Maximize Tax Return through tax deductible donations to Ukraine
As the War in Ukraine escalates, appeals have gone out for financial and material support for the refugees who have fled to nearby countries. In response, many people are making generous donations to U.S. charities. To be tax deductible donations, these donations need to follow the rules for contributions to a U.S.-based 501(c)(3) charity for use abroad and gifts to a foreign charity. The Internal Revenue Service publishes a list of all eligible 501(c)(3) organizations on Publication 78. Unfortunately, direct donations to a foreign charity or donations made to a domestic charity that then hands over the funds to a foreign charity are not tax deductible donations to Ukraine.
Unfortunately, there are restrictions when it comes to tax deductible donations to Ukraine charities outside of the U.S. One way around these restrictions is to donate to Friends organizations in the U.S. that raise tax deductible contributions. Many Friends organizations support foreign colleges or universities, and they all have the same downside: you can’t earmark your donation for a specific foreign charity.
Another option is through International Donor Advised Fund. These are funds set up worldwide by certain foundations, mutual funds, and brokerage firms. They have one restriction in common: they can’t give specifically to foreign charities. That restriction is lifted with some International DAF’s like the United Way Worldwide. It’s important that you make sure their screening process for foreign charities is sufficient if you’re setting up a DAF.
The third option for those looking to make a significant gift is to set up a private foundation. The biggest downside of a private foundation is an excise tax on foreign grants. It’s easy to set up a private foundation if you are in the very high income bracket and want ultimate control over where your donations go to Ukraine. If the war ends quickly or drags on, there will be human costs outside of Ukraine and inside. You can create a tax deductible donation to Ukraine and not have to do too much work to help this cause.
New tax preferences to support Ukraine
The Ministry of Finance of Ukraine has come up with some new tax changes to help victims of the ongoing armed conflict. The amendments aim to subsidize the production and purchase cost of goods and rights. Of which are then donations for counteracting the effects of the armed conflict in Ukraine.
The proposed changes include, amongst other things, the deduction of expenses incurred for production or purchase price of goods and rights that are subject to a donation against the effects of an armed conflict on Ukrainian territory made during a period from 24 February to 31 December 2022.
Here are 4 tax deductions allowed under Ukrainian tax law
Documented tax deductible donations and givings
A registered resident taxpayer may deduct a limited amount of documented expenses for the expenses mentioned below, so long as the total amount does not exceed their annual taxable income. Any amounts not deducted from a taxpayer’s annual income cannot be carried forward to be deducted from future year’s profits. Therefore, all expenses should be properly documented.
Charitable Contributions for Tax Deduction in Ukraine
Caring for others is important. By contributing to registered Ukrainian charities and not-for-profit organizations, you can deduct the money you donate from your taxable income. Unfortunately, you can only deduct a maximum of 4% of your annual taxable income.
Education Expenses for Tax Deduction in Ukraine
Expenses are incurred in the pursuit of higher education or in the pursuit of academic degrees. Parents who educate their children in Ukrainian institutions are eligible for tax deductions. The total amount of the deduction may not exceed 100% of annual general taxable income calculated as a salary.
Insurance Premiums for Tax Deduction in Ukraine
For 2022, the deductible amount on voluntary long-term life insurance or non-state pension insurance for the benefit of a taxpayer and his or her immediate family members has limits. For example spouse, parents, or children is limited to UAH 3,480 per month for the taxpayer. Although this limit may be higher if there are other persons insured from the same policy. The limit for payment related to the taxpayer’s immediate family members is half of the above monthly limit.
Mortgage Interest Expenses for Tax Deduction in Ukraine
Kudos if you’ve read this far. I wanted to make it as clear as possible that I’m not trying to talk down to everyone here. Unfortunately, not everyone will have time to read through full docs, so let’s keep it short and with less mumbo jumbo whenever possible.