Year-End Giving for Tax Breaks: How Charitable Donations Can Benefit You This Tax Season

As the end of the year approaches, it’s a great time to consider how charitable giving can not only benefit causes you care about but also provide you with valuable tax deductions.

As the end of the year approaches, it’s a great time to consider how charitable giving can not only benefit causes you care about but also provide you with valuable tax deductions. For individuals and businesses alike, making strategic donations before December 31 can reduce taxable income, resulting in potential savings come tax season.

At Rae’s Accounting, we’re here to guide you through the essentials of maximizing charitable donations for tax breaks. Here’s everything you need to know to ensure your generosity counts toward your financial goals.

1. Understanding the Tax Benefits of Charitable Giving

Donating to qualified charitable organizations can allow you to deduct contributions from your taxable income, ultimately reducing the amount of tax you owe. These deductions apply to both individuals and businesses, but there are a few important guidelines to keep in mind.

2. Donating to Qualified Organizations

For a donation to qualify for a tax deduction, it must be made to an IRS-recognized charity. Not all nonprofits are eligible, so be sure to verify the organization’s status. You can search the IRS’s database of qualified charities to confirm. https://www.irs.gov/charities-non-profits/search-for-tax-exempt-organizations

Tip: Be cautious with online or crowdfunding donations. If you want a tax deduction, ensure the organization is registered as a charitable entity.

3. Types of Deductible Donations

• Cash Donations: Direct cash contributions are fully deductible up to specific AGI limits.
• Non-Cash Contributions: Donations of property, including household items, vehicles, and stocks, are deductible based on fair market value. Ensure items are in good condition, as required by the IRS.
• Appreciated Assets: Donating assets like stocks or mutual funds that have appreciated in value can yield additional benefits. Not only do you get a tax deduction, but you also avoid paying capital gains tax on the asset’s increased value.

4. Documentation Requirements

Proper documentation is crucial to claim your deductions. Be sure to keep detailed records of each donation:

• For contributions of $250 or more, you’ll need a written acknowledgment from the charity.
• For non-cash donations over $500, you may need to file additional forms, and donations over $5,000 may require a formal appraisal.

Having these documents organized ensures you’re fully prepared at tax time.

5. Understanding Deduction Limits

Charitable deductions have limits based on a percentage of your adjusted gross income (AGI):

• Cash donations are generally limited to 60% of AGI.
• Non-cash donations may be subject to lower limits, typically 30% of AGI for appreciated assets.

If your contributions exceed these limits, you may carry forward the excess for up to five years.

6. Strategies to Maximize Your Giving Impact

• Bunching Contributions: If your itemized deductions don’t exceed the standard deduction each year, consider “bunching” your charitable donations into one year to maximize your deductions.
• Donor-Advised Funds: These funds allow you to make a tax-deductible donation this year and distribute the funds to charities over time, giving you flexibility while capturing tax benefits immediately.

7. Considerations for Businesses

Businesses can also benefit from charitable donations, with specific limits and benefits based on their structure. Corporations, for example, may deduct charitable contributions up to 10% of their taxable income. Giving through your business can also enhance your brand’s reputation while supporting causes that matter to you and your community.

Final Thoughts: Make Your Generosity Count This Year

Charitable giving can be a win-win: it supports causes you care about and offers you tax advantages. But to make the most of it, planning and careful record-keeping are essential.

At Rae’s Accounting, we’re here to support you with the insights and expertise to navigate charitable deductions and other tax-saving strategies effectively. Reach out to us today, and let’s ensure your end-of-year giving makes a difference—for both your community and your bottom line.

Contact us to discuss your tax planning and charitable giving strategy!