While recent changes to the tax code altered how charitable donations impact your tax burden, giving to charities can still give you a tax break. However, you have to make sure that you follow the rules to make a donation deductible. Additionally, it’s wise to be aware of how much you need to contribute and the maximum deduction amounts, ensuring you end up with the tax-related benefit you are hoping to secure. If you want to make sure your charitable giving doesn’t just help the non-profit but your taxes as well, here’s what you need to know.
Not All Donations Are Eligible for a Deduction
First and foremost, only gifts to qualified charities can potentially be deducted. Usually, they need to be eligible for tax-exempt status, which is determined by the U.S. Treasury. Most commonly, an organization needs to be a 501(c)(3) public charity or qualifying private foundation.
In order to be eligible, an organization usually operates exclusively in specific categories, such as charitable, educational, or religious purposes. Certain nonprofit veterans’ organizations also qualify, as well as groups that work to prevent cruelty to children and animals. At times, even government donations that are earmarked for charitable causes could be deductible.
Usually, an organization that qualifies will openly discuss their tax-exempt status. Additionally, it is possible to look up a group and see if they fall into any of the categories for eligibility, such as by using the IRS Tax Exempt Organization Search.
Accessing the Charitable Giving Deduction
Even if an organization is qualified as tax-exempt, that doesn’t mean every donation will lead to a deduction. If your itemized deductions don’t exceed the amount you would receive as a standard deduction when you filed, you can’t deduct the gifts.
In 2019, the standard deductions are as follows:
- Filing Single – $12,200
- Married Filing Jointly – $24,400
- Married Filing Separately – $12,200
- Head of Household – $18,350
Now, this doesn’t mean you have to donate in excess of the standard deduction to qualify. Instead, your combined itemized deductions would need to be above those amounts to justify taking the deduction. If it isn’t, then you’re better off using the standard deduction instead of itemizing.
Donation Limits for Tax Deductions
If you give generously, it’s important to understand that not every dollar you give may work as a deduction. There are limits for each tax year. In total, your charitable deduction can’t go above 50 percent of your adjusted gross income, or AGI, for most non-profit recipients, such as public charities. However, there are some organizations where the limit is 30 percent of your AGI, such as veterans’ organizations.
Required Records for Charitable Gift Deductions
If you want to deduct your gifts to charity, you’ll need proof that you gave. The IRS isn’t just going to take your word for it, so records are essential. This can include canceled checks, a receipt from the organization, a line item on a bank account or a credit card statement that clearly shows who received the money, or other written records.
When you give items to a charity instead of money, a tax receipt from the organization is usually what you’ll need. Typically, this is provided when you donate the goods. Otherwise, a qualified appraisal may stand-in if a receipt for the value wasn’t provided.
Does It Still Make Sense to Give to Charity?
While the 2019 tax laws do make it more challenging to reach the needed threshold to allow charitable contributions to result in a tax break, that doesn’t mean you should stop giving. In most cases, people give to charities for reasons that aren’t solely financial, such as being able to help their community or a cause they support.
Additionally, if you have a lot of other qualifying deductions and are open to itemizing, you could still financially benefit from that decision. While it is harder to cross that line since the standard deductions were increased, many people do. Consider running the numbers to see if you have passed the threshold or are close to it. If so, any additional charitable contributions (suggesting they don’t exceed 50 percent or 30 percent of your AGI, depending on the organization) could be deductible. By doing the math, you’ll at least know whether you’ll receive a tax break and can make decisions about your charitable giving from there.
Do you give enough to charity to receive a tax break? Does the tax break increase the odds that you’ll donate, or would you do it anyway? Share your thoughts in the comments below.