Why You Should Make a Charitable Contribution Before the Year Ends

Charitable Giving

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Contributing to charity is, of course, an act that is beneficial in numerous ways. Your donation could save a life, feed a child, or give someone a home. Did you know that making a charitable contribution can actually help you financially? When done strategically, your charitable contributions can allow for tax benefits, including optimal tax deductions.

Tips for Making Charitable Contributions Before the Year-End

  1. Rather than making a cash donation, consider giving long-term appreciated securities.

Making your charitable contribution with appreciated stocks or bonds allows you to yield greater tax deductions in certain situations. If the donated security has been appreciated for over one year, you can claim the fair market value as an itemized tax deduction. Gifting stock can also help you minimize capital gains taxes and diversify your portfolio.

2. Itemize your tax deductions.

Single filers who do not itemize can claim up to $300 in donations, while married couples filing jointly can take up to a $600 deduction. Individuals who do itemize can give up to 100 percent of their adjusted gross income (AGI) and claim it on their tax returns. C Corporations are limited to cash donations equaling up to 25 percent of taxable income.

  1. Max out your IRA contributions.

For individuals over the age of 70.5 who need to fulfill their minimum IRA distribution, a charitable contribution can count.

You can also consider using a charitable donation to offset income from the conversion of a traditional IRA to a Roth IRA.

  1. Talk with your employer.

Find out if your employer will match your donation with an employee gift match program. This way, your donation will go that much further towards helping the organization that you care about.

  1. Keep proper documentation of your charitable contributions.

No matter how much you’ve contributed, keeping proper documentation of your donations is necessary for tax purposes. Whether it be a credit card statement, a W2, or a receipt, keep these documents safe and handy.

Here is a guide to what kind of documentation is needed:

Contribution Type Amount Contributed Records Required
Monetary
(cash, credit card, check)
Less than $250 Bank record or written receipt:

  • Name of organization
  • Amount of contribution
  • Date of contribution
Monetary
(cash, credit card, check)
$250 or more Same as for monetary contribution of less than $250 plus written acknowledgement stating:

  • Contribution amount
  • Whether charity provided goods/services in exchange
  • Description, estimated value of goods/services provided
Monetary
(payroll deduction)
Any amount Pay stub, Form W-2, or other document from employer that shows amount withheld for payment to charityPledge card showing charity’s name

Written acknowledgement if $250 or more is deducted from single paycheck

Property Less than $250 Receipt, letter, other written communication from charity stating:

  • Name of organization
  • Date and location of contribution
  • Property description

(Receipt not required when impractical to obtain.)

Record of property’s fair market value on contribution date and how value was determined

Property $250 to $500 Same as for property donation of less than $250 plus written acknowledgement that states whether charity provided goods or services in exchange and, if so, their value
Property $500 to $5,000 Written acknowledgement

Form 8283 (filed with tax return) stating:

  • How and when property was acquired
  • Cost or other adjusted basis of property (unless publicly traded securities)
Property $5,000 plus Same records as for property donations of $500-$5,000 plus:

  • Qualified appraisal (exceptions apply)
  • Appraisal summary with Form 8283

Lastly, to ensure that you qualify for these benefits, be sure to contribute to a registered, tax-exempt nonprofit organization, or a 501(c)(3). Not sure who to contribute to? Our firm is a loyal supporter of CMM Cares, a nonprofit organization that helps struggling families on Long Island.

Contact us for more help with year-end tax planning, IRA distributions, and optimal tax deductions.

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