Holiday Gift Giving Guide for Declaring Charitable Donations 2022

The 2023 tax season starts January 1, 2023, the day the IRS accepts 2022 tax returns. Of course, filers still have until April 18, 2023, to get their returns in. Remember, 2023 tax filing deadlines apply to tax-paying obligations from 2022. While taxpayers wrestle with keeping resolutions, the IRS restarts its process of weeding through millions of tax deductions. It’s an arduous task, most of it done automatically as the bureaucratic engine grinds on. With advanced planning and management from a certified accountant, philanthropic taxpayers can extend their gift-giving list to include tax write-offs and donations.

The Gift of “Giving” as Holiday Gifts

Many of the largest companies make regular donations to facilitate connections with local citizens. On the surface, these donations are heralded as giving back to society. Internally, charitable donations by large corporations can serve as tax shelters. But can individual taxpayers use the same process for deductions on their itemized returns? 

Probably not in the same way, as this IRS publication explains. However, individuals can declare charitable donations in some circumstances. With careful planning and help from an accountant like Peter B. Scala,CPA, anyone can use donations as holiday gifts.

Making a List…

Millions of people painstakingly complete holiday shopping as they slowly check gift recipients off the list. Although the list-making ritual has been playing out every year for at least a century and a half, the digital evolution fundamentally shifted the gift-giving process into areas never dreamed possible, like same-day delivery and promotion codes. Indeed, instant payments via the ACH system made giving money the easiest gift possible.  

Instant payments give gift givers the option of making charitable donations on someone else’s behalf. The list of potential gift-giving recipients grows every year. There are more than 1.5 million registered charities in the U.S., with Americans giving $326.87 billion in 2021. 

As you make a list, jot down the causes they care about. Any amount works for nonprofit gift-giving, with smaller amounts making good stocking stuffers. 

Check the List Twice For Tax Purposes 

Making a list of potential charitable gifts made on behalf of friends and family helps you understand the importance of giving back to your community. This list also helps gift givers understand what donations made on behalf of others can be included in business and personal tax returns. 

Charitable donations are usually tax deductible if the organizations getting them are registered with the IRS as nonprofits. Some organizations collect donations on behalf of other nonprofits and then distribute them according to specific instructions. 

Caution: Some of these organizations run online scams that prey on the gift-giving and receiving process. 

Beware the Gift Tax

Giving large sums of money or something worth lots of money, like a car, triggers the gift tax threshold. At the $15,000 threshold, the IRS says you must pay a gift tax. For example, gifting a car worth more than $15,000 to a teenager means the giver pays the gift tax. The gift tax applies to the value of the item, not what you paid for it. 

The IRS has some exemptions for the gift tax:

• Charitable donations
• Political donations
• Gifts to dependents and spouses
• Gifts to educational and healthcare institutions

Each of the above items has specific rules for itemized deductions. Certified public accountant PB Scala can help you understand your specific tax obligations. For example, to claim gifts of $250 and above, the giver needs a written statement from the nonprofit saying whether or not the giver received anything in return for the gift.

Small Business Holiday Gifting

Millions of people throughout the country run small businesses with fewer than five employees. The small group means holiday gifting won’t cost the business very much money. Although an employer/employee relationship in a small business can seem family-like, it’s crucial the business follows IRS rules. Generally:

• Employers can write off gifts worth up to $25 to employees.
• Promotional products can be deducted if they are given to everyone, like free pens with a company name on them. The catch is each pen must be worth no more than four dollars.
• Businesses can only deduct 50% of their costs of entertainment for clients. This includes dinners and concerts.

There could be other deductions. CPA PB Scala can help your small business get the most value out of your holiday gifting plans.

End-of-Year Small Business Tax Planning

Millions of American small businesses will be preparing their business and personal tax returns in the coming weeks. In addition to common business deductions, small business owners can do other end-of-year things to lessen their tax burdens. 

Plan for and purchase next year’s office supplies. If you’re considering office upgrades next year, the supplies can be purchased in advance and written off. Even paying for an office cleaning service in advance is tax deductible as a business expense. 

Throwing a holiday party for employees and their families is 100% tax deductible. However, only 50% of the cost can be deducted if you invite clients and vendors to the party. With careful records, a holiday party celebrating business success with employees, family, and clients can be a good investment.

Any travel associated with the business can be written off. But travel expenses for holding vacations are not a tax write-off. There are instances where the two can mix, though the business write-off can’t be for an extravagant vacation.

Happy Holidays!

As we prepare for another tax season, we mustn’t forget how to give back to communities that might not have as much as us. We can do small parts by donating small money gifts on behalf of others. The gift receiver feels good about their donation, and the giver receives a tax deduction. 

Holiday gift-giving can be combined with tax return preparations by calling PB Scala and finding out what options are available for your situation.