7 charitable tax deduction questions answered

A basic guide to the potential tax implications (and advantages) of donating to charity

There's financial incentive for Americans to give generously to charity: when you donate to a 501(c)(3) public charity, including Fidelity Charitable, you are able to take an income tax charitable deduction. The purpose of charitable tax deductions are to reduce your taxable income and your tax bill—and in this case, improving the world while you’re at it.

1. How much do I need to give to charity to make a difference on my taxes?

Charitable contributions can only reduce your tax bill if you choose to itemize your taxes. Generally you'd itemize when the combined total of your anticipated deductions—including charitable gifts—add up to more than the standard deduction.

2018 standard deductions

Filing As Amount
Single$12,000
Married filing jointly$24,000
Married filing separately$12,000
Head of household$18,000

Source IRS

Keep track of your charitable contributions throughout the year, and consider any additional applicable deductions. Generally taxpayers use the larger deduction, standard or itemized, when it's time to file taxes.


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Use our interactive tool to see how charitable giving can help you save on taxes this year or over several years.


2. What can I take a tax deduction for?

In order to take a tax deduction for a charitable contribution, you'll need to forgo the standard deduction in favor of itemized deductions. That means you'll list out all of your deductions, expecting that they'll add up to more than the standard deduction.

The most common expenses that qualify are:

  • Mortgage interest

  • State and local tax

  • Charitable giving

  • Medical and dental expenses


Looking for a tax-efficient way to give to your favorite charities?

When you contribute cash, securities or other assets to a donor-advised fund at a public charity, like Fidelity Charitable, you are generally eligible to take an immediate tax deduction.


3. What's the maximum amount I can claim as a charitable tax deduction on my taxes?

When you donate cash to a public charity, you can generally deduct up to 60% of your adjusted gross income. Provided you've held them for more than a year, appreciated assets including long-term appreciated stocks and property are generally deductible at fair market value, up to 30% of your adjusted gross income. Combining more than one type of asset can be a tax-efficient move to maximize the amount that you can take as a charitable tax deduction.

Learn more about what you can donate

4. What do I need in order to claim a charitable contribution deduction?

Once you've decided to give to charity, consider these steps if you plan to take your charitable deduction:

  • Make sure the non-profit organization is a 501(c)(3) public charity or private foundation.

  • Keep a record of the contribution (usually the tax receipt from the charity).

  • If it's a non-cash donation, in some instances you must obtain a qualified appraisal to substantiate the value of the deduction you're claiming.

  • With your paperwork ready, itemize your deductions and file your tax return.

5. Which tax bracket am I in and how does that impact my deductions?

Federal tax brackets are based on taxable income and filing status. Each taxpayer belongs to a designated tax bracket, but it’s a tiered system. For example, a portion of your income is taxed at 12%, the next portion is taxed at 22%, and so on. This is referred to as the marginal tax rate, meaning the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of taxable income above a pre-defined income threshold. That means each taxpayer is technically in several income tax brackets, but the term “tax bracket” refers to your top tax rate.

 

2018 tax brackets (for taxes due April 15, 2019)

Single
Tax Rate

10%

Up to $9,525

12%

$9,525–$38,700

25%

$38,700–$82,500

24%

$82,500–$157,500

32%

$157,500–$200,000

35%

$200,000–$500,000

37%

$500,000 or more

Married Filing Jointly
Tax Rate

10%

Up to $19,050

12%

$19,050–$77,400

25%

$77,400–$165,000

24%

$165,000–$315,000

32%

$315,000–$400,000

35%

$400,000–$600,000

37%

$600,000 or more

Married Filing Separately
Tax Rate

10%

Up to $9,525

12%

$9,525–$38,700

25%

$38,700–$82,500

24%

$82,500–$157,500

32%

$157,500–$200,000

35%

$200,000–$500,000

37%

$500,000 or more

Head of Household
Tax Rate

10%

Up to $13,600

12%

$13,601–$51,800

22%

$51,801–$82,500

24%

$82,501–$157,500

32%

$157,501–$200,000

35%

$200,001–$500,000

37%

$500,001 or more

Source IRS

The higher your tax bracket, the greater your tax savings as a result of making charitable gifts. For example, if a hypothetical donor in the 37% tax bracket makes a donation of $10,000, this person may later qualify for $3,700 in savings at tax time. Compare the same $10,000 gift from someone in the 22% tax bracket who will recognize $2,200 in tax savings.


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6. How does the Pease limitation affect my tax deduction?

The new law removes the Pease limitation from the tax code. The Pease limitation was an overall reduction on itemized deductions for higher-income taxpayers. The rule reduced the value of a taxpayer’s itemized deductions by 3% of adjusted gross income (AGI) over a certain threshold. The 3% reduction continued until it phased out 80% of the value of the taxpayer’s itemized deductions.

7. Can I take a Fair Market Value deduction for donating private S-corp or C-corp stocks to charity?

Yes, it's possible to deduct the full fair market value of the contribution if the recipient organization is a public charity. But tactically, the answer depends on whether the charity is able to accept private stock as a gift. Most charitable organizations simply don’t have the resources, expertise or appetite to efficiently accept and liquidate these types of assets, particularly in a time crunch at the end of the year.

However, Fidelity Charitable has a team of in-house specialists who work with donors and their advisors to facilitate charitable donations of S-corp and private C-corp stock every day (among many other assets). Once you make a donation to Fidelity Charitable and the asset is sold, you’re able to recommend grants to your favorite charities, quickly and easily.

And by donating private stock, you generally do not pay capital gains taxes on Fidelity Charitable's subsequent sale of the stock. There's a second tax benefit as well: you'll generally be able to deduct the full FMV as determined by a qualified appraisal.

Bonus tip:

M&A deals are on the rise globally. Although these transactions are generally favored by shareholders because they can create additional income, they can also produce additional tax liabilities due to the forced recognition of capital gains. Transactions that have already closed and those that may still close this year should trigger end-of-year tax planning conversations between you and your advisor. With a view toward philanthropy, there are strategies that can provide both high-impact charitable giving opportunities and a positive impact on tax deductions.


The tax information provided is general and educational in nature, and should not be construed as legal or tax advice. Fidelity Charitable does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. As a result, Fidelity Charitable cannot guarantee that such information is accurate, complete, or timely. Tax laws and regulations are complex and subject to change, and changes in them may have a material impact on pre- and/or after-tax results. Fidelity Charitable makes no warranties with regard to such information or results obtained by its use. Fidelity Charitable disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.


How Fidelity Charitable can help

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