The 4 Most Misunderstood Rules of Charitable Giving Write-Offs

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Donating to charity can be a great way to help others, but it won’t always lower your tax bill. Find out the truth about charitable giving write-offs. 

December is a popular time for charitable giving. Not only do the holidays inspire goodwill and cheer, but many people are interested in writing off their donations as we close out the tax year.

There are plenty of wonderful charities that are worthy of your donations. But there’s also a lot of confusion about charitable donations and when you can write them off for tax purposes. Let’s dispel a few common myths about charitable giving write-offs.

Myth No. 1: Any taxpayer can write off a charitable donation

The truth: To write off a donation, you have to itemize deductions on your tax return. For most taxpayers, itemizing doesn’t make sense to do.

You have two choices when you file your tax return:

Claim the standard deduction, which is $13,850 for single filers and $27,500 for married couples filing jointly in 2023. Those amounts will climb to $14,600 and $29,200, respectively, in 2024.Itemize your tax return, which is when you add up the individual tax deductions you qualify for and subtract them from your overall tax liability. This option only makes sense if your total deductions exceed the standard deduction.

To write off a charitable deduction, you’ll need to itemize your tax return. But for most people, the standard deduction produces the most savings, especially since the Tax Cuts and Jobs Act (TCJA) of 2017 substantially increased the standard deduction. Nearly 90% of taxpayers now opt for the standard deduction, according to IRS data. Between 2017 and 2018, when the TCJA rules took effect, the number of taxpayers claiming a charitable deduction dropped from nearly 38 million to less than 15 million.

If tax savings are a factor in your decision to give, be sure to crunch the numbers first. Unless you have other large deductions, like deductible mortgage interest, you might not save at tax time.

Myth No. 2: There’s no limit on charitable deductions for tax purposes

The truth: You can only deduct up to 60% of your gross adjusted income if you itemize on your tax return.

Even if you donated your entire 2023 paycheck to charity, you can’t deduct more than 60% of your adjusted gross income (AGI) on your taxes. If you’re donating to a private charity, like a family foundation, your maximum deduction is 30% of your AGI.

Some people choose to donate appreciated assets, like stocks or real estate, to charity. If you do so, you’re limited to 30% of your AGI based on the asset’s fair market value if you’re donating to a public charity, or 20% of your AGI based on the asset’s fair market value if you’re donating to a public charity. However, you can usually carry forward any excess amount and use it to offset future tax bills for up to five years.

Myth No. 3: Political contributions are tax-deductible

The truth: You can’t deduct contributions to political organizations or candidates.

With the 2024 presidential election approaching, you may be considering a donation to a political campaign or organization. But don’t expect to get a tax deduction for your contribution. The IRS prohibits tax deductions for contributions, including those made to political parties, political organizations, campaigns, and political action committees (PACs). If you’re not sure whether an organization counts as a charity, use the IRS tax exempt organization search tool.

Myth No. 4: You can deduct the cost of tickets if you bought them for charity

The truth: You can only deduct the amount you paid above fair market value for events. Raffle or lottery ticket purchases don’t qualify for a deduction.

If you bought dinner tickets for a charitable event or got a tote bag as a thank-you for your donation to your local PBS affiliate, you can’t deduct your full contribution. In either case, you’ve received something in exchange for your contribution. You’re only allowed to contribute the difference between the contribution price and the fair market value of what you received. In other words, if you paid $100 for an event at a restaurant where dinner would normally cost $25, you could only deduct $75.

You’re also not eligible for a tax deduction if you bought raffle tickets or lottery tickets, even for the benefit of a charity. The IRS says you’re paying fair market value for the chance to win the prize, so you don’t get a tax break on the ticket.

What to do if you’re deducting charitable contributions

Most people won’t lower their taxes by contributing to charity. Helping a cause you care about is the main benefit. But if you are planning to deduct your contributions, here are some rules to keep in mind:

You need a receipt for each cash contribution of $250 or more.If you make non-cash gifts of $500 or more, you’ll need to fill out IRS Form 8283.You’re required to get an independent appraisal for any property gift (not including most stocks, bonds, mutual funds, or exchange-traded funds) of $5,000 or more, or $10,000 if it’s a gift of closely held stock.

Finally, due to the complexity of the rules, consult with a tax professional if you’re considering making a major charitable gift.

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