Hawkins Ash CPAs: Maximize the Tax Benefits of Your Charitable Donation

Deadline to Include Donations on Tax Returns is Dec. 31

(OnFocus) It’s the season of giving, and those looking to have donations included as a qualified charitable donation on the 2019 income tax returns must make them by December 31, 2019.

“This means the donation must be paid via cash, check or credit card in the case of your typical cash donations,” said Matt Eckelberg, partner in the Marshfield office of Hawkins Ash CPAs. “Any non-cash donations need to have the transfer of ownership completed as of December 31.”

For example, non-cash donations such as stock certificates will need to retitled in the receiving entity’s name or food supplies physically delivered to a food bank. A pledge to donate does not qualify for the deduction — only the amounts actually given will be allowed as a charitable deduction.

To maximize the tax benefits of a donation, individuals and businesses can contact a Certified Public Accountant, such as Hawkins Ash CPAs LLP.

“Hawkins Ash CPAs LLP can assist individuals and business with planning for major gifts and the maximizing of the tax benefits of the donation,” said Eckelberg. “This includes determining which entities are qualified charitable organizations for tax deductibility, strategies for proper classification of the expenditure, bunching and timing of donations and use of third parties such as a community foundation.”

To claim a deduction, the donor needs to maintain a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution.

The charitable organization should provide a written acknowledgement for all donations of $250 or more.

The written acknowledgment is required to substantiate a charitable contribution of $250 or more and must contain the following information:

1) Name of the organization

2) Amount of cash contribution

3) Description (but not value) of non-cash contribution

4) Statement that no goods or services were provided by the organization, if that is the case

5) Description and good faith estimate of the value of goods or services, if any, that organization provided in return for the contribution

6) Statement that goods or services, if any, that the organization provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

Not all donations will qualify as a tax deductible donation.

“Only donations to an organization that has been granted tax-exempt status by the IRS is eligible to receive tax-deductible charitable contributions,” said Eckelberg.

Examples of qualified charitable organizations include churches, mosques, synagogues, temples, and other religious organizations; and 501(c)(3) organized entities such as the United Way or Red Cross.

Donations to most social welfare and civic organization organized under IRS Code 501(c)(4) do not qualify a tax deduction. Examples of the these organizations are Lions Clubs, Rotary Clubs and political action committees.

“Frequently we find ourselves presenting bad news to individuals seeking charitable deductions for bingo games, raffle tickets or lottery-based drawings used by organizations to raise money,” said Eckelberg. “Unfortunately, fund-raising tickets are not deductible.”

Another misconception relates to community drives aimed at helping an individual or family with medical costs, loss of a house from fire or funeral expenses.

“Donations made to a standard GoFundMe are generally considered to be personal gifts and are not guaranteed to be tax-deductible,” said Eckelberg. “Make sure the cause is sponsored by an 501(c)(3) organization so your financial assistance meets the deductibility test.”

Eckelberg added that the tax benefits of charitable giving for some individuals have been negatively impacted by the increased standard deduction provided by the Tax Cuts and Jobs Act passed in December 2017.

“While some donors will see a reduced benefit, with proper planning a donor may still be able to receive a tax benefit while providing the support to the organizations and their causes,” he said.

For more information, contact Hawkins Ash CPAs LLP at 715-387-1131.