What to Know About the Charitable Gift Deduction Under the Tax Cuts and Jobs Act

Charitable Donations After Tax Cuts and Jobs Act

The information in this article is up to date through tax year 2019 (taxes filed in 2020). 

Before tax reform, you could deduct up to 50% of your Adjusted Gross Income for charitable contributions. The new tax law allows you to deduct your donations worth up to 60% of your AGI. The change is a great incentive to donate to charity, and you may decide to take advantage of this increase. Here are some important things to know about taking a deduction for charitable gifts. 

Charitable donations are an itemized deduction

Under the Tax Cuts and Jobs Act, several important deductions are being restricted or eliminated, but the standard deduction is almost doubled. What this means is that for many taxpayers – possibly you – it will be more beneficial to take the standard deduction instead of itemizing until the tax plan expires in 2025. If you’re not sure which method will be best for you, have no fear. When you e-file your tax return, you will input your itemized deductions, and TaxSlayer will automatically choose the method that will give you the biggest refund.  

You can still get a big write-off if you plan for it

If you do take the standard deduction, you can absolutely still donate to charity – even if it means you won’t get the tax break. But if you usually make a cash donation to your preferred organization, consider saving up your contribution amount over time. Then plan to make a large donation for a tax year when you also itemize your deductions. This could allow you to take full advantage of the 60% threshold.  

Not every donation counts towards your deduction

When you donate anything other than cash, you need to determine the Fair Market Value of your items. Fair Market Value is the price that you would get in the marketplace if you were to sell that item. 

Certain gifts don’t have a Fair Market Value and can’t be deducted. For example, if you spend hours volunteering for a cause, you can’t assign a value to your time. You also can’t deduct for food items collected in a drive or given to a food pantry. And if you donate clothing or certain household items to an organization like Goodwill, you can only take a deduction for the value of those things if they are in good, used condition or better.  

If you participate in charity runs, don’t rush to deduct the cost of the race, travel, and accommodations. Most likely, your participation will not count as a charitable donation. You could ask race organizers how your race fees are being used. If some of the fees go directly to support the charity, you may be able to deduct those.  

Read also: Special Rules for Claiming a Tax Deduction for Donating Clothing, Household Items, Cars, Boats, and Airplanes

You need to have a record of your contributions

When you make a qualifying donation with a Fair Market Value under $250, you’ll need to document how much your gift was worth for your own records. A bank statement or a receipt will work just fine. If you make a charitable contribution worth $250 or more, you’ll need a document from the organization stating the fair market value or cash value of your gift, and whether you received some other good or service in return.

This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.

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