Give and Receive

Give and Receive: Tax Benefits of Charitable Giving

It is no secret that there are many benefits associated with charitable giving. One of the largest benefits, however, is that most charitable donations are tax-deductible – meaning you can give to the Kingdom and still receive a charitable deduction at the end of the year.

It is important to note that charitable gifts only qualify for a tax deduction if the contribution is made to a tax-exempt organization, as defined by section 501 of the Internal Revenue Code. 

The IRS also has limitations on the amount of charitable contribution deduction that is able to be used each year. For example, deductions for gifts of capital assets such as stock or real estate are limited to 30% of the donor’s adjusted gross income (AGI) in the year of the gift, with a five-year carryforward. For gifts of cash contributions, the limit increased from 50% to 60% of your AGI in 2019 and the limit was temporarily eliminated for 2020 with the CARES Act for cash gifts made in 2020 directly to qualified charities.

Before assuming your charitable gift is tax-deductible, there are a few things you will want to check.

1: Documentation

Ensure you have the proper documentation when filing your income tax returns. The IRS requires a receipt for each tax-deductible contribution of $250 or more that includes the charities name, date and amount of the contribution and whether any goods or services were received in exchange for the donation.

2: Qualified Non-Profit

If your goal is to receive a tax deduction from your gift at the end of the year, you will need to make sure you are donating to a qualified nonprofit organization or charity. Not sure what a qualified charity is? Research their tax-exempt status by going to IRS.gov and using the Tax Exempt Organization Search tool to verify.

3. Current Year

Charitable contributions are deductible in the year that they are made, so make sure your gift is completed by December 31. For gifts to WaterStone, here are some important dates to keep in mind for the giving season.

How To Find A Qualified Charitable Organization

Finding the right charitable organization is as equally important as determining which asset(s) you want to give.

The IRS defines a tax-exempt charitable organization as being organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, education, or other specific purposes that meet certain requirements under Internal Revenue Code Section 501(c)(3). Examples include churches, nonprofit agencies, museums, and universities.

Through your donor advised fund, you can make grants to your preferred charities. Our team of experts will perform due diligence on the charity that you recommend to ensure it is a qualified 501(c)(3) charity and that the grant is in accordance with all IRS guidelines. Donors can also use Charity Navigator to find out how your interested charity ranks in terms of tax-deduction eligibility and operations accountability. Contact Giving Strategies at WaterStone to find out if your preferred charity is an eligible 501(c)(3).

Depending on the amount or type of your gift, you may need to provide additional documents with your tax form in addition to a standard deduction, such as Form 8283 for each non-cash donation exceeding $500. 

Charitable Contribution Deductions in 2020

The CARES Act  has impacted how individuals deduct charitable contributions made in 2020. Previously, charitable contributions could only be deducted if taxpayers itemized their deductions. With the Coronavirus Aid, Relief, and Economic Security Act, taxpayers who don’t itemize may take a charitable deduction up to $300 for cash contributions made in 2020 to qualifying organizations.

As mentioned previously, the CARES Act also temporarily suspends the AGI limitations on cash contributions made in 2020. In order to encourage 2020 charitable spending in the fight against the Coronavirus, you can make cash contributions directly to charitable organizations and potentially deduct 100% of your AGI and pay no federal tax.

Keep in mind that this higher limit only applies to cash contributions made directly to a qualified charitable organization and does not include donor advised funds such as a Giving Fund at WaterStone. Because the donor advised fund allows you to defer your charitable spending and accumulate for charitable purposes in future years, this Act ensures 2020 charitable spending.

We understand that navigating the nuances of charitable donations may be confusing. That’s why at Waterstone, we are here to help you make the most from your charitable donation by guiding you through every step. Contact our team to get started today.