What You Need to Know About Charitable Contributions for Year-End and Beyond

December 1, 2021 | Article

It’s the time of year when most people are in the giving spirit. As people are planning their gifts to family, friends, colleagues and clients, they are also giving to charities.

All Nonprofit organizations have been impacted in some way during the last year. Some saw significant increases in services provided, some were required to close facilities and all had changes in sources of funding. As such, charitable giving is more important this year than ever.

Whether you plan to donate money, property, goods, or services, here are five tips to consider for donations during this holiday season.

#1: Contribute to Qualified Charities

If you’re planning on itemizing your charitable donations on your tax return, make sure your donation goes to a qualified exempt organization. Not sure if the organization you are considering is a qualified organization? Research the organization’s 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 (other than a private foundation, supporting organization or donor advised fund) directly from your individual retirement account (IRA). If you do this, the amount donated is not included in your taxable income. However, that also means you can’t itemize this deduction on your tax return.

#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. For contributions of $250 or more, you must receive a written acknowledgement from the charity which states the following:

  • Charity’s name
  • Date of the contribution
  • Amount of the contribution
  • Whether any goods or services were received in exchange for the donation

It’s important to have the written acknowledgement from the charity prior to filing your tax return.

Preparing your books for year-end can be complex. We can help ease the burden.

#3: Donate Goods in Good Condition

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 policies may have changed due to the pandemic restrictions.

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 Recent Legislation Changes Deducting Charitable Contributions

The Consolidated Appropriations Act of 2021 extended a 2020 provision allowing taxpayers to take a tax deduction for a charitable contribution regardless of whether they itemize. Single taxpayers may deduct $300 and married couples filing jointly may deduct $600. This deduction applies only to cash contributions to certain charities (not private foundations, donor advised funds or supporting organizations). In addition, the 2020 suspension of limits on charitable contributions and increased limits on contributions of food inventory have also been extended to 2021.

Taxpayers considering making a year-end charitable contribution should review the issues discussed above and reach out to their tax advisor to insure they are maximizing the tax benefits.

Charitable contributions are key to the health of many nonprofits. Make sure you have the right steps in place at year-end.

This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.

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