Articles

October 15, 2019 | Posted in:

Increase Your Tax Refund with a Charitable Donation

If giving to charity is still in your agenda for 2019, there is still a window of time for you to make that year-end donation.

Gifts to charity are one of the best tax-saving opportunities available. Not only does the charity itself benefit, but the taxpayer receives tax deduction, at least to a certain limit. The purpose of charitable tax deductions are to reduce your taxable income and your tax bill.

The Charitable Contribution Deduction

In order to take a tax deduction for a charitable contribution, you will need to forgo the standard deduction in favor of itemized deductions. That means you will list out all of your deductions, expecting that they will add up to more than the standard deduction.

One tax strategy is called “bunching”. This is when you surpass the itemization threshold by bundling together your tax deductions into a single year, and then take the standard deduction in interim years. Making two or three years’ worth of charitable contributions at once could put you across the threshold to take the deduction. One good way to do that is by contributing to a donor-advised fund. You can take a tax break for the year you contribute, but you will have unlimited time to decide which charities you want to support.

You can also continue to get a tax break for donating shares of appreciated stock, mutual funds and real estate to charity. As long as you have held the investment for longer than a year, you will avoid capital-gains taxes on the profits.

And if you are 70 ½ or older, you can give up to $100,000 tax-free from a traditional IRA to charity each year, which counts toward your required minimum distribution but is not included in your adjusted gross income. The money must go directly to a charity, not to a donor-advised find.

Eligible Organizations

It is important to understand that only donations to qualified tax-exempt organizations count. Religious organizations, veteran organizations, and community organizations often qualify as tax exempt. Among organizations eligible to receive tax-deductible charitable donations are churches, temples, mosques or other religious organizations; nonprofit schools or hospitals.

If you gave cash, hold on to a bank statement, cancelled check or credit-card receipt showing the amount of the donation. For gifts of cash or property worth more than $250, also keep the written acknowledgement from the charity showing the date and value of the donation.

Second-hand clothes and the like must be in at least “good used condition”. You can deduct only the value they would sell for in a thrift shop-not what you paid for them.

Fill out Form 8382 when you deduct gifts of items worth more than $500.

When you claim a donation of furniture, jewelry or other item worth more than $5,000, the IRS wants independent verification of its value.

While donations to qualified charitable organizations are deductible, donations to individuals are not. So, if you donated money to help a friend or member of your church buy a new car or pay for a lifesavings surgery, that donation is not tax deductible.

Limits

There are limits on how much you can deduct for charity and tax reform increased one of them. Under previous tax law, you could deduct donations that exceeded half of your contribution base-meaning your adjusted gross income. Tax reform increased that limit to 60% if you are making a cash contribution to a public charity.

Just make sure you understand what can and can not be deducted. Though this may not be your sole motivation for giving back, checking in with your accountant or a qualified tax professional beforehand can help you maximize your charitable contributions.

 

Further Reading:

 

Author: Valentina Efremova

Author:

Empowering business owners and individuals in South Jersey and Philadelphia to feel confident through proactive accounting and advisory solutions.

About Us →    Our Solutions →    Follow @AlloyCPAs on Twitter →    

JB Financial Associates is now Alloy Silverstein.
This is default text for notification bar