With the holiday season upon us, many people are developing their plans for charitable giving. While it’s always ideal to focus on charities that will maximize your donations, and align with your overall giving strategy, there are many often-overlooked tax considerations when donating.
Following are the top seven tax tips when making charitable donations this holiday season:
7) Itemize Your Taxes: Charitable contributions can only reduce your tax bill if you choose to itemize your taxes. It is ideal to itemize when the combined total of your anticipated deductions (including charitable gifts) add up to more than the standard deduction.
6) The Maximum Amount You Can Claim: When donating cash to public charities, you can potentially deduct up to 60 percent of your adjusted gross income. Appreciated assets that have been held for more than a year, including long-term appreciated stocks and property, are deductible at fair market value, which is up to 30 percent of your adjusted gross income.
5) Donating Household Items: You can donate used goods such as clothing, electronics, appliances and furniture, and receive a write-off for the items’ fair market value at the time you donated it. Note that this may be less than what you originally paid. Keep in mind that donated items must be in “good” condition or better and that donations of similar items with a combined value exceeding $5,000 would require an appraisal.
4) Donating Long-Term Gain Property: When you donate long-term capital gain property, such as publicly traded stocks, bonds and mutual funds, you can deduct the fair market value. An additional benefit to donating long-term gain property is avoiding the capital gain tax on the appreciation of the long-term gain property. Appraisals generally are not required for stocks, bonds and mutual funds that are traded on stock exchanges.
3) Opportune Time for S-Corporations or Partnerships/LLCs: Charitable donations may be more valuable than ever for sole proprietor or pass-through business owners. The qualified business income deduction (commonly known as the 20% deduction on flow-through income) can be potentially phased out when a taxpayer’s taxable income (ignoring the qualified business income deduction) falls within the following ranges: $315,000/$415,000 married filing joint taxpayers and $157,500/$207,500 for all others. Charitable donations can be an excellent method for taxpayers to reduce their taxable income and to potentially eliminate any phase-outs of the qualified business income deduction.
2) Charitable Donations from an Individual Retirement Account (IRA): If you are age 70½ or older, another specific asset you may consider gifting is a contribution from an individual retirement account (IRA) to an eligible charitable organization. These contributions are not subject to the above limitations in certain circumstances. You may transfer up to $100,000 annually directly from the IRA trustee to the eligible charity.
1) Choose the Right Charitable Organization: Before donating, make sure that the charity’s mission is aligned with your vision, and evaluate the charity’s accomplishments and financial stewardship. GuideStar is an excellent resource that gathers and disseminates information on every IRS-registered non-profit organization to assist donors in making informed decisions.
With the right tax planning, it is possible to develop a giving plan that is both ideal for you, and the charitable organizations you are targeting. If you have questions, or would like to assistance in developing your holiday giving tax strategy, please contact GSG here.
Categories: Tax, Not-for-Profit
