At Anderson ZurMuehlen, one of our core values is giving back to the communities we serve. December is a good time to discuss charitable donations, as many of us tend to make our gifts at yearend. This year our generosity with charities in our communities is more important than ever, as many charities are struggling due to the coronavirus pandemic. They need our help now, more than ever.
Here are some tax tips regarding charitable donations:
- If you normally claim the standard deduction or are right on the threshold, consider bunching the donations you would normally make over two to three years into 2020 and itemizing deductions.
- Taxpayers claiming the standard deduction may also claim a $300 “above the line” deduction for donations to charity.
- Cash contributions are not limited to 60% of your adjusted gross income in 2020. Gifts to donor-advised funds and private non-operating foundations do not qualify for the expanded deduction.
- If you are over age 70 ½ you may transfer funds directly from your IRA to charity. This can be counted as part of your Required Minimum Distribution (RMD). While RMDs are not required for 2020, this still might be a good strategy for you.
- Donating appreciated property, whether tangible (such as real property) or intangible (such as marketable securities), can save you additional money. Provided you’ve owned the asset for at least one year, you can generally write off the fair market value and therefore avoid taxes on any capital gain you would recognize if you sold the asset. Do not donate investment property that has declined in value since you purchased it.
A few words of caution when it comes to charitable donations:
- Donations to individuals and personal fund-raising sites that are earmarked for a single person or a small group are not tax-deductible.
- Beware of scammers. If you aren’t sure if an organization qualifies as tax-exempt, you can check the exempt status by visiting the IRS website.
- Make sure you have the proper documentation for you to claim a deduction on your tax return.
- For donations less than $250, a canceled check or credit card receipt will suffice as documentation.
- For a charitable contribution of $250 or more, you must obtain a receipt substantiating the contribution to obtain a deduction. Substantiation consists of a written acknowledgment of the donation and the acknowledgment must state the date and the amount of donation. If the donation consists of non-cash items or property, it must include a description of the property and the date received. The organization is not required to estimate the value of the item. A statement regarding whether any goods or services were provided to the donor must be included in the acknowledgment. If goods or services were provided, a description and good-faith estimate of the value of any goods or services provided in return for the contribution must be included.
- For contributions over $5,000 (other than cash or publicly-traded stock), a qualified appraisal must be obtained for the donor to claim the deduction. The appraisal must be prepared no earlier than 60 days before the date of the contribution and must be obtained before the due date of the return on which the deduction is claimed. Form 8283 must also be signed by the qualified appraiser and the charity and must be attached to the return in which you claim the deduction.
Contact us if you have any questions about charitable giving.