Are Charitable Donations Tax Deductible?
Most of us have a charitable heart and are excited to give whenever possible to help others. Have you ever wondered why large corporations give so much of their revenue to charities? Are the CEO’s philanthropists that care more about others? It’s probably not what you think…they get a tax write off and are able to reduce the revenue that the company is taxed and lowering its tax liability.
Anyone can take advantage of this tax saving strategy but it requires more than your giving heart to achieve.
Who can deduct charitable contributions?
Individuals can donate to charitable organizations and will deduct it on the Schedule A of their 1040.
Businesses can donate but the entity type impacts how the deduction flows through to your taxes.
A business entity taxed as a sole proprietorship such as a independent contractor, single member llc, partnership, and s-corporation will all require the owner to deduct their portion of the charitable contributions to be deducted on the Schedule A and to be subject to the same limitations of an individual.
A business entity taxed as a C corporation will claim the tax deduction on their 1120 return.
What can types of things are considered charitable contributions?
You can donate cash, art, clothing and household items, furniture, stocks, cars, boats, airplanes, taxidermy property, and inventory to list a few. For the full list visit the IRS website here. The adjusted gross income (AGI) of the company or individual limits how much income can be tax deductible.
Individuals are able to deduct a charitable donation made in cash whether its debit, cash, or check of 60% of your AGI in 2023. For an individual that makes $100,000 they can deduct up to $60,000 which will reduce the income to $40,000 if there are no other deductions taken on the Schedule A.
Non cash contributions are limited based on multiple factors and you should consult with your tax professional to determine tax deductibility for your specific situation. The percentage can be 50% or 30% of the AGI.
Corporations have different rules and their contribution is limited to 10% of the company’s taxable income unless the business is donating food inventory then the limit increases to 15%.
When can you deduct your charitable contributions?
You can deduct your contributions within the year they are given. As an individual must make the contribution by 12/31 of the taxable year meaning checks must be postmarked, texts sent, credit card charged, etc.
A business will have to allocate the contribution amounts for owners and shareholders based upon the calendar year if the business uses a different fiscal year. A C Corporation will use the fiscal year of the business and contribute by the last day of the fiscal year.
Where can you donate to qualify for charitable contributions?
Donations to every organization won’t provide you with the benefit of tax deduction. Be sure that the organization you choose qualifies:
A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
A church, synagogue, or other religious organization;
A war veterans' organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
A nonprofit volunteer fire company;
A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.
If you aren’t sure where to give here are some organizations to consider:
Colorado Gives is a platform that lists multiple non-profit organizations in one place
Remember that your donation can not benefit you or your organization in any way.
Did you know that the IRS has a calculator on their website called “Can I Deduct My Charitable Contributions?”
If you have any questions please book a tax planning or advisory consultation.
