Charitable Contribution Tax Tips
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Charitable contributions are one way that you may be able to reduce your tax bill.
Typically, to get a benefit from your charitable contributions, you need to attach Schedule A to your Form 1040. Schedule A lists all itemized deductions, so all of your itemized deductions would have to be greater than the standard deduction to get that benefit.
New for 2020 and 2021, even if you take the standard deduction, you can get a little bit of a tax benefit for your cash charitable contributions.
It's limited - for 2020, it was $300 dollars for single and married filing jointly, and for 2021 it's single $300 married filing jointly, $600. So just keep that in mind - if you typically don't keep your receipts to charity because you do the standard deduction, you may be able to benefit from that in 2021.
Donations to Qualified Charitable Organizations
Whenever you're giving a charitable contribution and you want to get a tax benefit, you have to make sure that you're giving to a qualified charitable organization and that's qualified as defined by the IRS. Here is a search tool that the IRS provides where you can look up an organization to confirm that they're qualified.
Political Donations are not Tax-Deductible
One common mistake or just confusion that I see with clients is political donations. Contributions to a political party or a candidate - that is specifically excluded in the IRS publication. So that is not going to be a charitable deduction for you.
Be Careful when you Receive Something in Return for your Charitable Contribution
When you are giving to an organization and you receive something in return, that needs to be accounted for. So if you are paying for a zoo membership that's a 501(c)3 organization, but you receive a membership in return, or perhaps you're doing a charity 5K run, but you get a T shirt in return or you're paying for dinner, a dinner gala and you're paying for the ticket but you're also receiving food. So you need to confirm that you are just putting the deductible amount. So for example, if the dinner was $100 for the ticket, but you received $40 in food costs, $60 would be the tax deductible amount. And I am finding that organizations are doing a better job about showing on the receipt that calculation so that you can see what the fair market value of the goods and services that you received are so you can deduct that and determine a tax deductible amount.
Substantiation Requirements for Non-Cash Charitable Contributions
You also need to be aware that there are substantiation requirements when you are giving non-cash items to qualified organizations and the requirements are going to vary depending on how much you give. So check with your tax preparer just to confirm that you have what you need from the organization to be able to take the tax deduction when it becomes tax time.
Reach out with other finance and tax topics that you want me to dive into in more detail. Consider reading the IRS Publication 526. That is the publication on charitable contributions. It goes into more detail about these items that I talked about today and just has a lot of information about charitable contributions.
My name is Linda Rogers, Owner of Planning Within Reach.
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.