2023 Year-End Charitable Gifts

FAQs

Q1: What is the deadline for making charitable gifts for tax purposes?

A1: Generally, charitable gifts must be made by December 31st to be eligible for a tax deduction in that calendar year.

Q2: Can I deduct non-cash charitable gifts?

A2: Yes, you can deduct non-cash gifts like clothing, household items, or securities, but special rules and documentation requirements apply.

Q3: How much of my charitable gift is tax-deductible?

A3: The amount you can deduct depends on various factors, including the type of gift, the organization you’re donating to, and your income level.

Benefits Of Charitable Gifts

With the holiday season upon us and the end of the year approaching, we pause to give thanks for our blessings and the people in our lives.

It is also a time when charitable giving often comes to mind. The tax benefits associated with charitable gifts could potentially enhance your ability to give and should be considered as part of your year-end tax planning.

Giving Tuesday, a day for charitable giving, is held annually on the Tuesday after Thanksgiving. In 2023, Giving Tuesday is November 28.

Tax Deduction For Charitable Gifts

If you itemize deductions on your federal income tax return, you can generally deduct your gifts to qualified charities. This may also help increase your gift.

Example: Assume you want to make a charitable gift of $1,000. One way to potentially enhance the gift is to increase it by the amount of any income taxes you save with the charitable deduction for the gift. 

At a 24% tax rate, you might be able to give $1,316 to charity [$1,000 ÷ (1 - 24%) = $1,316; $1,316 x 24% = $316 taxes saved]. 

On the other hand, at a 32% tax rate, you might be able to give $1,471 to charity [$1,000 ÷ (1 - 32%) = $1,471; $1,471 x 32% = $471 taxes saved].

Keep in mind that the amount of your deduction may be limited to certain percentages of your adjusted gross income (AGI). 

Your deduction for gifts to charity is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your AGI, depending on the type of property you give and the type of organization to which you contribute. 

Charitable deductions that exceed the AGI limits may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years

Proper Documentation Of Charitable Gifts

Make sure to retain proper substantiation of your charitable contributions. 

In order to claim a charitable deduction for any contribution of cash, a check, or other monetary gift, you must maintain a record of such contributions through a bank record (such as a cancelled check, a bank or credit union statement, or a credit-card statement) or a written communication (such as a receipt or letter) from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution. 

• If you claim a charitable deduction for any contribution of $250 or more, you must substantiate the contribution with a contemporaneous written acknowledgment of the contribution from the charity
• If you make any noncash contributions, there are additional requirements

Year-End Tax Planning For Charitable Gifts

When making charitable gifts at the end of the year, you should consider them as part of your year-end tax planning.

Typically, you have a certain amount of control over the timing of income and expenses

You generally want to time your recognition of income so that it will be taxed at the lowest rate possible, and time your deductible expenses so they can be claimed in years when you are in a higher tax bracket.

• If you expect to be in a higher tax bracket next year, it may make sense to wait and make the charitable contribution in January so that you can take the deduction next year when the deduction results in a greater tax benefit.
• Or you might shift the charitable contribution, along with other deductions, into a year when your itemized deductions would be greater than the standard deduction amount.
• And if the income percentage limits above are a concern in one year, you might consider ways to shift income into that year or shift deductions out of that year, so that a larger charitable deduction is available for that year.

Advance planning with a tax professional can help you evaluate your individual tax situation

A Word Of Caution Regarding Charitable Gifts

When making charitable contributions, be sure to deal with recognized charities and be wary of charities with names that sound similar to reputable charitable organizations. 

It is common for scam artists to impersonate reputable charities using bogus websites as well as misleading email, phone, social media, and in-person solicitations

Check out the charity on the IRS website, using the Tax Exempt Organization Search tool.

And remember, don’t send cash; contribute by check or credit card.

Making charitable gifts at year-end can be a rewarding way to support causes you care about while potentially reducing your tax burden. By understanding the tax implications and using smart giving strategies, you can maximize the impact of your donations and make a lasting difference in your community and beyond.

Contact your tax and financial advisors to determine the best moves for your situation.