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Year-End Charitable Donations, Contributions & Deductions

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November 3, 2017
Donate: Planning charitable donations, tax deductions
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The holidays are a time for giving, a time to reflect on the year’s bounty. And also a time to clean out the house. 

Giving. Decluttering. Sharing the bounty. This can mean one thing: charitable donations. Support your favorite causes and possibly reduce your tax burden.

The Giving Season

Scott Humphrey, president and chief executive officer of One Hope United, a 122-year-old charity that works with disadvantaged children and families, says many people use November to start planning their charitable donations.

Year’s end is a great time to make philanthropy part of your overall financial plan. The last two months of the year are often referred to as “the giving season,” and this time can be critical for charities that rely on funding from individuals, Humphrey said. Many organizations kickstart their annual donation appeals on Giving Tuesday, a global day of giving that follows Black Friday and Cyber Monday in November.

People who itemize deductions can generally take off up to 50% of their adjusted gross income, but 20% and 30% limitations apply in some cases, according to the IRS.

Donating via cash, check, or credit card is simplest, but ensure you get a formal receipt dated by December 31. Without a receipt, the IRS won’t let you use the donation to offset your taxes, meaning the coins thrown in an anonymous collection bucket don’t count for deductions, according to Charity Navigator, a charity rating organization.

Receipts are also necessary for non-cash items like clothing or furniture, and the most important factor to consider is whether items are in good condition. The IRS doesn't put a price on the condition of the items, but the charitable organization does. The IRS has other rules for these types of donations, too.

Other Ways to Donate

Have an investment that’s gained in value? Consider giving it directly to the charity. You may avoid capital gains, since the investment isn’t sold; plus, the charity receives the full value. According to the IRS, if you’re over age 70 1/2 and need to make required minimum distributions (RMDs) from a retirement account, the IRA Charitable Rollover can allow you to donate up to $100,000 to charitable organizations directly from your IRA without having it count as taxable income.

But not all organizations are eligible to receive tax-deductible charitable contributions. The IRS website compiles eligible charities. Some nonprofits don’t count, like political organizations, and neither do most donations on crowdsourcing websites.

Recent hurricanes, earthquakes, and wildfires have inspired many people who want to help. Charity Navigator urges donors to be cautious, so your heart doesn’t overrule your head. For starters, you may wish to ensure the group is a registered public charity, such as one with 501(c)(3) status. It's your money, so be wise about how you spend it. Humphrey says some charities, like One Hope United, are creating "wish books" that outline how a charity uses a certain amount. It's very specific. A $25 donation can give a donor a bunch of options for a child or a family. 

If you want to support a specific event, like hurricane relief, be sure to specify that in the donation. Otherwise it may end up in the organization's general fund, Charity Navigator says.

Humphrey says the best way to make sure your money is doing what you want is to be engaged and ask questions.

“I think increasingly folks are interested in that connection and want to know how the money is deployed,” he says.

When looking at ways to lower your tax burden for this year, making charitable donations can do good for your money, your heart and your favorite cause.

Disaster Relief: How You Can Help

Join TD Ameritrade in supporting the American Red Cross, which is helping victims of recent natural disasters receive food, shelter, comfort, and emergency support.

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