There is a financial incentive for Americans to give generously to charity: when ever you donate to a 501(c)(3) public charity, including Giving Center, you’re able to take an income tax deduction. The purpose of charitable tax deductions are to reduce your taxable income as well as your tax bill — and in this case, improving the world while you are at it.
1. How much do I have to give to charity to make a difference on my taxes?
Charitable contributions can reduce your tax bill if you choose to itemize your taxes. Generally you would itemize when the combined total of your anticipated deductions — including all charitable gifts — add up to more than the standard deduction.
2019 standard deductions
You must keep track of your charitable contributions throughout the year, and consider any additional applicable deductions. Usually taxpayers use the larger deduction, standard or itemized, when it is time to file taxes.
The standard amount that may be deducted based on the way you file are as fallows:
Single: $12,200
Married filing jointly: $24,400
Head of household: $18,350
2. What can I take for a tax deduction?
In order to take a tax deduction for a charitable contribution, you will need to forgo the standard deduction in favor of itemized deductions. That means you will list out all of your deductions, expecting that they will add up to more than the standard deduction.
The most common expenses that qualify are:
- Mortgage interest
- State and local tax
- Charitable giving
- Medical and dental expenses
3. What is the maximum amount I can claim as a charitable tax deduction on my taxes?
When you donate cash to a public charity, you can usually deduct up to 60% of your adjusted gross income (AGI). And if you have held them for more than a year, appreciated assets including long-term appreciated stocks and property are usually deductible at fair market value, up to 30% of your AGI. Combining more than just one type of asset may be a tax-efficient move to maximize the amount you can take as a charitable tax deduction.
Learn more about what you can donate
4. What do I need in order to claim a charitable tax deduction?
Once you have decided to give to charity, consider these steps if you plan to take your charitable tax deduction:
- Make sure the non-profit organization is a 501(c)(3) public charity or private foundation.
- Keep record of the contribution (generally the tax receipt from the charity).
- If it is a non-cash donation, in some instances you must obtain a qualified appraisal to substantiate the value of the deduction you are claiming.
- With your paperwork at the ready, itemize your deductions and file your tax return.
5. Which tax bracket am I in and how does that impact my deductions?
Federal tax brackets are formed on taxable income and filing status. Every taxpayer belongs to a designated tax bracket, but it is a tiered system. Take for example, a portion of your income is taxed at 12%, the next portion is taxed at 22%, and so on. This is called the marginal tax rate, meaning the percentage of tax applied to your income for each tax bracket in which you qualify. All this means is the marginal tax rate is the percentage taken from your next dollar of taxable income above a preset income threshold. Each taxpayer is technically in several income tax brackets, but the term “tax bracket” refers to your top tax rate.
The higher your tax bracket is, the greater your tax savings as a result of making charitable donations. Lets say a donor in the 37% tax bracket makes a charity donation of $10,000, this person can later qualify for $3,700 in savings at tax time. Compare the same $10,000 donation from someone who is in the 22% tax bracket who will recognize $2,200 in tax savings.
6. How does the Pease limitation affect my tax deduction?
A new law removes the Pease limitation from the tax code. The Pease limitation was essentially an overall reduction on itemized deductions for higher-income taxpayers. The law reduced the value of a taxpayer’s itemized deductions by 3% of their AGI over a certain threshold. The 3% reduction continued until it phased out 80% of the value of the taxpayer’s recorded itemized deductions.
7. Can I take a Fair Market Value deduction for donating private S-corp or C-corp stocks to charity?
Yes, it is possible to deduct the full fair market value of the contribution if the recipient organization is a public charity. Tactically, the answer depends on whether the charity is able to accept private stock as a gift. A lot of charitable organizations simply do not have the resources, expertise or appetite to accept and liquidate these types of assets, particularly in a time crunch at end of the year.
Learn more on how to donate stocks to charity
And by donating private stock, you generally do not pay capital gains taxes on the subsequent sale of the stock. There is a second tax benefit as well: you will generally be able to deduct the full fair market value as determined by a qualified appraisal.
