Unenforceable Tax Deductions

Technical topics regarding tax preparation.
#1
Jake  
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It occurred to me in preparing returns that Congress seems to have passed at least a couple of adjustments to income that will never be enforced. The first is the educator expense of $250. This is not likely to reduce the federal tax of any teacher more than about $60. Is the IRS going to waste time on challenging that. Now we have the $300 above the line charitable contribution that will result in no more than a $75 federal tax for most taxpayers. Again, is the IRS going to waste any time challenging that? Is it reasonable to ask us preparers to demand proof before taking those adjustments to income? I recite what is somewhat like the Miranda warning but do not require seeing any documentation as I do not think that is my responsibility. Does Price Waterhouse delve deep into the docs the support corporate deductions? As a former employee of a Fortune 50 corporation I can tell you that they do not.
 

#2
CathysTaxes  
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Most deductions taken are not enforced. Many new clients that came to me had large amounts of charitable deductions and employee business expenses claimed by their previous preparer without receipts or documents and they expected me to continue cheating for them. I literally jumped for joy with the TCJA that eliminated these and increased the the standard deduction.

Just because someone believes something is not enforceable, doesn't mean you shouldn't do your due diligence.

HoH was added to due diligence because the IRS knew people were cheating.
Cathy
CathysTaxes
 

#3
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Remarkably, 100% of our teachers, guidance counselors, etc take the $250 deduction and I'd say 98% of our clients take the $300 charitable contribution. The 2% that do not take it all seem to have one thing in common, they are in the zero % tax bracket.

If Congress is going to pass these stupid laws, then let them forego the tax revenue
 

#4
Frankly  
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The attitude of the tax preparer determines whether the client provides required support for a deduction, or retains the records and makes them available if needed later, or simply treats it as free money provided by congress.
 

#5
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I have the question in my checklist. I don't have to see the back up, but if they check that they made $300 in qualified charitable contributions and have the receipts/documentation to prove it, I take it. Funny, some of my higher income clients are the ones that make absolutely no charitable contributions. And no, they don't get the $300 deduction.
 

#6
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Jake wrote: Is it reasonable to ask us preparers to demand proof before taking those adjustments to income?


If you have reason to believe that the client is being untruthful or giving you an estimate, I would. Our professional responsibility is to advise the client of substantiation requirements surrounding deductions. I do this through a question in my mandatory 1040 organizer that the client must complete and sign:

Did you make any cash contributions to charity during 2020?

If yes, please upload documentation to your client portal. Documentation includes: (1) a bank record (such as a canceled check) or (2) written communication from the charity that adequately documents the donation. Without adequate documentation, the IRS will generally disallow the deduction.

Please note: cash donations to GoFundMe, etc are gifts under US tax law, not charitable contributions. To be deductible, a contribution must be made to a tax-exempt organization or foundation.
 

#7
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Another one is the $500 non-cash donation that every makes every year. :roll:
 


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