Making a charitable contribution can be a wonderful way to support a cause you care about. The act of giving itself feels good because you know you’re trying to help others. But don’t forget about the other benefits! Your generous support can also impact your tax returns—as long as it’s reported correctly.
Donations Types that Can Help with Your Taxes
The right type of donation can be mutually rewarding. When you understand your options and know how to plan accordingly, you can expect to see some nice charitable tax breaks. Running through this list and scheduling a time to talk with your local accounting firm can help you make sure you’re on the right track for the months ahead.
1. Giving to a qualified charity
You probably already know that the IRS has set rules for what your charitable donation deduction entails. You can’t, for example, reference a $500 donation you gave to your friend on your taxes. Only gifts made to qualified charitable organizations and qualified tax-exempt organizations are applicable. And even then, there are set limits for the amount you can actually deduct on your tax return.
One interesting detail here is that you have special donation options if you are 70 ½ years or older. If you choose to transfer your charitable contribution directly from your IRA, you can make a gift of up to $100,000 without paying any tax. For joint filers, that amount can be as high as $200,000. This basically makes it so you can donate pre-tax dollars. Of course, the option isn’t available to everyone, but if you fall into that category it might be worth discussing with your accountant.
2. Donating your appreciated property
Another way to stretch your donation dollars is to give your securities to a qualified charity. As long as you’ve owned them for over a year, you can donate the full amount and avoid a capital gains tax. Put another way, if your stock is worth more now than when you bought it, you can deduct the current stock’s value (what you’re donating) and not have to worry about the tax on the entire appreciated stock value. This can be a smart move when you’re hovering on the threshold for your itemized deduction.
3. Bunching larger gifts—when the time is right
The 2018 tax legislation reduced and eliminated certain itemized deductions. If you aren’t planning to itemize in a given year, you might be better off waiting to make your charitable donations the following calendar year, and possibly ‘bunching’ your donations. This bunching strategy may allow you to itemize your deductions by combining them into one tax year, and get the best possible results on your tax return.
Other Accounting Advice for Charitable Giving
The new limits on itemizing your deductions should not hinder your charitable donations. However, it is always rewarding to give to your chosen charity, support a good cause, and get notable tax benefits in return.
If you have questions about your charitable contributions for last year, this current year, or your future plans, please don’t hesitate to contact our office. NSO and Company is here to help you make sense of your tax return and other accounting needs. We would be happy to talk with you about your options and discuss the pros and cons of how to manage your taxes. Just give us a call at (317) 588-3131 to schedule your consultation. We look forward to helping you!