Charitable giving has weathered more than its fair share of ups and downs over the past several years. Anticipated changes in tax laws continue to hold the attention of the philanthropic world. While the volume and dollar amount of smaller donations has declined slightly, larger donations have increased as many Americans seek to leverage more of their charitable giving into tax write-offs. However, donating to a charity or nonprofit organization does not automatically guarantee a tax deduction.
Despite the recent changes in tax laws, many of the fundamentals remain largely unchanged. Here are three key elements essential to maximizing the tax benefits of charitable deductions.
The Tax Cuts and Jobs Act of 2017 brought about several important changes in tax laws, including changes to standard deduction amounts. However, the requirement to itemize remains the same. Individuals may only claim a charitable deduction if all deductions are itemized. Based on individual circumstances, a tax adviser can recommend a strategy around itemization versus taking a standard deduction.
As with most financial matters, documentation is key. In order to secure any type of write off for your charitable deductions, there must be proof that the donation was made. This documentation usually comes in the form of a receipt that shows the date of the donation, the amount, the name of the organization. While there is no requirement to submit this information along with a tax return, it is important to keep documentation of charitable giving on file in case of an audit.
Not all nonprofits are created equal. Though many organizations engage in fundraising and charity work, not all qualify for tax-exempt status. Political campaigns are prime examples of high-profile fundraisers that are not tax exempt. A good rule of thumb is to verify an organization’s or 501(c)(3) status prior to giving. The IRS provides an online tool to check an organization’s tax exempt status or to locate local charities in your area.
Utilizing deductions as an advantage in the tax process is a fairly straightforward way to maximize personal wealth while contributing to society through charitable giving. While there are more complex processes involved in turning charitable donations into tax write-offs, these three guidelines form a solid foundation for conscientious giving.