Charitable contributions are personally rewarding and also have the potential to be tax-saving opportunities. A donation is a gift, such as cash or property, that is given to a non-profit organization to help them in pursuit of their goals. The donor must receive nothing in return to get the full deduction value for their contribution.

How Does it Work?

Contributions must be claimed as itemized deductions on Schedule A of IRS Form 1040. The limit for cash donations is generally up to 60% of the taxpayer’s adjusted gross income; however, in some cases 20%, 30%, or 50% limits may apply. Deductions are permitted by the IRS for cash and noncash contributions depending on that year’s rules and guidelines which may change, so individuals should stay up to date.

Is it Counted as a Charitable Deduction?

Deductions can only be made for contributions that plan to serve a charitable purpose. The IRS also requires the organization to qualify for tax-exempt status.

What Determines a Qualified Organization?

According to the IRS, qualifying organizations include those that operate for charitable, scientific, literary, religious, or educational pursuits, or to combat child or animal abuse. There is a long list of qualified organization examples that can be found on the official IRS website.

What if I Have Noncash Gifts?

Charitable contributions of goods such as household items and clothes, are acceptable just like artwork and real estate, and must be in good condition so the recipient can use the donation. The deduction amount is based on the item’s fair market value. If the deduction for the noncash gifts is over $500, individuals, corporations, and partnerships must include Form 8283 when they file their tax returns.

Vehicles

Vehicle donations are a bit different. If the fair market value of the vehicle is over $500, taxpayers can deduct the lesser of:

• The vehicle’s fair market value on the date the gift is given, or

• The gross proceeds from the sale of the vehicle by the organization.

However, if the individual sells the vehicle for $500 or less, a taxpayer can deduct the lesser of:

• $500, or

• The vehicle’s fair market value on the date the gift is given.

Capital Gains

Appreciated capital gains are generally limited to 30% of the taxpayer’s AGI if they are made to qualifying organizations and 20% of the AGI for non-qualifying organizations.

What if There is an Economic Benefit Attached to a Donation?

If a donor is given an economic benefit in return for their gift, for example, a calendar, this is called a “quid pro quo” donation. If this is the case, their contribution is limited to the amount of the donation in excess of the fair market value of the calendar. If the fair market value of the calendar is $10 and the contribution is $50, the deductible amount is $40.

Non-Financial Benefits of Purposeful Giving

Not everything is about money. Some of the non-financial aspects of giving include:

Making a difference in people’s lives

• When you give to charity you are providing less fortunate people with a way to make their lives more manageable and less stressful.

Improving your own health

• It may make you feel good, and that can make you happy. According to Northwestern Medicine, happiness is great for your health. It may lower your risk for cardiovascular disease, lower your blood pressure, improve sleep, and numerous other health-related benefits.

Helping to foster a sense of purpose within yourself

• Giving provides some people with a sense of purpose in life. Studies indicate that individuals can fair much better in their lives when they have a purpose.

Helping to build stronger, safer communities

• People can benefit in several ways from charitable giving, such as improving life skills, learning a trade, or some other activity that can give back to the community. This, in turn, can help grow, develop, and inspire a culture of giving within the community.

Consider discussing giving ideas with a financial professional

Charitable giving can be complex and impact you in a variety of ways. To get the most out of your charitable donations, consider consulting a financial professional to ensure you are taking the steps necessary to align with your financial strategies and goals while working to mitigate the risk of financial implications due to uninformed decision-making.

Sources:

Charitable Contribution Deduction: Tax Years 2023 and 2024 (investopedia.com)

Publication 526 (2023), Charitable Contributions | Internal Revenue Service (irs.gov)

What is Form 8283? (thomsonreuters.com)

Charitable contribution deductions | Internal Revenue Service (irs.gov)

How Happiness Impacts Health | Northwestern Medicine

The Health Benefits of Giving | RUSH

Important Disclosures:

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax advisor.

This article was prepared by LPL Marketing Solutions

LPL Tracking # 630183

A 529 is a tax-advantaged savings plan that gives you incentives to save money to pay for college or other higher education expenses. Pursuing your savings goal may mean the difference between a dorm with central air conditioning or experiencing sweltering summers. Here are some points to keep in mind when navigating your 529 plan.

1. Types of 529 Plans

There are two types of 529 plans, which are college savings plans and prepaid tuition plans.

College Savings Plans

These let you save funds in an investment account that has the potential to grow tax-free until you use them for most qualified education expenses incurred when attending a college or university that has accreditation.

Prepaid Tuition Plans

These let you lock in tuition at today’s rates at in-state public universities. Some private and out-of-state colleges also offer guaranteed admission.

2. Tax Advantages

Contributions to a 529 plan enjoy tax-free growth and withdrawals for qualified expenses are also totally tax-free. If your state allows them, tax deductions or credits might be available when you contribute to a 529 plan, so check your state’s rules.

3. Contribution Limits

Incremental post-birth contribution limits vary by state but may be large, up to $300,000 per beneficiary and beyond. Contributions to a 529 plan fall within the annual gift tax exclusion ($18,000 in 2024 per beneficiary)1, and you may make larger contributions (up to $85,000) in a year and elect to treat them as though they were made over five years for lower gift taxes.

4. Investment Options

College savings have a variety of investment mixes, including age-based portfolios that get more conservative when the beneficiary nears college age. Check portfolio performance regularly and adjust as appropriate to the risk tolerance and investment goals.

5. Qualified Expenses

Qualified expenses consist of tuition and fees, course materials (including books, supplies, and equipment), and the expenses of transporting the student to and from the institution. Room and board are qualified expenses if the beneficiary is enrolled at least half-time.

Additionally, K-12 tuition of up to $10,000 a year may be paid at private, public or religiously associated schools. Finally, a 529 account may pay up to $10,000 (over the lifetime of the policy) to repay the designated beneficiary’s or their siblings’ student loans.

6. Changing Beneficiaries

If you have other qualifying family members in mind for the 529 plan, you may make a change to the plan’s beneficiary at any time without penalty. Alternatively, if you want to keep the account open for a future child, you are allowed to change the beneficiary to yourself.

As you know, using any saving vehicle is only valuable as long as you understand how it works. Take the time to read the 529 plan statement and understand your investment options – and then periodically check back to be sure that your plan and investments are still in sync with what works for your needs.

Important Disclosures:

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

LPL Tracking #600725

Footnotes

1 Gift Tax

https://smartasset.com/estate-planning/gift-tax-explained-2021-exemption-and-rates