How Charitable Giving Can Impact Your Taxes: Key Facts

Giving to charity is a great way to support causes you care about and make a difference in your community. But did you know your charitable donations can also reduce your tax bill? For those who understand the rules, charitable contributions can bring significant tax savings. If you're new to donating or want to make sure you're getting the full tax benefits, here’s what you need to know about charitable giving and taxes.

1. What Counts as a Charitable Contribution?

A charitable contribution is a donation to a qualifying organization, usually recognized as a nonprofit or charitable organization by the IRS. Examples of these groups include:

• Public Charities: like the Red Cross or local shelters
• Religious Organizations: churches, temples, and other religious groups
• Educational Institutions: donations to public or nonprofit private schools
• Other Nonprofits: museums, hospitals, and scientific research groups

Contributions to individuals, political groups, or non-qualifying organizations generally aren’t deductible, so make sure your chosen charity meets IRS requirements. A Fort Mill accounting firm can help you confirm which groups qualify.

2. Types of Contributions You Can Deduct

The IRS allows several types of donations to be deductible, including:

• Cash Donations: These include online donations, checks, and cash given directly to a charity.
• Property Donations: Items like clothes, furniture, or even vehicles can be deducted if donated to a qualifying charity. Just remember that these items must be in good or better condition to qualify.
• Stock or Other Non-Cash Donations: Donating stocks or other assets, like mutual funds, is also deductible. Many people find that donating stocks can be beneficial, as it often allows them to avoid capital gains taxes on the appreciated stock value.

If you’re considering donating items other than cash, check with a Fort Mill accounting firm to ensure the items are valued correctly and meet IRS requirements for deductions.

3. Keep Records of Your Donations

When it comes to tax season, documentation is essential. Here are some general guidelines for record-keeping:

• Cash Donations: Keep a bank record or written communication from the charity, showing the date and amount of your donation.
• Non-Cash Donations: Get a receipt from the organization if you’re donating goods. For donations worth over $500, you may need to provide extra documentation, such as an appraisal or photos.
• Large Donations: For donations over $250, the IRS requires written acknowledgment from the charity, which should state the amount donated and if any goods or services were received in exchange.

A Fort Mill accounting firm can help you organize and verify these records, making tax season simpler.

4. Claiming Charitable Deductions on Your Tax Return

To take advantage of tax savings from charitable contributions, you need to itemize deductions on your tax return rather than take the standard deduction. This means listing each deductible expense, like mortgage interest, medical expenses, and charitable donations, instead of choosing the flat standard deduction amount.

For 2023, the standard deduction is:

• $13,850 for single filers
• $20,800 for head-of-household filers
• $27,700 for married couples filing jointly

If your total deductions exceed these amounts, itemizing can make sense. But if your deductions are less, taking the standard deduction might be more beneficial. An accounting firm can help you calculate which choice gives you the best outcome.

5. Consider Donation Limits and Carryovers

The IRS places limits on how much of your income you can deduct based on charitable contributions. Generally:

• Cash donations can be deducted up to 60% of your adjusted gross income (AGI).
• Non-cash donations have different limits, usually up to 30% or 50% of AGI, depending on the type and organization receiving the donation.

If your donations exceed these limits, the IRS allows you to “carry over” the extra amount to future tax years, up to five years. Consulting with an expert at a Fort Mill accounting firm can help you understand these limits and maximize your deductions across multiple years if needed.

FAQs

Q: Can I deduct donations I made to GoFundMe or other crowdfunding pages?
A: Generally, no. Crowdfunding donations typically don’t qualify as charitable contributions because they’re often given to individuals, not IRS-recognized charities. Make sure your donations go to qualifying organizations if you want to claim them.

Q: How much of my donation can I actually deduct?
A: You can usually deduct the full donation amount, as long as no goods or services were received in return. For instance, if you attend a charity dinner where half your ticket cost is for the meal, only the remaining amount can be deducted.

Q: Can I donate my time or volunteer hours and deduct that?
A: Unfortunately, volunteer hours or time contributions aren’t deductible. However, you can deduct out-of-pocket expenses related to volunteering, like supplies or mileage, if they directly support a charitable activity.

Conclusion

Charitable contributions not only make a positive impact but can also reduce your tax bill if you know the rules. By donating to qualifying organizations, keeping detailed records, and choosing the right deduction method, you can ensure your contributions have the maximum impact on your community and your taxes. For complex situations or large donations, consider reaching out to a Fort Mill accounting firm to help navigate the details and maximize your benefits, click here for further details.