You may be unaware of some of the numerous tax benefits associated with your charitable
donations, and others may be commonly disregarded. Additionally, certain contributions
that you might think are deductible are really not. Knowing what qualifies as a qualified
charity, what qualifies as a qualified charitable gift, and how to give strategically may all help
you to get the most out of your charitable tax deduction.
Contributions must be given to qualifying charity organizations in order to be tax-deductible,
which typically only includes U.S. nonprofit organizations with a religious, benevolent,
educational, scientific, or literary mission or that seek to end child or animal abuse. Any
company may be asked if it is qualified, and the majority of them will be able to answer.
Additionally, you may check at IRS.gov/TEOS. You may look for qualifying businesses using
this online tool.
Additionally, one must itemize their deductions in order to be eligible to write off charitable
contributions. This implies that you cannot take the standard deduction, which, for example,
is $12,950 for single filers, $19,400 for heads of household, and $25,900 for married couples
filing jointly for 2022, in order to receive any tax advantage from your charitable gifts.
Annual inflation adjustments are made to the standard deduction.
You are better off accepting the standard deduction if the sum of all your itemized
deductions does not exceed the amount of the standard deduction for the year, but doing
so will result in no tax advantage from your charitable donations. Congress did amend the
statute to let some financial donations made in 2020 and 2021 to be deducted up to a
certain amount without itemizing, but this was just a temporary change and doesn't apply in
subsequent years. Bunching - The bunching approach could be effective for you if your charity deductions are
insufficient to make your itemized deductions higher than your basic deduction. With the
intention of itemizing deductions in one year and then accepting the standard deduction in
the next, a taxpayer who uses the bunching method effectively doubles up on as many
deductions as they can in one year. Donations to charities can be made fully at your
discretion and so naturally fit into the bunching approach. If you typically donate at your church, for instance, you could pay your regular tithing
throughout the current year and then prepay the entire subsequent year's charitable
contributions in a lump sum in December of the current year, doubling your church
contribution in one year and eliminating the church from your charitable deduction in the
following year. The Christmas season is typically a period when charities are particularly
active in their solicitations, offering you the chance to choose whether to make donations
towards the end of the current year or to wait a little while and make them after the end of
the year. Make sure you receive a receipt or letter of acknowledgement from the
organization that expressly states the year the donation was made.
The majority of taxpayers typically wait until tax season to total up all of their available
deductions, at which point they utilize whichever is higher—the standard deduction or
itemized deductions. Here are some tactics you might use if you wish to be more proactive.
If you are 70.5 years old or older, you may make charitable donations by moving money
from your IRA account to a charity. These transfers are known as qualified charitable
distributions (QCDs). The only catch is that the money needs to go from the IRA to the
Indicating that the payout to the charity must be made by your IRA trustee. Although your
IRA trustee may do so, the tax laws do not specify a minimum amount that must be
transferred. All such transfers may not exceed $100,000 per taxpayer per year. Additionally,
keep in mind that donations to private foundations and donor-advised funds do not count
toward the QCD.Because these payments are tax-free, you are able to make a charitable donation using this technique without filing taxes. Even better, QCDs contribute to your annual minimum necessary payout. Your AGI will be lower as a result of QCDs being nontaxable, which enables you to take advantage of tax provisions that are linked to AGI, such as the amount of Social Security income that is subject to tax and the price of Medicare B insurance premiums for higher-income taxpayers.
Attention: Any IRA contributions made after turning 70.5 years old may reduce the tax
advantages of this approach. If any IRA contributions were made beyond the age of 70.5, get
advice from our office before using this tactic.
If you choose to seek a QCD, make sure you are aware of the requirements for doing so
from your IRA custodian. If you are requesting a QCD at the end of the year, be sure to
provide the IRA custodian plenty of time to process your request. For tax reporting
purposes, always get a formal acknowledgement from the charity.
Donor-Advised Funds – Making a donation to a donor-advised fund is a way to fulfil a
donor's social obligation to make charitable contributions in the future without having to
pay the costs associated with establishing a private foundation and meeting annual filing
and other private foundation requirements. Donor-advised funds are generally tax
deductible and allow donors to make a sizable (and generally deductible) charitable
contribution in one year. Donor-advised funds are accessible to everyone, however they are typically thought of as a
tax strategy for people with an abnormally high income for the year. Most such funds set up
through brokerages have minimum gift restrictions, which are frequently $5,000–$25,000.
Donor-advised funds are only accounting entries even though they may contain the donor's
name; they are not distinct legal entities. They make up an approved charity organization. If
a donation to a charity's donor-advised fund is not seen as being intended for a specific
distribute, it may be deductible in the year it is made. The money must belong entirely to
the charity, and they must have the last say in how they are used.
The taxpayer must get written confirmation from the fund's sponsoring entity that it has
sole legal control over the assets provided in order to prove the donation. Although the
donor may provide advice to the charity, which will often take that advice into
consideration, the donor is not permitted to choose the recipients of distributions or to
choose when or how much should be distributed. Additionally, the charity must make sure
that none of the fund's payouts benefit the donor either directly or indirectly.
Example: Richard and Nelson contribute $25,000 over the course of a year to a donor-
advised fund. The $25,000 might be paid in cash or even in the form of valued stock.
Richard and Nelson are allowed to recommend the amounts of distributions from the
donor-advised fund that should be distributed to different organizations over a number of
years, and they may deduct the whole $25,000 as a charitable contribution on their return
for the year of the donation. Richard and Nelson are able to fulfil a significant portion of
their philanthropic responsibilities in a single year and claim the $25,000 as an additional
amount on their tax return for the year in which the donation was made. When money is
sent from the fund to the numerous organizations, they are not eligible for a charitable
Volunteer Expenses: If you gave your time to a charity or a government organization, you
may be eligible for tax benefits. Although there is no tax break available for the cost of
services rendered to a qualified charity or to a federal, state, or local government agency,
there are certain breaks available for out-of-pocket expenses spent during the performance
of the services. Here are a few instances:
• Travel expenditures incurred when conducting services away from home for a charity,
including 100% of housing and food costs as well as out-of-pocket round-trip travel
expenses, taxi tickets, and other transportation costs. Only when there is no discernible
element of personal enjoyment involved in the trip or when providing services to a charity
that do not entail campaigning are these costs deductible.
• The price of entertaining guests on behalf of a charity, such as hosting a possible major
donor for dinner (but the costs of your own entertainment and meals are not deductible).
• If you use a car or other vehicle to conduct services for a nonprofit organization, you can
write off the real, directly related unreimbursed costs of those services, such as petrol and
oil expenditures, or you can write off a flat fee of 14 cents per mile. Tolls and parking
expenses are also deductible.
• As long as the uniform has no general use, you may deduct the expense of the uniform
you wear when volunteering for the charity. The expense of uniform cleaning is also
False assumptions - The following are regularly encountered concerns about misconceptions
about what qualifies as a charity deduction:
• If the donor receives a personal advantage from their giving, there is no deduction for gifts
of money or property. The IRS frequently considers expenditures for things like dinner
tickets, church school tuition, YMCA dues, raffles, etc. to be at least partially (if not entirely)
personal benefits. Subtract the FMV of the "personal benefit" item from the cost, then
remove the remaining amount to arrive at the allowable contribution amount. The majority
of charities now divide the deductible and nondeductible amounts.
• There is no allowance for a charitable deduction for the depreciation of automobiles,
computers, or other capital assets.
Example: Kathy volunteers as a member of the sheriff’s mounted search and rescue team.
As part of volunteering, Kathy is required to provide a horse. Kathy is not allowed to deduct
the cost of purchasing her horse or to depreciate the value of her horse. She can, however,
deduct uniforms, travel, and other out-of-pocket expenses associated with the volunteer
work. However, if a taxpayer uses a privately held asset to perform services for a charity, they may be able to deduct the cost of doing so from their taxes. So, for instance, a taxpayer may
write off the expense of fuel, upkeep, and repairs (but not depreciation or fair rental value)
associated with operating a plane as a volunteer pilot for the Civil Air Patrol. Similar to Kathy
in our example, who joined a mounted posse, a civilian reserve unit of the county sheriff's
office, a taxpayer might write off the expense of caring for a horse (shoeing and stabling).
• If a taxpayer keeps possession of an item they purchase and use as part of their volunteer
work for a charity, they are not permitted to deduct the cost of the asset. Even if the item is
only utilized for charity reasons, this is still true. A donation of $250 or more is not eligible for a charitable deduction unless it is supported by a formal acknowledgment from the charity (including a government agency). To confirm your participation:
• Obtain formal confirmation from the charity detailing the nature of your volunteer work
and the requirement that any associated costs be covered. For instance, if you travel out of
town to volunteer, ask the organization to write you a statement outlining why you are
required at the remote site.
• If you are paying a significant portion of the cost out of pocket, you should provide the
charity with a statement of costs, ideally along with a copy of the receipts. After that, make
arrangements for the charity to provide a written acknowledgment of the donation amount. Maintain detailed records of your out-of-pocket expenses—receipts plus a written record of the time, place, amount, and charitable purpose of the expense.
Household items and secondhand clothing are two of the most typical tax-deductible
charitable donations that are made. The biggest challenge with this kind of contribution is
determining its financial worth. The fair market value (FMV), which is defined as the price
that a willing buyer would pay a willing seller for the item, is what the tax code refers to as.
The FMV varies greatly depending on the condition of the given item and is not always
simple to calculate.
Consider contrasting the state of a piece of clothes you bought and only wore once to one
that has been worn several times. The almost-new one will undoubtedly be worth more, but
if the barely-worn item was bought a few years ago and has seriously fallen out of fashion,
the more-heavily-worn item may be worth more. The clothing item is still a worn one in
both scenarios, thus its worth cannot be nearly as high as the purchase price. This value
cannot be precisely calculated. The IRS is aware of this problem and in some circumstances
stipulates that the value must be determined by a licensed appraiser.
Keep in mind that any value you assert when establishing FMV may be opposed in an audit
and that the onus of evidence rests with you (the taxpayer), not the IRS. It could be good for
you to stop by your charity's neighborhood thrift shop or even a consignment shop to get a
sense of the FMV of used products if you're making sizable non-cash gifts. The next
significant challenge is proving your impact. The doorknob hanger that the charity's pickup
vehicle left behind is commonly accepted as enough documentation of a gift by taxes.
Unfortunately, it is not the case, as was made clear in a judgment decided by the US Tax
Court (Kunkel T.C. Memo 2015-71). In that case, the taxpayer's charitable donations
were rejected by the court because they were primarily based on doorknob hangers
that the drivers who picked up the donated goods for the charity left behind. The
court ruled that "these doorknob hangers are undated, they do not specifically refer
to the petitioners, they do not specify the property provided, and they do not contain
any additional information that is necessary".
The IRS has standards for both cash and non-monetary charitable contributions.
Documenting charitable contributions.
Cash Contributions - Taxpayers are not permitted to deduct cash contributions, regardless of
the amount, provided they can provide one of the following forms of documentation:
1. A bank statement that includes the eligible organization's name, the donation date, and
the contribution amount A cancelled check, a bank or credit union statement, or a credit
card statement are examples of bank records.
2. A written acknowledgement (letter or other written communication) from the eligible
organization that includes the organization's name, the date the gift was made, and the
3. Records of payroll deductions. Cash Contributions of $250 or More - The taxpayer must receive a written acknowledgement of the contribution from the qualified organization that contains the information listed below in order to claim a deduction for a contribution of $250 or more.
• The quantity of money donated;
• Whether the eligible organization supplied the taxpayer with goods or services in
exchange for the donation, describing those goods or services and providing a good faith
assessment of their worth (apart from intangible religious benefits); and
• A declaration that, if any advantage was received, it was only an intangible religious
If the donation date is missing from the acknowledgement, the taxpayer must possess one
of the bank documents mentioned above that does. It is not essential to also keep other
records if the acknowledgement includes the contribution date and passes the other
requirements. The acknowledgment must be in the taxpayer's possession by the earliest of the due date for filing the return, including any extensions, or the date the return is filed for the year the contribution was made.