You probably know you can get an income tax deduction for a gift to a charity if you itemize your deductions. But there is a lot more to charitable giving. For example, you may give appreciated property to a charity without being taxed on the appreciation. Or charitable giving may be part of your overall estate planning. However, these benefits can be achieved only if you meet various requirements, including substantiation requirements, percentage limitations, and other restrictions. We would like to take the opportunity to introduce you to some of these requirements and tax-saving techniques.
First, look at the basics: Charitable contributions can help minimize your tax bill only if you itemize your deductions. Once you do, the amount of your savings varies depending on your tax bracket.
Itemizers
Under the 2017 Tax Cuts and Jobs Act, the percentage limitation on the charitable deduction contribution base is increased from 50 percent to 60 percent of an individual’s adjusted gross income for cash donations to public charities in 2018 through 2025. There is an even greater benefit because, in addition, the phase-out of allowable itemized deductions is repealed for tax years 2018 through 2025.
Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30 percent of adjusted gross income. A special limitation also applies to certain gifts of long-term capital gain property.
Taxpayers over 70 ½ years of age are allowed an exclusion from gross income for distributions from their IRA made directly to a charitable organization of up to $108,000 for 2025 ($108,000 for each spouse on a joint return). A qualified charitable distribution counts toward satisfying a taxpayer’s required minimum distributions from a traditional IRA.
Contributions must be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method. Your donations must be substantiated. Generally, a bank record or written communication from the charity indicating its name, the contribution date, and the contribution amount is adequate. No deduction is allowed if these records are not kept for each donation made. Remember, these rules apply no matter how small the donation.
However, there are stricter requirements for donations of $250 or more and donations of cars, trucks, boats, and aircraft. Additionally, appraisals are required for large gifts of property other than cash. Finally, donations of clothing and household gifts must be in good used condition or better to be deductible.
Stay tuned for more insights on tax-saving opportunities and important regulations to help you navigate the ever-changing tax system.