The striking of South Moravia by a tornado has given rise to a huge tide of solidarity and companies as well as individuals started sending in financial as well as other forms of support. You may be pleased to know that in many cases, such a gift can be offset against taxable income on your income tax return.
When you deduct the value of the gift in a tax return, you are effectively causing the state to be financially involved as well (through the fact that it collects less tax from the gift giver), which you may welcome.
To be able to deduct gifts from taxable income on a tax return, you have to fulfill certain obligations. For gifts, conditions differ depending on whether the one giving is an individual or a company, though other conditions remain the same.
Gift amount
If the gift is provided by an individual, the following needs to be fulfilled:
- The total value of all gifts deducted on a tax return must exceed 2% of taxable income or amount to at least CZK 1,000;
- Individual gifts provided in a given tax period are added up;
- In total, it is possible to deduct 30% of taxable income in 2021.
Conditions in respect of gift amounts differ, when the one giving is a company:
- Value of a single gift deducted on a tax return must amount to at least CZK 2,000, gifts of amount below this threshold cannot be applied;
- In total, it is possible to deduct 30% of taxable income in 2021.
Gift recipient
- In order to be able to apply the gift on a tax return, it has to be provided to:
- a specific town, region or a company, which is situated or incorporated in the Czech Republic. Practically all the NGOs that have become involved in charitable projects to assist South Moravia fulfill this condition.
- Taxable income can also be reduced through the value of a gift provided to an individual that:
- provides medical services, operates schools and school facilities or animal shelters. The gift has to be provided to support operations of such facilities.
- It is not possible to deduct from taxable income a gift provided to a specific family in the afflicted area. If you would like to provide a gift to specific people and deduct it from your taxable income, you have to provide the gift via an NGO which can provide assistance to specific families and individuals.
Gift purpose
- It is possible to deduct from taxable income only gifts the purpose of which is specifically covered in the law. This includes gifts for social, medical, humanitarian and charitable purpose as well as gifts used to counteract consequences of a natural disaster.
Gift substantiation
- Provision of a gift can be substantiated either through a written gift agreement or through a gift certificate which should include information on who provided a gift to whom at what amount and for what purpose. An NGO will generally provide the gift certificate upon request.
- Requesting a gift certificate or signing of a gift agreement is not always required. Tax authorities should also accept provision of gifts in cases where the taxpayer can substantiate e.g. through a bank statement, bank wire receipt or through similar evidence, that the financial amount was wired to the bank account designated for assistance to people in the afflicted areas and set up for the purpose of a public collection.
- The Finance Administration also advises employers to apply the same principles during annual payroll tax settlements.
- A list of public collections is published by the Ministry of Interior here. This method of substantiation was already applied e.g. during floods of 2013 and is easy to administer.
Other conditions
- Gift can also be deducted from taxable income by employees not filing a tax return, through an annual payroll tax settlement handled by the employer’s payroll accountant.
- In case of spouses, a gift can be applied by either of them, or they can even freely split the amount of the gift on their respective tax returns. This only applies under a condition that the gift was provided from joint household ownership.
Even if you only deal with gift deduction when filing your tax return next year, we advise that you already look into the relevant conditions now, while you still remember all the details, and prepare all documents accordingly.
If you are hesitating as to whether and how you can apply a gift provided as assistance to towns afflicted by a tornado or on a different occasion, contact us. We will advise you and maybe even find other means of lawfully reducing your taxable income.
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