A gift to a qualified charitable organization may entitle you to a charitable contribution deduction against your income tax if you itemize deductions. Here are five things you need to know about the end of the year charitable write off
Only gifts to qualified charities are eligible for a tax deduction
It is crucial to know that in order to claim a tax deduction for a charitable gift, you have to make the gift to an organization that qualifies as a true charity. Not all nonprofit organizations qualify for charitable status under Section 501(c)(3) of the Internal Revenue Code. For example, gifts to political organizations, business leagues, social clubs, fraternal societies, and a host of other entities that qualify for nonprofit status are not deductible.
To verify whether your gift will be tax-deductible and avoid triggering an audit, you can do a search at this IRS website to see if the entity to which you want to make a gift is on the list of qualified charities.
You have to itemize deductions to get a tax benefit for a donation.
Most people know that donations to charities are deductible, but not everyone appreciates that the deduction is only available to those who itemize on their tax returns. Those who take the standard deduction don’t get any tax benefit from their donations.
FYI: Tax reform boosted the amount of the standard deduction substantially in 2018 compared to 2017 levels. This will almost certainly result in fewer people choosing to itemize, and that in turn will give fewer people a tax benefit from their charitable giving.
You need acknowledgment of gifts of $250 or more
Most people give cash or checks as their charitable donations because it’s easy and quick. However, there are some requirements for gifts of $250 or more. In addition to the records you need to keep for any donation that prove that you made the donation, a $250 gift must get a written acknowledgment from the charity that indicates how much you gave and says whether you got anything in return from the charity. That in turn will help you figure out the net amount you can deduct, as you generally have to offset your donation by the value of what you receive from the charity in exchange for the gift unless it qualifies for an exemption.
Many gifts of property need more documentation
You can also donate property to charity and deduct its fair market value. Deductions of $500 or more require completion of IRS Form 8283, which requires some basic information about the donated goods. If you claim a deduction of more than $5,000, then you’ll need a qualified appraisal of the property, unless it’s a publicly traded security like a stock. Gifts above the $500,000 mark require you to attach the appraisal to your tax return. Due to fraud concerns, gifts in special categories, such as automobiles and other vehicles, require special treatment.
Older individuals can make donations directly from an IRA
Those who are 70 and older can donate up to $100,000 to charity directly from their IRA. Although you won’t get a tax deduction for doing so, you also won’t have to include the withdrawn amount from your IRA as taxable income, as you would if you had kept the money yourself. This charitable rollover can be a great way to use excess retirement money that you don’t need yourself to go toward a great cause.
By knowing the rules governing charitable donations and your taxes, you’ll be able to take maximum advantage of the Internal Revenue Service’s generosity and make a bigger impact on the world. Need additional help with your business? Schedule an appointment with Angela Crane-Jones.
Meet Reggie and Tanora Polk, NBIC graduates and the power couple behind Polk & Associates Construction in Nashville, Tennessee. Established in 2011, the firm gained momentum quickly in new construction, tenant improvements, real estate development, facilities maintenance, and civil development.