Charitable contributions are so important for helping nonprofits impact their communities and accomplish incredible good in multiple areas of need. But did you know that your donations can also benefit you? Here’s what you should know about the tax benefits of donating, and how your generosity can bring benefits back to you.
What Are Charitable Contributions?
A charitable donation is defined as “a gift of cash or property made to a nonprofit organization to help it accomplish its goals, for which the donor receives nothing of value in return.” When filing taxes in the US, these charitable donations, or charitable contributions, can be deducted from your federal tax returns.
Here are some key basics to help you understand the limits of the tax benefits you can receive for charitable contributions:
- For a charitable contribution to be deductible, the recipient charity must be a qualified organization under tax law.
- Annual AGI caps limit the total amount of charitable contribution deductions.
- Special rules limit certain deductions based on the type of property donated and the type of tax-exempt organization receiving the donation.
Let’s take a more in-depth look at how these rules and limitations can help you save money on your taxes!
Charitable Contribution Deductions
As previously mentioned, it’s important to know the annual adjusted gross income (AGI) caps for charitable contributions; up to that amount, those donations will count toward tax deductions. The AGI caps for the 2022 tax year are “30% of AGI for contributions of non-cash assets, if held more than one year, and 60% of AGI for contributions of cash.”
For these deductions, you may take either a standardized deduction or an itemized one, in which you list out each of your contributions to charitable organizations. The standardized deduction is a fixed amount for the year, whereas the itemized deduction is dependent on your actual contributions. You are free to use whichever method lowers your tax bill the most!
As you consider year-end giving in 2022, remember that mail-in donations also count for the 2022 tax year as long as they are postmarked by December 31st! Giving during the holiday season is a great way to increase your charitable contributions for the year, engage in the warmth and generosity of the season, and provide crucial support to the causes you care about.
To make sure you’re donating to qualifying charitable organizations, you can use the IRS Tax Exempt Organization Search. With that tool, you can be sure that your money is not only supporting a legitimate organization, but that it can also be helpful to you when tax season comes around.
Tax Credit for Donations
You can also receive tax credit for charitable contributions other than cash. This includes assets and property that you donate to qualifying charities. For example, if you donate clothes, furniture, books, or other items to a nonprofit thrift store such as Goodwill or the Salvation Army, you can deduct the fair market value of those items from your tax bill.
For donating food items, the IRS says, “there is a special rule allowing enhanced deductions by businesses for contributions of food inventory for the care of the ill, needy or infants. The amount of charitable contributions of food inventory a business taxpayer can deduct under this rule is limited to a percentage (usually 15 percent) of the taxpayer’s aggregate net income or taxable income.”
Whether you’re donating money, property, or other assets, here are some basic tips that will help you be prepared to reap those benefits during tax season:
- Request a receipt if you donate $250 or more to a single charity. If the donation is in cash, you’ll need a receipt or supporting bank records, regardless of amount.
- Get an independent appraisal for gifts of property in excess of $5,000 ($10,000 for closely held stock).
- You won’t need an appraisal for exchange-traded stocks, bonds, or mutual funds.
Subtract the value of any benefits you received for your charitable contribution (for example books, tapes, meals, entertainment and so on) before you deduct it.
With all this in mind, we hope you too can benefit from the charitable contributions you make to help others. Thank you for your generosity and compassion in this holiday season, and any time of the year!
Disclaimer: This blog and affiliates do not provide tax, legal, or accounting advice. This blog was prepared for informational purposes only, and recommend that one seeks formal counsel from a tax advisor to best suit your needs.
About the SLO Food Bank
We at the SLO Food Bank believe that everyone has the right to nutritious food. That’s why we work hard to ensure access to fresh food for everyone in our community. We structure our programs in a few different ways to make fresh produce more accessible and affordable for those who need it. We also promote food assistance programs like CalFresh, while hosting food distributions in the most rural areas of our county, where a grocery store may be more than 50 miles away.
With our network of community partners in San Luis Obispo, we strive to alleviate hunger and to build a healthier community. If you’re in the area, check out our Food Locator to find food sources near you, or support our cause through volunteer opportunities or donations, if you are able to give. With reliable access to wholesome food, we are all healthier, happier, and more productive members of our communities. Donate today to help us bring health and happiness to San Luis Obispo County!