How Charitable Giving Benefits the Giver. By Austin Estate Planning Attorney Zachary D Kamykowski

A charitable donation tax deduction feels good in a few ways. Not only do you feel good about giving to a good cause, but you’re also cutting your tax bill. However, before you start writing checks or making online donations, you should know what rules to follow to ensure your good-hearted gifting gives you tax deductions. Kiplinger’s article “Charitable Donation Tax Deductions: An Additional Reward for the Gift of Giving” explains further.

First, you’ll need to itemize to claim a charitable tax deduction. If you took the standard deduction on your 2020 or 2021 tax return, you could also claim up to $300 for cash donations to charity. This deduction wasn’t available to taxpayers who claimed itemized deductions on Schedule A. Congress did not extend this deduction past 2021, so you can’t claim a charitable donation tax deduction on your 2022 tax return. For 2022 and beyond, you’ll have to itemize if you want to write off gifts to charity.

If your standard deduction is a little higher than your itemized deduction, consolidate charitable deductions from the next few years into the current tax years, known as “bunching.” This lets you boost your itemized deductions for the current year so they exceed your standard deduction amount. Consider using a Donor Advised Fund, where you can make one significant contribution to a fund and deduct the entire amount as an itemized deduction in the year you make it. Just be sure your donations align with your estate plan.

Contributions of cash or property are generally deductible. How do you know what donations are deductible? The deduction is equal to the property’s fair market value if you donate the property. If you give appreciated property, you may have to reduce the fair market value by the amount of appreciation when calculating the deduction. Your deduction is limited to the current fair market value if the property has decreased.

There are specific requirements and limitations for charitable tax deductions. For gifts of $250 or more, you must have a written acknowledgment from the charity stating the amount of a cash donation and a description of any donated property, but not value, and whether or not you received any goods or services in return for your contribution. You’ll need to file certain forms at specific valuation points, and if you donate a car, boat, or airplane worth more than $5,000, you may need to have the property appraised.

Just because you donated to a good cause doesn’t mean you can deduct it. Only contributions to specific charitable organizations are deductible. For instance, if a neighbor starts a Go Fund Me page, those donations, while greatly appreciated, are not tax deductible.

The IRS makes it easy to determine if any donations are tax deductible with the Tax Exempt Organization Search tool on its website to determine if an organization is tax-exempt.

For seniors at least 70 ½ years old, you can transfer up to $100,000 directly from a traditional IRA to charity through a Qualified Charitable Distribution (QCD). The charitable donations made by eligible seniors via a QCD aren’t deducible. However, you can still save on taxes since the IRS does not include QCDs in taxable income.

QCDs also count towards senior’s Required Minimum Distribution, without adding to your adjusted gross income.

Reference: Kiplinger (Nov. 28, 2022) “Charitable Donation Tax Deductions: An Additional Reward for the Gift of Giving”