Deciding whether to itemize charitable deductions became a little more complicated under the Tax Cuts and Jobs Act, or TCJA, of 2017. That's because with the increase in the standard deduction, fewer people may now itemize, and you normally must itemize to deduct charitable contributions. Nevertheless, if you do itemize, you'll need proof of your charitable gifts — and a little planning — to claim them as deductions on your tax returns.
Here's how to help make the most of your generosity:
1. Check the recipient’s nonprofit status.
If you want a deduction for the donation, make sure the recipient is a valid charitable organization. The burden of proof is on you for this. A valid charity has 501(c)(3) status from the IRS. Not every organization qualifies, although they might lead you to believe they do.
2. Decide whether to itemize.
Charitable giving may contribute to your total itemized deductions, which means you'll need to itemize to claim full value. Generally, you should itemize if your total deductions exceed the standard deduction, but you’re only able to deduct charitable contributions if you itemize. There are yearly limits, so there may be less incentive to itemize your deductions. For more details, see the IRS Publication 526 Opens in a New Window. See note 1
3. Count any noncash donations.
To maximize benefits, make sure you're properly valuing noncash donations like clothing, furniture, toys and electronics. The most important step is putting a fair price tag on each item so you get an accurate deduction.
4. ‘Bunch’ your charitable contributions.
Given the higher threshold for itemizing deductions, taxpayers can also plan their charitable giving for years when they have higher deductible expenses or by deciding to “bunch” their charitable contributions for targeted years instead of every year. This strategy could be accomplished by donating various property or through a donor advised fund Opens in a New Window. See note 1 Again, qualified donations must be made before the end of the year in order to be deductible.
5. Get help estimating the value.
Many people underestimate the value of their donated items. Try using free online tools and apps, often provided by well-known charities, to help determine fair market value.
6. Remember the exceptions.
If you donate a car or a boat, the rules are different. The value changes depending on, among other things, whether the vehicle will be used or sold by the charity. It's up to the donor to find out.
7. Keep detailed records.
Taking advantage of deductions means keeping good records in case the IRS challenges you on it. For example, when you drop your items off, ask for a dated receipt and save it. Use your smartphone to take a picture of your donations. For more details, see IRS Publication 526, Charitable Contributions Opens in a New Window. See note 1 You'll find information on record-keeping requirements, which vary depending on the amount of your contributions and whether the contributions are cash or noncash, or out-of-pocket expenses when donating your services.
It's a good idea to get professional guidance form a qualified tax advisor such as a CPA, accountant or attorney. In the meantime, consider some other tax season tips.
Help manage your charitable contributions.
Structure your charitable giving with a simple, tax-smart investment solution of a donor-advised fund account through Schwab Charitable.