2 Expensive Misconceptions About Charitable Giving and Taxes (and What You Can Do About Them)


Being generous is a double feeling of joy. You can make someone happy to receive your support and you receive a thank you from Uncle Sam in the form of a tax deduction. Tax deductions can reduce your taxable income so you can legally pay less taxes. You can take your financial literacy level up a notch or two by learning how to maximize the benefits of charitable giving.

Here are two insider tips that might help you keep more money in your pocket.

Misconception #1: Only large donations are large enough to be deducted

It's true that if you only gave $20 last year, pretending that won't give you a big tax refund. But if you make several small contributions, keep track of them. Smaller amounts throughout the year can generate significant tax savings. They may also be easier to budget for than a huge gift.

Learn more: we researched free tax software and compiled a list of the best options here

What can you do about it

Use an app to track donations all year long. To try It's deductible, from Intuit. It's a free app that will even track the fair market value of non-cash items you donate. At tax time, all qualifying donations count, no matter their size. If you take a few minutes to itemize each batch of clothing and household donations you bring to your favorite charity, you might be amazed at the total value of your contributions by the end of the year.

Misconception #2: It's best to spread your donations evenly from year to year

You could save more money by joining the charitable giving roller coaster. There is a tax strategy called bundling that allows you to maximize deductions in a single year. This works for many itemized deductions, not just charitable donations.

The way it works is that you increase your tax deductions in a single year, then reduce them the following year, opting for the standard deduction instead.

What can you do about it

You could make two or three years of charitable contributions in a single year.

Let's look at how consolidation could affect a married couple filing jointly. In the first scenario, they divide their charitable donations:

Taxation year

2023

2024

Charitable deductions

$12,000

$12,000

Other deductions

$15,000

$15,000

Total

$27,000

$27,000

Take the standard deduction or itemize (which is more?)

Standard

Standard

Total tax deduction

$27,700

$29,200

Data source: Author's calculations.

Here's what the same couple could accomplish with grouping. Instead of giving a constant amount, they make two years' worth of donations in a single fiscal year, then reduce their donations to zero the following year.

Taxation year

2023

2024

Charitable deductions

$24,000

$0

Other deductions

$15,000

$15,000

Total

$39,000

$15,000

Take the standard deduction or itemize (which is more?)

To give detail

Standard

Total tax deduction

$39,000

$29,200

Data source: Author's calculations.

The grouping would allow this couple to deduct almost $10,000 more from their taxable income over a period of two years. The amount they save will depend on their tax bracket.

Costly Mistakes to Avoid When Donating to Charity

In addition to learning how to strategize your giving and pay less taxes, review these common mistakes. A misunderstanding could lead to a big tax bill in the future if you are audited.

  • Believing there is no limit to charitable deductions: Some types of charitable donations are actually limited.
  • Claiming deductions for charitable donations that are not eligible: Not all money contributed to a qualified nonprofit organization counts as a tax deduction.
  • Failing to keep proper records of your charitable contributions: As with all things tax-related, if a question arises, it will be up to you to answer it satisfactorily. Create an email folder called “receipts.” Download and save your account statements. Scan or photograph paper receipts and save them to an online file or your accounting software. Documentation is your friend.

Charitable giving can be part of a smart tax-saving strategy, and it's not always simple or easy to understand. Once your itemized deductions start to approach the standard deduction for that year, it's a good idea to consider hiring a tax professional. Tax preparation software can also help answer your questions.

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