Charitable contributions are one clear way to give to causes you care about, whether you decide to give cash or another type of valuable asset. Charities and nonprofits depend on the generosity of supporters to continue doing excellent work in the community and the world at large. Plus, there are benefits to you as well.
How can you leverage the charitable contributions limits to maximize your gift for charity and minimize your tax liability to the IRS at the end of the year? This guide will walk you through what you need to know about giving before you file your taxes.
Charitable Contribution Limits for 2024
There are many ways to include charitable giving in your estate plan, but to make the most of your charitable giving, you may want to maximize the deductions you can take on your giving. Instead of limiting you to a specific dollar amount, the tax deductions are instead based on your adjusted gross income.
In most situations, you can deduct up to 60 percent of your adjusted gross income through cash donations.
Of course, the benefit of a vehicle such as a charitable remainder trust or a donor-advised fund is that you can donate real assets to a trust instead of just cash. Most people find that there are greater benefits to donating assets as it eliminates capital gains tax on the profit of the sale of property. However, you cannot deduct as much for property contributions.
Non-cash contributions usually cap out at 50 percent of your adjusted gross income, but they can be as low as 20 percent depending on where contributions are headed.
Public charities can take the full 50 percent deduction. Appreciated capital gain property contributions will hit the 30 percent mark for qualifying charities or 20 percent for non-qualifying charities.
Benefits of Charitable Contributions
Why consider charitable giving with the money you have at your disposal? For many, the desire to give goes beyond the inherent tax benefits that they may encounter, though these are plentiful as well. For many, the draw of charitable giving is simple: to support a cause, alma mater, or community that you truly care about.
You can fund the work they’re doing in the world and your community, which leads you to feel good about how your money is spent.
The nonprofit benefits from your generosity, but there are some perks for you as well. Namely, you can lower your overall tax liability to the IRS at the end of the year. First, you can deduct the amount you contributed to charity on your taxable income at the end of the year, provided that you do not exceed the limits on your adjusted gross income.
Second, you can avoid the need to pay capital gains taxes on the sale of real estate and other types of appreciated assets. When you invest real estate in a charitable remainder trust or give it to a charity directly, capital gains taxes do not impact you. This means that you can give the charity a greater gift as they can sell them and utilize the full value of the asset.
How to Claim Tax Deductions for Charitable Contributions
If you intend to maximize your tax deductions for charitable contributions, you may need a system in place to document your generosity. Here are a few tips to help you claim your deductions.
Choose a Qualifying Organization
Is the cause you care about going to give you the standard tax deduction that the IRS offers? You may be surprised to learn that not every charity, university, or other organization will qualify for this financial incentive. Instead, you must make sure it’s a qualifying nonprofit with the IRS.
This often means that it needs to be a 501(c)(3) organization. You can check for tax-exempt organizations with the IRS tool here.
Keep Clear Documentation
It can be easy to forget about your charitable contributions and their limits at the end of the fiscal year, especially if you’re not in the habit of documenting them. No matter how big or small your donation is, you should keep a record of your giving for when you file taxes at the end of the year.
There are several methods to keep documentation of your giving: bank statements, credit card statements, and even receipts from the charity. You can deduct mileage for driving to charitable events. Anything that shows what you gave and when can be used for tax purposes.
You may need additional documents for some deductions. If you contributed more than $250 in cash or assets, you will need a letter of acknowledgment. Gifts of non-cash assets worth more than $500 will require a Form 8283 and a current appraisal. Failure to follow these stringent rules can mean your deduction will be disallowed.
Plan Ahead
You can only list your deductions if you intend to itemize your deductions at the end of the year. If the standard deduction will save you more money, then it might not make sense to itemize, no matter how much you gave to charity. Keep in mind that itemized deductions may come with an increased CPA bill to file your taxes due to the extra work involved.
Before making a donation, figure out what your standard deduction would be based on your filing status. If this figure is higher than what you would itemize, then it may make sense to hold off on your charitable giving until a year with other itemized deductions.
Another idea is charitable bundling using a DAF. Donate five to ten years of gifts all at once to a donor-advised fund, and then itemize for that one year while taking the standard deduction in other years. Then portion out your gifts from your DAF.
Maximize Your Charitable Impact with Magellan
Making a lasting impact on a charity, university, or organization often requires more than a flat cash donation. If you want your generosity to bring about true change for the nonprofit you have in mind – while also adhering to the charitable contribution limits and tax benefits you can receive as the donor – then the expert team at Magellan can help. We’ll listen to your goals, look at your financial situation, and advise you on the best vehicle, such as setting up a charitable remainder trust vs donor-advised fund for the future.
Reach out to us today to learn how our one-stop-shop can help you make the most of your money and leave behind a legacy that lasts.
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.