This post was updated Friday, Nov. 23, 2018.
Thanksgiving is a time for, as its name indicates, recognizing all the wonderful things in our lives. In recent years, several post-holiday days have cropped up in this annual time of gratitude that provide us with added ways to share our good fortune.
Yes, some of these creations are blatantly commercial.
There's Black Friday, the day after Turkey Day where we buy holiday gifts for our friends and loved ones. Next comes Small Business Saturday, where we patronize our local merchants to help them compete with big business. And, of course, we have the Cyber Monday shopping extravaganza that's actually broken through its one-day designation as online shopping has become, despite added sales taxes, a preferred purchasing method.
Finally, there's the truly philanthropic Giving Tuesday.
Started in 2012, Giving Tuesday is a global day during which folks are encouraged to give back to their communities and the charitable causes they care about.
It's the unofficial kick-off of the annual charitable season, when many of us focus on not just presents to friends and family, but also end-of-year giving to our favorite nonprofits.
While taxes generally are not the reason why people give to charities, there is a tax component.
If you itemize your taxes instead of taking the standard deduction, you can claim your charitable gifts on Schedule A. That is, of course, as long as you follow the Internal Revenue Service rules.
To help ensure that our donations do the most good to both the charities and on our tax returns, here are some things to think about as you make year-end gifts to help those in need.
Don't miss the Dec. 31 deadline: Contributions are deductible in the year made. If your donation is charged to a credit card before the end of the year, that gift counts for that tax year even if the credit card bill isn’t paid until the next one. The same timing consideration also applies to checks as long as they are mailed in the tax year for which you want to claim the deduction.
Make sure your charity is IRS qualified: Only donations to eligible organizations are tax-deductible. Make sure the charity is eligible by using the IRS' Exempt Organizations Select Check. This searchable online tool lists most organizations that are eligible to receive deductible contributions. In addition, notes the IRS, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations even if they are not listed in the tool’s database.
Substantiate your gifts: Generous gifts, specifically those of $250 or more, must be acknowledged by the recipient charity. For donations of less than that, you still need some type of substantiation. You generally don't have to send the receipts with your tax return, but if the IRS questions your claim and you don't have documentation, it could disallow the deduction.
Regardless of the gift amount, an actual written (or emailed) statement from the charity is best. It must show the name of the charity and the date and amount of the contribution.
However, a credit card statement, bank statement or canceled check can work, too. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
If your gift is made by payroll deduction, hang onto the pay stub, your Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
Gifts made by text also count. Save those exchanges as well as the charity's acknowledgement, usually on its website, that it accepts these digitally transmitted donations.
Give other financial gifts: If you own a stock that increased in value over the years but no longer fits your investment strategy, it might be more valuable as a charitable gift. When you sell the appreciated stock, you'll likely have to pay taxes on the profit at, depending on your income, the 15 percent or 20 percent long-term capital gains rate.
Even if you then gave to charity the cash you make from the sale, you'll still have to pay the taxes. But if you give the stock directly to the qualified organization, you can claim a deduction for the full asset price at the time you donated it and escape the capital gains tax bill.
Clean out your closet: The IRS accepts claims for donated clothing and household items, such as furniture and other home décor, electronics, appliances and linens. The items generally must be in good used condition or better to be tax-deductible. In these cases, you can claim the fair market value of the donated item.
A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
As with large cash donations, you must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed. And if the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
Look in the garage, too: Many charities also happily accept donations of a car, boat or airplane. The deduction, however, is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. You should get a Form 1098-C or a similar statement from the charitable organization with the proceeds details and you need to attach it to your tax return.
Volunteer time doesn't count: If you give of your time instead of cash or goods, good for you. You won't, however, be able to claim the value of the hours spent at the nonprofit as a tax deduction.
You might, though, be able to write off some out of pocket costs involved with your volunteer work, such as stationery and postage you bought and weren't reimbursed for when you helped your favorite charity send out fundraising letters. And don't forget to count your mileage in service to your favorite nonprofit. You can claim 14 cents per mile for the driving you do in furthering the cause.
Itemize your deductions: As I noted earlier, a deduction for charitable donations is only available for taxpayers who itemize. I know, it's not fair. Most people claim the standard deduction and a lot of them give a lot of money to charitable groups. Let your U.S. Representative and Senators know that it's time to change this law.
Recent changes to the tax code also might reduce the number of folks who fill out a Schedule A. Under the Tax Cuts and Jobs Act (TCJA), the standard deduction amounts are dramatically increased, making it not worth the trouble for many to keep track of the receipts necessary to itemized.
One positive change as far as charities, however, is that you can give more. Previously you could only donate up to 50 percent of your adjusted gross income. Now thanks to the TCJA you can give up to 60 percent of your income. Of course, realistically this applies primarily to the very wealthy. But just in case you come upon a windfall and are feeling generous, you have (through tax year 2025) to give even more.
Yes, that's a lot to think about when all you wanted to do was to help others. But don't let it discourage your giving to your favorite philanthropic cause or in claiming the donation if you itemize.
It could be worthwhile for both the charity and in shaving a few dollars off your tax bill.
You also might find these items of interest:
- Deductions demand documentation
- Volunteer vacations provide help, possible tax deduction
- Uncommon charitable gifts still provide donors the typical tax deduction