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Charitable Giving and Taxes: What You Need to Know

Thrive Editorial

Donating to a worthy cause is its own reward — and Americans are the most giving people on the planet — but that doesn’t mean it can’t help out on your end-of-year bottom line, too. Check out this advice from a tax professional.

Is there anything more American than the weekend after Thanksgiving? Black Friday, Small Business Saturday and Cyber Monday are basically an excuse for Americans to do what we do best: buy stuff. But then there’s Giving Tuesday, where we can atone for our excesses through generosity.

And that’s something we can brag about: The United States leads the world in charitable giving, according to the Charities Aid Foundation’s World Giving Index for 2019; we donate about seven times more per capita than our European peers. Part of that is by design.

“Congress likes it when you give to charity, because then that charity does good things for society,” says Scott Levine, an Atlanta-based CPA. But while our tax code incentivizes charitable giving, that’s not the main reason most of us do it.

CPA Scott Levine

“I give because I want to,” says Levine, who has a soft spot for animal welfare organizations. “Getting a tax break isn’t the driving motivator, it’s the cherry on top.”

That said, here are a few things to know about how to put your charitable giving to work come tax time. 

Make sure you’re donating to a registered nonprofit

There are lots of worthwhile organizations out there soliciting donations (and more than a few shady ones). But for your donation to count on your taxes, it has to be a registered 501(c)(3) nonprofit organization — or, in some cases, a 501(c)(4). “Just because you’re giving to a good cause doesn’t mean you’re giving to a valid charity,” says Levine, “and if it’s not, you shouldn’t be deducting it.”

If you’re not sure how to tell if an organization is legit, the IRS has an online tool for that. You can also look up its rating on a site like Charity Navigator to make sure your donation dollars would be spent wisely. If you’re donating to an organization that’s brand-new, it may not be listed in the IRS’s database yet, so just be sure to ask for documentation of its 501(c)(3) status. 

What doesn’t count? Political contributions, or that donation you made to an online fundraiser to help your friend’s band repair their broken-down tour bus. “Super PACs are never a charity. GoFundMes are not charities,” says Levine.

Get a receipt

“In case there’s ever an audit, the IRS is going to ask to see receipts,” says Levine. Make sure the receipt stipulates what portion of your gift is actually tax deductible. It’s not uncommon for organizations to offer something in exchange for your donation: If you buy a membership to your local zoo for $100, for example, and it includes two admission tickets worth $40 each, then you can probably only deduct $20 from your taxes. Make sure you understand these details before you report to Uncle Sam.

There are (sometimes) limits to how much you can deduct

It used to be that charitable donations were only deductible if you itemized your deductions (that is, if they exceeded the standard deduction, which for 2022 is $12,950 for single filers). But in 2018, the IRS changed its rules to allow individuals to deduct up to $300 in cash donations, even if they’re only taking the standard deduction. If you’re already itemizing your deductions, you can donate and write off much higher amounts — up to 100 percent of your income, in theory. “If you itemize, the sky’s the limit,” says Levine.

You can donate more than just cash

If you’re itemizing your deductions, you can write off donations of goods as well as cash. Did you give your old couch to Goodwill? That’s deductible. Did you donate your car or boat to NPR? That’s deductible too. But be careful how you report the value of in-kind donations; organizations like the Salvation Army publish fair market value guides that help determine how much you can write off (that vintage T-shirt is probably worth less than you think). Donations of goods over $500 have to be itemized, and certain items, like that car or boat, need professional appraisals, which are often provided by the charity itself. You can also donate stock to charity, which can have beneficial tax implications, too.

How to report donations

Both individuals and businesses can make charitable contributions, but where you report those deductions depends on how your business is structured. If, like many THRIVE members, you’re a sole proprietor or the owner of a pass-through entity (i.e., an S corporation or an LLC), any charitable donation you make is reported on your personal tax return (Schedule A, Form 1040). Large, usually publicly traded C corporations are the only enterprises that can write off charitable giving as a business deduction.

Look into corporate matching

Because charitable giving benefits C corps, if you work for a big company, it’s worth asking if your employer will match your gift. Many large employers, from Apple and Google to Coca-Cola and The Home Depot, will match up to $10,000, $20,000 or even $100,000 in donations, and more than three-quarters of employees don’t even know it’s an option, according to Double the Donation, a matching-gifts database provider. You don’t get any extra tax benefit, but your preferred charity gets double the impact, and your employer gets a tax break. Win-win.

Make it easy: Donate with THRIVE | Initiative

To help your community the easy way, let THRIVE | Initiative take the stress out of charitable giving. As a registered 501(c)(3) organization, it tracks the value of every donation you make through the platform, all neatly recorded on an easy-to-read year-end statement.

Written by Thrive Editorial

November 11, 2022

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