Yo what's going on everybody? My name is Ryan and I'm a CPA. And today I'm going to be talking
about the charitable contribution deduction. This is basically you know, the money that
you contribute to a charity or things that contribute to a charity. I'm going to talk
about how it's deductible, what the limitations are, and actually what you know, what kinds of
things would be deductible and what kind of things are not deductible. So a charitable contribution
deduction is a deduction that you get on your taxes for donating money or things to a qualified
exempt organization, an exempt organization. A qualifying organization is for example a 501c3
organization that is recognized by the IRS as being tax exempt and serving a purpose
to you know, better the community around it. And as I just mentioned, you can donate cash
or non-cash items, and there's limitations to both things. So let's just get into the cash donations.
So when you donate money to charity you get to deduct the donation as an itemized deduction
all right, on your, and that's on your personal taxes. So an itemized deduction
goes parallel with the standard deduction. Whereas you know, if you don't have enough
itemized deductions you just get the standard deduction on your taxes. And every every person
basically gets a standard deduction at least. Now if you have things like mortgage interest,
or real estate taxes, or charitable contributions then you may be able to have enough deductions to
get an itemized deduction. And itemized deductions are just these things broken out and you know,
it would be more favorable for you to pick and itemize deductions as long as the total of your
itemized deductions are greater than your standard deduction. So with that being said,
and how itemized versus standard deductions work, charitable contributions fall under the itemized
deductions. So if you only donated like ten dollars to charity in a given year and that's your
only itemized deduction that's not going to be actually tax deductible to you because you know,
your standard deduction is about twelve thousand dollars. But you only donated ten dollars to
charity and if that's your only itemized deduction then you know, that has no effect for you. However
if you donated ten dollars to a charity and you have let's say $11,000 of mortgage interest and
maybe $3,000 in real estate taxes then you know, just by your mortgage interest and real estate
taxes you already have more than your standard deduction. So your $10 deduction to charity
would now be deductible to you. So just think about how all that works you know. If you know,
ideally you're donating to charity because you want to help out the charity and you're not doing
it just for the tax deduction. You know, if you're doing it just for the tax deduction then you're
actually, you're not helping yourself because you're paying more for the donation then you're,
then you would be paying for taxes. So either way a cash donation or a non-cash donation goes under
your itemized deduction area. Cash deductions are limited to 60% of your AGI and you know there's
different rules for 2020 and 2021. But you know, moving forward it's going to be 60% of your AGI
and just keep that in mind when you're making you know, deductions. And 60% is quite a high
limit you know, like think about if you're making $100,000 you can donate up to $60,000 that year
for it to be qualified to be, for it to be deductible. Now if you donate more than
that then whatever excess you have will just carry forward to the following year
until you can use it up. If you don't know what charity you want to donate to but you still want
to donate money, you can set up what's called a donor advised fund or commonly known as a DAF.
And a donor advised fund is a vehicle where you can donate money to, you get the deduction, and
once the money is in that vehicle you then get to choose which charity to donate to after the fact.
But the key is you get the deduction as soon as you donate the money to the DAF. So if you want to
systematize your giving it's a good vehicle to use if you're not sure you know, which charities you
wanted to donate to yet. All right now let's talk about non-cash donations as it's a little more,
just slightly more complicated, not not too much more. But non-cash donations are limited to 50%
of your AGI versus 60%, and you know it's that's, that's the, that's the top end of it. You know,
there's limitations that are up to 30% or even 20% of your AGI depending on what you donate. And
I'm not going to get into that because those items are not as common you know, to most taxpayers. So
let's say your non-cash contributions are limited to 50% of your AGI. Basically if you donate
value of things worth $500 or less then it's a simple reporting on your Schedule A
itemized deductions. If you donate things over $500 but under $5,000 then you need a Form 8283
to go along with your Schedule A. And if you donate items or groups of items valued at over
$5,000 then you're going to need the Form 8283 along with a qualified third-party appraisal
in order to, in order to properly report that deduction. And people ask me all the time
what about if you donate a vehicle, what's, what are the steps to donating a vehicle? So
first you've got to, you have to find a charity or a place that accepts vehicle donations. And
at that point you don't actually get the deduction. The charity has to then sell the
vehicle and issue you a 1098C you know, with the, with all the information that the charity
is supposed to report to you, such as, such as the VIN, the year, and make of the model, and the
sale price of the vehicle. And so you only get to deduct the donation of the vehicle once it's sold
okay. So that's the tricky thing with donating vehicles. So sometimes people would rather just
sell the car and donate the cash to a charity of their choice rather than donating the actual car.
And this goes along with boats and planes because these are, these are motor vehicles.
You know you can donate any of those things but if it's a motor vehicle they have to go
through that process. All right another common question I get is can you donate your time?
You know like, like if you're a construction worker and you value your time at $75 an hour
could you deduct that time if you, you know worked at a charity, or you volunteered at a charity
to help build houses and to help remodel homes and stuff for for lower income folks? Well the
answer is simply no you can't donate your time, you can't deduct your time.
That's never a deduction okay because anybody can make up the value of their time
and write it as a deduction. And so you know, and that would be kind of discriminatory,
like what if you're a construction worker you get to deduct your time in that scenario. But
what if I wanted to volunteer for you know a charity that builds houses and stuff and
I'm a CPA. What if my time is valued at $500 an hour? You know I'm using that time to to build
houses for people like will I get to deduct my time at $500 an hour, or would it be $75 an hour,
which is the market, which is let's say the market rate of a construction person?
No it's never deductible when you're volunteering for your time for a charity.
Another thing to keep in mind is that if you're a business you know and you have
office supplies or just general supplies that you already deducted on your taxes, on your tax return
and you deducted those things as an expense, you then go to donate those things. Well that
technically won't be a, that won't be considered a deduction. Because when
you purchase the item as a business you know, let's say you purchased the computer monitor.
You most likely deducted that item on your P&L as an expense. So you already got the
deduction for that. Now you go and donate it to charity you don't then get a second deduction
for donating that item. So keep that in mind when you're in business and you're donating goods.,
be very careful about how you report it okay. And also if you're a business, if you're a sole
proprietor, a partnership, an S Corporation, or you know a single or multi-member LLC,
any charitable contributions that the business makes will actually flow to the you know,
the shareholder or the partner's individual tax return, and reported on the Schedule A,
subject to the itemized deductions, you know all those limitations there. So don't, please don't
perceive businesses donating items or money as a way to to circumvent the Schedule A limitations
because it won't. The only type of entities that get to circumvent that are C Corporations. Which
you know, it doesn't make sense for most small businesses to be C Corporations. All right,
and a common thing that I see happen on tax returns are GoFundMe's. Now GoFundMe Me is
is an organization that helps you know, people and charities easily collect money from the
masses of people. So there are a couple types of donees on GoFundMe Me that that may be tax
deductible if you contribute to them. So if actual charities are having fundraisers on GoFundMe
then those contributions that you make to those charities are deductible. You know like I said
GoFundMe is just an easy way for people to donate money directly to charities or directly to people,
and an easy way for, to get a lot of people to donate money to charities or people. So
if you're donating to a charity, a qualified charity that just happens to be on GoFundMe,
that will be a guaranteed tax deduction. But if let's say your cousin Jim Bob just broke
his finger and he's sad because he can't play Call of Duty for about three weeks so he set up a call,
he set up a GoFundMe account to help fund his you know, his broken finger because he's sad.
Or any example of like you know, a family loses their house in the fire and so somebody sets up a
GoFundMe for them. So they can you know, live and properly get their shelter, and food, and food,
and clothing, and stuff while their house gets rebuilt. These personal GoFundMe's are typically
not deductible. They're more considered a gift. So whether it's Jim Bob with his broken finger
or the family that lost their house in the fire, those if you can, if you donate, if you donate
money to those people those will not be considered tax deductible. So be really careful with that.
You know again, hopefully you're donating money because you want to help them out and not just
for the tax deduction. So you know regardless of your reasoning behind it just be careful of
how you report it to the IRS, if you even can report it to the IRS. So just keep in mind
there with GoFundMe discern between the charity fundraisers and the personal fundraisers. All
right that's all I've got for today for charitable contributions. Hope this video was helpful. If you
found it helpful, please smash the like button and also share with somebody who you might also think
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going to be trying to put videos like this out every week that that will hopefully educate you
and maybe entertain you as well, all right. So that's all I've got for today. Thanks for joining
me. Again my name is Ryan, I am a CPA. Take care for now, stay safe, and I'll see you next week.