Donations to qualified 501(c)(3) nonprofit organizations are generally tax-deductible. This includes contributions to charities, religious organizations, educational institutions, and some medical research foundations. To claim a deduction, you must itemize deductions on Schedule A of Form 1040.
The IRS limits how much you can deduct for charitable contributions:
• Cash donations: Up to 60% of adjusted gross income (AGI).
• Non-cash donations (property, stocks, etc.): Typically 30% of AGI, depending on the type of organization.
• Donor-Advised Funds (DAFs): Allow you to contribute now and distribute to charities later, providing an immediate deduction.
Donating stocks, real estate, or other appreciated assets instead of cash can be tax-efficient. By gifting assets that have increased in value:
• You avoid paying capital gains tax on the appreciation.
• You receive a charitable deduction for the fair market value of the asset.
If you're age 70½ or older, you can donate up to $100,000 per year directly from an IRA to a charity. This counts toward your Required Minimum Distributions (RMDs) and is excluded from taxable income, making it a great tax-saving strategy for retirees.
To claim a deduction, maintain detailed records, including:
• Receipts or acknowledgments from the charity for donations over $250.
• Bank or credit card statements for smaller cash donations.
• Appraisal reports for non-cash donations exceeding $5,000.
Final Thoughts: Charitable giving is a win-win—helping those in need while reducing your tax burden. Whether donating cash, stocks, or through a retirement account, structuring your contributions wisely can lead to substantial tax savings. Need assistance maximizing your deductions? Our tax professionals can guide you in creating a strategic giving plan.
