Last week was charity week and I am so proud of our team! We took the day on Friday to go to the Great Chicago Food Depository to pack meals for those less fortunate. In case you are not aware, the Greater Chicago Food Depository is an amazing charity that helps with food scarcity in the Chicagoland area. That day, our team helped repack 10,800 pounds of oranges, which contributed to 13,899 repacked meals!
I thought in connection with charity week and with the upcoming end of year giving need, I would provide some pointers on doing good, but also getting a tax break.
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.
First, let’s look at the basics: Your charitable contributions can help minimize your tax bill only if you itemize your deductions. Once you do, the amount of your savings varies depending on your tax bracket and will be greater for contributions that are also deductible for state and local income tax purposes. Under the 2017 Tax Cuts and Jobs Act, the percentage limitation on the charitable deduction contribution base is increased from 50 percent to 60 percent of an individual’s adjusted gross income for cash donations to public charities in 2018 through 2025. There is an even greater benefit, because in addition, the phase-out of allowable itemized deductions is repealed for tax years 2018 through 2025.
Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30 percent of adjusted gross income. A special limitation also applies to certain gifts of long-term capital gain property.
Taxpayers over 70 ½ 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.
Contributions must be paid in cash or other property before the close of the tax year to be deductible, whether you use the cash or accrual method. Your donations must be substantiated. Generally, a bank record or written communication from the charity indicating its name, the date of the contribution, and the amount of the contribution is adequate. If these records are not kept for each donation made, no deduction is allowed. Remember, these rules apply no matter how small the donation.
However, there are stricter requirements for donations of $250 or more and for 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.
In these tough economic times, giving is more important than ever. Make it a win-win by getting a good tax deduction in the process.