For many, a church is more than a place to learn about your religion and connect with other like-minded people. Many churches and religious institutions also do excellent work in their local communities, and you may want to be a partner in that work. Charitable giving can go a long way toward helping them accomplish major initiatives.
Is donating to a church tax deductible so you can maximize giving and minimize tax liability?
The good news is that giving to an established church may indeed be something you can deduct from taxable income at the end of the year. Here’s what you need to know about making donations and claiming them with the IRS.
Is Donating to a Church Tax Deductible?
For many people, giving to a church is an integral part of their faith and commitment to the well-being of the community. The tax benefits of giving to a charity (including churches) are another piece of the puzzle for financial giving. The good news is that giving to a church is usually tax-deductible.
How do you know if your specific church qualifies as a tax-exempt organization that can maximize your giving? One way to check is to see if your church is one of the IRS’s 501(c)(3) organizations listed on their online tool. If so, you should be in the clear and can maximize giving this way. Charities, non-profit universities, and other organizations may also qualify if you’re interested in donating to multiple places.
Keep in mind that you may not always find your church on this tool. Churches that meet the requirements for this type of tax-exempt organization are automatically exempt and are not required to file the necessary paperwork to get their official status from the government. If it is a legitimate, bonafide church, there should be no issue.
How to Donate and Claim Deductions
When you decide to give substantial donations to a church, you may want to maximize your giving to reduce out-of-pocket tax liability. There are no one-size-fits-all solutions to giving, making the process a unique experience for each person.
However, here are a few guidelines to follow if you want to keep more money flowing to charity.
Choose the Right Method of Giving
The first and most obvious way you can give to a church is via cash donations. These are simple and clear for anyone who wants to keep their records streamlined. In 2024, you can donate up to sixty percent of your adjusted gross income in cash donations to charities of your choice. But that does not mean that cash is the only way to give.
You may prefer the long-term giving strategy via a charitable remainder trust (CRT) or a donor-advised fund (DAF). These allow you to make substantial donations to the fund right away, giving you a tax break in the here and now. Then, donations can be made to charity at some point in the future.
CRTs also permit you to grant an income source to beneficiaries for a set period or a lifetime with the remaining ten percent of the account going to charity at its conclusion. A DAF allows you to recommend donations at the perfect time, so you can wait until the church really needs money for something major like a new building before giving.
Check out our blog about donor-advised funds vs charitable trusts for a more in-depth breakdown of their pros and cons.
Keep Documentation of Your Donation
In order to maximize tax deductions through charitable donations, it’s essential to keep a detailed record of what you have given over the course of the year. If you’re giving via a CRT or a DAF, then you will have clear records within the account. Cash donations are a little different and may require more paperwork.
Keep receipts that prove cash donations in case the IRS requests them when you file. Save confirmation pages if giving online or keep a detailed check register if you give a check when the offering plate gets passed around after service.
File Form 1040
Last but not least, make sure that you are filing your taxes properly at the end of the year. The proper place to list your deduction for charitable giving to a church is on Form 1040.
It should be noted that you do need to itemize your deductions on this form if you want to claim a gift to the church. Itemizing your deductions means that you are giving up your standard deduction, which may not always be a good idea. Bring these items to your tax professional’s attention and they can help you decide whether to itemize or not.
You may also consider a practice called charitable bundling, where you donate many years’ worth of contributions all at once to a donor-advised fund and itemize for that year only, while taking the standard deduction in other years.
Other Examples of Deductible Donations
While donating to a church is tax deductible, it’s not the only option if you want to diversify your generosity. If there are many causes close to your heart and you want to support other organizations in addition to your church, there are plenty of options that will offer your tax bill the same benefit.
First and perhaps most obvious, you can give to any charity with a designated 501(c)(3) status. If they have jumped through the hoops required to obtain this status with the IRS, it means that they are held to a high standard for how their money is put to good use. Don’t rely on this alone, however. Donors should always research the internal structure and expenses of a charity they are considering.
However, there are other means of making donations you might consider, including:
- Private foundations: These charities usually have one source of funding like from a family or a corporation. They make grants to other charities as the organization sees fit instead of doing the work themselves. Check with your tax preparer though, as private foundations generally do not receive the same deduction percentage as a public charity.
- Public foundations: Unlike private foundations, the public ones are generally treated like a regular 501(c)(3) for tax purposes. Sometimes foundations provide fundraising events with some part of your ticket price going to charity, and another part paying for something that you are receiving, like a dinner or a play. It is up to the foundation or charity to break this down for you, so be sure to keep these records.
- Other non-profits: You can also give to charities that do not fall under the 501(c)(3) status like social welfare organizations, civic leagues, clubs, and labor organizations. Some may be partially tax-deductible, but in many cases, gifts to these organizations will be non-deductible or very limited. Fraternal organizations and political parties and candidates are decidedly not deductible.
Plan Your Charitable Legacy with Magellan
With so many ways to be generous with your money and include charitable giving in your estate planning, it can be a challenge to find the most strategic path forward that maximizes the benefit to both you and the organizations you love.
Magellan can help you maximize your giving to causes and charities that you care about. Our specialty is in providing comprehensive estate, financial, legal, and tax planning so that you have a one-stop shop for your money. If you want to set up a charitable remainder trust to give more to a church or charity, we can help.
Reach out to us today to learn more about how our planning can bolster your financial health and help charities in your community!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.