It’s the Season of Giving: Make Your Charity Giving Work for You
Our clients love giving to charities. There’s a great deal of satisfaction in supporting a cause or organization you believe in. As you plan out your charitable contributions this holiday season, why not make it count?
All charitable donations are susceptible to taxation. With proper planning, however, you can reduce the amount of taxes you will owe. This guide will walk you through some of the most common questions about the charity tax deduction and how to qualify.
How to Claim your tax deduction for donations
The first and most important step in getting your charitable tax deductions is to claim any donations you make on your taxes. This notifies the IRS and state tax-collectors that you have made a charitable gift, qualifying you for a deduction.
Next, you will want to itemize your deductions. Make a list of all the charitable donations you have made in the last calendar year. You can only claim a deduction for a donation in the year you gave to the nonprofit.
Types of Donations to Qualifying Organizations
How much can you deduct for your charitable giving? Here are the types of donations that qualify for deductions. Ask your tax advisor for additional details or for further explanations.
- Cash – gifts by cash, credit card, check, or payroll are 100% deductible so long as it does not exceed 60% of your adjusted gross income (AGI).
- Ordinary–income property – this includes stocks and bonds that have been held for one year or less, inventory, and property that is subject to depreciation.
- Long–term capital gains property – appreciated stocks, bonds, and other securities that you have had for at least one year may be deducted at the current fair market value. If you have a loss, it would be better to sell your stock, take the deduction, and give that cash to charity. There is no tax benefit by gifting a stock with a loss directly to a charity.
- Tangible personal property – deductions depend on each situation:
- if the property is not related to the charity’s tax-exempt function (such as an antique donated to for a charity auction), your deduction is limited to your basis.
- if the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.
- Vehicle – unless the donated vehicle is being used by the charity, you can usually deduct the amount the charity receives after the sale.
- Use of property – Use of a vacation home, loan of artwork is not usually deductible because it is not considered a completed gift. There may be ways to structure the gift to enable you to get a deduction.
- Services – you can only deduct your out-of-pocket expenses, not the fair market value of your service. You can also deduct 14 cents per charitable mile you have driven.
- Payments made in exchange for college athletic event seating rights – under the TCJA, these are no longer deductible.
According to the IRS, any charitable contributions made to the following organizations qualify for the charitable tax deduction:
- A state or US possession, or the United States or the District of Columbia, if contributions are exclusively for public purposes
- A community chest, corporation, trust, fund, or foundation which operates exclusively for charitable, religious, educational, scientific, literary purposes, or the prevention of cruelty to children or animals
- A church, synagogue, or other religious organization
- A war veterans’ organization or its post, auxiliary, trust, or foundation if organized in the US or its possessions
- A nonprofit volunteer fire company
- A civil defense organization created under federal, state, or local law
- A domestic fraternal society, operating under the lodge system and only if the contribution is exclusively for charitable purposes
- A nonprofit cemetery company, if the funds are irrevocably dedicated to the perpetual care of the cemetery as a while and not a particular lot or mausoleum crypt
Limitations on Deductions
All good things can come to an end. Same goes for tax deductions. With charitable contributions, you can claim up to 60% of your adjusted gross income (AGI).
If you are gifting directly from your IRA, also known as QCDs (Qualified Charitable Distributions), the maximum you can give is up to $100,000 per year, per giver. If you are married and your spouse also qualifies, you can each give up to $100,000 annually. Talk with your tax advisor to review your best options.
What to keep on record
Always keep a record of your donations, especially if you’re planning to take advantage of the charitable deduction. In the case of an audit, you must have proof that you gave the donations. The IRS and tax-collecting agencies accept the following forms of proof:
- A cancelled check
- Credit card statement(s)
- Bank statement(s)
- Written proof from the charity
- If any of your donations exceed $250, you maybe need to prove to the IRS that you did not receive anything in return for the gift. Ask the charitable organization for a written statement to keep in your records.
Planning out your finances can be tricky and complicated. If you need help with tax-planning or charitable donations, consider working with a fiduciary financial advisor to guide you. Ambassador Wealth specializes in tax-planning services, and we’d love the opportunity to meet you.