Charitable giving is the act of sharing resources, goods, or money to people or causes in need. For many, charitable giving can be both a way to support causes and organizations that matter to you and a means to lowering your overall tax burden. If you’re new to charitable giving, there are a few key things to consider as you outline your giving plan or build an estate plan that includes donations.
What counts as charitable giving?
While it may seem obvious, not everyone agrees on what counts as charitable giving and, in this case, it’s important to keep the IRS definition in mind as not every donation you make will fit the bill. For the IRS, charitable contributions must be made to non-profit organizations that fit the criteria as outlined on their site – namely that the organization is dedicated to the promotion of “religious, charitable, educational, scientific, or literary in purpose or work to prevent cruelty to children or animals.” This means that your donations to political endeavors or individual people won’t count for tax purposes.
What counts as a donation?
Similarly, it’s helpful to understand what does (and does not) count as a donation, according to the IRS – and what you need to prove it. Currently, the IRS does allow for donations of money, assets, or time but does require a receipt or documentation of any donations over $300 (or comparable worth). If you’re focused on charitable giving, you’ll likely need to itemize your taxes in order to outline your various causes.
How much can I deduct?
Once you’ve outlined the specifics of your charitable giving strategy, it’s also important to understand how this may impact your taxes. Your accountant and financial planner will help you gauge the impact on your particular situation but as a rule of thumb, you can deduct up to 60% of your adjusted gross income. It’s also important to know that, according to the IRS, “only the amount of the donation that exceeds the fair market value of the received benefit can be deducted.” That means a ticket or gift store purchase at a not-for-profit location won’t qualify but an additional donation will.
Charitable giving can be a rewarding experience and can help to build the legacy that you’d like to leave behind – but it can also have an impact on your financial planning and taxes, so it’s important to understand the basics up front. Do you have specific questions about your donation? We can help!