Get those ducks in a row: It's not too early to think about that next tax bill

We are rapidly approaching the end of the year. There are a few things that you can still do this year that can work to your benefit on reducing your tax bill for 2022. Since it is still early September, that gives you some time to get your ducks in a row.

One of those is buying solar to power the electric or heat the water for your house. In addition, you can buy an electric vehicle (EV). Both of these come with increased tax credits thanks to the Inflation Reduction Act. Tax credits reduce your tax liability dollar for dollar (within some certain limitations). If you are interested in these, make sure you do your research as it must be bought (for the EV) or installed (for the solar or other eligible home improvements) before Dec. 31 for you to take the credit. I will discuss this in further detail next month.

The primary thing I wanted to discuss this month is charitable contributions. There are a few ways that you can make contributions and possibly get deductions in 2022 to your favorite charities.

The first one is the straight cash donation (this can be done by cash, check or credit card. These are all treated the same) that you make on or before Dec. 31. The catch is that it must be made to a qualified charity. How do you know if it is a qualified charity? You can check the IRS’s database at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search.

If you donate capital gain property (normally stock, bonds, mutual funds, but can also be real estate), there is a limit of 30% of adjusted gross income (AGI) to be able to take the deduction. You could also make a donation of a car, boat, art or any other collectible item. The big thing to know here on these items is to get (and keep) documentation for each item you donate. If the value of the item is over $5,000, then you must get a qualified appraisal for that item (and attach that appraisal to your tax return). For a car, you need to get a Form 1098-C. For any other donation you make over $250, you must get a written acknowledgement of the donation to be able to claim the charitable deduction.

While most charities are good at providing that documentation, it is important that you follow up with them if you do not get it. Also, note that this document must also state whether you received any good or services as part of your donation.

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One other final way to consider in donating to a qualified charity is to make a charitable contribution directly from a traditional IRA, inherited IRA, inactive Simplified Employee Pension (SEP) plan and inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs. (Inactive SEP and SIMPLE IRAs are accounts that no longer receive employer contributions.). This is a distribution made directly from the retirement account (i.e. you do NOT receive the cash). You will receive a Form 1099-R for the full amount of the distribution made, but you need to tell your tax professional or your tax software that the monies were a Qualified Charitable Distribution (QCD). The portion given to the charity is not taxable to you. The great part is that this counts as part of your annual required minimum distribution (RMD) if you are required to take one. The limit you can do per year is $100,000. But you must be older than 70½ to use this special tax vehicle.

Now, you want to make a charitable contribution. The question most people ask me, “If I make this charitable contribution, how much will I save in taxes?”. If you don’t know me, the answer will surprise you: It depends.

First thing, charitable contributions are itemized deductions (although the QCD does not count in this). Therefore, the sum total of your taxes category, mortgage interest and charitable contributions (plus medical if you exceed the 7.5% of AGI threshold) must exceed $12,950 for single taxpayers ($25,900 for married filing joint). For most people in the state of Florida, the sum total of these do not exceed that threshold. That is why I tell people that the charitable contribution is deductible, but it will not provide you with an additional tax benefit (i.e. it won’t reduce your taxes). Should you exceed the threshold, then the excess over the standard deduction will help reduce your taxes.

I hope you find this helpful. There are plenty of organizations that could use the support. My favorites are Rotary International, Ronald McDonald House Charities of Central Florida, Space Coast Field of Dreams, Hidden Acres for Rescue of Thoroughbred Horses, Salvation Army, Crosswinds Youth Services, the Children’s Hunger Project and University of South Florida (my alma mater). You pick the organizations that are most important to you, if you feel so inclined. If you have any questions, please consult your tax advisor.

Until next month, stay cool indoors — but the cooler weather is coming soon.

Dan Henn, CPA, is a local certified public accountant. His firm specializes in IRS audit and collections representation, real estate and medical taxation, year-round tax planning and tax preparation in Rockledge. Information: 321-684-7800 or danthetaxman@danhenncpa.com.

This article originally appeared on Florida Today: Yes, it's still 2022. No, it's not too early to think next year's tax bill