Giving to causes you care about is its own reward — but there are financial incentives for giving generously, too.
When you donate to a nonprofit organization, you are typically able to take a charitable donations tax deduction. These deductions may enable you to reduce your taxable income AND your tax bill, all while helping a cause you care about through your donation.
Not every donation will qualify for a tax deduction, and there is a maximum deduction that is based on your household income. Understanding the potential financial impact of your gift is key. Consult with a licensed tax advisor, as well as a financial professional, to help prepare for making a charitable donation as a part of your tax strategy.
Read on to make sure your generosity does not go unrewarded.
Which Charitable Donations Are Tax Deductible?
Your charitable donations can earn a tax deduction if they are given to a qualified 501(c)(3) nonprofit. Examples of qualified entities include:
- Religious organizations
- Public charities
- Private foundations
- Educational organizations
- Scientific and literary organizations
It is important to note that an organization can be not-for-profit without being a registered 501(c)(3) nonprofit. Before you make a donation, check the organization’s tax classification. You can verify an organization’s status online through the Internal Revenue Service.
FAQs: Making a Charitable Donation
- “What do I need to claim a charitable contribution deduction?”
Keeping records of your donations is important for claiming charitable contribution deductions.
In most cases, you will receive a tax receipt from your charity of choice. You will need to include this document when filing your taxes. For non-cash donations, such as art or donated items, you may need to obtain a qualified appraisal to confirm the value of the deduction you are claiming.
When your tax return is filed, deductions will need to be itemized in order to claim tax deductible donations to charity. Hold onto any receipts or records of your charitable giving to provide to your tax professional.
- “Can you claim charitable donations without itemizing?”
In general, you can claim a charitable donation on your taxes only if you itemize your deductions. People tend to select itemized deductions when the combined total of their anticipated deductions (including charitable gifts) adds up to more than the standard deduction.
Itemizing can take more time than choosing the standard deduction — so, consider the costs and benefits of both options ahead of time. For example, if your standard deduction is more than the sum of your itemized deductions, you might want to consider skipping the itemized deduction process and taking the standard deduction.
- “Can you claim a charitable donation without a receipt?”
While you may still qualify for charitable donations deductions without a donation receipt, certain restrictions apply, including:
- You cannot include property donations without a receipt.
- You can only include cash donations of less than $250 without a receipt.
- Note: Each donation is considered separately by the IRS.
Even for cash donations under $250, you must still maintain proof of your donation, such as a bank record or payroll deduction record.
- “How much do I need to itemize (including donations) for a tax break?”
In order to potentially reduce your overall tax burden, your itemized deductions, including your charitable donations, need to add up to more than the standard deduction, which is a specific dollar amount based on your filing status.
For the 2023 tax year, the standard deduction amount is:
- $13,850 for filing Single
- $27,700 for Married filing Jointly
- $13,850 for Married filing Separately
- $20,800 for filing as Head of Household
- “What is the maximum charitable deduction for 2022?”
In most cases, you can deduct up to 60% of your adjusted gross income for cash donations to an eligible nonprofit(s). You can also typically deduct up to 30% of your adjusted gross income for donations of appreciated non-cash assets, such as long-term appreciated stocks and property. Provided you have held them for more than a year, these assets are generally deductible at fair market value.
Build Your Giving Strategy at St. Charles Financial Services
While charitable donations can help lower your taxes, this is not a guarantee. In order to take deductions, remember to plan ahead and take the following steps:
- Verify the organization’s 501(c)(3) status
- Keep records and receipts for your donations
- Consult with a certified public accountant (CPA) and a finance professional
An experienced financial planning professional can help you reduce your tax liability and plan for a comfortable retirement. At St. Charles Financial Services, we will partner with you to determine the best strategy for your current financial situation and your future goals. Our financial professionals get to know our clients and tailor plans to fit their lifestyles and goals.
Contact SCFS to meet with a tax planning professional in St. Charles today.
Disclaimer: St. Charles Financial Services does not offer tax advice. Please consult your personal tax professional on all tax matters.