Planning your 2023 Year End Charitable Donations for Tax Filing
Towards the year’s close, many individuals are looking towards charitable donations as part of their financial strategy. From November to December, philanthropy takes center stage as people use this time to make donations that could prove essential for charities reliant on contributions from individual donors. The two months leading up to the end of the year is typically referred to as “the giving season,” and it provides a valuable opportunity for those wishing to give back.
The end of the year is often a time of generosity and showing appreciation for all that has been bestowed upon us. A survey conducted by Fidelity reveals that three out of five people plan to participate in philanthropic activities before the year’s end. Charitable giving is one such avenue for Americans to assist those with less luck.
To ensure the charity you select is authentic, verify it has obtained 501(c)(3) status from the Internal Revenue Service. This information can easily be found by consulting the IRS’s database of tax-exempt organizations or obtaining help from a PriorTax Tax Professional. In addition, many nonprofits will advertise their 501(c)(3) standing on their website or other publications.
Increasing Necessity for Charitable Donations
This year, the deficit is very significant due to the ongoing economic repercussions of COVID-19. Consequently, many unemployed individuals have sought assistance from food banks and other charitable organizations. Simultaneously, due to social distancing regulations, revenue has diminished for various entities that typically rely on in-person contributions, including faith groups and art organizations.
Making charitable donations may be a way to lessen your tax responsibilities, but there are alterations in the tax code that affect how these contributions are factored in. Here’s an overview of what you need to understand about the charitable donations tax deduction.
Charitable Donations in 2023
The Tax Cuts and Jobs Act of 2017 has enabled generous individuals to reduce their taxable income in 2018 through 2025 potentially. For cash donations, donors may be able to subtract up to 60% of their adjusted gross income (AGI) when giving to certain organizations. Additionally, those donating stock can enjoy a reduction of 30% off their AGI for such contributions.
Charitable donations by individuals are not limited to nonoperating private foundations; they can also include public charities and other private foundations. Should the qualifying cash contributions exceed the 60% ceiling for the given tax year of the donation, it may be carried forward to future years for up to five years.
Regarding charitable giving, it’s not only about the act of giving but also considering how that action fits into your tax strategy. As a reminder, the Internal Revenue Service (IRS) usually releases its annual inflation adjustments in the late fall for the upcoming year. It’s important to keep this information in mind when planning out your donations and other taxation decisions.
As the end of the year approaches, it’s a great opportunity for individuals to consider their tax situation and charitable giving. It is important to properly organize your charitable giving in order to maximize tax savings. Here are a few steps to consider when doing so:
Secure your Receipts
For those looking to get the tax deduction associated with charitable donations, it is important to make sure that you possess a receipt for all contributions. This applies no matter which form of donation you choose on December 31st, whether by cash, check, credit card, or even non-cash items such as clothing and furniture. Unfortunately, any kind of anonymous giving like coins thrown into a collection bucket does not qualify. It is essential to have proof to be able to use the donation as an offset on your taxes when filing with the IRS.
Check the charity’s policy before you load up the trunk.
When looking at eligible donations for tax deductions, the condition of the items is a significant element. The IRS does not indicate any specific prices related to the quality of the items, but charities do. Additionally, there are other regulations stipulated by the IRS concerning such donations. During the 2020 pandemic, many organizations ceased accepting physical goods as gifts; however, some have restarted retaking them. Be sure to confirm with your desired charity before delivering any goods.
Itemize your Charitable Donations for Tax Filing
The government’s tax code makes a significant change for 2023, with the cash deduction rising to 60% from 50% while also increasing the standard deduction for married couples filing jointly to a total of $27,700. However, itemizing these deductions has become more difficult, and limits have been placed on how much homeowners can deduct in terms of real estate taxes and mortgage interest.
The combined total deduction rate for income, state, and property taxes has a maximum of $10,000. Because of these changes, it is now more difficult to surpass the standard deduction threshold in any given year through charitable contributions alone. Sax revealed that couples who take full advantage of the $10,000 state and local tax deductions and lack mortgage interest would have to donate at least $15,900 to itemize their deductions.
When filing your taxes, you can only claim a charitable donation deduction if you decide to itemize. To qualify for itemizing, add up all of your deductible expenses and make sure they exceed the standard deduction set by the IRS for 2023.
Taxpayers seeking to itemize their deductions in 2024 should note the following amounts: single taxpayers and married couples filing separately can deduct up to $13,850; those who file as head of household have a threshold of $20,800, while married couples filing jointly and surviving spouses may itemize up to $27,700.
When it comes to itemizing deductions for the 2024 tax year, the specifics are as follows: those who file single or married filing separately must have an amount of more than $14,600; meanwhile, head of household taxpayers must surpass a figure of $21,900; lastly, married filing jointly and surviving spouses need to be above $29,200.
Bunching Donations for Maximizing your Tax Refund
He advised those who were philanthropic and had the means to do so to bunch their donations. This would mean combining two years’ worth of charity contributions through money or stock giving. Doing this could help the donor slip into a lower tax bracket.
Qualified Charitable Distributions (QCD).
Retirees who don’t need their IRA funds can take advantage of the Individual Retirement Account (IRA) Charitable Rollover, which allows them to make tax-free contributions of up to $100,000 directly from their IRAs. This is a qualified charitable distribution and simplifies the process for those interested in donating to charities.
Whenever your need advise with Charitable Donations for Tax filing, find your dedicated tax professionals at PriorTax to walk you trough from start to finish for free.
