The Changing Rules of Charitable Giving
Donating to qualified charities such as churches and other 501(c)(3) non-profit organizations is a great way to support your community and organizations that help others. The added benefit of charitable giving is when it leads to a tax deduction, too!
For 2022 and future years, the 60% of adjusted gross income (AGI) limit is back in effect. This means that if you itemize and claim qualified cash charitable contributions, the current year deduction is limited to 60% of your AGI. In other words, if your AGI is $100,000, then the most you can claim as a current year deduction is $60,000. Any amount over that is carried forward for five years.
For tax years 2020 and 2021, under the CARES Act, qualified cash charitable contributions were allowed up to 100% of AGI. In addition, a deduction was allowed for certain contributions up to $300 or $600, depending on your filing status. This deduction was taken in addition to the standard deduction and you did not have to itemize your deductions to claim this amount. Both provisions expired after 2021.
Since you must now be able to itemize deductions to see a tax break from your charitable giving, here are couple tips to help you get the most bang for your charitable buck:
- Consider bunching – Combine donations you would normally make over multiple years into one year, itemize that year and take the standard deduction the next year.
- Consider making a Qualified Charitable Distribution (QCD) – If you are age 70 ½ or older, you can transfer up to $100K from your IRA directly to a qualified charity. The distribution essentially equates to a 100% above-the-line tax deduction as it is not included in taxable income.
Since every tax situation is different, be sure to ask your tax expert at Ketel Thorstenson about how you can maximize the tax benefits from your charitable giving.