This is certainly the season for giving and surprisingly there are a lot of options and rules to keep in mind.
Now, first and foremost I don’t think there is anything wrong with seeking out a tax deduction when you give. I hope that doesn’t offend any of you generous folks out there, but let’s face it…we all pay our fair share of taxes. Why can’t we get a little boost on our tax return for helping others in need during the year or even during the holidays?
First, some basic rules when giving:
- Make sure you itemize- Now with the changes under the Tax Cuts and Jobs Act (“TCJA”) and the increase of the standard deduction, your itemize deductions need to exceed $12,000 if your single and $24,000 if your married, in order to get any tax benefit for a donation. Meaning,This deduction is not available to individuals who choose the standard deduction, thus a taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Thus, only taxpayers who itemize their deductions on Form 1040-Schedule ‘A’ can claim deductions for charitable contributions.
- Check that the organization is eligible- Only donations to eligible organizations are tax-deductible. A searchable online database is available (click here) and lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
Next, here are 8 tips critical to maximizing your deduction and better helping those in need.
- Good ole’ Cash. Of course, most charities just love cold hard cash and it’s the easiest method for giving. But what if you want to give with a check or credit card? Well, you’re in luck. First, remember that donations are deductible in the year they are made. Thus, donations charged to a credit card before the end of 2018 count for 2018. This is true even if the credit card bill isn’t paid until 2019. Also, checks count for 2018 as long as they are mailed in 2018.
- Non-Cash Donations under $250- A receipt isn’t required for donations under $250, but certainly recommended. This includes all donations of property, including clothing and household items. If possible, get a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation and it’s value.
- Non-Cash Donations over $250– This is where the rule gets a little more tricky. In the situation where you give items such as furniture, furnishings, electronics, appliances and linens, donors must get a written acknowledgement from the charity, including a description of the items contributed. This makes the ‘drive by drop off’ a more complicated. It’s critical to get the ‘receipt’ or some sort of written acknowledgment before driving off.
- If total “Non-Cash” donations exceed $500– Many taxpayers don’t claim more than $500 of non-cash items during the year because if they go over that amount the taxpayer must include Form 8283 with their tax return. Remember, the form isn’t required if you have cash contributions over $500, only if you are so bold or generous to give more than that to Goodwill or the Salvation Army.
- Donation of Appreciated Stock or Securities- Don’t give cash to charity if you have some appreciate stock. Many taxpayers don’t realize they can take an immediate tax deduction for the full market value of a stock and avoid the capital-gains tax they would owe by cashing in (selling) the securities. The added bonus: the taxpayer can then use the cash they might have otherwise donated and repurchase the same stock at a higher cost basis for capital-gains purposes.
- Donation of Car, Boat or Plane– The deduction for a car, boat or airplane donated to charity is limited to the gross proceeds of what the charity sells if for (if they sell it!). If the charity keeps the item and uses it in the charity, then you can deduct the appraised value (yes an appraisal would be required). The charity has to verify what it ended up doing with the donated property and provide a Form 1098-C or a similar statement, must be provided to the donor by the organization and then attached to the donor’s tax return.
- Giving from an IRA to Charity– Previously, taxpayers could give to charity from an IRA and not pay any penalties or tax for the donation, however, this is now limited to only those that are 70 1/2 years or older. Still a fantastic way to avoid taxes if your retired and want to give and only have resources in a retirement account, OR you are required to take 72t distributions.
- Track Expenses Related to Donating Services– Although no tax deduction is allowed for the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. This includes items such as:
- Vehicle expenses. I loved the fact that as a Scoutmaster I was a able to take a tax deduction while having 12 year old boys destroy my truck or suv on trips to go camping (my wife however did not appreciate it). Essentially, when using your car to perform services for a charitable organization you may deduct your actual unreimbursed expenses directly attributable to those services, such as gas and oil costs. Alternatively, you may deduct a flat 14¢ per mile for charitable use of your car. In either event, you may also deduct parking fees and tolls.
- Away-from-home travel expenses while performing services for a charity (out-of-pocket round-trip travel cost, taxi fares and other costs of transportation between the airport or station and hotel, plus lodging and meals).
- REMEMBER, to get written documentation from the charity about the nature of your volunteering activity and the need for related expenses to be paid. If you are out-of-pocket for substantial amounts, you should submit a statement of expenses and, preferably, a copy of the receipts, to the charity, and arrange for the charity to acknowledge in writing the amount of the contribution. Bottom line, do your best to 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.
Again, don’t feel bad to track your charitable giving and activities. Our government and society rewards taxpayers that donate with powerful tax incentives. Keep giving and serving! Many families and suffering individuals need your generosity. For what it’s worth, I’ll give you a hearty ‘thank you’ and so will the tax man on your tax return.
Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Business Owner’s Guide to Financial Freedom- What Wall Street Isn’t Telling You” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.