When you need to reduce taxable income and have already used up other options, you can donate money to charitable organizations. There are several ways to make a tax-deductible donation by following some guidelines.
In most cases, you will need to itemize your deductions. To do so, you will need to have more deductions than what is allowed for the standard deduction.
The Standard Deduction
The government passed the Tax Cuts and Jobs Act of 2017 to raise the amount of the standard deduction. When they did, it made it harder for many people to benefit from some types of charitable donations.In 2023, Finance.Yahoo says that the standard deduction for singles is $13,850. For heads of household, the deduction is $19,400; and for married couples filing jointly, it is $27,700.
If you are over 65 or blind, NerdWallet says you can claim an additional $1,850 if you are single or head of household. If you both are over 65 and blind, the standard deduction is raised by $3,700. Married couples filing jointly that are 65 or older or blind can get another $1,500 added to their deduction per person, or if both are over 65 and blind, you get $3,000 more per qualifying individual.
Charitable Gifts
When making a gift to charity, the Internal Revenue Service (IRS) has some basic guidelines to follow. The organization must be approved by the IRS as a 501(c)(3).You will also need to get a receipt from them saying you did not benefit from your gift. Or, if you did benefit in some way, the IRS says that you must subtract the value of the benefit from the gift value before claiming it as a tax deduction.
Limits on the Size of Charitable Gifts
There is a limit to how much you can give in proportion to your income. The limit is 60 percent of your adjusted gross income (AGI). It may be less for certain types of gifts. If you give assets such as stock or property you have held longer than a year, you can deduct them at fair market value, up to 30 percent of your AGI.The IRS says any gift over $5,000 must be reported on Section B of IRS Form 8283 for each item over $5,000. It also must be filled out and signed by the organization. If it is not cash, it will have to be appraised.
Smaller gifts ranging from $250 to $500 need written proof of the donation from the organization receiving it. Gifts between $500 and $5,000 must document your cost and ownership and file Form 8283.
Gifts to Some Organizations Are Not Tax Deductible
Choosing organizations to make a charitable contribution to requires doing some research first. Most charitable and religious organizations are registered as 501(c)(3)s and can accept tax-deductible donations. TurboTax.Intuit says that veterans’ organizations having 90 percent membership of war veterans and volunteer fire departments qualify even though registered as a 501(c)(4)—but other organizations similarly registered do not qualify.Money paid at fund-raising activities such as bingo games and raffles is not deductible. You also cannot deduct money donated to community drives for medical or funeral costs unless sponsored by organizations registered as 501(c)(3)s. Typically approved organizations in such cases would be the Red Cross or Salvation Army. When you donate to help with disaster relief to an approved organization, the IRS says the money cannot be designated to go to specific individuals or families.
If you are uncertain about whether or not a particular organization is qualified to receive tax-deductible gifts, the IRS has a website to help. You can verify its qualification by going to IRS.gov/TEOS.
Gifts also must not benefit the contributor. A ticket sold at a charitable event that comes with a meal is only deductible for the amount above what that meal would cost at a restaurant. The same is true for items purchased at fundraisers.
Gifts given at political fundraisers are also non-deductible. All gifts must also be donated in the year that you claim the donation on your taxes; the money promised does not count. The date of transfer is the year you can deduct it, not when you wrote the check.
Donating Stock to Charity
When donating stock to charity, including stock from private S-Corp. or C-Corp. organizations, you get a double benefit. Before donating, find out if the charitable organization accepts stock because many do not have the means to liquidate it successfully. If they are able, you can benefit by deducting the full market value, says FidelityCharitable, and you will not pay capital gains tax on that stock.Donate Household Goods
You can donate household goods that you no longer want. You must assign the goods an estimated value when donating them, not the purchase value. You must also prepare a list of each item and its value and get a written receipt from the organization.Donate Your Required Minimum Distributions
If your required minimum distributions (RMDs) will raise your taxes, you can get a tax write-off for donations. The donation, called qualified charitable distributions (QCD), must be directly sent from the account to get the tax benefit. Contact your plan sponsor in early December to ensure it is donated on time.Donor-Advised Funds
You can set up an account (irrevocable) to be used just for charitable giving. A donor-advised fund (DAF) gives you an immediate tax deduction when money is donated. The funds in the account can be invested and grow tax-free, and they can help you reduce income, capital gains, and taxes on the estate.Bunching Your Giving
Because the standard deduction is more than what most people can have deductions for in a single year, you may want to bunch your donations. Instead of giving donations each year that do not enable you to reach the standard deduction amount, you can contribute multiple years’ worth of giving into a single year—giving you enough gifts to exceed the standard deduction and reduce your taxes.Carry Your Excess Value Forward
Some years you may discover that you have given more than the allowed amount of gifts to charitable organizations. Instead of forgetting about it and losing the deduction, Investopedia says that you can carry the excess amounts forward, for up to five years. These tax carry-forwards enable you to deduct the amount in future years.Reduce your taxes by charitable giving throughout the year. Your giving can help many people meet their needs—and you get the benefit of feeling good about it and get a tax deduction at the same time. Talk to a tax expert for even more ways to get a tax write-off for donations.
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