The Christmas season is a great time for you and your clients to think about making a charitable donation. Donations not only aptly express the generosity associated with the holiday season, but they help worthy organizations and provide you and your clients with the opportunity to save on taxes by claiming a charitable deduction. Remind your clients that they can deduct charitable donations only if they itemize deductions on Schedule A of their IRS Form 1040 and that a deduction for a charitable contribution of noncash assets generally cannot be more than 20 to 50 percent of their adjusted gross income. Although contributions of cash or financial accounts are often the first type of donation that comes to mind, you can suggest other opportunities for giving that must may not have considered.
Many organizations accept donations of cars, even if they do not currently run, and many will also take donations of other types of vehicles such as recreational vehicles, trucks, or motorcycles. The donor should transfer the title of the car to the charity and remove the license plate and registration. For the donation to be tax deductible, the charity receiving the donation must be a 501(c)(3) organization. The donor should obtain a written acknowledgement of the donation from the charity. If the charity sells the vehicle, the deduction should generally be for the charity’s gross proceeds from the sale, but under some circumstances, a deduction can be claimed for the car’s fair market value (i.e., the amount it could be sold for in the open market by a willing seller to a willing buyer) on the date that it is donated. However, if the written acknowledgment indicates that the donated vehicle sold for $500 or less, the donor can claim a deduction for the lesser of the vehicle’s fair market value on the date it was donated or $500.
Donations of household items such as furniture, appliances, books, and clothing to a 501(c)(3) organization are eligible for a charitable deduction of their fair market value of the items on the date of the donation. Donated household items and clothing must be in good used condition to be eligible for a deduction based on its fair market value. If they are not in good condition, a qualified appraisal should be attached, along the IRS Form 8283, Section B to their tax return to claim a deduction of $500 or more.
If you or your client have materials left over after building a new house or old cabinets or fixtures after a remodeling project, they can be donated to a 501(c)(3) organization that helps families build affordable homes or sells donated materials to raise money for a charitable cause. Like household items, the amount of the deduction is the fair market value of the building materials on the date they are donated.
How we can help
Charitable organizations often navigate tight budgets, relying on year-end contributions to sustain their vital missions. I’ve personally embraced the power of philanthropy, making impactful choices that extend beyond financial decisions like acquiring a new car or home renovations. Drawing from my own experiences, I can guide you in making a meaningful difference through strategic year-end giving, not only aligning with your values but also optimizing your tax situation. Let’s collaborate to create a comprehensive plan that empowers you to fulfill your philanthropic aspirations, contributing to causes you care about while enhancing your financial strategy, as well as add some new and brilliant charity based donations to your Estate Plan.
To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.
Nothing in this message is intended to provide legal advice. This message is for educational purposes only.