With the hol­i­day sea­son upon us, and the end of one year and the start of anoth­er approach­ing, we pause to give thanks for our bless­ings and the peo­ple in our lives. It is also a time when char­i­ta­ble giv­ing often comes to mind. Char­i­ta­ble giv­ing can be enhanced using income tax deduc­tions, and so it can be much more effec­tive when includ­ed as part of year-end tax plan­ning.

Assume you are con­sid­er­ing mak­ing a char­i­ta­ble gift equal to the sum of $1,000 plus the income tax­es you save with the char­i­ta­ble deduc­tion. With a 28% tax rate, you might be able to give $1,389 to char­i­ty ($1,389 x 28% = $389 tax­es saved). On the oth­er hand, with a 35% tax rate, you might be able to give $1,538 to char­i­ty ($1,538 x 35% = $538 tax­es saved).


A word of caution

Be sure to deal with rec­og­nized char­i­ties, and be wary of char­i­ties with sim­i­lar sound­ing names. It is com­mon for scam artists to imper­son­ate char­i­ties using bogus web­sites and through con­tact involv­ing e‑mails, tele­phone, social media, and in-per­son solic­i­ta­tions. Check out the char­i­ty on the IRS web­site, www.irs.gov, using the Exempt Orga­ni­za­tions Select Check search tool. And don’t give or send cash; con­tribute by check or cred­it card.


Tax deduction for charitable gifts

If you item­ize deduc­tions on your income tax return, you can gen­er­al­ly deduct your gifts to qual­i­fied char­i­ties. How­ev­er, the amount of your deduc­tion may be lim­it­ed to cer­tain per­cent­ages of your adjust­ed gross income (AGI). For exam­ple, your deduc­tion for gifts of cash to pub­lic char­i­ties is gen­er­al­ly lim­it­ed to 50% of your AGI for the year, and oth­er gifts to char­i­ty may be lim­it­ed to 30% or 20% of your AGI. Dis­al­lowed char­i­ta­ble deduc­tions may gen­er­al­ly be car­ried over and deduct­ed over the next five years, sub­ject to the income per­cent­age lim­its in those years. And be sure to retain prop­er sub­stan­ti­a­tion of your deduc­tion for a char­i­ta­ble con­tri­bu­tion.


Year-end tax planning

When con­sid­er­ing mak­ing char­i­ta­ble gifts at the end of a year, it is gen­er­al­ly use­ful to include them as part of your year-end tax plan­ning. In gen­er­al, tax­pay­ers have a cer­tain amount of con­trol over the tim­ing of income and expens­es. You gen­er­al­ly want to time your recog­ni­tion of income so that it will be taxed at a low­er rate, and time your deductible expens­es so they can be claimed in years when you are in a high­er tax brack­et.

For exam­ple, if you expect that you will be in a high­er tax brack­et next year, it may make sense to wait and make the char­i­ta­ble con­tri­bu­tion in Jan­u­ary so that you can take the deduc­tion in the next year when the deduc­tion pro­duces a greater tax ben­e­fit. Or you might push the char­i­ta­ble con­tri­bu­tion, along with oth­er deduc­tions, into a year when your item­ized deduc­tions would be greater than the stan­dard deduc­tion. And if the income per­cent­age lim­its above are a con­cern in one year, you might move income into that year or move deduc­tions out of that year, so that a larg­er char­i­ta­ble deduc­tion is avail­able for that year. A finan­cial or tax pro­fes­sion­al can help you eval­u­ate how to make char­i­ta­ble gifts in a way that is ben­e­fi­cial to you.