What You Need to Know about Charitable Giving

Another year is quickly coming to an end, which means it will be everyone’s favorite time of year—tax planning for the end of the year! OK, perhaps not everyone is excited for this part of the upcoming season, but there are some things to keep in mind when preparing this year’s tax return. As you may know, if you itemize deductions on Schedule A of your tax return, you may be able to take advantage of deducting charitable contributions.
It sounds simple- give to charity and deduct the amount you donated, right?
Not necessarily. Rules for charitable giving can be confusing, so you must be careful before entering that deduction.
Charitable Giving

1. Types of donations- What kind of donation will you make this year?

The maximum amount you can deduct on your tax return depends on whether you make a cash donation or a donation of property. The amount that you are allowed to deduct also depends on the type of charity- donations to public charities, private operating foundations, and private non-operating foundations may be different. Keep in mind that the maximum for any donation is 50% of your Adjusted Gross Income (AGI) for the year. However, donations to certain organizations may only be deductible up to 30% of your AGI. As a result, consult a tax professional to understand the maximum you will be allowed to deduct for your donations.

 

2.  Qualified organizations- Who do you want to donate to?

The IRS requires that donations be given to a qualified organization in the United States in order to be deductible. Many major charities fit the criteria to be a qualified organization, but it is a good idea to double check that your organization of choice is on the list. Just because it claims to be tax-exempt, does not mean the donation is deductible. Fortunately, the IRS has a convenient search feature to look for organizations that qualify for deductible contributions. This search can be found at this IRS website: http://www.irs.gov/Charities-&-Non-Profits/Search-for-Charities.

 

3. You may not know:

Some donations are never deductible: Bibles, gifts to individuals, and donations to political parties or candidates, are the common ones that will not likely benefit your tax bill. Services provided are also not a deductible donation; your donation must be physical in nature (whether the donation is cash or property).

For deductible cash donations, the IRS requires standard documentation of a bank record, payroll deduction, or written communication from the qualified organization with the name of organization, date and amount of contribution regardless of the amount donated. For all donations (cash and property) over $250, you must show the above stated documentation, plus a written acknowledgement that the amount of donation and whether any portion of the donation was in exchange for goods or services.

These few reminders only skim the surface of charitable giving, as there are many other rules to follow. To get the best possible tax benefit this year be sure to discuss with a tax professional.

 

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Megan Olson
Megan Olson

CFP® | Financial Advisor

Megan Olson, CFP®, is a financial advisor serving clients in the Twin Cities.

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What You Need to Know about Charitable Giving

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