A Guide to Tax Deductions for Charitable Contributions | Taxes
Despite economic uncertainty, the majority of Americans (93%) plan to make at least one small donation to charity this year, according to a recent report. poll by Edward Jones.
The survey also found that 68% of Americans plan to give the same amount as last year, while 17% said they will increase their contributions. Respondents reported that their main motivation for making charitable donations is the belief that helping others is important, according to the survey.
But these contributions also provide a tax benefit for some Americans.
Follow these five steps to maximize the tax advantages of your charitable contributions:
1. Decide if you are going to itemize
The pandemic provision that allowed a $300 deduction for taxpayers ($600 for couples) who did not file their taxes in 2021 has expired. That means unless you’re among the 11% of taxpayers who itemize their federal taxes, you don’t need to worry about your charitable contributions; you’re better off taking the standard deduction.
For tax year 2022, the standard deduction is $12,950 for single taxpayers and $25,900 for married couples filing jointly, and in 2023 it will increase to $13,850 for individuals and $27,700 for couples.
2. Consider bundling your contributions
If getting a deduction for your charitable contributions is important to you but falls below the standard deduction threshold, you might consider “pooling” your contributions. To do that, you make several years of contributions in a single year to get the deduction, then don’t make any donations in subsequent years.
For example, if you normally donate $1,000 per year to charity, you could pool your deductions into one year and donate $5,000 to an important cause or fund. So, you would not make any donations for the next four years.
“That way, you get the tax benefits of the deduction in one year and a greater benefit of the increased standard deduction in the other years,” Andrew King, vice president of Personal Financial Management Tax Policy and Research at Goldman Sachs Ayco. Division, he says.
3. Collect the Necessary Documentation
Donations are deductible only if they go to a 501(c)3 charitable organization: use this tool to see if your charity qualifies. If you donate more than $250, you will need a receipt from that organization showing the date and amount of your contribution.
If you donate tangible goods, such as clothing or household items, you will need to estimate their market value at the time of the donation. For anything worth $5,000 or more, you’ll need a third-party appraisal.
You can also deduct expenses you incur while doing volunteer work, but you can’t deduct the cost of your work.
4. Be strategic when giving actions
Donating appreciated stock is a tax-efficient way to fund your charitable contributions. This is because when you donate the shares, you get credit for the charitable contribution and avoid reporting the capital gains you would have owed on your taxes if you had sold the shares.
However, in today’s volatile market, you may also want to get rid of some stocks that have fallen in value.
“In that case, you’d be better off selling the shares and taking advantage of the capital losses, and then donating the network to charity,” Ronald Finkelstein, national co-partner in charge of the Trusts and Estates Practice group at tax advisory firm Marcum, He says.
5. Consider donating through your IRA
Seniors can make up to $100,000 worth of gifts this way, with the amount counting toward their required minimum distributions. Plus, they don’t have to report it as income on their taxes. This can be particularly helpful for those who do not have other deductions because they can get the tax benefit without having to itemize.