Charitable deductions are more complicated than they may appear. The question is whether you’re deducting all you can take and in the right way.
Type of gift
One of the biggest factors affecting your deduction is what you give:
Cash. You may deduct 100% gifts made by check, credit card or payroll deduction if the expense is paid during the tax year. If you put it on a credit card, it is considered paid even if you don’t pay off the credit card ! The problem with cash is getting a receipt from the qualified charitable organization to prove they received the payment. Consider writing a check or paying by credit card in lieu of cash.
Ordinary-income property. This gets complicated, especially if your business is donating products to charity. For stocks and bonds held one year or less, inventory, and property subject to depreciation recapture (tax on depreciation!), you generally may deduct only the lesser of fair market value or your tax basis.
Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held for more than one year. Be careful here! Be sure you’re using the proper date of the value ! The Good News is that you can now deduct up to 60% of your Adjusted Gross Income… Call us to find out the details.
Tangible personal property. This is basically stuff that is NOT real estate. Your deduction depends on the situation:
- If the property isn’t related to the charity’s tax-exempt function (such as a painting donated for a charity auction), your deduction is limited to your basis.
- If the property is related to the charity’s tax-exempt function (such as a painting donated to a museum for its collection), you can deduct the fair market value.
Vehicle. Unless the vehicle is being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle. You MUST get a letter from the charity on this one!
Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.
Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can only deduct 14 cents per charitable mile driven.
First, you’ll benefit from the charitable deduction only if you itemize deductions rather than claim the standard deduction. Also, your annual charitable donation deductions may be reduced if they exceed certain income-based limits.
In addition, your deduction generally must be reduced by the value of any benefit received from the charity. Finally, various substantiation requirements apply, and the charity must be eligible to receive tax-deductible contributions.
While December’s Tax Cuts and Jobs Act (TCJA) preserves the charitable deduction, it temporarily makes itemizing less attractive for many taxpayers, reducing the tax benefits of charitable giving for them.
Itemizing saves tax only if itemized deductions exceed the standard deduction. For 2018 through 2025, the TCJA nearly doubles the standard deduction — plus, it limits or eliminates some common itemized deductions. As a result, you may no longer have enough itemized deductions to exceed the standard deduction, in which case your charitable donations won’t save you tax.
You might be able to preserve your charitable deduction by “bunching” donations into alternating years, so that you’ll exceed the standard deduction and can claim a charitable deduction (and other itemized deductions) every other year.
Let us know if you have questions about how much you can deduct on your 2017 return or what your charitable giving strategy should be going forward, in light of the TCJA.