A charitable donation tax deduction feels good in a few ways. Not only do you feel good about giving to a good cause, but you’re also cutting your tax bill. However, before you start writing checks or making online donations, you should know what rules to follow to ensure your good-hearted gifting is giving you tax deductions, explains the article “Charitable Donation Tax Deductions: An Additional Reward for the Gift of Giving” from Kiplinger.
Itemize
First, you’ll need to itemize to claim a charitable tax deduction. If your standard deduction is a little higher than your itemized deduction, consolidate charitable deductions from the next few years into the current tax years, known as “bunching.” This lets you boost your itemized deductions for the current year, so they exceed your standard deduction amount. Consider using a Donor Advised Fund, where you can make one large contribution to a fund and deduct the entire amount as an itemized deduction in the year you make it. Just be sure your donations align with your estate plan.
Is it Deductible?
How do you know what donations are deductible? Contributions of cash or property are generally deductible. If you donate property, the deduction is equal to the property’s fair market value. If you give appreciated property, you may have to reduce the fair market value by the amount of appreciation when calculating the deduction. If the property has decreased, your deduction is limited to the current fair market value.
Limitations
There are certain requirements and limitations for charitable tax deductions. For gifts of $250 or more, you must have a written acknowledgment from the charity stating the amount of a cash donation and a description of any donated property, but not value, and whether or not you received any goods or services in return for your contribution. At certain valuation points, you’ll need to file certain forms and if you donate a car, boat, or airplane worth more than $5,000, you may need to have the property appraised also.
What About Go Fund Me?
Just because your donation was used for a good cause doesn’t mean you can deduct it. Only contributions to certain charitable organizations are deductible. For instance, if a neighbor starts a Go Fund Me page, those donations, while greatly appreciated, are not tax deductible.
The IRS makes it easy to determine if any donations are tax deductible with the Tax Exempt Organization Search tool on its website to find out if an organization is tax-exempt.
Qualified Charitable Distribution
For seniors who are at least 70 ½ years old, you can transfer up to $100,000 directly from a traditional IRA to charity through a Qualified Charitable Distribution (QCD). The charitable donations made by eligible seniors via a QCD aren’t deducible. However, you can still save on taxes, since QCDs aren’t included in taxable income.
QCDs also count towards senior’s Required Minimum Distribution, without adding to your adjusted gross income.
For questions about charitable giving, talk to your financial advisor or accountant. Some gifts may need the assistance of an experienced Estate Planning Attorney, especially if they will impact your overall Estate Plan. Contact our office today.
Reference: Kiplinger (Nov. 28, 2022) “Charitable Donation Tax Deductions: An Additional Reward for the Gift of Giving”
