Claiming Large Charitable Deductions

Donating to charity? In addition to the feel-good feeling of helping those less fortunate than you, you can also claim charitable deductions. But watch out, if your charitable deductions are disproportionately large compared to your income, you might in for an IRS audit.

The IRS has a lot of data. They know how much people at your income level usually donate, so they’ll know when something seems amiss. One of their top priorities is battling abusive syndicated conservation easement deals, so if you donated to a conservation easement to a charity or invested in a partnership or LLC that has done so, your chances for an audit will go up even more.

In addition, failing to file a Form 8283 for noncash donations over $500 or if you don’t get an appraisal for donations of valuable property, the IRS will also want to have a word with you.

Receipts for cash and property distributions as well as other supporting documents should be kept somewhere safe, just to be sure!

Not Taking Required Minimum Distributions

In 2021, you have to take the required minimum distributions, even if these were waived in 2020. 401(k) participants and owners of IRAs, beware. The IRS will look closely at whether or not you’ve taken your RDMs- they already know if seniors over the age of 72 are taking them or not.

And if you fail? Then you can expect a painful penalty equal to 50% of the shortfall.

If you’re under 59½ and are already taking payouts, you’ll also raise some alarms and could be hit with a 10% penalty on early distributions if you don’t qualify for an exception.

Is there a way to delay the payout at all? There are some exceptions. In the year you turn 72, you’ll be given a grace period that allows you to not take out RDMs until April 1st of the following year. Furthermore, if you’re 72 and still working, you can delay taking them from your current employer’s 401(k) until you decide it’s time to retire, but the same rules do not apply to IRAs.