Charitable donations are a powerful tool to give back to your community and support causes dear to your heart while saving on income taxes. It’s crucial to navigate the process wisely to ensure your contributions are maximized and compliant with tax regulations.

Choosing the Right Organizations

When considering charitable donations, it’s essential to ensure that your contributions go to IRS-approved 501(c)(3) organizations. Only donations to these organizations are tax-deductible. The IRS provides an online search tool that allows taxpayers to verify the tax-exempt status of any organization.

You can find the search tool here:  https://apps.irs.gov/app/eos/

Beware of Scams

Scammers are becoming more sophisticated and tend to proliferate after natural disasters such as the recent California wildfires. Fraudsters prey on the goodwill of donors during these times. You should always verify the legitimacy of the charity before donating. Remember, if it sounds too good to be true, it most likely is. Scams not only divert funds from legitimate causes but can also affect your tax deductions.

Understanding Tax Deductibility

It is important to remember that donations to individuals are not tax-deductible. This rule applies to contributions made through personal fundraising websites like GoFundMe, particularly when donations are earmarked for one person or a small group, such as a family who lost their home. While these donations are undoubtedly generous and helpful, they do not qualify for tax deductions.

Limits on Deductible Donations

There are specific limitations on the deductibility of charitable donations:

  • Cash (or check/credit card) donations are limited to 60% of your adjusted gross income (AGI) for the year.
  • Noncash donations are capped at 50% of your AGI.

If your donations exceed these limits, the excess amount can be carried forward for up to five years.

Considerations if You Don’t Have Enough to Itemize

Bunching

Bunching is a strategy to consider if you typically don’t have enough itemized deductions to exceed the standard deduction amount in a year. The standard deduction for married filing joint filers for 2025 is $30,000 ($15,000 for singles).

Consider giving two years’ worth of donations in one year and none in the next. By bunching your donations in one year, this will bump you over the standard deduction threshold. You can itemize in the year you double up and take the standard deduction the following year.

Qualified Charitable Distributions

For taxpayers aged 70 ½ or older who own traditional IRAs, Qualified Charitable Distributions (QCDs) offer a beneficial way to make donations. This provision allows you to transfer up to $108,000 in 2025 from your IRA directly to a qualified charity. The QCD can count as all or part of your required minimum distribution, but unlike other IRA distributions, it is not taxable and is not included in your AGI. This option can be highly advantageous for those looking to support charities while managing their taxable income.

Record Keeping for Your Donations

Keeping accurate records of your donations is crucial for tax purposes. For donations less than $250, a bank record (such as a canceled check or bank statement) or a receipt from the organization is sufficient. For donations of $250 or more, you need a contemporaneous written acknowledgment from the charitable organization. This acknowledgment must include:

  • The organization’s name.
  • The amount and date of the contribution.
  • A statement indicating no goods or services were provided by the organization in return for the donation.
  • If goods or services were provided, a statement with a description and estimate of their value.

Maintaining these records ensures that you have the necessary documentation to support your deductions if questioned by the IRS.

Maximizing the Impact of Your Donations

Charitable donations provide a meaningful way to contribute to society. By understanding the rules and regulations surrounding these contributions, you can ensure that your generosity is both impactful and beneficial for your tax situation.

Remember – Always donate to verified organizations, keep good records, and understand the limits and advantages of your contributions.

With thoughtful planning, your charitable donations can make a significant difference. Please reach out to your KT Tax Advisor to discuss planning opportunities around charitable giving.