The holiday season is the season of giving. You already know that there are many tax-smart ways to give, whether by giving directly to family members or establishing financial resources for future generations. Another way to give this season is to support charitable organizations you believe in.
When you maximize your donation dollars, you are able to give by giving smartly. Plus, you can feel good about your decision to donate when you know where your money is going. Today we’re going to talk about what makes a charity qualified and legitimate, and how you may be able to use your IRA and required minimum distribution (RMD) to donate.
Ensure the Charity You’re Donating to is Qualified
Generally speaking, charitable giving is tax deductible. But there are two important caveats to this statement
1. The organization itself must be identifiable by IRS guidelines to be a qualified charitable organization. To determine whether charity is qualified, you can refer to the official IRS website, which outlines what qualifies an organization per section 170(c) of the Internal Revenue Code. Or use the charity look-up tool the IRS offers. The most common organizations people donate to are nonprofits with 501(c)(3) status or religious organizations, but there are many other kinds of charitable organizations that qualify for tax deductible giving.
2. The amount given will determine the deduction. You need to consider the amount of your donation when weighing tax benefits — the federal standard deduction has risen in recent years to $12,200 per individual ($24,400 for married filing jointly), thus changing your ability to itemize vs. take the standard deduction.
Vet Charities for Legitimacy
The last thing you want is to be tricked or scammed when you are trying to give to charity. If the organization meets the IRS requirements for tax-deductible giving, you should also ensure their purpose is important to you — and that they actually deliver on their stated purpose.
If they are a legitimate organization, a relatively simple investigation on the organization, their leadership, allocation of their funds, and the impact they have made on their area of purpose should yield verifiable information to better inform you. You also may find helpful online tools and forums that are designed to vet charities if you’re looking for even more information.
Another Option: Donating with IRA Funds
It’s important to note that you may have the option to give through your IRA by making a Qualified Charitable Distribution (QCD), which doubles as a way to meet your RMD if you are older than 70 ½. As of 2017, federal law states that up to $100,000 of your RMD can be given directly to charity without being taxed.
If you want to make a QCD, you will have to make sure your IRA is either a Traditional IRA, Inherited IRA (including inherited Roth IRA), SEP IRA, or SIMPLE IRA. There are other considerations, such as ensuring that you are no longer gathering contributions from employers and other limitations. You can learn more about charitable giving through IRAs here.