Giving Back Responsibly: 3 Year-End Tips for Making Charitable Contributions

As the end of the year approaches and the holiday season brings on the spirit of giving, we will all see an uptick in the number of charitable solicitations arriving in our inboxes. And since some charities sell their contributor lists to other charities, frequent contributors may find themselves besieged by requests from unfamiliar organizations. 

As a result, here are three tips to keep in mind as you make charitable contributions: 

#1 Watch Out for Charity Scams

Be careful. Scammers are out there pretending to be legitimate charities. And they’re looking to take advantage of your generosity for their gain. 

When making a donation to a charity with which you’re unfamiliar, you should take a few extra minutes to ensure that your gifts are going to a good cause. The IRS has a search feature, the Tax Exempt Organization Search, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. Note that you can always deduct gifts to churches, synagogues, temples, mosques, and government agencies — even if the Tax Exempt Organization Search tool does not list them in its database. 

More and more, organizations and communities are also using crowdfunding campaigns to fundraise and connect with potential donors. While the vast majority of these campaigns are legitimate, be aware that not all crowdfunding donations are tax deductible. If a qualifying charity or religious organization is behind the campaign and receiving the funds, your donation will likely be treated as a regular tax-deductible contribution. But if an individual, business, or anything else that’s not a charity is receiving the funds, then the IRS would treat the donation as a non-deductible gift rather than a deductible contribution. Common examples of non-deductible gifts would be for campaigns to raise funds for a community members’ medical expenses, or to help local businesses recover from natural disasters. These campaigns may be worthy of support, but they are not tax deductible unless backed by a qualified charity. 

Here are some other ways to ensure your contributions go to legitimate charities: 

#2 Take Advantage of the Tax Benefits of Charitable Contributions

Contributions to charitable organizations are deductible if you itemize your deductions on Schedule A. Generally, the deduction is the lesser of your total contributions for the year or 50% of your adjusted gross income. However, the 50% is increased to 60% for cash contributions in years 2018 through 2025. Lower percentages may apply for non-cash contributions and contributions to certain types of organizations. Itemized deductions reduce your gross income when determining your taxable income. 

However, with the increase in the standard deduction as a result of the 2017 tax reform, many taxpayers are no longer itemizing their tax deductions (because the standard deduction provides a greater tax benefit). For those in this situation, there are two possible workarounds: 

Bunching Deductions: As a rule, most taxpayers just wait until tax time to add everything up and then use the higher of the standard deduction or their itemized deductions. If you want to be more proactive, you can time the payments of tax-deductible items to maximize your itemized deductions in one year and take the standard deduction in the next. Click here to learn more about bunching. 

Qualified Charitable Distributions: Individuals age 70½ or older – who must withdraw annual required minimum distributions (RMDs) from their IRAs –  are allowed to annually transfer up to $100,000 from their IRAs to qualified charities. Here is how this provision works, if utilized: 

1) The IRA distribution is excluded from income; 

2) The distribution counts toward the taxpayer’s RMD for the year; and 

3) The distribution does NOT count as a charitable contribution deduction. 

At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer lowers his or her adjusted gross income (AGI), which helps with other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses when itemizing deductions, passive losses, and taxable Social Security income. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution. 

#3 Substantiate Your Contributions

Charitable contributions are not deductible if you cannot substantiate them. Forms of substantiation include a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the charity’s name, the date of the contribution, and the amount of the contribution. In addition, if the contribution is worth $250 or more, the donor must also get an acknowledgment from the charity for each deductible donation. 

Non-cash contributions are also deductible. Generally, contributions of this type must be in good condition, and they can include food, art, jewelry, clothing, furniture, furnishings, electronics, appliances, and linens. Items of minimal value (such as underwear and socks) are generally not deductible. The deductible amount is the fair market value of the items at the time of the donation; as with cash donations, if the value is $250 or more, you must have an acknowledgment from the charity for each deductible donation. 

Note that the door hangers left by many charities after picking up a donation do not meet the acknowledgement criteria; in one court case, taxpayers were denied their charitable deduction because their acknowledgement consisted only of door hangers. When a non-cash contribution is worth $500 or more, the IRS requires Form 8283 to be included with the return, and when the donation is worth $5,000 or more, a certified appraisal is generally required. 

Special rules also apply to donations of used vehicles when the claimed deduction exceeds $500. The deductible amount is based upon the charity’s use of the vehicle, and Form 8283 is required. A charity accepting used vehicles as donations must provide Form 1098-C (or an equivalent) to properly document the donation. 

No matter what time of year you find yourself making charitable contributions, we encourage you to do it responsibly. Unfortunately, there are complexities when it comes to the spirit of giving and there are individuals out there who are looking to take advantage of well-intentioned people. If you have any questions related to charitable giving, please contact Cray Kaiser today. We’d be happy to help! 

Please note that this blog is based on tax laws effective in December 2023, and may not contain later amendments. Please contact Cray Kaiser for most recent information. 

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