The end of the year is a great time to consider making a charitable contribution in support of the causes you care about. Here are some tax considerations to keep in mind when making your donations.
Timing of Charitable Contributions
Charitable contributions are deductible in the year made, so cash donated (and checks written and mailed) in 2018 apply to the 2018 tax year. Donations charged to a credit card before the end of 2018 are applicable for the 2018 tax year, even if the credit card bill is not paid until 2019.
Eligible Organizations
Is the charity you wish to donate to an eligible organization? Only donations to eligible tax-exempt organizations will be tax-deductible. Organizations that are religious, charitable, educational, scientific, or literary in purpose may be eligible to receive tax-deductible donations. A searchable charitable organization database is available on the IRS website. Certain organizations, such as churches, public charities, subordinate organizations under a group exemption, and governmental units that are not listed on the IRS website may still be eligible to receive tax-deductible contributions. Generally, only U.S.-based organizations are eligible for tax deductible contributions.
Substantiation Requirements
If you make contributions of cash to a charitable organization, you must obtain and maintain as proof of your contribution a bank record or written acknowledgement from the charitable organization that includes the name of the charitable organization, the date of the contribution, and the amount of the contribution. For donations of $250 or more, the written acknowledgement must be obtained contemporaneously by the earlier of the date of the tax filing or the due date, including extensions, for filing the return.
For noncash contributions (other than publicly traded stock), there are varying levels of documentation required depending on the value of the contribution. For noncash contributions of less than $250, a receipt or other reliable records must be kept. For donations $250–500, contemporaneous written acknowledgement must be received. For donations over $500 but less than $5,000, the rules are the same as for donations of $250–500, but an IRS Form 8283 also needs to be filed. For donations over $5,000, a qualified appraisal is required on top of the requirements for donations of over $500–5,000.
If a donation is left at a charitable organization’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for property contributed worth more than $500,000.
Tax Reform’s Changes to the Standard Deduction
While charitable contributions are still deductible in 2018, changes to the standard deduction in light of the Tax Cuts and Jobs Act will have a significant impact on whether those who have itemized in the past will continue to do so. Charitable deductions are included in the calculation of itemized deductions, and if you take the standard deduction because it is higher than what you would receive as an itemized deduction, you will no longer be receiving a tax benefit from these donations. The standard deduction will almost double from tax year 2017 to tax year 2018. This means that many people that have itemized in the past may not reach the threshold for itemizing starting in tax year 2018 and will instead take the standard deduction.
If you have questions or would like to discuss how the new tax law will impact your charitable contributions, please feel free to contact us for additional guidance.
By Elyse Eddy, CPA