Tax Advantages (and Implications) of Charitable Donations

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Changes to the tax bill have made giving charitable donations that you can write off on your taxes a little more challenging. Does that mean you should stop giving? 

Absolutely not, as most charities rely on donations to survive, and donating to charity is a great way of giving back. 

You do, however, have to be smart and make sure the donations you are giving will be eligible for a write-off and that you have the necessary proof you have donated. 

 So how do tax-deductible donations work?

Let’s explore the ins and outs of giving and having donations count for tax-deductible purposes.

Tax Education charitable donations

Motivations to Make Tax-Deductible Charitable Donations

Americans in 2019 gave a whopping $427 billion to charities.

While tax laws have increasingly made it more challenging to use those donations for tax write-offs, the desire to give remains strong. 

While donations being made by individuals fell, contributions from foundations, bequests, and corporations remained strong. 

Ideas for Tax-Deductible Donations

Because the laws have made it more challenging to donate because of the required amounts, many Americans may not qualify for the tax-deductible charitable write-off. 

Generally, you can write-off up to 50% of your adjusted gross income (AGI) on your taxes.

Here are some ideas for tax purposes to consider for charitable giving:

  • Long-term appreciated assets, up to 30% of your AGI, like real estate, stocks, or bonds.
  • Multi-year deductions bunched or combined to write off in one year. 
  • Estate planning and retirement planning to eliminate future tax burdens for your heirs. 

You can also use a donor-advised fund that will automatically dedicate your donations and make them a tax-deductible donation.

Donating to Charity: How to Make a Claim

Tax-deductible donations need to be included in your tax form. To do this, you must have both qualified contributions and itemize on your tax forms

If you itemize, you will use the Schedule A form. This form goes beyond charitable donations. It’s also used for other deductions like:

  • Medical expenses
  • Dental expenses
  • Insurance premiums for dependants
  • State and local taxes
  • Mortgage interest

Once all the deductions are totaled, that number goes to Line 8 on your tax forms. 

Rules for Tax-Deductible Charitable Donations

There are several rules you must be aware of when considering tax-deductible donations. 

First and foremost, you’ve got to donate. So, cash or some kind of property must make it into the hands of the charitable organization. 

You cannot merely pledge to make the donations, and the gift has to be completed to be eligible. 

The charity that receives your donation must be a qualified organization. Charities should be able to tell you they have 501(c)(3) tax-exempt status

It’s a good idea to keep a record of your donations. 

Keep a Record of Donations

The IRS will expect you to have records of the tax-deductible donations made that you want to claim on your taxes. 

There are several ways to show the IRS that you have made a charitable donation to a qualifying charity. 

You can show them a canceled check as evidence of a donation. This is quite effective because it has all the data points the IRS will want to see. 

They will look for who received the donation, the amount and the date it was made. 

Since the check has been cashed and cleared, they know the donation has been made. 

You can also use your bank statements in the same way. 

Often charities will provide letters that acknowledge your donation. 

As long as the letters are dated and have the amount of the donation along with your name, this will also work. 

If you do regular donations for the same amount, say each month, you may need separate receipts for each month.

Donations of Non-Cash Items

What if you donate household items to a charity? How can you show proof of these donations?

The IRS allows you to make donations of your personal items to a charitable organization and write them off on your taxes. 

There are, however, some rules you should pay attention to when taking this route. 

You write off the item’s fair market value at the time of donation. This means you must factor in those things which you are donating as used items. 

The IRS requires the item to be in good working order to count as a donation.

You can snap pictures of your donations. You can list the items yourself and have the organization sign that this is what they received. 

The organization can also provide you with a receipt listing the items donated. 

If you are donating an item, say a car, for example, that you think is worth more than $5,000, you should get an appraisal done on the item. 

The higher value of the item requires you also do an additional form, Section B of Form 8283

Charitable Donations: What is Not Allowed

There are endless opportunities to give to charities. You may also find many groups asking for your donations. 

If you want to use these donations for tax-deductible purposes, be sure that donation is allowed. There are organizations where the donation will not be eligible for a write-off. 

Some of these to consider include:

  • Donations made to political parties, political campaigns, or political action committees
  • Gifts made to individual people who don’t have charitable status
  • Donating to a foreign government
  • Donations to labor unions and business associations

You also can’t t write off donations made to schools or hospitals that are for-profit institutions.  

Tax Education charitable donations

How Do Tax-Deductible Donations Work in Your Favor?

Good for you if you are generous with your hard-earned money and give to charitable organizations. While you might make those donations because you recognize the importance of giving, you also want those donations to benefit you come tax season. 

Do you need advice on ways to save money on your taxes? We are here to help. We have a team of tax attorneys who can answer your questions and give you guidance with your tax situation. 

Happy Holiday and remember that tax-deductible donations can work in your favor and benefit the community! Eliminate your tax burden and help lower the amount of taxes you need to pay. Contact us today to talk with one of our experts. 

Managing Partner of Silver Tax Group, author of the book “Stop the IRS”. Practicing a variety of tax issues, regulations, laws and rights. Specializing exclusively on tax matters involving IRS audits, negotiation, settlements & compromises.

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