Charitable Giving and Tax Implications

Donating to eligible charities can help lower your taxes, but how you donate can make a big difference, both for you and the charities you support. Check out the different ways to donate and get your donations in before year end so you can decrease the amount of taxes you will owe come April 15.

Remember the adage “It’s better to give than to receive”? If your financial goals include giving to causes that are important to you, you can strategize to make the greatest impact while potentially receiving tax savings, too.

Ground rules for giving

The tax aspects of charitable giving can be pretty complicated. And it’s always a good idea to consult your trusted tax professionals at Adams Accounting Solutions about your giving strategy. Here are a few important reminders:

• Request a receipt if you donate $250 or more to a single charity. If the donation is in cash, regardless of amount, you’ll need a receipt or supporting bank records.
• Get an independent, written appraisal for gifts of property in excess of $5,000 ($10,000 for closely held stock, or stock that is held by one individual or by a small group of stockholders). You won’t need an appraisal for exchange-traded funds, bonds, or mutual funds.
• Subtract the value of any benefits you received for your charitable donation (for example, items bought at a fundraiser) before you deduct it.
• Itemize your deductions on your tax return if you think your total donations will exceed your standard deduction and you want to receive a tax benefit for your charitable donations. (For 2024, the standard deduction is $14,600 for single taxpayers and married couples filing separately, $21,900 for a head of household, and $29,200 for joint filers.) If your standard deduction is higher, your donations won’t reduce your tax bill, but you’ll still be supporting your favorite charity—which is a good reason on its own to be generous.
• Be aware of the annual deduction limits for donations to public charities, including donor-advised funds. For contributions of non-cash assets held more than one year, the limit is 30% of your adjusted gross income (AGI). Your deduction limit will be 60% of your AGI for cash gifts. Note that if you’re planning a large donation that’s close to or exceeds your AGI limit, you may carry over the excess contribution amounts up to five subsequent tax years. Tax treatments by type of gift

With the above complex stipulations regarding annual deduction limits, it’s advisable to speak with the experts at Adams Accounting Solutions before making your donation, just to be sure you’re maximizing your benefits. Our friendly staff will walk you through the considerations for your unique situation.

The tax advantages of a charitable contribution generally depend on three factors:

• Who it goes to (only donations to qualified charities are deductible)
• How you structure the gift
• The type of property you are donating

Different types of property donations—whether it be cash, business assets, or investments—offer different tax advantages and drawbacks.

Cash
Cash donations are very clear cut, but as mentioned earlier, keep your receipt from the charity or a bank record (such as a canceled check or bank statement) to substantiate your cash gift—no matter how small. 

Volunteering
Transportation costs for volunteering can be deducted, but the value of the volunteer time is not deductible.

Tangible personal property 
The IRS allows you to donate almost any item—including old clothing, household items, cars, trucks, boats–as long as they are in “good” used condition or better. If the property doesn’t relate to the charity’s mission, you may deduct the amount you paid for the property or the property’s current reasonable value—whichever is less. If the property is related to the charity’s mission—building supplies donated to Habitat for Humanity, for example—it’s usually fully deductible based on its current reasonable value. Some charities will provide guidance, but normally you are responsible for determining the property’s value for tax purposes.

Ordinary income property and short-term capital property
Ordinary income property normally includes assets like inventory held for sale by a business, artwork created by you, or manufactured items you produced. In addition, any short-term capital assets, such as stock, are considered to be ordinary income property if held for less than a year.

On average, if the donated assets would have generated ordinary income if sold on the day of contribution, then the IRS limits your deduction to the asset’s cost basis (the fair market value reduced by the amount of ordinary income or short-term capital gain that would have been realized). However, you may be able to take the full deduction if you include the appreciated value of the asset in your gross income on your tax return. If the property has decreased in value, your deduction could be further limited (see “Property or assets that have decreased in value”).

Appreciated long-term capital property
As for stocks, bonds, mutual funds, or other personal assets such as real estate that have increased in value, you can usually deduct the full fair market value of appreciated long-term assets as long as you’ve owned them for a year or more.

An additional benefit is you don’t have to recognize any gains on the donation, which means you pay no capital gains tax on that property.

Donating long-term assets—especially highly appreciated securities—instead of cash can be quite an effective and tax-efficient way to support a cause. If your assets have appreciated in value, you can generally increase the amount of your potential deduction as well as your gift by contributing the securities directly to the charity instead of the cash generated from selling them.

To Summarize:

Each of these donation strategies and vehicles offer unique benefits, but in the end, what really matters is helping an organization for which you have passion—the tax benefits from a donation make a good situation better. So, research your options and talk with us at Adams Accounting Solutions to help you plan the best way to donate, and get those donations in before the close of the year!

References: 
Charitable Donations: The Basics of Giving – Charles Schwab December 2024, https://www.schwab.com/learn/story/charitable-donations-basics