November 7, 2017
As year end approaches, you may be thinking about making some charitable donations. Here’s a rundown of the potential tax breaks for your generosity.
You can claim write-offs for contributions of cash and other items donated to charitable organizations, such as United Way and Goodwill. What you might not realize is that not all contributions to charities qualify for tax breaks.
First, you receive tax savings from charitable donations only if you itemize deductions on your personal tax return.
For 2017, the standard deduction amounts are:
- $6,350 for singles,
- $9,350 for heads of households, and
- $12,700 for married joint-filers.
Unless your total itemized deductions, including any charitable donations, exceed the applicable standard deduction, you won’t get any tax savings for your generosity. In general, most people who don’t own homes don’t itemize. Also, be aware that some not-for-profit organizations aren’t qualified charities for federal income tax purposes. You can search for IRS-approved charities on the IRS website or ask your tax advisor for help. And of course, you can’t deduct money or property you give to an individual. In addition, there are limits on the amount of itemized charitable donations that you can deduct in any one year. For most types of donations, the limit is 50% of adjusted gross income (AGI). However, lower limits apply to certain types of donations. Any amount of charitable contribution that’s disallowed under the applicable percent-of-AGI limitation is carried forward to the following five tax years. If you can’t use up the carryover amount during the five-year period, the remainder can’t be deducted.
The tax rules also require proper documentation for charitable contribution deductions. The type of documentation depends on the size and nature of the donation. Cash contribution under $250. These donations require a written receipt from the organization showing its name, the date and place of the contribution, and the amount.
Alternatively, you can save canceled checks or credit card statements. Cash contribution of $250 or more. The IRS won’t accept canceled checks or other evidence supplied by you for these donations. Instead, you must obtain a written acknowledgment from the charity by the time you file your federal tax return. If you don’t get a written acknowledgment and you do get audited, the IRS will reject your deduction, even if there’s no doubt that your donations were legitimate.
Noncash donation under $250. Here, you’ll need to obtain a receipt from the charity by the time you file your return. Keep it with your tax records for the year, but don’t file it with your return. Noncash donation worth between $250 and $5,000. These donations require a contemporaneous written acknowledgment from the charity (more detailed than a receipt) that meets IRS guidelines. Keep it with your tax records, but don’t file it with your return.
A qualified acknowledgment must include the following information:
- A description (but not the value) of the noncash item,
- Whether the charity provided you with any goods or services in exchange for the donation (other than intangible religious benefits), and
- A description and good-faith estimate of the value of any goods or services provided by the charity in exchange for your donation.
- An acknowledgment meets the contemporaneous requirement if you obtain it on or before the earlier of 1) the date you file your Form 1040 for the year you made the donation, or 2) the due date (including any extension) for filing that return. If you don’t have a qualified acknowledgment in hand by the relevant date, you can’t claim a charitable deduction.
Noncash donation worth between $501 and $5,000. In addition to the aforementioned contemporaneous written acknowledgment from the charity, you’ll need to provide written evidence that supports the item’s acquisition date, fair market value and cost.
The written evidence — which may be as simple as your own handwritten notes — will be used to complete IRS Form 8283, “Noncash Charitable Contributions.” Keep the evidence with your tax records, but don’t file it with your return.
Noncash donation worth more than $5,000. In addition to a contemporaneous written acknowledgment and written evidence, these donations require a written qualified appraisal. Specific appraisal requirements apply to certain types of donated property and donations valued above certain amounts. However, no appraisal is required for donations of publicly traded securities. Special restrictions apply to donations of vehicles, planes and boats. As a general rule, your charitable write-off will usually be limited to the amount the charity receives when it sells the vehicle, plane or boat (as opposed to the item’s fair market value).
Save Taxes by Donating
You can reap tax savings by making charitable donations, but the rules are complicated. Your tax advisor can help devise a plan that delivers the maximum tax savings for your generosity. Just don’t wait too long to get started: Year end will be here before you know it.