Do you make charitable donations because you get a tax deduction, or do you make them because you believe in the mission of the nonprofit? Or is the honest answer somewhere in between those two?
Regardless of your answer, there might be a time when your generous charitable contributions made in a single tax year exceed the amount that you are able to deduct on Schedule A of your Form 1040 for the year. The usual deduction for most charitable contributions is limited to 60% of your adjusted gross income, or AGI. Keep in mind: there are some other percentages that can come into play if the item gifted to charity is capital gain property or the contribution isn’t made to a public charity.
What happens if your income for a year all of the sudden drops and you have already given away more than 60%? You might wonder if you will lose the benefit of the tax deduction.
The answer to that is a resounding no! The charitable contributions to IRS approved 501(c)3 charities like Giving Center can be carried over for five years. However, the carryover contributions must not be considered until any contributions from the current year have been considered.
Lets pretend you have contributions that you were unable to use in 2018 and will be carrying them over in the amount of $24,000. You have also have contributed in 2019 to your favorite charity in the amount of $24,000. That is $48,000 total available that you might be able to deduct on your 2019 Schedule A, subject to the 60% AGI limitation.
Now, if your 2019 AGI is $40,000, then the amount allowed for charitable contributions would be $24,000 (that is 60% of your 2019 $40,000 AGI). But remember, not the $24,000 from 2018 — the $24,000 from 2019. That leaves just four more years on your 2018 charitable carryover before it effectively expires.
Alternatively, we can pretend your 2019 AGI is $60,000 — the amount allowed for your charitable contribution would then be $36,000 (60% of your $60,000 AGI), which consist of the $24,000 from 2019 and also $12,000 of your carryover from 2018, leaving you with a total of $12,000 charitable carryover to 2020 from 2018 and zero from 2019.
It might all seem clear as mud. If your reasons for making charitable donations lean more towards the deductibility and benefits on your income tax return than altruistic reasons, best to keep one eye on your AGI when you are writing a checks out to your favorite charity.
