‘Tis the season of giving.
According to the National Philanthropic Trust (NPT), Americans are very generous, giving $484.85 billion in 2021, a 4% increase over the prior year. A majority of that (67%) came from individuals.
With the year-end around the corner, don’t wait another minute to make your charitable contribution.
What are the rules regarding charitable contributions?
If your itemized deductions (i.e., real estate taxes, mortgage interest, charitable deduction, and medical expenses) exceed your standard deduction, $25,900 for joint filers, $194,00 for head of household, and $12,950 for single filers, your charitable deductions will be reported on Schedule A. If you don’t have enough to itemize in one year but are close, you may consider “bunching” your deductions, where you would make 2 years’ contributions in 1 year. Thus, you would be able to itemize in one year, since you will now exceed the standard deduction, then use the standard deduction in the second year.
Your tax-deductible donation must be given to a tax-exempt organization. It must be paid/donated before the close of the tax year to be deductible.
How much can I deduct?
In general, you can deduct charitable contributions up to 60% of your adjusted gross income. There still may be 20%, 30%, or 50% limitations in some cases, (i.e. contributions to donor-advised funds and private foundations). See IRS Publication 526 for details.
- The limit applies to all donations you make throughout the year, no matter how many organizations you donate to.
- Contributions that exceed the limit can often be deducted on your tax returns over the next five years — or until they’re gone — through a process called a carryover.
What constitutes a qualifying organization?
- Your charitable giving will qualify for a tax deduction only if it goes to a tax-exempt organization, as defined by section 501(c)(3) of the Internal Revenue Code.
- An organization can be a nonprofit without 501(c)(3) status, which can make it tricky to ensure your charity of choice counts.
- You can verify an organization’s status with the IRS Exempt Organizations Select Check tool.
- Before you donate, ask the charity how much of your contribution will be tax-deductible.
How do I document my contribution?
Keep track of your tax-deductible donations. In addition to a bank statement, a credit card statement, a canceled check or payroll records for documentation, any cash contribution over $250 and any non-cash contribution, you will to have a receipt from the organization in order to take the deduction (including date, amount, and name of the organization).
- If you deduct at least $500 worth of noncash donations: Fill out Form 8283 if you’ll deduct at least $500 in donated items. Additionally, you must attach an appraisal of your items to the form if they’re worth more than $5,000 in total.
Other Options
- Consider donating appreciated stocks. You can take the deduction for the FMV of the stock and eliminate having to pay capital gains tax on the increase in value.
- Consider donating to a Donor Advised Fund. This effectively allows you to deduct the entire contribution to the donor-advised fund in one year, helpful when trying to bunch deductions, then pay the contributions to the charities from this fund over a period of time.
What about a tax deduction for my volunteer hours?
Only your expenses related to volunteering for a qualified organization can be valid tax-deductible donations, not the value of your time and service.
- Expenses must not have been reimbursed, nor personal, living, or family expenses. They must be directly and solely connected to the volunteer work you did.
- Expenses may include mileage incurred during your drive to charitable events and volunteer opportunities, or mileage you incurred to bring items to a donation site.
- You can either deduct your actual expenses using receipts for gas and similar costs, or you can take the standard mileage deduction.
- Always keep the receipts of your actual expenses just in case you are audited by the IRS.
Should you need assistance in determining whether to take the standard versus itemized deduction, please call Felsing LLC at 407-412-9299 or email us at info@felsingcpa.com.
Source: National Philanthropic Trust
Source: Nerdwallet; Tax Deductible Donations: Rules for Giving to Charity, by Tina Orem and Ramona Paden.
Source: Internal Revenue Service