4 things you need to know about donations and your taxes
We’re noticing a lot of donations and political contributions among our clients lately, which is quite common during election years. We’re also hearing from our non-profit clients about the challenges they face with fundraising during these times. Supporting a political candidate or a non-profit that aligns with your values is a fantastic way to get involved and make a difference.
To help you navigate this, we thought it would be helpful to share some information about:
- Political Donations: Unfortunately, these aren’t deductible on your taxes.
- Tax Deduction Specifics: We’ll go over what’s deductible and what isn’t.
- Donations Through Your Business: We’ll explain why this might not be the most tax-efficient method.
- Donor-Advised Funds (DAFs): Discover how DAFs can help you maximize your donation deductions.
Political donations
If you’re thinking about donating money, time, or effort to a political campaign, you might be wondering, "Can I deduct political donations on my taxes?" Unfortunately, the IRS is quite clear on this: donations to politicians or political parties are not tax-deductible. This includes contributions to:
- A political candidate
- A political party
- A campaign committee
- A newsletter fund
- Advertisements in convention bulletins
- Admission to dinners or events benefiting a political party or candidate
- Political Action Committees (PACs)
While these contributions can’t provide a tax break, they are still a great way to support causes you care about!
Tax Deduction specifics
When it comes to deducting charitable contributions, there are quite a few rules to keep in mind. Each year, we provide personalized information to our clients through their secure tax portal to help them navigate these rules.
To claim a deduction for your donations, you'll need to itemize your deductions. This is generally worth doing if your total deductions exceed the standard deduction amounts, which are $14,600 for single taxpayers and $29,200 for married couples.
Here's a helpful guide to handling charitable donations for your taxes:
For Cash Donations:
- Donations of $250 or less: To deduct these, just keep a “bank record” showing the charity’s name, the date, and the amount of your gift. This can be a canceled check, a bank copy of a canceled check, or a statement from your bank or credit card showing the payment.
- Donations over $250: You’ll need a written acknowledgment from the charity before filing your tax return to claim the deduction.
- Received something in return? If you got a gift or meal in exchange for your donation, you can only deduct the difference between your contribution and the value of what you received. The charity should provide a written disclosure of the value of these goods or services.
For Non-Cash Donations:
- Used household items: These need to be in “good used condition or better” to be deductible. This includes furniture, electronics, clothing, and similar items. For food, antiques, artwork, and jewelry, check their specific rules. You can find a thrift shop value guide online for more help.
- Donations worth $5,000 or more: You’ll need to get a qualified appraisal for these items.
Volunteer Expenses:
While you can’t deduct your time spent volunteering, you can claim certain related expenses. This includes mileage, parking, tolls, trips, uniforms, and any out-of-pocket expenses.
Giving via your company
When it comes to charitable donations made through an S-corp or LLC, they don’t directly reduce your business's profit. Instead, these donations flow to your personal taxes as an itemized deduction. If you’re using the standard deduction rather than itemizing, you won’t get a tax benefit from the donation.
Keep in mind that how your state or city taxes your business might affect your state and local business taxes. Adding to that, donating through your business means that the cash available for other deductible expenses will be reduced. This may also impact your profits and your state and local business taxes.
Donor Advisory Funds (DAF)
Tax planning season is just around the corner, and we’re diving into strategies like Donor-Advised Funds (DAFs) for our clients who want to reduce their tax liability. Here’s a quick rundown on DAFs.
They’re charitable investment accounts you can open with most investment companies, designed specifically for supporting charitable organizations. Think of a DAF as a simpler, more cost-effective version of a private foundation.
You can contribute cash or securities—like stocks, bonds, mutual funds, and ETFs—to a DAF. One of the great benefits is that unrealized gains on securities held for more than a year are permanently excluded from taxable income. This means you avoid capital gains taxes and can deduct the current value of your donation.
When you make grants from your DAF, they aren’t reported as charitable donations on Schedule A. Instead, you already received a deduction in the year you contributed assets to the DAF. This can help you exceed the annual standard deduction.
Now, along with quarterly estimated tax calculations and keeping an eye on tax notices, we're also incorporating formalized tax planning. It's all about making sure we've got you covered from every angle when it comes to taxes!
Don’t hesitate to contact us and schedule a time to discuss this further.
