A new IRA charity donation tax deduction made headlines recently. So that got me thinking there have to be numerous other charity donation rules that others don’t know about.
Below you’ll find details on the IRA tax change and 20 quick facts about charity donation tax deductions.
Age 70 ½ IRA Charitable Opportunity
Retirees age 70 1⁄2 or older can now donate a maximum of $50,000 from their IRAs to fund gift annuities. According to the WSJ, many colleges are starting to make this pitch to their alumni. So be ready for other organizations mailing similar solicitations.
● Opportunity to do good plus get a tax break
● These donations count toward required minimum distributions
● Unlike normal RMD, these are tax-free when donated
● The charity makes fixed monthly payments to the giver
● Minimum annual payout is 5% of donated amount
● Donor can make this IRA donation in one tax year only
As with many advantageous tax laws, your age, health, and income play a role in deciding whether to use this tax strategy.
Now, those 20 quick facts related to charitable opportunities to save on taxes.
Charity Donation Tax Deduction Facts
I’ll list the facts for those who only want the basics. But for those wanting a little more detail, I’ll discuss the charity donation tax deduction facts after the list.
#1 Cash donations without a receipt cannot be deducted (TurboTax)
#2 Fundraisers such as raffles aren’t deductible
#3 Charities must be registered with the IRS or your donation is ineligible for a tax deduction
#4 Pledges are not deductible, only actual money donated
#5 Processing dates can affect eligibility on year-end donations
#6 Charity donation tax deductions are lowered if you receive anything of value for your contribution (i.e. meal at charity event)
#7 Political fundraisers are not charities
#8 Receipts qualify as proof with $250+ donations in a single day to one charity— canceled checks aren’t enough
#9 Non-cash gifts such as car or boat donations require extended proof and an additional IRS form
#10 Misrepresenting the value of donated property can lead to IRS penalties (IRS.gov)
#11 The IRS ‘Determining Value of Donated Property’ document is roughly 13,300 words long!
#12 Gifts to individuals are not deductible
#13 Time spent volunteering is not tax deductible
#14 Mileage for qualified charity causes is deductible (Intuit)
#15 Goodwill.org provides estimates on the value of commonly donated items (example: suits range from $15 - $40 & TVs from $20 - $170)
#16 Deductible charitable contributions generally can't be more than 60% of your adjusted gross income
#17 Beware. IRS charity donation tax deduction documentation uses the word “generally” more times than you or I can count!
#19 ‘Bunching’ is a strategy to double charitable deductions by donating on January 1, then on December 31 of the same year (Forbes)
#20 Donating stock is a tax strategy to avoid capital gains taxes on those stocks
Now a breakdown of the 20 charity donation tax deduction facts.
Keeping good… no, great records is what wise people do when it comes to tax deductions. If you run a business, you likely know this already. But it’s a good reminder for people who don’t, and perhaps their main deductions come from charitable gifts they provide.
Next, assumptions are often what land taxpayers in hot water. Heck, even a letter from the IRS about a mistake you made is not something you want to happen. If you don’t have a tax professional, then triple-check all assumptions about giving and how it affects your tax bill.
And don’t forget, the devil’s in the details and in IRS documentation! Be sure you follow the rules on things like donation dates so your transaction rightfully happens in the tax year you want to utilize the tax deduction.
Another key point…
Even though your time spent volunteering isn’t a legitimate tax break, there are tons of reasons to volunteer anyway. It does good for the community, helps you meet people, and according to research, volunteering brings happiness to individuals giving of themselves.
Lastly, some charity donation tax deductions are not worth the hassle of calculations. For example, donating used clothing is great because people are in need. But even a couple carloads of clothes won’t move the needle much when you need over $13,850 to be above the standard deduction (2023, Forbes).
That’s not to say, don’t go to the trouble of giving. Giving is good whether you get a tax break or not.
Hopefully, those 20 charity donation tax deduction facts help you when tax time arrives. And don’t forget the new IRA charity rule we mentioned at the top of this article.
It’s natural for all of us to complain about heavy tax burdens and rule changes that hurt our family finances. But on the flip side of the coin, we have to take advantage of tax laws that give us the opportunity to save money and protect our hard-earned wealth.
Investment advice offered through Private Advisor Group, LLC, a registered investment advisor.