The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) changed the tax benefit of charitable giving in a big way.
For the first time, you do not have to itemize to get a partial deduction for cash contributions. To encourage more charitable giving in 2020, single or joint filers could claim a $300 “above-the-line” write-off on their tax returns. When the benefit was extended for tax year 2021, the deduction was increased to $600 for joint filers.
Amounts above these levels and all non-cash contributions are deductible only if you itemize on your tax return.
Generally, you would itemize on your tax return when the combined total of your deductions—including charitable gifts—add up to more than the standard deduction, which jumped in 2018. Of course, your accountant is always your best source for information on your particular tax situation.
Be a Smart Contributor
As a financial organizer / daily money manager (not a tax professional), I help clients plan, carry out, and document their charitable donations. I also help organize their information and paperwork (including contributions) during and ahead of tax season to the delight of their trusted advisors. (And the benefits last throughout the year).
Here’s my advice on how to streamline and maximize your giving:
- Never respond to phone requests for contributions. The FTC’s National Do Not Call Registry does not apply to charities. However, charities must honor your specific request to be placed on their own do not call lists.
- Avoid opening requests for contributions arriving in the mail. It’s difficult when a nickel or return mailing labels are included. Some clients tell me they can’t read a letter from a charity without feeling obliged to contribute. Marketers know this! Shred the mailings you don’t want (but be careful of those nickels!).
- Reduce mailbox clutter. Even better, contact organizations you support and ask them reach out to you only once a year. Other options to cut down on this clutter is DMAchoice and subscription-based PaperKarma. You can request to stop any type of mail solicitation including requests for donations. But not political ones. Find more de-cluttering ideas at Charity Navigator.
- Make a giving plan. Create a “Charities to Consider” bin for solicitations from charities you want to consider supporting. Go through the bin on a manageable schedule (rather than each time mail arrives)—maybe your birthday and again at year-end or any one or two dates each year.
- Know where you are giving. To be tax deductible, contributions must be made to IRS qualified organizations designated 501(c)(3). Research organizations at Charity Navigator or CharityWatch to confirm the organization and that your giving dollars are being put to the best use. Don’t assume that if an organization advertises on TV (i.e. the name sounds familiar) that it qualifies or is even legitimate. Note that entities could have “look alike” names. Excluded from the value of your contribution are gifts you may get in exchange—like a mug or tote bag.
- Set yourself a total annual contribution limit. Track donations including date of donation, name of organization, amount contributed, and documentation. Keep a running balance. When you’ve reached your self-imposed giving limit—STOP WRITING CHECKS.
Organize your Tax Paperwork
Start a “2022 Taxes-Donations” folder now for your charitable contribution paperwork. Cancelled checks and bank or credit card statements are acceptable to the IRS for individual cash donations up to $250. For donations of $250 or more, a letter or receipt detailing the donation is required. (See IRS Publication 526 for details.) Keep these supporting documents in the folder for tax time.
If you are donating “stuff” rather than cash, request a receipt or letter from the charity. Note that they don’t put a value on donations—that’s up to you. Intuit’s free Itsdeductible.com app, the Salvation Army, and GoodWill Industries provide IRS-acceptable valuations for commonly donated items. And don’t wait for an audit to make a list and assign values to what you drop into the collection bin. Do it while it is fresh in your mind.
But there’s more . . .
The IRS considers miles driven in service of registered charities to be charitable contributions as long as you’re not being reimbursed. Again, only itemizers get this tax benefit—at 14 cents a mile. Unfortunately, the value of your time is not deductible.
Happy giving!
Photo Credit: ID 64641537 © dinesh ahir | Dreamstime.com