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How to Deduct Charitable Donations for Taxes

The coronavirus pandemic has caused widespread financial insecurity. Many Americans have lost their jobs and many more lack certainty in their job stability. In March, lawmakers signed the federal COVID-19 stimulus bill, also referred to as the CARES Act (Coronavirus Aid Relief and Economic Security). Outlined in the bill are several financial relief measures aimed at helping Americans during the pandemic.


One of the benefits in the bill is an increased deduction rate for charitable donations. Under the new bill, Americans have increased provisions for charitable donations. However, there are a few caveats to be aware of. If your tax situation is complex, it is always best to consult with a tax resolution lawyer for guidance. Here is some valuable information about how to deduct charitable donations for your taxes.


The CARES Act and Charitable Tax Deductions

The CARES act increased the deduction percentage Americans could claim for contributions to public charities. Before the act, the limit on charitable deductions was 60 percent of an individual’s gross adjusted income. Under the new bill, lawmakers increased the limit to 100 percent of an individual’s adjusted gross income. The law also increased the corporate charitable deduction rate from 10 percent of a company’s taxable income to 25 percent.


While the law was created in the wake of pandemic-related financial insecurity, the new provisions are not limited to 2020 and will apply to all future tax years. The one drawback of the new law is that it only applies to cash donations. For example, if you donate stock, real estate, or any other non-cash items, these would not be eligible for the increased deduction rate.


How to Use the New Charitable Deduction Provisions

During the COVID-19 pandemic, many people who are in the financial position to give back are looking for ways to do so. Using cash to donate is one way to give back to your community. Another great option—specifically for investors—is to donate shares from your accounts or brokerage. Since you won’t have to pay capital gains tax on donated shares, it is a good strategy for lowering your tax bill.


Another creative way to capitalize on the new deduction rate is to redeem cash-back rewards on your credit card and donate the money. With this strategy, you are donating the “free money” gained from your credit card company to a charity. You can then get a tax deduction for your charitable contribution. This is a great way to give back and put some money back into your bank account at the same time.


How to Avoid Being Audited

While donating your money in the form of credit card rewards, stock shares, or cash is a great way to give back, you’ll want to avoid being audited. There are certain red flags that alert the IRS. If you are considering a charitable donation, here are some things to consider:


  • You cannot claim a deduction for any charitable donation without a written record of your contribution. You’ll need to submit a written acknowledgement or receipt from both yourself and the organization you donated to.

  • Make sure you donate to a public charity that is approved by the IRS. If you don’t, your donation won’t be eligible for a deduction.

  • Be sure to document all your donations throughout the year to ensure a smooth filing process.


Ultimately, the best way to avoid being audited is to educate yourself on the restrictions of charitable deductions and collect all documentation and receipts from your donations.


Consult a Skilled Tax Resolution Lawyer

Often, filing your taxes is a complicated process. The complex nature of the tax process lends itself to errors. If you have been audited by the IRS or are struggling with your taxes, you should consult with a skilled tax resolution lawyer. At Morgan Sebastian Law, attorney Becky Sebastian represents taxpayers before the IRS in all 50 states. Our firm has a proven track record of helping our clients navigate complex tax situations. To schedule a consultation with an experienced tax resolution lawyer, call (877) 223-6605 or fill out our online contact form.


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