We’re all familiar with the story of Ebenezer Scrooge and how he went from being a man who refused to make the smallest donation to charity workers to one who embodied the very essence of the Christmas spirit of giving.
While the apparitions who visited Scrooge convinced him to become more generous, they did not discuss taxes and giving. If Ebenezer was alive today, here are some things he would need to know:
1) To be deductible, the recipient must be recognized by the IRS as a charity able to accept tax-deductible donations. This can be determined by searching here: https://apps.irs.gov/app/eos/ The charity solicitors who visited Scrooge’s office probably would have had documentation of this status since most legitimate charities are happy to share this information when asked.
2) Donations can’t be for the benefit of a specific individual; tax-deductible gifts must go towards a public purpose. While you may want to support a local chicken dinner or Go Fund Me drive to raise money for a friend’s medical expenses, you cannot take a charitable deduction for doing so. These types of expenditures are personal gifts to the beneficiary, but the good news is they are generally not taxable to the recipient. After Scrooge’s transformation, the donation to the solicitors would probably be tax deductible. The turkey he sent to the Cratchits? A wonderful gift, but not deductible.
3) Generally speaking, the amount of the tax deduction must be reduced by the value of any goods or services received in return. This can be a bit confusing, because small items usually aren’t included in this rule. A mug received for donating to a public TV station doesn’t reduce the value of the gift; priority seating and parking rights granted in return for joining the Pirate Club does impact the deductibility of that donation.
4) Even if donations meet all of the requirements, taxpayers may choose not to deduct them. Each year taxpayers elect to either take the standard deduction or to itemize. With the standard deduction being so high now, most people no longer benefit from itemizing.
5) Taxpayers who typically make large donations to qualified charities and who are also subject to Required Minimum Distributions may want to explore Qualified Charitable Distributions, a strategy that meets the RMD requirement by making a tax-free transfer to a charity.
By today’s rules, Ebenezer Scrooge would have made a combination of tax deductible and non-deductible gifts. However, the change of heart that he experienced, and the joy his transformation brought him, are worth more than any tax benefit. May we all be like him and “keep Christmas well.”
Comments