Tax Season Is Approaching — We Reply Three Questions About Deductions
The flip of the calendar is the start of the tax season when people pick up their W-2 and 1099 and prepare to file income tax returns. For many, a big part of that tax filing process consists of deductions, and here are three reader questions on the topic.
1. What if you don’t have receipts for tax deductions?
When COVID started I started donating groceries to the pantry in town every month when I went to Costco. I would pick up and drop off about $ 100 worth of items from the needs list each time. Now I realize that they never gave me a receipt for the donation. Can I deduct these donations if I don’t have a receipt?
You can only deduct food donations from your taxes if the food has been given to a qualified charity. The first thing I would do is contact the pantry and make sure it is a qualified charity. You can also search the IRS database of qualified charities to see if the pantry is listed there.
If the pantry is a qualified charity, you can ask them directly for a donation receipt. However, it is very unlikely that your specific donations will be tracked unless you have made a single donation greater than $ 250. Why is $ 250 important? For donations over $ 250, the charity is required by law to provide the donor with written confirmation of the donation. However, they appear to have made a number of smaller donations that add up.
[ More: The Best Tax Software ]
So the best approach for you would be to go to the Costco website, have all of your receipts year-round, list everything you have donated from those receipts, and put them all into a single list. So if you donated seven items from an April trip to Costco that totaled $ 103.42, just write “April Donation: $ 103.42” on your list. After you’ve subtracted all donations from your Costco receipts, take this list to the pantry and ask if someone can sign a receipt for these donations for you. If the pantry knows you’ve donated in the past and you are given such a detailed receipt, they will likely do it for you.
You may want to use a grocery donation receipt template, leaving the line for the signer blank, then take that to the pantry the next time you donate and ask the person receiving your donation to sign for it, or drop by the pantry and ask for a signature.
If the document is not signed, you can still deduct it from your taxes. However, the donation may be questioned if under scrutiny. You can view the receipts of your purchases at Costco, but you still need the pantry to review your donation when the IRS calls the pantry. However, this is relatively unlikely unless you are screened for other reasons.
2. Should I deduct my mortgage interest?
What are the disadvantages of deducting your mortgage interest? Why wouldn’t everyone do it? It seems like there must be a catch.
When filing your taxes, the federal government gives each individual taxpayer two options.
First of all, you can choose the standard print. This is a standard amount offered to everyone. If you choose this option, there is no need to list your tax deductions at all.
Alternatively, you can list your prints. If you choose this option, you’ll need to make a list of all of your prints and see what they add up.
Usually people choose the option that gives them the greatest deduction. If you have enough prints to be more than the standard, your prints will be listed. When you don’t have enough, just take the standard print.
The Tax Policy Center reports that around 90% of Americans took the standard deduction for their taxes for 2018, the last year it has an estimate for. With the Standard Deduction even higher in 2021, the vast majority of Americans will choose the Standard Deduction – yes, even homeowners with a mortgage.
So the downside to deducting your mortgage interest is that you are missing out on the standard deduction, which may be even bigger. You should go for the larger option, and even on a mortgage, this may well be the standard deduction.
[ See: The Tax Implications of a Cash-Out Refinance ]
3. Why donate when you take the standard print?
What is the purpose of a donation when making the standard deduction? There is no tax break for charity giving just taking the standard deduction. Most people seem to have no incentive to donate.
First of all, the purpose of making a donation to a charity is to help a good cause. The fact that the donation is tax deductible in many cases is like the icing on the cake.
Sam’s question, however, hits a broader question as to why charitable giving doesn’t reduce the tax burden on those taking the standard allowance. This is because the standard deduction requires some donation from the average person. A standard deduction really means that for the convenience of the IRS and tax advisor, the IRS is willing to assume that you’ve done a certain amount of tax-deductible things this year, including making charitable donations.
By offering this to the IRS, the people taking the Standard Withholding (at least 90% of Americans, as mentioned earlier) aren’t really encouraged to actually do things that are tax deductible as they are only taking the Standard Withholding anyway . If you are eligible for the standard allowance, charitable giving will usually not reduce your tax burden.
However, there is a special exception for your 2020 taxes (which most of us will file in early 2021). Thanks to the CARES Act, taxpayers who made monetary donations to qualified charities totaling up to $ 300 in 2020 will be able to deduct them from their taxes even if they make the standard withholding. This is a one-time special that aims to encourage additional donations in 2020.
Remember, the real reason to donate to charity is to help others. Treat tax benefits as the icing on the cake!
Too long, not read?
When it comes to standard prints, it is important to weigh both options. You can take the standard deduction when filing a simple tax return with no donations or mortgage interest payments for the filing year. However, if you have any deductions that exceed the standard deduction, list your deductions this tax season.
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