The Best Tips for Maximizing Tax-Deductible Donations

When you donate to a worthy cause, you feel good about helping make the world a better place. Thankfully, some very real tax benefits come along with the emotional perks.

Tax laws can be confusing, and tax deductions for charitable contributions are no exception. Because we believe strongly in the power of giving, the experts at Easy Donation Pickup have compiled this guide to maximizing tax-deductible donations.

How Can You Effectively Plan and Budget for Tax-Deductible Donations?

While we have all donated on a whim, planning your charitable contributions has several advantages. It makes you more likely to give every year, can help you stick to your budget, and allows you to maximize your tax-deductible donations.

Setting a Donation Goal

It all starts with selecting a charity you want to support. After choosing a cause (or causes) close to your heart, dive a little deeper. Look into how much of your donation goes to charity, whether the charity has received negative press or bad reviews, and whether donations to the organization are tax-deductible.

Next, decide how much you want to give. Setting a donation goal involves balancing the desire to contribute with how much you can afford each month. Since charities are typically happy with any donation amount, start small and grow from there.

Creating a Donation Budget and Timeline

Include donations in your monthly (or yearly) budget like you would any other expense. After accounting for essential bills and savings/investments, set aside an amount for charitable giving. Being as specific as possible can help you reach your donation goals.

You may include charitable contributions in your “fun/entertainment” category, or you may find it useful to put donation money in a separate category with its own label. Setting up recurring donations, scheduling giving for the beginning of the month (or after your paycheck clears), and finding an accountability partner are all great ways to stay on track.

Donating Appreciated Assets

Depending on the organization, you may be able to donate anything from cash to used clothing. When it comes to maximizing tax-deductible donations, however, you may wish to consider giving appreciated property.

Appreciated assets are any assets that have increased in value while you’ve owned them. In terms of charitable giving, appreciated long-term assets usually refer to the following property types that you’ve held for over one year:

• Stocks, bonds, or mutual funds
• Real estate
• Fine art and collectibles

Tax Advantages of Donating Appreciated Assets

Typically, when you sell long-term assets that have increased in value, you must pay hefty capital gains taxes on your tax return. If you transfer these assets to a charity, however, both you and the charity avoid the associated capital gains tax.

Furthermore, you can claim a charitable tax deduction equal to the fair market value of the asset, up to 30% of your adjusted gross income (AGI).

This makes donating appreciated assets a more efficient way to maximize your tax deductions than donating via cash or credit card. The amount you can save by doing so depends on your taxable income and tax bracket.

What Timing Strategies Can You Use To Maximize Tax-Deductible Donations?

In addition to what you donate, when you donate impacts your tax deductions.

Understanding Tax Year Deadlines

Typically, donations must be received or postmarked by 11:59 pm on December 31 to qualify for tax deductions for that year. This is fairly simple to achieve when donating by credit card, check by mail or PayPal.

However, for other payment methods, you’ll need to plan in advance to meet the deadline, especially if you’re working with a third party. For example, fund transfers through your bank or stock transfers through a broker may take several business days. Don’t forget to include holidays and weekends in your calculations.

Utilizing Strategies Like Bunching Donations

Although the standard deduction amount nearly doubled in 2017, only around 10% of taxpayers itemize deductions. If you are one of the millions who don’t, you may not be taking full advantage of the tax breaks available to you.

By donating a small amount each year, you may not exceed this higher standard deduction threshold. Thanks to a strategy known as “bunching,” however, you can group your charitable contributions into a single year to maximize tax benefits.

Instead of donating the same amount two years in a row, you can donate twice the amount in a single year. By stacking your donations accordingly, you may push your total itemized deductions over the standard deduction amount.

What Documentation and Recordkeeping Practices Are Important?

Only donations to tax-exempt charities qualify for tax deductions. To claim a charitable contribution on your federal tax return, you must have written documentation of your donation from an IRS-verified organization. Documentation rules differ for cash and non-cash donations and for different donation amounts.

When it comes to documenting donations for tax purposes, you’ll want to pay special attention to the following:

Receipts

Charitable organizations usually send written acknowledgments after processing donations. Whether they come in the form of an email, a letter, a postcard, or an official receipt, you can use these documents to claim your tax deduction.

For cash donations of $250 or more, you must provide a contemporaneous written acknowledgment from the organization.

Bank Records or Canceled Checks

For cash donations under $250, you can also prove your donation through bank records, including account statements, canceled checks, or credit card statements.

Appraisal for Non-Cash Contributions

For non-cash donations under $250, you should provide a receipt from the qualified organization.

For non-cash donations worth at least $250 but not more than $500, you must provide a contemporaneous written acknowledgment from the organization. For non-cash donations over $500 but not over $5,000, you must also file IRS Form 8283.

Finally, non-cash donations worth more than $5,000 require an acknowledgment, Form 8283, and an official appraisal assessing the item’s fair market value.

How Can You Take Advantage of Employer Matching Programs?

To encourage employees to give, many businesses offer corporate matching programs. Corporate social responsibility is an important part of modern brand building, as customers and employees increasingly seek out companies that do good in the world.

When you take advantage of employer matching programs, your charitable donations go twice as far. The company benefits from improved employee morale and increased tax deductions, while the charity benefits from double the contributions.

Check Your Employer’s Matching Gift Program

Start by researching whether your employer offers a program to match the charitable gifts of their employees. There are three easy ways to do so:

1. Check with your HR department: Your Human Resources department should be able to tell you whether the company matches charitable gifts and how the program works.
2. Check with the charity: Many charities provide a search tool on their website showing which companies offer matching donations. For example, the Humane Society of the United States, the American Cancer Society, and Project Hope all use the Double the Donation search tool.
3. Check on a third-party website: Some third-party websites, such as the charity assessment organization Charity Navigator, also display the Double the Donation search tool, allowing you to look for employers that offer donation matches.

Select the Eligible Charities

Although some employers allow you to donate to any cause of your choosing, others have rules about eligible charities. Some companies restrict the kinds of charities that qualify (for example, excluding religious or college organizations), while others only match contributions to a pre-approved list of charities.

You’ll also need to know your employer’s rules, such as whether there are time or dollar limits for matching donations.

Submit Matching Gift Request

Finally, ask your HR department what you need to submit your matched donation request. You typically need to provide your receipt for your contribution and a matching donation request form. However, your employer may require additional documentation.

Is There a Maximum Limit to the Tax-Deductible Amount of Donations?

Yes, there is a limit on how much you can deduct for charitable donations. The exact amount depends on the type of gift and the type of charity.

Adjusted Gross Income (AGI) Limit

The IRS bases maximum tax deductions on your AGI, which is your total income minus deductions.

For cash donations to public charities, the annual limit is 60% of your AGI. For cash donations to private charities, the limit is 30% of your AGI.

For donations of most long-term appreciated property, the limit is 30% of your AGI for public charities and 20% of your AGI for private charities.

Looking To Donate Goods? Contact Easy Donation Pickup

Now that you know all about maximizing tax-deductible donations, why not get started donating today? Easy Donation Pickup is a non-profit charity that supports veterans and their families. We accept a range of items, from clothing and jewelry to sporting goods and electronics.

We make it easy on you by picking up items at your house, leaving a tax receipt at your door, and sending your donations to a veteran in need. Call us today at (855) 628-8387 or schedule a pickup online. We service most areas in Los Angeles and Orange County!