With the end of the year comes preparation for taxes. You probably know that you can get an income tax deduction for a gift to a charity if you itemize your deductions, but there is a lot more to charitable giving. For example, you may be able to give appreciated property to a charity without being taxed on the appreciation. Or charitable giving may be part of your overall estate planning. These benefits can be achieved, though, only if you meet various requirements, including substantiation requirements, percentage limitations, and other restrictions. We would like to take the opportunity to introduce you to some of these requirements and tax-saving techniques, and answers for your 2022 tax deductible donation questions.
First, let’s look at the basics. Your charitable contributions can help minimize your 2022 tax bill only if you itemize your deductions. Once you do, the amount of your savings can vary depending on your tax bracket and will be greater for contributions that are also deductible for state and local income tax purposes.
How Much Can I Deduct?
Under the 2017 Tax Cuts and Jobs Act, you can deduct up to 60% of your adjusted gross income for cash donations to public charities from 2018 through 2025. Depending on the type of contribution and the organization, you may be limited to 20%, 30%, or 50%. For instance, contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations come with a lower limit.
In 2022, taxpayers over 70 1/2 years of age are allowed an exclusion from gross income for distributions from their IRA made directly to a charitable organization of up to $100,000 ($100,000 for each spouse on a joint return). A qualified charitable distribution counts toward satisfying a taxpayer’s required minimum distributions from a traditional IRA.
Donate to a Qualifying Organization
Your charitable giving will qualify for a tax deduction only if it goes to a tax-exempt organization, as defined by section 501(c)(3) of the Internal Revenue Code. Examples include:
- Religious organizations
- The Red Cross
- Non-Profit Educational Agencies
- Volunteer Fire Companies
For any potential tax-deductible donations in 2022, an organization can be a nonprofit without 501(c)(3) status, making it challenging to ensure your charity of choice counts. You can verify an organization’s status with the IRS Exempt Organizations Select Check Tool.
Whether you use the cash or accrual method, contributions must be paid in cash or other property before the close of your tax year to be deductible. Keep track of all your 2022 tax-deductible donations, no matter the amount. Generally, a bank record or written communication from the charity (including the charity name, date of the contribution, and the amount) is substantial enough. Without records of each donation made, no deduction is allowed.
However, there are stricter requirements for donations of $250 or more and donations of cars, trucks, boats, and aircraft. Additionally, appraisals are required for large gifts of property other than cash. Finally, donations of clothing and household gifts must be in good used condition or better to be deductible.
There are other special charitable giving techniques beyond the usual gifts of cash. These include, among others, a bargain sale to a charity, a gift of a remainder interest in your residence, and a transfer to a charity in exchange for an annuity. Each situation is unique to the individual person filing. To discuss your 2022 personal tax situation, schedule your complimentary 10-minute guidance call today!