The Tax Cuts and Jobs Act went into effect in December 2017 and with it came many changes to individual income taxes. The standard deduction nearly doubled, income tax rates were reduced, and there are new limits as to what you can deduct, including charitable donations. Here are five important things to know about tax deductible donations as you think about 2018 taxes.
1. The standard deduction increased.
Charitable contributions are now only deductible as an itemized deduction. Going forward, if your total itemized deductions, including charitable contributions, do not exceed the increased standard deduction, filers will not receive any tax benefit specifically related to their charitable donations. The standard deduction is now $12,000 for single filers and $24,000 for married couples filing jointly.
2. Filers can instead bunch charitable gifts.
To exceed the standard deduction in a given year, filers can use a strategy of “bunching” donations. By giving an accelerated or more significant gift than they may have previously spread out in two or three years into a single year, they will be able to itemize one year and then take the standard deduction on the next year’s taxes.
3. Not all nonprofit organizations are beneficiaries.
That means not all gifts lower your taxes. The charity of your choice must qualify as a tax-exempt 501c3 organization to claim a deduction.
4. Pledges don’t count.
Only paid pledges count as a tax deductible donation. If you pledge $10 a month, you will only be able to claim what you’ve already given during the tax year, not the entire pledged amount.
5. Not all “gifts” are deductible.
These include gifts that you benefit from. Buying merchandise from a nonprofit does not count as a deduction since you gave a gift and received something in return. Only the portion that you pay in excess of the market value of the donation becomes tax deductible. For example, if a taxpayer purchased a trip at a charity auction for $5,000 and the trip was only valued at $4,000, the remaining $1,000 would be deductible as a gift. Additionally, you cannot deduct contributions to political organizations, candidates, or other individuals.
You must have and keep records for all the contributions that you plan to itemize as write-offs on your taxes. These can be in the form of bank records, payroll deduction records, or a written letter from the qualified organization acknowledging your contribution. An acknowledgment letter is required from any organization a taxpayer made a gift to exceeding $250.
C&D | Tax Deductible Donations
Have a pile of receipts and documentation come April from charitable organizations and not sure which you can write off? We can help. Here at C&D, we are well versed in the new tax law and can help you get the right return.
Call us today to set up a consultation to talk about your tax deductible donations.