Charitable Contributions

Generally, donations of cash or property to charity are deductible on your personal tax return. The itemized deduction for qualified charitable cash contributions is usually limited to 60% of your AGI. The limit falls to 50% for noncash contributions and 30% for gifts to private foundations. (First, deduct gifts that qualify for the 60% limit, then other gifts.) In general, there’s a five-year carryover for excess gifts you can’t deduct in a single year.

The Consolidated Appropriations Act (CAA) of 2021 maintains and enhances the charitable contributions provisions that were originally created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This means that taxpayers who do not itemize can deduct up to $300 of qualified cash contributions on their 2021 tax return as an above-the-line deduction (the deduction is $600 for joint filers). The CAA also temporarily extends the provision that allows taxpayers who itemize to deduct up to 100% of AGI for qualified contributions (rather than the usual 60%).

You can generally deduct the full market value of capital assets you donate to charities without paying taxes on their appreciation (limited to 30% of AGI). Tax-free direct transfers up to $100,000 to an eligible charity by IRA holders age 70 1/2 and older has been reinstated as a permanent tax break.

Taxpayers are required to substantiate any cash or monetary gift with a bank record or written acknowledgement from the charity. It must specify the amount and date of the contribution, as well as the name of the charity. If you receive an item or service in return for your donation, you must reduce your deduction by the value of that item or service. For example, if you donate $125 to a charity and receive a book worth $35, your total deduction would be $90. The charity must inform you of the item’s value.

Noncash donations, such as clothing and household items, must be in “good” condition to be tax deductible. For noncash donations worth more than $500, you must provide additional information with your Federal tax return. Be sure to obtain a certified appraisal for donations worth more than $5,000 (other than publicly traded securities) and nonpublic stock worth more than $10,000.

Although you cannot deduct the value of your time or services given to a charity, you may deduct out-of-pocket expenses, including a 14¢ per mile deduction for charitable travel.

Remember, even if you donate every penny of your earnings in a given year, your charitable deduction is limited to 60% of your AGI. You can, however, carry forward the excess contributions for five years.

Giving Property to Charity. Donating appreciated capital gain property to charity has many tax advantages. For most appreciated property, the amount of your deduction is the value of the property, rather than its cost, and you are never taxed on the amount of appreciation. In the case of many property donations, an annual deduction limit of 30% of AGI applies. Inventory, items donated for a charity auction, and certain other types of property are subject to different rules.

If you sell business or investment property that has declined in value and donate the proceeds to charity, you may be able to deduct both your capital loss and your contribution. If you give devalued property directly, you may deduct the fair market value of the property, but not the loss.

The Tax Cuts and Jobs Act of 2017 changed charitable giving. Since the standard deduction almost doubled in 2018, it means individual taxpayers, including owners of businesses that are not corporations, have less incentive to give to charities. If you want to give and get a deduction, you must itemize all charitable deductions, in an effort to getting above the standard deduction amount. However, C corporations with excess inventory may donate surplus property to charitable organizations and receive a tax deduction. For example, if you contribute food or medical supplies to a charity that provides for the homeless, you may deduct not only the cost of the goods, but also half of the lost profit (not to exceed twice the cost). Corporate contribution deductions are limited to 10% of the corporation’s taxable income before considering the donation.

Charitable Vehicle Donations. When claiming a deduction for a donated vehicle worth more than $500, you may deduct only the amount the charity receives for the sale of the car. Many charities wholesale donated cars and receive less than market value. Prior to 2004 reform, taxpayers could write off the car’s full blue book value, regardless of the amount the charity received for the car. In the event that the charity retains the vehicle for its own use, the taxpayer is responsible for substantiating how the vehicle will be used and for how long. These rules only apply when the deduction exceeds $500.

There are several additional tools, such as charitable remainder trusts and charitable lead trusts, which may be useful for your charitable giving objectives. Consult with your estate planning and tax advisors to determine their applicability to your situation.

The IRS website (www.irs.gov) has a database, updated monthly, of charities eligible to receive deductible contributions.

For charitable deductions under $500, receipts and other acknowledgments are not filed with your annual Federal income tax return (Form 1040). However, be sure to carefully store them with other tax documents for the current year. As a general rule, keep all tax forms, investment statements, bank statements, proof of deductions, or receipts associated with a particular return for at least six years.