It’s December. You’re being deluged with donation requests from all sides. Well-meaning family members and friends, charged to make the fundraising goals necessary to continue their life’s mission, are turning to you for support. And they gallantly assure you of the one concern you want addressed right now. “We are a 501c3 non-profit. Any donations you make will be tax deductible.”
But is that really so? Do you indeed save on your tax bill by giving charity?
The short answer is that they used to be correct. Until the Tax Cuts and Jobs Act of 2017, that is.
You see, any spending characterized as “tax deductible” carries either of two definitions:
- It offsets your taxable income, as it was determined to be ordinary or necessary for the production of your business income.
- It is an itemized deduction.
One of the most significant changes brought by the Tax Cuts and Jobs Act is the raising of the standard deduction, effectively making it less advantageous for many Americans to claim itemized deductions. What does this have to do with charity? You guessed it. Charitable contributions are an itemized deduction.
That said, there are still a few ways in which you can use donations to save on taxes.
- You are a business owner. The organization near and dear to your heart publishes something in which your business is advertised. In this case, your donation can be considered an advertising expense, which offsets your taxable income.
- You have a business being taxed as a C Corporation. In this case, you can claim up to 10% of your taxable business income in charitable contributions.
- You will be itemizing your deductions.
Note: This article is not meant to discourage anyone from giving charity. Charity should be given generously for a variety of reasons; however, saving on your tax bill just may not be one of them.