Happy Donating!

As we approach the end of the year and the holiday season, we seem to be bombarded with opportunities for charitable giving. Happily, many of us answer this call and donate generously to our favorite charitable organizations. Your generosity may also be beneficial at tax time if you remember a few tax implications of donations ...

Here are some tax implications of donations to keep in mind as you finalize your year-end charitable giving:

  • You must itemize deductions on Schedule A to deduct a charitable contribution. 2021 presents an exception to this rule. Individuals will be able to claim a $300 ($600 for married individuals filing joint returns in 2021) above-the-line deduction for cash contributions made, generally, to public charities in 2021. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.
  • Donate before year-end to claim a deduction. Please remember if you are making a stock donation to submit the request a few weeks before the end of the year as this will allow your custodian enough time to fulfill the request in time for the deadline.
  • Verify that the charity is tax-exempt (sometimes called 501(c)(3) organizations) or qualified. Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization. More information about qualified organizations can be found in IRS Publication 526, Charitable Contributions. You can also verify the tax-exempt status of an organization on the IRS.gov website.
  • When making your donation of cash or goods be sure to get a receipt. The IRS requires a receipt for donations greater than $250. If under $250 you need to have supporting documentation such as a bank record or receipt documenting the contribution.
  • For donated property with a value of more than $5,000, you’re generally required to obtain a qualified appraisal and to attach an appraisal summary to the tax return. However, a qualified appraisal isn’t required for publicly traded securities for which market quotations are readily available. For non-publicly traded securities, a written appraisal is required only when the deduction claimed exceeds $10,000.
  • For gifts of art valued at $20,000 or more, you must attach a complete copy of the signed appraisal (rather than an appraisal summary) to your return.
  • If you are giving a large donation and the contribution is to a “50% limit organization” (generally speaking most are), the deduction, if cash, is limited to 60% of your adjusted gross income (AGI). Non-cash contributions to a “50% limit organization” are, generally speaking, limited to 50% of AGI reduced by cash 60% contributions. When planning a large gift, talk to your tax professional to develop the most beneficial giving strategy. The 2020 CARES Act presents an exception to the AGI limits for cash contributions. The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.
  • Lastly, many employers will match gifts made by their employees so remember to check your company policy and do twice as much good!
  • If you are required to take distributions from your IRA, consider qualified charitable distributions (QCD), which serves to reduce your income. A QCD can often have benefits over and above the charitable deduction of the same amount. If you are unfamiliar with a QCD, read our article “What Are RMDs and QCDs?

In addition to understanding the tax implications of donations, make sure to read our related blog post Tax Implications of Charitable Giving and download our whitepaper Charitable Gifting Strategies to Maximize Income Tax Benefits.

Larry Harris, CPA, CFP®, PFS
Co-Director of Tax Services

Share:

Recent Posts:

How To Evaluate Taking on “Fun” Debt

Personally, there is nothing more relaxing and exhilarating than being on a sailboat with a 15-knot wind on your beam (side), listening to the soft sounds of water splashing against the bow and using wind energy to propel the boat forward.

Tax-Loss Harvesting Amidst Market Turmoil

Market declines like the one we are currently experiencing present great opportunities to take advantage of cheaper asset prices. Almost everyone with a taxable account should be harvesting tax losses during times like these.

“What If” Contingency Planning

We want to ensure you are thriving, as living a healthy and successful life is truly priceless. Of all the steps that can be taken toward financial security and peace of mind, planning our own death and incapacity is the least popular. Life goals dominate our consciousness, and these goals are often about ourselves. Estate planning is not as much about us as it is about the people and things that we love.

Recent Quarterly Newsletters:

Thrive By Ensuring Your Loved Ones Are OK Edition

Our Q3 2022 newsletter focuses on how to thrive by ensuring your loved ones are OK. In it, we have created an eight-page fillable guide you can create for loved ones to follow after you pass. We also provide other guidance on estate planning, caring for aging parents and preparing for a potential disability.

Thrive by Learning and Growing Edition

Read our Q2 2022 newsletter on how to thrive by learning and growing. CEO Rick Manske reflects on graduation season and what this time of achievement and change means for students and loved ones. CIO Bill Hansen writes about education savings; President Harli Palme writes about tax savings related to college expenses; Portfolio Manager Nancy Blackman cautions about hidden costs of college. Advisor Charles Thompson outlines why it’s important that we value and prioritize travel. Advisors Judd Meinhart and Hilary Daniel write about job transitions and what to do with your 401(k) and new benefits. Advisor Neal Nolan ends with 10 ways to celebrate Independence Day and we highlight announcements across our firm. We hope you enjoy this edition!

Recent Whitepapers:

Stay Up To Date With Parsec

Sign up to join our mailing list and receive quarterly newsletters, whitepapers, news, and more right in your inbox.
Scroll to Top

Not a Client But want to receive updates?

Please sign up to join our mailing list and receive our latest news, thought leadership content and invitations to upcoming webinars.