Charitable donations aren’t just about supporting causes you care about—they may be advantageous in reducing your tax burden as well. If you’re looking for ways to give back while keeping more of your hard-earned money, we think understanding the tax benefits of charitable giving is essential. Here’s a breakdown of some of the ways that giving can benefit both your community and your wallet.
- Tax Deductions for Charitable Contributions
When you contribute to qualified charitable organizations, you may be eligible to deduct your donations from your taxable income, depending on your specific financial situation. These deductions can apply to a range of contributions, including:
- Cash Donations: The most straightforward way to give are cash contributions. In most cases, charitable cash contributions can be deducted on Schedule A as an itemized deduction. However, it is usually limited to 60% of your adjusted gross income or AGI.
- Non-Cash Contributions: Items like clothing, furniture, or household goods donated to qualified organizations can also qualify for deductions. These items typically need to be in good condition, and keep the receipts for your tax return.
- Long-Term Appreciated Assets: Donating appreciated assets like stocks or mutual funds not only provides a deduction for their fair market value but may also help you avoid capital gains tax on the asset’s appreciation.
2. Qualified Organizations
Per the IRS, a charitable contribution deduction may be made to or for the use of any of the following organizations that are qualified under section 170c of the IRS code.
- A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
- A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
- A church, synagogue, or other religious organization;
- A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
- A nonprofit volunteer fire company;
- A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
- A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
- A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.
- Donor-Advised Funds
A Donor-Advised Fund makes it easier for you to give strategically. When you contribute to a DAF, you can take a tax deduction at the time of the donation, while having the flexibility to decide later which charities receive the funds. It’s perfect if you want to maximize your tax benefits now but are unsure on which charitable organization(s) you want to give to. Click here for a more detailed breakdown of donor advised funds. - Qualified Charitable Distributions (QCDs)
Are you 70½ or older? You can make a Qualified Charitable Distribution (QCD) from your IRA directly to a charity. This allows you to:
- Satisfy your Required Minimum Distribution (RMD).
- Exclude the donation amount—up to $100,000 annually—from your taxable income.
QCDs are a win-win: you support a cause you love and keep more of your retirement income.
- Itemizing vs. Standard Deduction
Depending on your situation, you might want to itemize your deductions instead of taking the standard deduction to get the most tax savings. If your donations, combined with other deductions, exceed the standard deduction ($14,600 for single filers and $29,200 for married couples filing jointly for 2024) it’s worth itemizing. To ensure you are choosing the most advantageous route, re recommend that you consult with your tax professional.
- Bunching Contributions
“Bunching” is a tax strategy that involves consolidating multiple years’ worth of charitable contributions into a single year to exceed the standard deduction threshold. By doing this, you can maximize the tax benefits of your donations while continuing to support charities in subsequent years. Please note that this strategy requires some extra research and may not be right for everyone.
- Documentation is Key
To claim charitable deductions, proper documentation is required. For cash contributions, retain receipts or acknowledgment letters from the charity. For non-cash contributions exceeding $500, you must complete IRS Form 8283. Contributions over $5,000 may require an appraisal. A guide to determining the value of property donated can be found on the IRS website.
Final Thoughts
Charitable giving provides a unique opportunity to align your financial goals with your personal values. By leveraging the tax benefits of charitable donations, you may be able to reduce your tax liability while supporting causes that matter to you. Consulting with a tax advisor and financial professional can help ensure that you maximize these benefits while making the most of your giving strategy. Contact us for a free financial assessment to get started today.
This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article does not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this article and are subject to change at any time due to changes in market or economic conditions. Certain information contained herein has been obtained from third parties. While such information is believed to be reliable, Pekin Hardy Strauss, Inc. assumes no responsibility for the accuracy of the information.