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The gift of giving: How to maximize your tax benefit when making charitable donations

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By Tyler Allen EBS Managing Editor

Everyone has their own reasons for giving their time or money to charitable causes, and philanthropy is a personal decision. Yet, for those with the means, there are some strategies to enhance your tax benefit when giving monetarily.

EBS recently spoke to Doug Neil with Neil & Company CPAs P.C., a Bozeman accounting firm that opened in 1976, and asked him how to maximize your tax benefit when giving to nonprofits and other charitable organizations.

Depending on an individual’s income and age, there are a few things to consider when donating to a 501(c)(3), Neil said. With the passage of the 2018 federal tax reform, retirees can benefit by contributing money straight from their Individual Retirement Account, which is considered a qualified charitable distribution.

“[These donations] go straight from your IRA to the organization and the IRA is then not taxable,” he said. “Prior to the tax reform, a lot of those folks might have itemized the deductions, but the reform made the standard deduction increase, meaning if you took the standard deduction you can’t benefit. But now you can donate straight from your IRA and still benefit.” This lowers an individual’s adjusted gross income, which ultimately lowers their tax burden.

Neil said that there are also benefits to making charitable donations at year’s end, especially because it’s a particularly good time for organizing your tax portfolio. “A lot of people are trying to figure out what they can do for tax planning [at the end of the year], and charitable donations are a great thing to include in their planning,” he said, adding that people who itemize their returns can take a tax deduction for the amount they give throughout the year.

When considering how much to donate, and how it will affect your taxes, there is no minimum amount required—but you must consider substantiation rules: if you make a one-time donation of $250 or less to a nonprofit, you just need a record of a canceled check, bank or credit card statement. “That’s a good reason that using a check or credit card is preferable over cash—you have a paper trail,” Neil said.

However, if you donate more than $250 at one time, you’re required by the IRS to obtain acknowledgement from the organization. Additionally, many people will give in-kind donations—anything that isn’t cash, such as a piano, or taking a bag of clothes to Goodwill—and you must have the nonprofit provide you with documentation that estimates the value of that donation, Neil said, adding that if it’s an object valued at more than $5,000 you technically need to get an appraisal.

Neil sees clients in every tax bracket participating in philanthropy, and there’s no stereotypical charitable donor based on income. “It really depends on personal values,” he said. “Some people just pick what’s important to their values or town, it’s different for everyone out there.”

Most people who donate to nonprofits diversify their giving portfolio, he said, determining the amount they want to give and then identifying the five to 10 organizations—from hyper local to national 501(c)(3)s—and dividing that amount as they see fit.

If you’re in the giving spirit this holiday season, take some time with this special nonprofit guide to find organizations or causes that you care about.

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