Making a donation to charity is one of the best tax-saving opportunities available. Not only does the charity benefit, but also the taxpayer via a tax deduction. Like with most tax benefits, changes can be periodically made to limitations and other regulations, including some noted below that recently came into effect for 2019.
KEY THINGS TO KEEP IN MIND
- Charitable Contributions Deductions allows the taxpayers to deduct any contributions to charitable organizations of cash and/or property within certain limitations.
- In order to deduct charitable contributions, you must make sure the recipient charity is a qualified organization under IRS rules.
- The IRS limits the total value of charitable contributions that can be tax deductible in any given year — currently up to 60% of a taxpayer’s adjusted gross income (AGI).
The Basics of Benefits
The ways you may contribute to charity, along with the limits and benefits, are varied and can even be confusing. Here’s a quick rundown, beginning with who is eligible to receive and give while getting the benefits of the exchange.
Not all donations are eligible for tax deductions
The recipient must be qualified. That rules out giving to friends, relatives, and any other persons or groups who does not have a tax-exempt status as determined by the U.S. Treasury.
You can find a small list of eligible entities at the With Causes Charitable Networks page.
Other organizations that qualify may be operated exclusively for religious, scientific, literary, or educational purposes; prevention of cruelty to animals or children; and even the development of amateur sports. That mean nonprofit veterans’ organizations, fraternal lodge groups, cemetery and burial companies, or certain legal corporations may also qualify. For any question about an organization, the IRS Tax Exempt Organization Search tool can be of great help when you are verify tax-exempt status.
Not everyone is eligible for a charitable deduction
To get the tax benefits, you must file the IRS Form 1040 and itemize deductions on Schedule A in order to claim a charitable deduction.
Some changes in tax law in effect as of 2019 can make it less likely that it will make financial sense to itemize. The standard deduction has been pretty much doubled, which in turn increases the possibility that the taxpayers might be better off opting to take it rather as opposed to itemize. Further, the SALT deduction for state and local taxes has been limited to $10,000 ($5,000 if married and filing separately), which also makes it more likely that those whose taxes that may exceeded that amount can opt against itemizing since they may benefit more by taking the standard deduction.
If you want to deduct your charity contributions, it may be advantageous to group them for maximum tax impact. For example, you can choose to donate in one year what you might have given over two years, and then skip a year.
Some contributions gain only partial credit
Some calculation for certain donations are required to determine the deduction you are entitled to claim. These will include donations for which you receive at least partial benefit. For instance, if you buy a T-shirt “for a cause,” the whole price of the shirt is not deductible — only whatever you contributed in excess of the value of the shirt is. Say, if you donate $40,and the value of the shirt is $20, the tax deductible amount of the gift is $20 ($40 — the shirt’s original $20 value). The same rules go for events like charity dinners, the fair market value of the meal must be subtracted from the cost of the event in order to determine the amount of your donation.
Donated goods receive only their fair market value (FMV)
Many people donate computers, cars, real estate, and more to charities. This is an awesome way to declutter your home and help others. Though, these types of noncash gifts have their own set of rules. Used household items have to be in usable good condition; additional regulations apply to vehicle donations. You can not claim the new sale value for a noncash donation, but must use the item’s fair market value. That price can be similar to a thrift store value.
Some tax preparation programs have a calculator to help determine an items’ value. When you donate noncash charitable contributions, if your total deduction is larger than $500, you have to file IRS Form 8283. Additionally, if you donate cash or property that is worth more than $250, you will need a written acknowledgment from the organization. IRS Publication 561 is a very useful resource to help you decide the value of your noncash contributions.
You can donate no more than 30% of your AGI to some types of charitable groups, including veterans’ organizations, fraternal societies, and nonprofit cemeteries.
Donation Limits
Your generosity when donating may hit a ceiling when it comes to tax benefits. Here is an accounting of those limits and how they are applied.
There is a limit to the amount of charitable contributions allowed during a single tax year. Your total charitable deductions are limited to no more than 60% of your adjusted gross income (AGI). Furthermore, only donations to IRS recognized organizations qualify for the highest limit. Donating stock to a charity may be especially beneficial to you as well as the charitable organization.
A lower limit, 30% of your AGI, applies to other types of charitable groups. Among the categories to which this amount applies are veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private foundations.
Your word alone is not good enough for the IRS. As a taxpayer you have to keep detailed records to support your contributions. For example, iorder to claim a deduction for cash, you must have a written record, canceled check, letter from the organization, or bank/payroll debit.
The Bottom Line
Do nor let the rules and regulations deter you from claiming the charitable deduction. For more specific guidance about what is and is not allowed, download a copy of the IRS Publication 526 and Form 8283 (for any noncash charitable donations) for an easy reference and check the IRS Charitable Contribution Deductions to clarify any potential charity contribution limits.
