It’s that time of year again—the season of giving. As people are planning their gifts to family, friends, colleagues and clients, they are also giving to charities. Giving to others less fortunate or who are going through hard times can be very rewarding; it feels good to be able to donate to causes you’re passionate about. Nonprofit organizations have also been hit hard this year and would certainly appreciate any charitable donations they receive.
Keep in mind this tax planning guidance when giving to nonprofit organizations. Whether you plan to donate monetarily or with goods, here are five tips for donating to charities during this festive holiday season.
#1: Contribute to Qualified Charities
If you’re planning on itemizing your charitable donations for deductions on your tax return, make sure your donation goes to a qualified charity by December 31. Not sure what a qualified charity is? Research their tax-exempt status by going to IRS.gov and using the Exempt Organizations Select Check tool to verify.
If you are a taxpayer 70.5 years of age or older, you can make a donation of up to $100,000 to a qualified charity directly from your individual retirement account (IRA). If you do this, the donation amount is not included in your taxable income. However, that also means you can’t itemize this deduction on your Schedule A form.
#2: Keep Records of All Donations
You’ll need to track any donations you’re planning on deducting, regardless of the amount. Records can be in the form of a cancelled check, bank or credit card statement, or payroll deduction record. Payroll deductions can be substantiated with the donation listed on a pay stub, a Form W-2 or other documentation furnished by the employer can also qualify as records. For contributions of $250 or more, you must receive a written acknowledgement from the charity which states the following:
This documentation is a requirement if you plan to itemize your deductions. It’s important to have the written acknowledgement from the charity prior to filing your tax return.
If you’re managing a nonprofit organization, here are some important things to consider for year-end charitable contributions.
#3: Donate Goods in Good Condition
Keep in mind that in order to be tax-deductible, any clothing or household goods you donate to charity should be in good used condition or better. This includes furniture, furnishings, electronics, appliances and linens. Be sure to check with the charity beforehand on what they will/won’t accept, as their policies may have changed due to the COVID-19 pandemic.
In addition, it’s a good idea to take pictures of donated items for documentation. Be aware that certain non-cash donations of $5,000 or more will require an official appraisal.
#4: Keep it to the Current Year
Charitable contributions are deductible in the year they were made. So, if you charged a contribution to a credit card on or before December 31, it counts—even if you’re paying your credit card bill in the next year.
#5: How the CARES Act Changes Deducting Charitable Contributions
The CARES Act has impacted how individuals deduct charitable contributions. Previously, charitable contributions could only be deducted if taxpayers itemized their deductions. Now, those who don’t itemize may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. The CARES Act also temporarily suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory.
While in the giving spirit, give yourself the gift of a stress-free tax season. For individuals and businesses alike, year-end tax planning can be very challenging—especially considering the complexities of the COVID-19 pandemic. Year-end planning encompasses much more than just a financial statement. Navigating it smoothly comes down to the basic fundamentals: reporting, preparation and planning for the year ahead.
See what more we can bring to organizations just like yours.Nonprofit