Plan Year-end Giving Wisely

‘Tis the season for giving. Approximately 31% of all annual charitable giving occurs in December, with 10% in the last three days alone. It would seem most of us are in a giving mood this time of year.

In addition to helping a good cause, charitable donations can also make a difference in your tax bill. If you’re planning to make a gift to a charity over the holidays, here are some general guidelines to keep in mind. As always, consult an accountant or tax advisor for information specific to your situation.

  1. Donations are only tax deductible for individuals if you itemize deductions. If you claim the standard deduction on your tax return, your charitable gifts won’t help reduce what you owe. You must itemize using Schedule A to deduct charitable donations. IRS Publication 526 has the details on what percentage of your adjusted gross income you can deduct for charitable donations to qualifying organizations.
  2. Only donations to qualified charities are deductible. Person-to-person giving has become popular through online giving sites such as GoFundMe. While some donors prefer to give directly to a person who will benefit, these are considered by the IRS to be personal gifts and not guaranteed to be tax deductible.

    Generally, for gifts to be tax deductible, the recipient organization must have 501(c)(3) status, which means they meet the government’s requirements to be classified as a tax-exempt organization. Churches, synagogues, temples and mosques are also eligible to receive deductible donations. Donations to political campaigns are not tax-deductible.

    The IRS has a tool to search Publication 78 Data to find out if an organization is eligible to receive tax-deductible charitable contributions. This tool also shows when a nonprofit's federal tax-exempt status has been revoked for not filing a Form 990-series return or notice for three consecutive years.

  3. You should keep the receipt. Cash donations of less than $250 can be substantiated by a bank record, such as a canceled check or credit card receipt clearly annotated with the name of the charity. For individual gifts of $250 or more, the receipt must state whether the contributor received goods or services in exchange for the gift.

  4. Think beyond cash. Non-profit organizations can accept clothing, household items or even securities. Keep receipts for gifts of toys or clothes to 501(c)(3) organizations collecting them as gifts for people in need. Made items for a bake sale for a 501(c)(3)? The cost of the ingredients and materials is deductible. Volunteered for a nonprofit? You can deduct the cost of mileage to and from the location.

    Giving appreciated stock directly to a charity offers a dual tax benefit. You avoid paying taxes on the capital gains, and you can generally write off the full value as a donation if you have owned the asset for more than a year. Clothing and other items are only deductible if in good used condition or better. For vehicle donations, you are generally limited to the gross proceeds from its sale if the value is more than $500.

  5. Deadlines may be different depending on the type of gift. Check with the recipient for timelines to process mutual fund transfers, bonds or wire transfers in time to treat it as a 2022 gift. Credit card charges made before the end of the year are deductible even if the bill isn’t paid until next year. You can put a check in the mail postmarked Dec. 31 via USPS, but when sending it via FedEx or UPS it must arrive by Dec. 31.

Think carefully about which causes you care about, how much you can afford to give and what you’d like to donate, whether with cash donations or other assets. Charity Navigator is a non-profit service that offers a database with information and ratings of 200,000 charities. If you plan to contribute a sizeable amount or if you have any specific questions, a tax advisor can help you structure your donations for maximum impact to the organization as well as maximum benefit on your 2022 return.

Legal Disclaimer:  The information provided herein does not, and is not intended to, constitute tax, legal or accounting advice; instead, all information is for general informational purposes only. Information contained herein is subject to change and may not constitute the most up-to-date information. It is recommended that you contact your attorney to obtain advice with respect to any particular legal matter, and you should not act or refrain from acting on the basis of information contained herein without first seeking advice from your attorney. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. All liability with respect to actions taken or not taken based on the contents hereof are hereby expressly disclaimed. The content herein is provided "as is;" no representations are made that the content is error-free.

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