You Get What You Give: The Income Tax Benefits of Charitable Giving
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You have decided to make a donation to charity. In addition to making a difference in your community and preserving your legacy, substantial tax benefits may be available to reduce your tax liability in a given year. This article is the second in a series of articles on charitable giving from the law firm of Carlile Patchen & Murphy LLP. The purpose of this article is to explain how and when these tax benefits may be realized.
Charitable donations are tax deductible expenses. If properly reported, charitable donations can reduce your taxable income and decrease the amount of income taxes paid. In order to claim a charitable deduction, you must itemize your deductions. You can claim your tax deduction on Form 1040, Schedule A.
You must meet certain requirements to claim your charitable donation. First, to be tax deductible, you must actually donate the cash or property to the charity. A mere pledge or promise to donate cash or property is not tax deductible until the donation is made. Second, the charity to which you donate cash or property must be a qualified tax-exempt organization. Before you donate, you can ask the organization if it has tax-exempt status. Third, as stated above, you must itemize your deductions to claim your charitable deduction. And fourth, you must properly document your charitable donation. Depending on the type and value of the property donated, proper documentation can include saving cancelled checks, acknowledgment letters or receipts from the charities, and appraisals for donated property.
There are limits, however, on the charitable contribution deduction. For example, you can generally deduct cash contributions in full up to 50% of your adjusted gross income. If you donate property, you can generally deduct up to 30% of your adjusted gross income. Contributions of appreciated capital gains assets generally can be deducted in full up to 20% of your adjusted gross income. If your charitable donations exceed any of these limits, the excess can be carried over to the following tax year, up to a maximum of five years.
Whatever your charitable goals are, putting a plan in place can help you make the most of your giving. If you have questions, please contact Carlile Patchen & Murphy LLP.
