With the year wrapping up, many people get into the spirit of giving. Why not take the opportunity to do some good for the community along with potentially lowering your taxes with charitable deductions? Charitable deductions are a type of itemized deduction that taxpayers can use to potentially lower the taxes they owe. Unfortunately, volunteering at the soup kitchen isn’t deductible, so we are looking at tangible charitable donations like cash and goods. As always, it is a good idea to keep receipts and records of any donations made.
Charitable Organizations
To get started, find a proper “tax-deductible” nonprofit. There’s a plethora of nonprofit organizations out there, but not all of them are “tax-deductible.” The IRS has laid out specific rules on qualified nonprofits that can receive tax-deductible donations. The majority of qualified organizations are known as 501c3 organizations (See our article on 501c3s for more details) , these organizations meet specific criteria to be classified as such. Use the IRS’s search database to confirm if the organization you wish to support can provide a tax-deductible donation.
Cash Donations
Direct donations of cash made to qualified nonprofits come with some limits on the giver and also can depend on the nonprofit organization. A 50% adjusted gross income (AGI) limit applies to the total cash charitable contributions an individual or organization can make. A 30% AGI limit may apply instead, depending on the nonprofit you may decide to contribute to.
Property contributions
Donations of property like cars or furniture to qualified nonprofits also come with some rules. A 30% AGI limit on the value of donated property applies to donations made to certain “50% limit” organizations, which typically include 501c3 organizations. For donations of property made to non-“50% limit” organizations, the AGI limit becomes 20%.
Confused? Understandable. There is a lot to account for in charitable donations. Having an informed team will help to plan out any charitable donations to utilize for you or your business. We at MiklosCPA can help. We are a California-based CPA firm that works with many small-to-midsized firms with their accounting and tax needs. Contact us for more info about our services, and follow us on our social media pages for future “good-to-know” articles.