The end of the calendar year is upon us and themes of generosity, gratitude, and goodwill are abundant. You may feel more inclined to give generously to charities this month. While the primary motivation for such gifting is to support a cause you believe in, the added benefit of tax deductions can make your contributions more financially advantageous and become part of your year-end tax planning strategy.
Donations to IRS-qualified charitable organizations are generally tax-deductible, which means the amount you give to eligible nonprofits can be deductible if you can itemize your deductions. To ensure the organization is reputable and qualifies for tax-deductible contributions, the IRS provides a searchable database of such organizations.
Donating non-cash items, such as clothing, household goods, or stocks, can also be eligible for deductions. The deduction is typically based on the current fair market value of the items.
If you are 70½ or older, you can make charitable distributions directly from your Individual Retirement Account (IRA) to a qualified charity. This can also fulfill your Required Minimum Distribution (RMD), which allows you to get a tax benefit without being able to itemize your deductions.
It’s important to keep accurate records of your donations, such as receipts and acknowledgment letters for contributions over $250.
While the act of volunteering is not deductible, certain expenses related to volunteering, such as mileage or supplies, can be eligible for charitable deductions.
Moreover, your tax professional can help you understand your charitable contributions’ specific tax implications based on your individual financial situation.