Welcome to Part 4 in the Schedule A explained, series. In parts 1-3 we looked at medical deductions, taxes paid and interest. In part 4 we will be looking at charitable donations and casualty theft losses. Which are both deductible on Schedule A. However, like most IRS items, there are limits on what you can deduct and how much you can deduct. But, unlike most other deductions this is relatively straight forward. So without further ado lets get started.
What is a casualty and theft loss and how does it affect my taxes?
Well casualty and theft losses are really straight forward to explain. Essentially the IRS is allowing tax payers to take a deduction on qualified property that was stolen during the tax year or destroyed during the tax year. However the main catch is that it has to come from a federally declared disaster area. Claiming these deductions will require you to fill out Form 4864 (Casualties and Thefts). Fill out this form and place the result on line 18 of Form 4864 on line 15 of Schedule A. This number will be the deduction for Causality and Theft Losses on your Schedule A.
What are qualified charitable donations and how do they affect my taxes?
So, what can I write off my taxes? Well per the IRS, you can deduct contributions or gifts you gave to organizations that are religious, charitable, educational, scientific, or literary in purpose. These gifts can be cash or non cash. Some examples of these include but are not limited to:
- Religious organizations
- Charities like Red Cross or The United Way.
- Veteran’s Groups
- Fraternal Orders
- Nonprofit hospitals and medical research organizations
- Most non profit educational organizations
- Gifts to federal, state, or local governments, as long as the gifts are used for public purposes
In addition you can also claim deductions on gifts in which you benefitted from. A popular example of this would be a charity auction. For example let’s say you won a cruise from an auction and you paid $6,000 for it. And let’s also say that this cruise, that you won, is worth about $5,000. Well, per IRS rules you would only be able to deduct $1,000 of this purchase because you can only deductible the amount that you paid over the value of the item you received. You may be asking “Well how do I find out how much the value is of what I won?”, and my answer would fortunately be, that most of these auctions will have values already calculated and ready to go on a receipt that you will probably get after the auction. So when in doubt keep that charitible receipt.
Limitations on Charitable Donations and other items.
In short your cash contributions or contributions of ordinary income property cannot exceed 30% of line 11 on form 1040. In addition your gifts of capital property cannot exceed 20% of the amount on line 11 on form 1040. Also if you are giving non cash donations be sure to have good recordkeeping. One reason is because certain non cash donations exceeding $500 (like clothes, etc.) will require you to fill out form 8283. This form will mainly serve the function of allowing you to state what you donated during the tax year and what it’s value was.
Other Deductions
Besides charitable donations here are also other minor, one off type deductions that are on Schedule A. These type of deductions go into the very bottom of the form on line 16. Per the IRS these can include but are not limited to:
- Gambling losses – to the extent that it doesn’t exceed line 8 on the 1040.
- Federal estate tax on income in respect of a decedent.
- Deductions for amortizable bond premiums.
- Impairment related work expenses of a disabled person.
- Deductions for repayment amounts under a claim of right if over $3,000.
- An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument.
Conclusion
In conclusion Schedule A is definitely a useful form. For the high net worth individual, it may even be the most important form. However, even though a qualified accountant will be the one who is filling out the actual form. It is still important for tax payers to have an understanding of Schedule A, and most important tax forms in general.