Tax Questions: Find Out About Charitable Write-offs, I Bonds, and More!

Are you feeling a bit puzzled about your taxes? Worry not, as we have compiled some answers to frequent tax questions that may be on your mind. Let’s dive in!

Here are common tax questions you should know. (Photo: Ciscocpa)

Answers to Frequent Tax Questions

Tax Question: Will the charitable write-off be expanded?

Answer: It is possible that the charitable write-off could be expanded.

Currently, only filers who itemize on Schedule A are eligible to deduct donations they make to charity. However, a bipartisan group of lawmakers is pushing to make this deduction available to everyone.

Their proposal aims to allow non-itemizers to deduct charitable contributions up to one-third of standard deductions for the years 2023 and 2024.

This means that the potential write-off could reach $4,617 for single filers and $9,233 for couples filing their 2023 returns next year. Nevertheless, the chances of passing legislation with such high deductible amounts this year appear to be low.

Tax Question: Can I gift an I bond to my son before it matures and avoid an income tax hit?

Answer: Unfortunately, you cannot avoid an income tax hit by gifting an I bond to your son before it matures.

According to a published article, you have probably deferred reporting the interest earned on the savings bond for federal income tax purposes. However, gifting away either EE or I bond to someone else before they mature will accelerate the interest reporting.

Regardless of whether the bonds are reissued in the recipient’s name, you will still owe U.S. tax on all the previously deferred interest in the year of the gift.

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Tax Question: I am self-employed and pay state and local property taxes in my business. Can I deduct them on Schedule C?

Answer: Yes, as a self-employed individual, you can deduct state and local property taxes on Schedule C.

While Schedule A itemized deductions for state and local taxes, including income taxes and property taxes, are capped at $10,000, property and sales taxes are fully deductible for individuals engaged in a business or for-profit activity.

Thus, you can fully write off the property and sales taxes you pay in your business on Schedule C.

Tax Question: Can I get a 20% Qualified Business Income deduction for the income I earn on my rental property?

Answer: The eligibility for a 20% Qualified Business Income (QBI) deduction for rental property income depends on your circumstances.

According to a published article, self-employed individuals and owners of pass-through entities such as LLCs and S corporations may deduct 20% of their qualified business income, subject to certain limitations for taxpayers with taxable incomes exceeding $364,200 for joint filers and $182,100 for single taxpayers and head-of-household filers.

When it comes to Schedule E rental income, it may be eligible for the QBI deduction in certain cases. However, applying the QBI rules to rental income can be complex.

According to IRS regulations, the rental activity must generally rise to the level of a trade or business, which is determined based on each taxpayer’s particular facts and circumstances.

Alternatively, there is a safe harbor provision that allows you to claim the QBI deduction for rental income if at least 250 hours of qualifying time are devoted to the activity by the taxpayer, employees, or independent contractors.

Activities such as repairs, rent collection, lease negotiations, and tenant services count towards the 250-hour requirement, but time spent driving to and from the real estate does not count.

If you choose to use the safe harbor provision, you must meet strict recordkeeping requirements and attach an annual statement to your tax returns. By meeting these requirements, you can treat the rental activity as a trade or business for QBI purposes.

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