How to Maximize Tax Benefits of Gifts

Giving Tuesday falls on Tuesday, November 29th this year and taxpayers are gearing up for their annual donations to nonprofit organizations. Before the holiday, taxpayers should review how to maximize their tax-deductible donations.  

What is a tax-deductible donation? 

The IRS considers a tax-deductible donation to be any contribution of money or goods to a qualified tax-exempt organization. As of April 2022, in order to deduct these contributions during tax season, you must itemize your deductions by filing Schedule A. 

How much can I deduct? 

Typically, you can deduct up to 60% of your adjusted gross income (AGI) if you are donating to a charitable organization. If you are donating to another type of organization like a private foundation or fraternal society, the limit is much smaller. These can range from 20% to 50%. If you exceed the limit for the year, you can carry over the excess contributions over the next five tax years.  

What are qualified organizations? 

A qualified organization is one that you make a charitable donation to that can be deducted during tax time. Some of these organizations include religious organizations, governments, nonprofit schools and hospitals, war veterans’ organizations, and others. Some that do not qualify for tax-deductible donations are social or sports clubs, most foreign organizations, lobbyist groups, homeowners’ associations, individuals, political groups and more. It’s also important to note that more common forms of donations like blood, time and services, and raffle tickets may not be deducted. However, you may deduct out-of-pocket expenses that related to volunteering if they were not reimbursed. These can include mileage, gas, and supplies.  

Tax Relief for Gift Givers 

Whenever you donate, it’s important to keep records, no matter how big or small the contribution amount. Bank statements or charity receipts will suffice for monetary donations. If you make donations automatically through paycheck deductions, the contribution amounts will show on your W-2 or pay stubs. If you donate goods, you are allowed to deduct the fair market value of the items. In other words, you may deduct the price a willing buyer would pay for them. The rules surrounding tax-deductible donations can be tricky so when in doubt, give us a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals. 

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