Saving on Tax Tips for Holiday Charity Donations

A Quick Note

Charity donations are wonderful things to engage in, but on the tax front, they affect taxpayers differently. This comes down to how you look at your deductions.

Itemizing your deductions is often required to get a charitable deduction. Even so, non-itemizers who file a combined tax return in 2021 can deduct up to $600 in cash donations from their taxable income.

Other filing statuses have a $300 restriction. Tax-deductible contributions to donor-advised funds and private foundations are not allowed. Taxpayers who claim deductions below the line must do so after determining their adjusted gross income (AGI).

As always, it’s best to consult with a tax professional before making any big financial moves. You can set up a free one hour consultation with Yoke Tax anytime.

How deductions affect holiday charity donations

In the case of Mr. Claus, a 45-year-old single man, the single filing status is used. Regarding his standard Individual Retirement Account (IRA), he'll be contributing $1,000 each for the entire year of 2021. In 2021, he will have a standard deduction of $12,550 since he does not itemize his deductions.

On October 1, 2021, Mr. Claus sent a check for $200 to the Humane Society of the United States. This was his sole act of altruism for the whole year. After deducting $1,000 from $50,000, his AGI will be $49,000 . It's estimated that he'll make $36,250 each year ($49,000 x $200 x $12,550 = $36,250).

Who Can You Donate To?

To be eligible for a charitable contribution deduction, you must meet certain documentation criteria and make sure your donation goes to an officially recognized charity. There is no doubt that reputable charities like the Red Cross, Salvation Army, and Cancer Society exist. But what about smaller, more localized organizations? Use the IRS’s Tax Exempt Organization Search tool to verify if a charity is registered.

However, even if the TEOS tool does not include these organizations in its database, you can still deduct gifts to religious organizations, including churches, synagogues, temples, mosques, and federal government agencies.

Record Your Holiday Charity Donations

To deduct money given to charity, a donor must preserve some record, such as a bank record (such as a canceled check), or official communication from the charity (such as an invoice or a letter), that reveals the name of the organization and when and how much money was given. A donation of $250 or more necessitates an acknowledgment from the organization, which must be provided to the donor.

If payroll deductions are used, a pay stub, a W-2, or other proof of the donation must be retained as a transaction record. Charity donations should be made clear in this section. In addition, preserve the pledge card with the charity's name on it so you may refer to it later.

What of Non-Cash Contributions?

If you're itemizing your deductions, non-cash contributions are also deductible (i.e., utilizing Form 1040).

Contributions in this category are generally expected to be in good condition, but they might include everything from fine art and jewelry to clothing and furnishings.

Undergarments and socks are typically not deductible because of their low value. To claim a deduction, you must preserve an acknowledgment from the organization for every deductible contribution of $250 or more, exactly like with cash donations.

It is important that you understand that many organizations leave door hangers after receiving a gift; in one case, taxpayers were denied a charitable deduction because they only provided door hangers as appreciation. Typically, the IRS requires Form 8283 when a non-cash donation is valued at $500 or more, and a professional appraiser is required when the donation is $5,000 or more.

What Else Can You Donate for Tax Benefits?

Most people think of donations as consisting of money, food, or clothes- as described above. However, there’s a lot more flexibility involved in gift giving than one might think! Here are a few:

Donate your vehicle

When the claimed deduction for a used car gift exceeds $500, additional rules must be followed. The charity's car usage determines the deduction amount, and Form 8283 is required. Donations of used autos to a charity must be documented using a Form 1098-C.

Properly valuing a vehicle can make this complex, and that’s why it’s really important to have a tax professional at your side to make sure you stay within the bounds of the law, while minimizing your taxes on April 15th. Set up a free one hour consultation today.

Donate your sick days and vacation time

IRS personnel can give their unused paid vacation, sick leave, and personal leave time to disaster relief efforts, including those of COVID-affiliated NGOs, as a form of disaster assistance that has been extended through 2021.

Employees can give excess vacation time, sick leave, and personal leave if their business participates. To help those affected by natural disasters, the corporation will convert the gift into cash and distribute it to charity organizations. In other words, the corporation may write off the donation as a business expenditure instead of paying the employee's salary. Payroll taxes on the gift will be avoided by both the employee and the company.

An employee will not be able to claim a charitable deduction on their income tax return since the income is not taxable to the employee. To be sure, employees who take the standard deduction or are subject to AGI-based limits would save more money by not reporting their income than they would have if they did report it.

Other Approved Gifts

Special rules apply to acquiring capital belongings for a charity, charitable organization—related travel, private vehicle use, entertainment, and the placement of students in residence. Please schedule a free one hour call with Yoke Tax if you need more information about these issues.

Limitations of the AGI

Additionally, a taxpayer's AGI limits charitable gifts. For example, a person's AGI can only be 60 percent of their philanthropic donations. Contributions of real estate sold at a reasonable market value are limited to 30% of AGI. Other, less common limitations apply.

Donors can suspend the 60 percent AGI cap on financial donations in 2021. Cash donations are allowed above the 60 percent, 50 percent, 30 percent, or 20 percent of AGI maximum if the taxpayer has elected to do so, and then up to 100 percent of AGI if the election is not made. Excess AGI will be subject to the standard 5-year carryover. As a result, AGI limits will apply if an election is not made.

Donations to charitable organizations are tax-deductible in the year they are made. Before the year's end, you can charge a gift to a credit card, which will be considered for tax purposes in 2021. It doesn't matter if you don't pay the credit card bill until 2022 because this is still true. In addition, if you mailed a cheque in 2021, it will be considered received in that year.

The Dreadful Dozen

The IRS also issues its annual list of the "dirty dozen" tax cheats each year. Organizations on the list of the "dirty dozen" pose as charities to solicit funds from unsuspecting people. Beware of requests from fictitious charities from scammers before you send in your money.

Set up a Yoke Tax free hour consultation if you have concerns regarding claiming charity gift deductions.