It's that time of year when we are all thankful for what we have, however there are many in our community who have less to be thankful for. One way we can help them is to make a donation to a charity such as the United Way. You will not only have the satisfaction of helping someone less fortunate you may receive something a lot more tangible, "a tax break."
Donations of money and non-cash items to public charities may result in substantial savings come tax time. There are a few rules you must follow to take a deduction on your federal tax return for donations made. Promises to donate don't count, to claim a deduction on this year's return you must complete the donation by Dec. 31. It also must be made to a qualified organization including most public charities such as the United Way, Red Cross, Salvation Army, religious organizations, fire departments etc. You should have proof of your donation, i.e. cancelled check, credit card receipt; also for each single donation greater than $250 you must have a separate written acknowledgement from the charity.
Keep in mind you will only get benefit for your deduction if you are able to itemize deductions. This means that the total state and local income tax, mortgage interest, medical expenses (exceeding 10 percent of your income), investment expenses and work-related expenses (exceeding 2 percent of your income) are greater the standard deduction amounts. For 2017 those amounts are for a single person $6,350 and for a married couple $12,700.
For those over age 70 who have an Individual Retirement Account (IRA) there is a way to benefit from making charitable contributions whether you can itemize deduction or not. This option allows you to use the required withdrawal from your IRA required by those over the age of 70 and one half (Required Minimum Distribution or RMD) as a donation to charity. You can avoid both any penalty for not taking this distribution, and income taxes on it by directing your financial institution to send your required minimum distribution (RMD) directly to a charity. This will result in you getting the effect of a tax deduction on the contribution, avoiding any penalty and several other potential negative consequences. Those consequences include increasing your tax bracket causing you to lose out on tax benefits such as tax-free capital gains, and tax-free portions of Social Security benefits. For higher income individuals it may push you to the levels of having higher Medicare premiums. All of these negative consequences can be avoided and your RMD be tax free by making a direct transfer from your IRA to a qualified charity. To determine the effects in your specific tax situation you should consult your tax advisor.
In order to use this benefit your transfer must be completed by Dec 31, you should start contacting your IRA account administrator now to make arrangements to have your funds disbursed directly to one or more qualified charities. You should also contact the charity involved to find out if there are special protocols to follow and to give them a "heads up" to make sure they get your donation.
Should you have any questions or need assistance with a donation feel free to contact the United way Office at (717)334-5809, we are ready and willing to help you.
Michael Jackman is an enrolled agent with 50 years of tax experience. He is also a member of the board of directors of the United Way of Adams County.