As we approach the end of the year, one of the things clients ask us about is year end giving. Here are a few tips and things to consider as you contemplate making any last-minute donations.
First and foremost, from a tax perspective, deductions are limited to certain organizations. These include: churches and other religious organizations, governmental entities, nonprofit schools hospitals and volunteer fire companies, public parks and rec facilities, and any qualifying 501(c)3 charitable organizations. If you have any questions as to whether an organization is a qualifying 501(c)3, you can verify them on the IRS website.
Likewise, make sure you understand the rules for documenting a deduction. If you’re giving a monetary gift, this means having bank records to support the donation. For cash donations or contributions of $250 or more, you also need a written acknowledgement from the organization.
For noncash donations, you need a written receipt regardless of value. The receipt should include the organization, date of contribution, description of items donated, and a fair market value of the property.
For volunteering with a qualifying nonprofit, you are allowed a charitable deduction for unreimbursed out of pocket expenses that directly benefit the charity, and a deduction for mileage. You are not, however, allowed a deduction for your time.
For 2021, you are allowed a $300 ($600 for married filing joint returns) above the line deduction for cash/check donations to public charities. This means you can benefit from the deduction even if you don’t ordinarily itemize your deductions. When considering year end giving, you may find Charity Navigator as a helpful tool to find local nonprofits. At Watson & Associates, we take pride in supporting the Tallahassee Symphony Orchestra, Oasis Center for Women & Girls, Lighthouse of the Big Bend, The Village Square, and Big Brothers and Big Sisters of the Big Bend.
For taxpayers over age 70 ½, you are eligible to donate up to $100,000 per year directly from an IRA account to a charitable organization. QCDs are not added to your taxable income like ordinary IRA distributions. For taxpayers who must take an RMD but don’t need the money, making your regular charitable contributions by a QCD can be a good way to lower taxable income, especially for taxpayers who aren’t itemizing their deductions.
In most cases, taxpayers who are not already itemizing their deductions do not see a direct tax benefit from charitable contributions. However, for some taxpayers, stacking multiple years of deductions into one year can be a way to get the overall deductions high enough to itemize. In the right situation, employing a plan of taking the standard deduction one year, and itemizing the next year, can yield extra tax savings without any extra cash out of pocket.
Generally, donations you give are at their fair market value, be it cash or noncash donations. One way this can benefit with tax planning is to donate appreciated stock. If the stock were sold, you would pay capital gains on the increase in value. However, if you gift the stock to a qualifying organization, you are entitled to a charitable deduction at the fair market value, without having to pay capital gains on the increase in value.
We are always happy to discuss your specific year end giving situation. We can even help you put together a plan that both meets your personal objectives, while also maximizing tax benefits. If you have any questions about a giving strategy, please give us a call to discuss.
Interested in learning more? Read about year end tax planning to get prepared for tax season.
Watson & Associates, PA, Certified Public Accountants is a full-service professional CPA firm founded in 2002. We provide personalized, professional service to each of our clients.
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