It’s that time of year again, when many people add charitable giving to their busy holiday to-do list. Year-end giving can come with great benefits, of course, and now is a good time to refresh on some highlights, as well as finer points that can get donors in trouble.
There's financial incentive for Americans to give generously to charity: when you donate to a 501(c)(3) public charity, including I'm Your Huckleberry Rescue you are able to take an income tax charitable deduction. The purpose of charitable tax deductions are to reduce your taxable income and your tax bill—and in this case, improving the world while you’re at it.
1. How much do I need to give to charity to make a difference on my taxes?
Charitable contributions can only reduce your tax bill if you choose to itemize your taxes. Generally you'd itemize when the combined total of your anticipated deductions—including charitable gifts—add up to more than the standard deduction.
2019 standard deductions
Filing Amount AS :
Single = $12,200
Married filing jointly = $24,400
Head of household = $18,350 Source IRS
Keep track of your charitable contributions throughout the year, and consider any additional applicable deductions. Generally taxpayers use the larger deduction, standard or itemized, when it's time to file taxes.
2. What can I take a tax deduction for?
In order to take a tax deduction for a charitable contribution, you'll need to forgo the standard deduction in favor of itemized deductions. That means you'll list out all of your deductions, expecting that they'll add up to more than the standard deduction.
The most common expenses that qualify are:
State and local tax
Medical and dental expenses
3. What's the maximum amount I can claim as a charitable tax deduction on my taxes?
When you donate cash to a public charity, you can generally deduct up to 60% of your adjusted gross income. Provided you've held them for more than a year, appreciated assets including long-term appreciated stocks and property are generally deductible at fair market value, up to 30% of your adjusted gross income. Combining more than one type of asset can be a tax-efficient move to maximize the amount that you can take as a charitable tax deduction.
4. What do I need in order to claim a charitable contribution deduction?
Once you've decided to give to charity, consider these steps if you plan to take your charitable deduction:
Make sure the non-profit organization is a 501(c)(3) public charity or private foundation.
Keep a record of the contribution (usually the tax receipt from the charity).
If it's a non-cash donation, in some instances you must obtain a qualified appraisal to substantiate the value of the deduction you're claiming.
With your paperwork ready, itemize your deductions and file your tax return.
5. Which tax bracket am I in and how does that impact my deductions?
Federal tax brackets are based on taxable income and filing status. Each taxpayer belongs to a designated tax bracket, but it’s a tiered system. For example, a portion of your income is taxed at 12%, the next portion is taxed at 22%, and so on. This is referred to as the marginal tax rate, meaning the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of taxable income above a pre-defined income threshold. That means each taxpayer is technically in several income tax brackets, but the term “tax bracket” refers to your top tax rate.
2019 tax brackets (for taxes due April 15, 2020)
The higher your tax bracket, the greater your tax savings as a result of making charitable gifts. For example, if a hypothetical donor in the 37% tax bracket makes a donation of $10,000, this person may later qualify for $3,700 in savings at tax time. Compare the same $10,000 gift from someone in the 22% tax bracket who will recognize $2,200 in tax savings.
6. How does the Pease limitation affect my tax deduction?
The new law removes the Pease limitation from the tax code. The Pease limitation was an overall reduction on itemized deductions for higher-income taxpayers. The rule reduced the value of a taxpayer’s itemized deductions by 3% of adjusted gross income (AGI) over a certain threshold. The 3% reduction continued until it phased out 80% of the value of the taxpayer’s itemized deductions.
7. Can I take a Fair Market Value deduction for donating private S-corp or C-corp stocks to charity?
Yes, it's possible to deduct the full fair market value of the contribution if the recipient organization is a public charity. But tactically, the answer depends on whether the charity is able to accept private stock as a gift. Most charitable organizations simply don’t have the resources, expertise or appetite to efficiently accept and liquidate these types of assets, particularly in a time crunch at the end of the year.
Topic No. 506 Charitable Contributions - IRS
You can only deduct charitable contributions if you itemize deductions on Form 1040, Schedule A, Itemized Deductions (PDF).
To be deductible, you must make charitable contributions to qualified organizations. Contributions to individuals are never deductible. To determine if the organization that you contributed to qualifies as a charitable organization for income tax deduction purposes, refer to our Tax Exempt Organization Search tool. For more information, see Publication 526, Charitable Contributions and Can I Deduct My Charitable Contributions?
If you receive a benefit from the contribution such as merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can only deduct the amount that exceeds the fair market value of the benefit received.
For contributions of cash, check or other monetary gift (regardless of amount), you must maintain a record of the contribution:
Special rules apply to donations of certain types of property such as automobiles, inventory and investments that have appreciated in value. For more information, refer to Publication 526, Charitable Contributions. For information on determining the value of your noncash contributions, refer to Publication 561, Determining the Value of Donated Property.
The tax information provided is general and educational in nature, and should not be construed as legal or tax advice. I'm Your Huckleberry Rescue does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. As a result, I'm Your Huckleberry Rescue cannot guarantee that such information is accurate, complete, or timely. Tax laws and regulations are complex and subject to change, and changes in them may have a material impact on pre- and/or after-tax results. I'm your Huckleberry Rescue makes no warranties with regard to such information or results obtained by its use. I'm Your Huckleberry Rescue disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.