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

by Mounica Kota | 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: –

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.
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.

Top 10 things to keep in mind for your tax filing

by Mounica Kota | Jul 17, 2020 | Charitable Contributions, ITIN, Tax Extension, tax filing

Top 10 things to keep in mind for your tax filing

Filing tax returns can be tricky, confusing and you ought to be cautious while filing your tax returns.

So, let us give you some basic tips to follow while filing your tax returns. These tips will help in avoiding common mistakes to ensure that your taxes are filed properly and you obtain the maximum refunds.

1.Filing for an extension

You can easily file for an extension in the timeline of your tax return filing but, an extension in the due date for tax payment cannot be done. You might have the thought that you may end up having taxes to pay once your return filing is completed. So, you should pay whatever amount you owe to the IRS by the July deadline so that you could do reconciliation after the returns have been filed successfully. If you do not pay your taxes by the deadline, you might have to pay a penalty which you should try to avoid.

2.Document your charitable contributions meticulously

Nowadays, charitable contributions are getting a lot of scrutiny from the IRS. So, if you are planning to claim charitable contributions as itemized deductions in your tax returns then you must have written acknowledgment from charitable organizations for contributions made of $250 or more. The contribution made can only be claimed if they are made to a qualified organization. In case of your contribution being less than $250, you must keep a list or record of what you contributed and to whom.

3.Know about new due dates for some tax returns

There might be some information forms that would be needed by you for filing your tax returns might be having different due dates than that of your tax returns. So, you need to be alert and visit the IRS’s website for the information on these new due dates.

4.Need for amendment

Many taxpayers have to file amended tax returns due to reasons like receipt of updated Forms 1099, Schedules K-1, and other information forms later than filing your actual tax returns. You need to be aware of the factor that if you are receiving any rectified information returns ad you have already filed your tax returns then you would not have to amend your returns if the difference is not more than $100 in your income or not more than $25 in your withholding. In these cases, your information and filing both would be considered as correct and no penalty would be charged.

5.Expiry of your ITIN

If you are using your ITIN for tax returns filing, then you must be careful about your ITIN being expired. If your ITIN has not being used for filing federal tax returns once within three years then your ITIN must have been expired and it needs to be renewed. You can renew your ITIN by submission of Form W-7 and the necessary documents as well. If you are filing your tax returns without a valid ITIN or without submitting a renewal application for your ITIN then there might be adjustments made into your tax returns. Your income tax return would be processed but you would not receive the refunds and any exemptions claimed on the income tax return would be denied to you.

6.Disaster losses

In case of any loss incurred in an area that has been federally declared disaster area, the losses can be claimed as an itemized deduction on your federal income tax returns. This loss must be related to your home, your vehicles, or any household items and the amount which you can deduct are reduced by any insurance payment which you have received or reduced by any salvage value of your property. These losses can be deducted on Schedule A of Form 1040 for the year in which the losses have occurred.

7.ID Theft

The tax season is the best season for identity thieves. You must be very vigilant and should try to keep your financial information secure. You should not send your financial information to a tax preparer by electronic medium if the medium is not encrypted. Moreover, you should be careful about phishing scams which can be in the form of fake email, text, or anonymous phone call.

8.Private debt collectors on the job

There has been a relative change in the IRS procedure i.e. the use of private debt collectors for certain federal bills that are overdue. If your tax debt is to be collected by debt collection agencies then you would be notified by a letter that confirms this. The collection agencies would send collectors who can be said as IRS contractors and any check you pay would be addressed to the IRS.

9.Query resolution with the IRS

Your queries on tax returns can be addressed by the Interactive Tax Assistant present on the IRS. This can be helpful for you in resolving your queries and thus, assisting you in filing your tax returns correctly.

10.Selection of your tax preparer

If you are planning to hire a tax preparer for preparation of your tax returns then you must obtain referrals, check the credentials of the tax preparers, interview them, and understand the method they use to bill, etc. These are the vital information that you must collect and you must check if they have a PTIN (IRS Preparer Tax Identification Number) or not which is mandated by the law.

Conclusion

Hence, you can follow these tips and file your tax returns successfully on time without facing any inconvenience or difficulties.