And here’s how Trump’s payroll tax holiday could affect Social Security.
What is carry forward?
Carry forward is a term used by the IRS that refers to the ability to carry deductions forward to the next tax year. This may arise when you wish to claim deductions that are in excess of what is allowed in the current tax year.
To limit tax liability, taxpayers can claim deductions on donations made to charitable organizations. According to IRS Publication 526, all donations made to qualified organizations are deductible from your income.
The amount that is deductible is defined and, depending on the type of organization to which the donation is made, may be 20 percent, 30 percent or 50 percent of the taxpayer’s adjusted gross income.
A tax carry forward, sometimes written as carryforward, is a legitimate way to carry over deductions to the next tax year, and to future tax years, certain allowed deductions and tax losses that cannot be claimed in the current year.
This principle allows individuals and companies to reduce their tax liability in the current and future tax years.
To qualify for tax relief, a charitable contribution must be made to what is known as a qualified organization. This includes churches and other religious organizations and nonprofit charitable organizations active in the field, such as humanitarian support, disaster relief and education as well as to veteran and volunteer organizations.
Before making a donation, it’s important to verify that donations to the charitable organization are indeed tax deductible.
Carry forward example
Phyllis has earned a substantial income from investments this year and wishes to reduce the amount of tax she must pay. Her husband served in the armed forces and she decides to contribute 35 percent of her income to a veteran’s organization.
Because she earns more than the scheduled amount, the deduction she can claim this year is restricted to 20 percent of her gross adjusted income, but she is able to carry forward the remaining 15 percent to the next tax year.
Are you aware of how much you can personally claim as a tax deduction? Use this Bankrate tax guide to establish how much you can claim and how to go about it.