‘Tis better to give than to receive but getting a big fat tax deduction is no bad thing. The festive spirit of giving is more attractive when Uncle Sam cuts you some slack on your income tax return. BUT in order to take a deduction for a charitable donation, you must itemize all your deductions using Schedule A of your tax return. If you take the standard deduction, you cannot take charitable deductions at all. That’s the tradeoff. 

With the end of the year fast approaching, you might want to consider making some donations before January 1. 

Standard vs. Itemized Deductions 

To review, the standard deduction is a set amount that you can deduct from your taxable income in order to reduce it. Itemizing means adding up all your deductions on your own. For most of us, the standard deduction is larger. The recent increase in the standard deduction has only made it less necessary for some people to itemize. 

Despite this reduced financial incentive to give, many of us do it anyway for altruistic reasons. A small deduction was recently allowed for those who take the standard deduction, but that was for 2021 only; there is hope among many that it will be reinstated in the near future. 

Keep Records 

To avoid losing the deduction by an IRS audit, it is always important to keep records! 

Establishing value 

If your donation is not cash, how do you determine the deduction? The IRS lets you deduct the “fair market value” of items you donate. Neither the charity nor the IRS will assign a fair market value to your item, however, so you must provide proof of it. 

Timing issues 

Timing is crucial if you want to enjoy a tax break in a certain year. You can deduct your contributions only in the year you make them, at the time of its “unconditional delivery.” This involves certain details: 

  • A check is considered delivered on the date you mail it. 
  • If paying by phone, your donation is considered made on the date your financial institution pays the amount. 

If you chose to give charitably this season, Financial advisors, tax specialists, and appraisers can give you the help you need. Happy giving!