Americans occasionally need to donate money to people struggling to pay their medical bills, have experienced a natural disaster, or had an unexpected life-changing event. Fortunately, many Americans answer the call to help build stronger communities by giving billions of dollars in charitable donations every year. Particularly in the last two years, people have had many opportunities to look past themselves and consider the hardships of fellow citizens.
In the United States, the IRS offers tax incentives and benefits for those who make charitable contributions. Like most tax laws and regulations, the specifics for claiming charity tax deductions can sometimes be complex and confusing. Reaching out to a professional tax preparation team to make the most of your charitable donation tax deductions can be helpful.
Our team at Waters Hardy can help you carefully plan your contributions to reduce your taxable income and increase your return. The better you understand the tax strategies related to charitable donations, the better you can maximize your giving impact.
What Charitable Contributions are Tax-Deductible?
Any donation of money or goods to a tax-exempt organization is tax-deductible. As long as the contribution is going to a qualified organization, you can deduct the contribution from your taxable income. Monetary donations, including cash, credit, and checks, are all tax-deductible. Goods like vehicles, art, jewelry- even stocks and real estate are tax-deductible.
Who is Eligible to Deduct a Charitable Contribution?
Before the passage of the CARES Act, you could only claim charitable donations if you itemized your deductions. The CARES Act allows you to deduct monetary charitable contributions up to $300 for single filers and up to $600 for married couples filing jointly. That also includes not having to itemize your deductions.
The CARES Act also eliminated the 60% adjusted gross income limit for cash donations. In 2021, cash contributions made to qualified charities were 100% tax deductible.
The IRS has not yet announced if the same tax benefits will apply to 2022 filings.
Donating Cash vs. Non-Cash Goods
- Knowing the amount you are eligible to deduct is straightforward with cash donations. The amount that you paid is the tax-deductible amount.
- When claiming donated items, you cannot claim the amount you paid for the item. Instead, you can only claim the amount the items are currently worth.
- Whether you donate cash or goods, you are required to obtain a receipt if it is worth more than $250.
Donate to Qualified Charity Organizations
Confirm that the organization you’re donating to is a registered 501 (c)(3) non-profit organization.
Donation examples include:
- Religious organizations
- The Red Cross
- Non-profit educational agencies
- Volunteer Fire companies
- Organizations that maintain public parks
It is possible for an organization to be a non-profit without 501(c)(3) status, so it’s best to verify.
If you’re unsure if an organization qualifies, you can verify this with the IRS by visiting their website.
Did You Receive Anything in Exchange for Your Donation?
If you receive anything in exchange for your donation, you can only deduct the amount that exceeds the value of what you received.
For example, if you donated $100 to a charity and the charity thanked you with a $25 gift card, you can only deduct $75 from your contribution.
Donation Timing Matters
Charitable tax deductions are calculated for the calendar year. Depending on the method of payment, the date of the deduction can be planned to maximize your tax benefit. If you plan it just right, you can make a donation in January and December of the same year and claim both on the same tax return.
- Donations are considered paid on the date you mail the check.
- Donations are considered paid and deductible in the year you send the text message.
- Donations are considered paid and deductible in the year you make the charge.
Stack Contributions in One Tax Year
Standard Deductions for 2022 are:
- $25,900 for married couple filing jointly
- $12,950 for single taxpayers and married individuals filing separately
- $19,400 for heads of household
Suppose your itemized deductions do not exceed the standard deduction amount for your tax bracket. In that case, you could combine, or “bunch,” and itemized amounts gifted in January and December of the same year. This way, the total of both gifts exceeds the standard deduction, allowing you to deduct the full amount.
The IRS does not allow for deducting of the value of your time and service, but expenses related to volunteering can be tax deductible donations if the organization is qualified. For example, you can include the mileage you drive to charitable events and volunteer opportunities as part of your tax-deductible donations. Even mileage used to bring items to a donation site is deductible. You have the choice to deduct your actual expenses using receipts, or you can take the standard mileage deduction.
Keep Charitable Donation Records
Be sure to hold on to bank and credit card statements, letters of acknowledgment, receipts, and Form 8283 for non-cash contributions. The name of the charity, the date of your contributions, and the amount or value contributed should be included in the documentation.
Tax Advantages of Charitable Donations
For those on the receiving end, charitable contributions can lift spirits and lighten the load. However, it’s not just the person on the other side that feels good. Helping others can make us feel good, too. Believe it or not, it makes people happy to spend money on others during a hardship.
Understanding the tax advantages of charitable donations can make a taxpayer feel happy. Knowing that you’re making a positive impact on someone’s life, and making those contributions work for you is something to feel good about.
Waters Hardy can Optimize the Tax Benefits of Charitable Giving
To make the most of your charitable tax-deduction needs, trust the professionals. Consulting with tax planning experts regarding your charitable tax deductions can ensure smart planning and responsible tax compliance.
Contact our tax experts at Waters Hardy today! Find out more about how we can help you develop and implement tax strategies that will maximize your charitable tax-deduction benefits.