children’s healthcare. It’s 2023, and you’re thinking about making a sizable donation to a leading children’s hospital. It’s a worthy cause, but as you consider scheduling that payment or writing that check, you can’t help but wonder, “How will this impact our taxes?”
While it seems self-serving to think that, the reality is, it’s an important question. The government has built-in relief for taxpayers who are charitably minded. According to the IRS, the average charitable deduction was $4,236 in 2022. But even if you gave less than that (or more), you can take a deduction as well. By itemizing your deductions on Schedule A, you can directly offset the amount you owe the IRS.
(Note: This is a change from recent years. Starting on your 2022 taxes, you can’t claim a deduction for charitable donations if you take the standard deduction. You have to itemize.)
But, to do so — you’ve got to keep thorough records of your donations.
Itemizing your giving is crucial. Make note of the charity, the donation amount, and the date.
The deduction amount depends on a few factors but can be anywhere from 20-60% of the amount given.
Let’s put it into perspective with Carlos and Kim, a hypothetical retired couple. They decided to pool their annual charitable donations into one year—$20,000 in one go. The result? A substantial dip in their taxable income and a slide into a lower tax bracket saved them a tidy sum.
But, because there are a lot of nuances to taking these deductions and things change year to year, you’re probably thinking, “What’s the catch?”
Great question. The truth is tax laws aren’t static.
For example, in the 2021 tax year, there was a temporary special deduction of up to $300 for cash donations to qualified charities for individuals who did not itemize their deductions. But it was only available for that year.
Then there’s the Tax Cuts and Jobs Act (TCJA) from 2017. It’s been a game-changer… and it’s set to expire in 2025. If that happens, the standard deduction will decrease, making itemizing more attractive. The cap for cash donations would drop back to 50% of your adjusted gross income.
For Carlos and Kim, this would mean recalibrating their giving strategy to adapt to the new tax landscape … and it also impacts your long-term giving strategy. I’ll keep you informed on law changes, but I’m also happy to sit down and discuss these things now.
For now, let’s focus on some giving strategies that you can consider and implement before December 31.
– Cash donations. Straightforward and avoids the complexities of capital gains tax from donating stocks or property.
– Bundling donations. Like Carlos and Kim, combine your annual charitable gifts to make the most of your itemized deductions.
– Donor-advised funds (DAFs): Think of it as a charitable investment account. Contribute now for an immediate tax benefit and distribute the funds to charities later.
Also, be thinking about how much you want to allocate for charitable giving each year, the types of charities you want to support, whether you’re going to make one-time gifts or recurring donations, and if the charities you’re supporting are local or much bigger. All of these factors affect the strategy you choose and the deduction you can claim.
Ultimately, giving isn’t about deductions. It’s about making a difference.
But while you’re making a difference, we can also help you strategize with giving to save on your taxes… as well as capitalizing on some other tax-saving moves you can make before the end of the year.
Making your good deeds go further,
David Forney