Why Make Year-End Charitable Donations?
The same can be said about charitable donations. A financial gift can make a huge impact for a nonprofit that relies on contributions to keep their mission going, but there’s one other great benefit of charitable donations — they can help reduce your taxes, too.
Charitable Organizations One Can Donate to And Receive Tax Benefits
When it comes to eligible organizations one can donate to and receive tax breaks in return, generally these need to be a nonprofit with 501(c)(3) status. That list includes:
- Churches, synagogues and other religious organizations.
- War veterans organizations and foundations.
- Nonprofit fire company.
- Nonprofit cemetery organizations (when donated towards the care of the total property).
- Fraternal organizations operating under the lodge system.
- Nonprofit schools.
- Service organizations like The Salvation Army, American National Red Cross and United Way.
Timing Is Important
As well, timing of your charitable donation is important when it comes to your taxes. Per the IRS, “Contributions must actually 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.” So, in order to claim it for the 2022 tax year, the donation must be made by Dec. 31 of this year.
Thresholds for allowed financial contributions
When it comes to amounts that can be deducted, that has changed this year. In 2022, the IRS reverted back from pandemic-era rules for what financial thresholds concerning donations are allowed to be deducted. In 2020 and 2021, there was a temporary rule change, allowing $300 in eligible donations to be claimed without itemizing.
This year, the standard requirements are back in place. Per Forbes, “You can generally claim charitable contributions if they’re less than 60% of your adjusted gross income.” They advise that you may also want to seek the help of a tax professional in determining if you are within this range. As well, the amount you are able to deduct relies on “fair market value” of the item, which is legally defined in discrete terms (by United States v. Cartwright) — so it’s best to be honest about said value.
As GOBankingRates previously reported, you need to itemize your donations in order to receive a tax deduction. This also means your total itemized deductions (including charitable donations) need to exceed the amount of the 2022 standard deduction, which is $25,900 for couples filing jointly, $12,950 for single filers (or married couples that file individually) and $19,400 for heads of household, according to the IRS.
You will also need to have a record of the contribution from the charitable organization to have on file, in case it’s ever needed — as in the case of an audit.
Best strategies for year-end charitable giving
There are also some great strategies when it comes to making the most of your charitable donations before the end of the year, and there is still some time to do so. As GOBankingRates previously reported, these include:
- Bunching: Combining two (or more) years worth of contributions via a donor-advised fund allows contributes to claim the standard deduction in off years, and a more substantial itemized (via charitable donations) deduction in years which the contributions are actually sent to the fund. In order to ensure chosen charities receive a reliable flow of income, the donor-advised fund is charged with distributing the funds delivered during “on” years throughout the following year(s) in which donors are taking the standard deduction.
- Qualified Charitable Donations (QCDs): If you are over the age of 70-and-a-half, you can elect for a direct financial transfer from an IRA retirement account to a charity. Doing so can substantially reduce one’s adjusted gross income, which can result in a much-needed tax break.
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