Here’s How to Maximize the Impact of Your Charitable Donations
Authored by: Mekea Miracle, Senior Accountant
In a world where giving back is more crucial than ever, understanding the nuances of charitable donations can not only amplify your impact on the causes you care about, but also provide valuable tax benefits.
What are the qualifying organizations and deductibility limits?
The IRS plays a crucial role in determining the deductibility of your charitable contributions. To ensure your chosen organization qualifies, use the IRS Tax Exempt Organization Search Tool available at IRS.gov/TEOS. Contributions made directly to individuals don't qualify for deductions, so it's vital to choose a recognized charitable organization.
Once you've identified a qualifying organization, consider the deductibility limits. Generally, the allowable deduction for charitable contributions is capped at 60% of your Adjusted Gross Income (AGI) for cash contributions and 50% for non-cash contributions. For non-cash donations exceeding $500, filing Form 8283 and providing a qualified appraisal are often necessary.
The deductibility of your contribution may be further limited based on the type of organization, ranging from 20% to 50% of the total contribution amount. If you receive a benefit from your donation, like attending a charitable auction, the deductible amount is reduced by the fair market value of the benefit received.
Here are a few strategies to defer or reduce tax liability:
- Contribute Long-Term Capital Gain Property: Donating assets like stocks, bonds, or real estate to a qualifying organization not only provides a deductible charitable contribution, but also reduces capital gains taxes compared to selling the property.
- Qualified Charitable Distributions (QCD) from IRAs: If you're subject to required minimum distributions (RMDs) from an IRA, consider making QCDs directly to a qualifying charitable organization. While this doesn't yield a charitable contribution deduction, it reduces the taxable income associated with your RMD.
- Donor-Advised Fund (DAF): Contributing to a DAF allows you to recognize a substantial contribution in a given year, potentially maximizing your itemized deductions. You can then distribute funds to various charitable organizations over subsequent years, aligning with your giving strategy and taking advantage of the standard deduction in non-giving years.
Don’t forget about these additional considerations and resources available to you:
While these strategies can be helpful tools for optimizing your charitable contributions, it's essential to consult with your accountant for personalized advice.
The IRS Publication 526 on charitable contributions provides comprehensive information on the rules and requirements surrounding charitable deductions. It explains how to claim a deduction for charitable contributions and discusses:
- Organizations qualified to receive contributions.
- The types of contributions you can deduct.
- How much you can deduct.
- What records to keep.
- How to report contributions.
By navigating the complexities of qualifying organizations, deductibility limits, and strategic giving, you can make a meaningful impact on the causes you care about while optimizing your tax benefits. If you have any questions, please don’t hesitate to reach out to our team at (509) 663-1661 or email us at info@cnccpa.com.
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